Liability policies typically contain provisions that make timely notice of claims a condition precedent to coverage, but the impact of those provisions varies widely across jurisdictions. Since coverage often depends on this issue, it is frequently litigated, and the governing law is constantly developing. Here is some recent news:
In Texas, late notice will excuse the insurer from providing liability coverage, if the insurer has been prejudiced. In Berkley Regional Ins. Co. v. Philadelphia Indemnity Co., a District Court awarded summary judgment against an excess liability carrier, because the insurer owed no duty to defend, and so could not have been prejudiced by late notice. In August, the U.S. Court of Appeals for the Fifth Circuit reversed that decision, on the ground that late notice had deprived the excess carrier of its right to investigate the claim, to “join in” the insured’s analysis of the claim, and, most importantly, to participate in mediation. These considerations did not conclusively establish prejudice, but they raised material issues that precluded summary judgment.
Connecticut has been atypical on these issues. It applied a hybrid rule: Late notice does not bar coverage where the insurer has suffered no prejudice, but the burden of proving the absence of prejudice was on the insured. Not anymore. In Arrowood Indem. Co. v. King, in response to certified questions from the Second Circuit, Connecticut’s Supreme Court abandoned its own, longstanding rule and held that insurers now bear the burden of proving prejudice. It was a surprising reminder that even rules in this area that appear well-settled remain in a state of flux.