Insurer Must Show Prejudice to Enforce Proof of Loss Provision in California
December 5, 2012: “Burke’s Law,” a monthly column featured on www.claimsjournal.com, recently reviewed the California appellate court decision in Henderson v. Farmers Group, Inc., 210 Cal. App. 4th 459 (2012), which held that a proof of loss condition in a first party insurance policy is subject to the notice-prejudice rule. The court’s decision is a step toward more clarity on the scope and application of the notice-prejudice rule, but is based on a questionable legal analysis.
In California, the notice-prejudice rule, which requires insurers to show they were prejudiced by an insured’s failure to comply with certain policy conditions before the insurer can deny coverage on the basis of such breach, has been applied to notice provisions and cooperation clauses, but it was not clear whether the rule also applied to proof of loss requirements.
In Henderson, the court of appeals found that the notice-prejudice rule applied, reversing the trial court’s strict application of the condition. The court’s opinion ignored previous case law to the contrary and dismissed the statutory origin of the terms of fire insurance policies. Instead, the court found that the public policy against technical forfeitures, coupled with language from a more recent California Supreme Court case, suggested that the notice-prejudice rule should apply to proof of loss provisions. The case expands the application of the notice-prejudice rule in California.