When to Give Notice of an Accident or Occurrence Under Your Liability Insurance Policy
Every year, millions of Americans purchase insurance policies to protect themselves, their families, and their businesses. This insurance, whether in the form of an automobile policy, a homeowners policy, or a business policy usually has two component parts: the property coverage and the liability coverage. Perhaps encouraged by the current marketing campaigns of a number of insurance carriers today, most of us tend to focus upon the property coverage – e.g., how quickly our cars can be fixed after a “fender-bender,” or whether a stolen television will be replaced by a new one. However, the true value of these policies lies in their liability coverage. If a claim is made against you that falls within the coverage, the insurer will hire a lawyer to defend you and pay any judgment up to the amount of your policy limit. When one is sued for hundreds of thousands of dollars in damages, these issues suddenly become far more important than the cost of fixing a fender.
Not surprisingly, in order to receive such coverage, you must tell your insurer that you need it. However, you cannot wait until you are sued, as most liability policies require you to notify the carrier “as soon as practicable” of any “accident or occurrence” to which the policy might apply. Failure to do so results in a breach of the policy and a forfeiture of coverage for that claim.1 In over a quarter of a century practicing insurance coverage law, I have found this requirement to generate more misunderstanding and confusion on the part of both insureds and the insurers (not to mention lawyers and judges) than any other insurance-related issue. This uncertainty is most frequently expressed in two questions: “What do I have to give notice of?” and “How late is too late?”
As to the first question, the duty to give notice is triggered by the occurrence of “an incident which was sufficiently serious to lead a person of ordinary intelligence and prudence to believe that it might give rise to a claim for damages covered by the policy.”2 This seems clear enough, but an examination of the cases reveals that things are not as simple as they may seem. For example, while a delay in giving notice may be excusable “when the accident is trivial, results in no apparent harm and furnishes no reasonable ground for the insured to believe that a claim might arise,”3 “the insured’s mistaken, subjective belief that his policy would not be implicated is, as a matter of law, no excuse or justification for the delay.”4 Also, the duty extends not only to claims that may have validity, but “any claim arguably covered by the policy may be brought, even claims that may ultimately fail or that the insured may believe are not valid in law or fact.”5 Finally, a belief that the injured party would not make a claim, because of a personal relationship or because of a belief that the matter had been settled by agreement, has been deemed not an excuse for late notice.6 The conclusion I draw is that one must report an incident that may or may not result in a claim that may or may not have validity. When in doubt – report.
Answering the second question is a bit more difficult, as there is not much guidance on the question of why notice in a particular case was deemed “too late.” This is due in part to the fact that Virginia, unlike most other jurisdictions, does not require the insurer to prove that it suffered any prejudice because of the late notice.7 Notice is deemed too late simply because of the passage of time. An analysis of the reported opinions reveals that the cases can be divided into two categories. First, in the vast majority of cases where notice was delayed by a year or more, the courts determined that the duty to give notice had been violated as a matter of law.8 Second, cases involving delays of less than a year are usually submitted to a jury, with predictably unpredictable results. In those cases, juries have found delays of 51 and 173 days to violate the duty, but in another case found a delay of 75 to be acceptable.9 (As proof that no absolute conclusions can be drawn, one court found that a delay which fits within this range – of 126 days – was untimely as a matter of law10). The conclusion I draw here is that a delay of much over 30 days is likely to be scrutinized, and a delay of a year or more is almost certainly too late.
There is a reluctance to report matters to the insurer for fear that rates will go up or coverage will be terminated. It is quite true that most insurers give claims history considerable weight in making underwriting decisions. However, risking coverage by opting not to report a potential liability claim in an effort to keep premiums down can be penny wise and pound foolish. Also, with some carriers, a distinction is drawn between “claims” and “incidents.” The former exists when the third party affirmatively takes the position that the insured is responsible for his damages. The latter exists when something happens that might lead the third party to make that affirmative assertion. “Claims” should have significance to the underwriters; “incidents” should not. It is “incidents” which must be promptly reported. If no actual “claim” has been made, then the matter should be reported as an “incident,” or “occurrence.” This distinction is not always understood or appreciated, and this is an issue on which a good agent can be of valuable assistance to an insured.
1 State Farm Mut. Auto. Ins. Co. v. Douglas, 207 Va. 265, 268, 148 S.E.2d 775, 777 (1966) (Compliance with the notice provision is a condition precedent to coverage which, “if not complied with bars recovery under the policy”).
7 Liberty Mut. Ins. Co. v. Safeco Ins. Co., 223 Va. 317, 323, 288 S.E.2d 469, 473 (1982); see also, Erie Ins. Exch v. Meeks, 223 Va. 287, 288 S.E.2d 454 (1982); State Farm Mut. Auto. Ins. Co. v. Porter, 221 Va. 592, 597-98, 272 S.E.2d 196, 199 (1980).
8 See, e.g., Southern Environmental Services v. United Capitol Ins. Co., 1999 U.S. App. LEXIS 25816 (4th Cir. 1999) (unpublished) (one year); Vermont Mut. Ins. Co. v. Everette, 875 F. Supp. 1181 (E.D. Va. 1995) (18 months); Virginia Farm Bureau Ins. Co. v. Sutherland, 2004 U.S. Dist LEXIS 20799, 2004 WL 2360162 (W.D. Va. 2004) (601 days); State Farm Fire and Cas. Co. v. Sutphin, Civ. A. No. 7:07CV00489 (2008 U.S. Dist. LEXIS 47449) (W.D. Va. 2008) (752 days); State Farm Fire & Casualty Co. v. Walton, 244 Va. 498, 423 S.E.2d 188, 192, 9 Va. Law Rep. 511 (Va. 1992) (two years); Aetna Casualty & Surety Co. v. Jett, 1995 U.S. App. LEXIS 9455, 1995 WL 238565 (4th Cir. Apr. 25, 1995) (unpublished) (two years); Lyon v. Paul Revere Life Ins. Co., 289 F. Supp. 2d 740, 743 (W.D. Va. 2002) (two years); Goodwin v. Union Ins. Co., Civ. A. No. 4:06cv26 (2007 U. S. Dist. LEXIS 15390 (E.D. Va. 2007) (three years); Nationwide Mut. Fire Ins. Co. v. Overstreet, 568 F. Supp. 2d 638, 648 (E.D. Va. 2008) (“nearly five years”); Dan River, Inc. v. Commercial Union Insurance Co., 227 Va. 485, 317 S.E.2d 485 (Va. 1984) (seven years).
9 See Lord v. State Farm Mut. Auto. Ins. Co., 224 Va. 283, 288, 295 S.E.2d 796, 799-800 (1982) (delay of 173 days resulted in untimely notice); Liberty Mut. Ins. Co. v. Safeco Ins. Co., 223 Va. 317, 324, 288 S.E.2d 469, 473 (1982) (delay of 51 days resulted in untimely notice); State Farm Fire and Cas. Co. v. Scott, 236 Va. 116, 123-24, 372 S.E.2d 383, 387 (1988) (delay of 75 days did not result in untimely notice).