Prompt Reporting Of A Claim

One of the responsibilities for an insured who has a claim is to promptly report the claim to his insurance company.  This is illustrated in this 2019, Southern District of Texas, Houston Division, opinion styled, Bobwhite Rentals, LLC v. National Liability & Fire Insurance Company.

This is a summary judgment case in favor of National.

One of Bobwhite’s customers had property destroyed by a fire on March 6, 2015, while the property was on Bobwhite’s premises.  Bobwhite reported the fire to its insurance broker the same day.On April 30, 2015, Bobwhite paid $50,000 to settle the customer’s claim.  Over a year later, the fire and the damage to the customer’s property was reported to National.  National issued a reservation of rights letter on July 14, 2016 and began its investigation of the claim and on November 1, 2017, denied the claim saying:

Due to lack of notice, lack of opportunity to investigate the loss contemporaneously, and the assumption of an obligation without our prior consent, the Policy will not apply to any claim arising out of this incident.

Bobwhite then sued for breach of the insurance contract.

The insurance contract, as almost all insurance contracts required that the insurer be given “prompt notice” of any claim.

Bobwhite argued (1) it had given prompt notice of the claim by notifying the insurance broker and (2) National cannot show it was prejudiced by the late notice.

The uncontroverted evidence in the case shows National was not notified of the claim until June 16, 2016, over a year after the fire occurred and over a year after Bobwhite had settled the property damage claim with its customer.

There was nothing in the summary judgment record that showed that the insurance broker was the agent for National for notice purposes.  Therefore, the court ruled, there is no genuine issue of material fact on the untimeliness of the notice.

As to the argument whether or not National had been prejudiced by late notice of the claim and payment to the customer, the Fifth Circuit has stated:

… it is not entirely clear under Texas law whether an insurer must demonstrate prejudice before it can avoid its obligations under a policy where the insured breaches a prompt-notice provision or a consent-to-settle provision.  Assuming without deciding that an insurer must show prejudice to avoid its obligations under the policy when the insured breaches the consent-to-settle provision, based on the summary judgment evidence in the case, we are satisfied that National Union suffered prejudice as a matter of law.  An insurer’s right to participate in the settlement process is an essential prerequisite to its obligation to pay a settlement.  When, as in this case, the insurer is not consulted about the settlement, the settlement is not tendered to it and the insurer has no opportunity to participate in or consent to the ultimate settlement decision, we conclude that the insurer is prejudiced as a matter of law.  Under these circumstances the breach of the consent-to-settle provision in the policy precludes this action.

Thus the ruling was in favor of National.