Both property and liability policies contain provisions that require the insured to provide its carrier with timely notice of a claim, but cases in which late notice is used as a basis for denying coverage often leave the insurer in an unflattering light. It is not always apparent that the late notice has made any actual difference to the insurer. Consequently, even though most notice provisions are written as strictly as possible, making timely notice a condition precedent to coverage, a majority of courts will enforce them only where the insurer has been prejudiced by the insured’s delay—and a majority of those courts place the burden of proving prejudice on the insurer. A recent Florida appellate decision bucks this trend, and it also illustrates the way in which the courts’ concept of “prejudice” might be unduly narrow.

Cases in which an insured has provided late notice of a claim are generally seen to raise competing principles that the Supreme Court of Connecticut summed up in this way, in Aetna Cas. and Sur. Co. v. Murphy, 538 A.2d 219, 221 (Conn. 1988):

On the one hand, the law of contracts supports the principle that contracts should be enforced as written, and that contracting parties are bound by the contractual provisions to which they have given their assent. . . .On the other hand, the rigor of this traditional principle of strict compliance has increasingly been tempered by the recognition that the occurrence of a condition may, in appropriate circumstances, be excused in order to avoid a “disproportionate forfeiture.”

In Murphy, the court refused to enforce the notice provision strictly as a condition precedent, but it also rejected a rule that had been adopted in 18 states, and which required an insurer seeking to avoid coverage to prove it had been prejudiced by the late notice. Connecticut opted for a middle ground, under which an absence of prejudice would act to cure late notice, but the burden of proving that absence of prejudice was on the insured.

In the years since Murphy was decided, the landscape changed, and fully half of the states placed the burden of proving prejudice on the insurer. Last year, in Arrowood Indem. Co. v. King, 39 A.3d 712, 726-27 (Conn. 2012), Connecticut hopped on the bandwagon:

As we recognized in Murphy, the task of proving a negative is an inherently difficult one. . . Imposing this difficult task on the insured—the party least well equipped to know, let alone demonstrate, the effect of delayed disclosure on the investigatory and legal defense capabilities of the insurer—reduces the likelihood that the fact finder will possess sufficient information to determine whether prejudice has resulted from delayed disclosure. . . . [W]e now join the overwhelming majority of our sister states in adopting a rule that facilitates informed determinations of prejudice by incentivizing insurers to bring evidence of prejudice, should it exist, to the court’s attention.

This month, a case out of Florida showed the limits of this analysis. The plaintiff in 1500 Coral Towers Condominium Ass’n, Inc. v. Citizens Property Ins. Corp. No. 3D12-132 (Fla. App. Apr. 3, 2013), is a condominium association, whose building sustained damage to its roof during Hurricane Wilma in 2005. Without notifying its property insurer, the association repaired the building’s elevator, roof and surrounding walls. But the roof continued to leak, and the association finally determined—five years after the storm—that it would have to be replaced, at a cost of about $250,000.

The plaintiff explained that it had not provided timely notice to the insurer, because it originally believed that the damage would be “far below the deductible” in its policy. “Had the damages revealed themselves to [be] near or [to] exceed the deductible,” the plaintiff asserted, “Coral Towers would obviously have informed the insurance company.” The plaintiff did not say that it chose to remain silent so as to avoid having its Wilma experience affect the rating of its policy on renewal, but that certainly appears to be what happened. And that fact points out an aspect of the notice issue that the Connecticut court failed to address: Even if the insurer was not prejudiced with respect to this particular claim, it will suffer prejudice in the long run, in the form of less accurate underwriting, if insureds have no incentive to report potentially serious losses.

Florida courts generally enforce notice provisions, unless the insured can establish an absence of prejudice. The court in 1500 Coral Towers adhered to this rule and affirmed an award of summary judgment to the insurer. Although the plaintiff submitted the opinion of one of its engineers that the late notice did not frustrate the underlying purpose of the notice requirement, the court found the statement “conclusory” and held that it was inadequate to overcome the presumption of prejudice.