Proof Of Loss Requirement

Probably all homeowner policies require a “Proof Of Loss” (POL) be filed before a lawsuit be filed against the insurance company.  This issue is addressed in the Northern District, Dallas Division opinion, Gwendolyn Pamphile v. Allstate Texas Lloyds.

Before the Court was a motion to dismiss filed by Allstate.  This arose out of an insurance dispute wherein Pamphile suffered hail damage during a storm and made a claim to Allstate for benefits.  Allstate assigned an adjuster who evaluated the claim and Allstate made payment based on the adjusters evaluation.  Unsatisfied with the payment Pamphile submitted a POL form with her own repair estimate and one day later, filed suit against Allstate.  Allstate removed the case to federal court and filed their motion to dismiss.

Federal courts can adjudicate claims only when subject matter jurisdiction is expressly conferred and must otherwise dismiss for lack of subject matter jurisdiction.

A case is ripe for adjudication if all questions are legal and further factual development is unnecessary.  A claim is not ripe if it rests upon contingent future events that may or may not occur as anticipated, or indeed may not occur at all.

Allstate argues the Court should dismiss Pamphile’s complaint for lack of subject matter jurisdiction, or in the alternative, for failing to state a claim, because her suit is not ripe.  According to Allstate, Pamphile’s suit is not ripe because she failed to satisfy a condition precedent for filing suit.  The policy at issue requires Pamphile to wait 91 days after Allstate receives her POL to commence a suit against Allstate.  Allstate alleges Pamphile’s case should be dismissed because she filed suit just one day after submitting her POL.  Pamphile argues she substantially complied with the purpose of the POL provision, which is all she is required under Texas law.

In Texas, an insured is only bound to a POL notice requirement if the insurance company demonstrates that it was prejudiced from the insured’s failure to comply.   In the 2008, Texas Supreme Court opinion, PAJ, Inc. v. Hanover Ins. Co. the Court adopted this notice-prejudice rule because conditions are not favored in the law and timely notice provisions are not an essential part of the bargained for exchange.  An insured who violates a POL notice requirement need only make a “showing of substantial compliance with the provision … to avoid the consequences of failure to strictly comply with the policy provision.

For an insurance company to show prejudice, it must show that an insured’s faulty notice offended one of the notice requirement’s purposes.

The purpose of requiring written notice and proof of loss within 91 days is to enable the insurer to properly investigate the circumstances of the loss while the occurrence is fresh in the minds of witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its rights and liabilities so that it may adequately prepare to defend any claim that may arise.

In other words, prejudice from failure to notify timely arises from from inability to investigate the circumstances of an occurrence to prepare adequately to adjust or defend any claim, not merely to prepare for trial.  But an insurance company does not suffer prejudice just because it cannot investigate and evaluate the claim according to its normal procedure; the insurer must show it was prejudiced in some tangible way.

Allstate has not articulated how it was prejudiced by Pamphile’s rush to the courthouse, nor could it — Allstate had ample time and opportunity to investigate the damages and prepare an offer.  Furthermore, by filing suit a day after submitting her POL, Pamphile actually ensured that “the occurrence was more fresh in the minds of any witnesses than it would have been had Pamphile waited 91 more days.  In reality all that Allstate lost out on was its expectation of a head-start to litigation via a POL.  This cannot establish prejudice for Allstate.

Allstate’s motion to dismiss was denied.

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