An appeal from a Dallas, Texas Court decision was decided by the Texas Supreme Court, in the case PAJ, Inc., d/b/a/ Prime Art & Jewel, v. The Hanover Insurance Company. This case was decided in January, 2008. It discussed the responsibilities of holders of an insurance policy as it relates to their duties after an accident or loss and how the failure of fulfilling those duties affects coverage under an insurance policy.
As a general rule almost all insurance policies require the policy holder to do the following: 1) promptly notify the insurance company of any loss or claim, 2) cooperate with the insurance company investigation of the claim or loss, 3) take reasonable actions to protect against further loss.
When a claim is denied due to a policy holder not promptly notifying the company of the claim or loss the insurance company has the burden of proving that this failure to promptly notify caused harm to the insurance company. This was the issue in PAJ.
PAJ was sued for copyright infringement. PAJ was unaware that the policy of insurance they had with Hanover would cover a copyright infringement lawsuit. It was about four to six months into litigation before PAJ discovered that the Hanover policy would cover this type of claim. Hanover refused to assist in the claim stating that PAJ violated the policy by not timely notifying Hanover of the claim.
The courts’ decision was stated as follows: “We hold that an insured’s failure to timely notify its insurer of a claim or suit does not defeat coverage if the insurer was not prejudiced by the delay”. In this case Hanover could have easily taken over the lawsuit and handled this claim like any other. The burden was on Hanover to show that the failure to be timely notified caused them harm.
A policy holder also has a duty to cooperate with their own insurance company when a claim is made. This will usually include filling out forms, making a statement, and in the case of bodily injury, may include an independent medical exam. Sometimes after giving a statement the policy holder may be required to give an examination under oath (EUO).
An EUO is a formal proceeding whereby an insured, under oath, and in the presence of a court reporter, is questioned regarding the specifics of the claim. Although the policy holders failure to give an EUO when properly requested may technically be construed as a breach of the insurance contract, it does not permit an insurance company to refuse a claim. This was decided in State Farm General Insurance Company v. Lawlis. Nor can an insurance company delay payment solely upon failure to give an EUO. This was decided in Aetna Casualty & Surety Company v. Garza. However, other courts have held the opposite of both the above cited cases. Bottom line – a wise policy holder seeks the advice of an experienced Insurance Law Attorney whenever they are being requested to give an EUO..
As for taking reasonable actions to protect against further loss, each case would be handled on a fact specific basis. Essentially, if a policy holder can take reasonable steps to protect against further loss or an increased loss, then they should take those steps. If they fail to do so and that failure causes further loss, then they run the risk that the additional loss may not be covered.
Anytime an insurance company denies or refuses a claim for any of the above reasons, seek legal advice. Do not do anything further until you have received that advice.