Understanding the recent judicial changes to the proof of loss policy condition
WLSC likes to keep our clients well informed as to the most recent changes in the law. To that end, below we present a summary of two recent Florida cases which have drastically changed the ability of insurers to be granted a Motion for Summary Judgment based on the insureds failure to comply with the proof of loss provision in the insurance policy. As the case law below shows, insurers will now have to prove prejudice. Although WLSC did not handle these cases, the analysis is intended to provide ways for our clients to adapt to the changes in the law.
In 2012 the Florida appellate courts heard the case of the Farmers, a Florida couple, who suffered property damage to their home due to a lightning strike, and submitted the claim to their insurer, Allstate Floridian.
After some initial concern regarding late notification, as well as duplication of benefits with a related claim, Allstate notified the insureds of their obligation to provide a notarized proof of loss pursuant to their policy conditions.
For the next several months, the insurer made numerous demands to the insureds for a notarized proof of loss, and continued their claims handling process.
Despite these requests, the insureds admittedly failed to submit a properly notarized proof of loss. However, the insureds were cooperative with the insurer during the claims handling, by providing recorded statements, documentation, appraisals, and submitting to an examination under oath (“EUO”) at the request of the insurer.
Eleven months after submission of the claim, and despite all necessary information to process the claim, the insurer failed to render a decision as to coverage. The insureds promptly filed a breach of contract suit against the insurer.
The insurer sought a directed verdict and argued that the insureds were not entitled to recover because they failed to submit a notarized proof of loss, which was a condition precedent to filing suit. The insureds responded two-fold: 1) that they substantially complied with the proof of loss condition, and 2) to the extent that the insureds did not comply, the insurer was not prejudiced by any failure to comply. The trial court denied the insurer’s motion and permitted the jury to consider the insureds’ argument. The jury ultimately found that the insureds failed to substantially comply with the duty to provide a sworn proof of loss, but that this failure was not prejudicial to the insurer.
On appeal, the Fifth District affirmed the trial court’s ruling, and held that the insureds were allowed to present evidence that the insurer was not prejudiced by the insureds’ failure to substantially comply with the proof of loss condition. In making this determination, the court cited to the Florida Supreme Court’s decision in Bankers Insurance Co. v. Macias, 475 So. 2d 1216 (Fla. 1985), wherein the state’s high court held that, “[i]f the insured breaches the notice [of loss] provision, prejudice to the insurer will be presumed but may be rebutted by showing that the insurer has not been prejudiced by the lack of notice.”
The Farmer court then extended the prejudice analysis to proof of loss cases, stating “the notice of loss and proof of loss provisions are of the same ilk as they are both designed to aid an insurer in the investigations of a claim.” As such, the court directly extended the prejudice analysis espoused in Macias to proof of loss cases, thereby allowing the insureds to rebut the presumption of prejudice against the insurer.
Additionally, the Court found that the policy in this case did not clearly or explicitly provide that forfeiture is a consequence of breach of the proof of loss obligation. As such, “[l]iberally construed in favor of the insured, the policy language suggests the breaching insured has the right to cure the violation and retains the right to recover under the policy” (citing Parris v. Great Cent. Ins. Co.).
Thus, even in proof of loss cases, prejudice is an issue in determining whether forfeiture results from an insured’s breach.
In a companion case, Makryllos v. Citizens Property Ins. Corp., the insureds’ residence incurred rain damage for which they filed a claim with their property insurer.
The insureds’ EUO was rescheduled several times and all the letters stated that the insureds were “expected to submit the [p]roof of [l]oss prior to or at the [EUO].” The insureds did submit the proof of loss at the time of the EUO. Following the EUO, the insurer moved for summary judgment, which was granted in their favor, because, the insureds failed to timely file a sworn proof of loss, a required condition of the policy. The insureds appealed.
The district court reversed, finding that the record presented two issues of material fact at the time summary judgment was entered: 1) whether the insurer waived its right to rely on the policy condition requiring submission of a proof of loss within 60 days of the request for same, because the insurer instructed the insureds over a course of two months, “to submit the [p]roof of [l]oss prior to or at the [EUO];” and 2) whether the insureds cooperation to some degree was sufficient to avoid the insurance policy’s condition that “no action can be brought against us unless there has been compliance with the policy provisions.”
In their opposition to the motion for summary judgment, the insureds submitted an affidavit stating that they received a letter advising them to bring the proof of loss to their scheduled examination under oath.
The district court found that the affidavit put at issue the insureds reliance on the letters from the insurer and the possibility that the insurer had waived the policy’s clause requiring them to provide a proof of loss within 60 days from the request for same.
The court went on to state that the record also established that the insureds provided the insurer with a sworn proof of loss before summary judgment was entered, thereby partially cooperating which could raise a fact question as to whether the insurer should be able to declare a breach of contract that precludes recovery.
Changes in the law extended the prejudice analysis in Macias to proof of loss cases, which allows the insured to rebut the presumption of prejudice against the insurer when the insured fails to substantially comply with the proof of loss condition.
The changes in the law basically make it harder for an insurance company to be granted summary judgment solely on the basis of the insureds failure to submit a proof of loss. Courts have ruled that failure to provide a proof of loss is not a material breach. As such, a motion for summary judgment based solely on the insureds failure to provide a proof of loss is unlikely to succeed and will only increase expenses unless the insurer can prove that they were hampered in their investigation without the proof of loss.
See Allstate Floridian Ins. Co. v. Farmer, __ So. 3d __, 2012 WL 6719459, reh’g denied (Fla. 5th DCA Dec. 28 2012) and Makryllos v. Citizens Property Ins. Corp., __ So. 3d __, 2012 WL 6720529 (Fla. 2d DCA Dec. 28, 2012)
–– By Aaron L. Warren, and Michele Bachoon, associates.