Know your deadlines or lose your insurance coverage

When a policyholder suffers a loss, the first instinct is to protect the property and fix the problem.  That is a logical initial reaction, and it makes sense.  If not addressed, the damage can be exacerbated by additional consequences, such as weather, in a property loss.  Evidence may be lost in a liability situation.  The business may suffer a significant amount of lost income if the situation is not addressed so the operations can resume as quickly as possible. 

However, insureds cannot lose sight of the fact that they need to provide notice to the appropriate insurance carriers and know what other deadlines are in play as part of their insurance policy.  Many insurance companies have denied coverage to an insured for missing deadlines mandated by the policy.

The most obvious and litigated provision in policies is the requirement to give the insurer notice of a loss or claim.  Both first- and third-party insurance policies mandate such notice, which is a condition precedent to securing coverage in many instances.  The classic language from policies is that notice is to be given “as soon as practicable.”  Courts can interpret this language as very short time periods.  But some policies use the term “immediately,” or even list a deadline after the event, such as 60 days.  The reason for this provision is to allow the insurer to conduct a timely investigation of the loss in order to exercise its other contractual rights, adjust the claim as needed and determine if there is coverage.  These needs are interrelated and the insurer likes to be involved before decisions are made that may increase the dollar amounts involved, or hinder a defense in liability cases.  In some states, late notice is late notice.  The insurer in these states does not have to be prejudiced by the late notice in order to deny coverage.  Thus, it is critical for policyholders to understand their policy’s requirement, the case law interpreting the language and have a plan in place to ensure the notice requirement(s) are met in a timely manner.

Giving notice of the loss or claim is not the only pitfall lurking within your insurance contract.  For example, most states, if not all, have laws on the books setting out the statute of limitations for bringing a contract action.  If an insured believes a claim has been wrongfully denied and wishes to pursue a case against its insurer, a contract action is at the heart of such a lawsuit.  But do you know if your policy has contractually reduced the legal statute of limitations period?  In a recent matter for a Virginia-based insured, where the statute of limitations is five years on a written contract, the commercial property insurance policy reduced that period to just two years.  Reducing statutory periods in contracts is permitted.  Thus, it is imperative to determine whether the policy reduces a statutory period to sue on the insurance contract.

The list of deadlines continues in other ways.  In property policies there are usually conditions requiring the insured to elect how it plans to proceed on its claim: repair/rebuild or demolition of the property.  In this instance, failure to elect within the time period will usually result in a default selection.  You can be sure the default does not benefit you.  In one recently analyzed policy the time period was 180 days.  The problem is that adjusting the loss and determining the best course of action may take more than six months.  Submitting a proof of loss to the carrier may also be required within a certain time period.

In a “claims made” policy it is critical to ensure all claims are submitted to the insurer in a timely manner since the policy covers only those claims made within the policy period or any extension.  This is very different than an occurrence policy.  As the end of the policy period approaches with a claims made policy, it is critical that the insured provide notice of all claims, and potential claims in many instances, to the carrier(s). 

The only way to truly be aware of these types of contractually imposed deadlines is to thoroughly analyze the language in the insurance policies.  Premiums have been paid, and you want the insurance policy limits to be available; that is core function of insurance as part of a risk management program.  Having insurance available is subject to many conditions imposed by the policy, including various deadlines.  Take the time to either review the policies yourself or seek guidance from coverage counsel.  As Benjamin Franklin so aptly said, “an ounce of prevention is worth a pound of cure.”

Collin Hite is the practice leader of the Insurance Recovery team in Hirschler Fleischer’s Richmond office. He handles insurance recovery and coverage litigation nationally in the areas of business interruption, cyber/data breaches, construction, business torts, products liability, directors’ and officers’ liability, employee dishonesty, intellectual property, environmental and bad faith matters. He can be contacted at (804) 771-9595 or [email protected].