Caselaw Wednesdays – Does an Insurer Receive a Presumption of Prejudice When it Sues its Insureds?

It seems like every week, there is a new case discussing post loss obligations of an insured when presenting a claim and what the effects are by (1) failing to comply or (2) partial compliance. Last week was no different (and there was a twist!). In Enrique Arguello, et. al. v. People’s Trust, the Insured suffered a loss as a result of a plumbing leak. Shortly after reporting of the loss, the Insurer requested a sworn proof of loss. The Insurer investigated the loss and about three weeks after the loss was reported, admitted coverage, invoked its right to repair, and again requested a sworn proof of loss. Multiple additional correspondence were sent requesting the sworn proof of loss and ultimately, the Insurer sued its Insured for declaratory judgment and breach of contract.

After the lawsuit was filed, the Insured submitted a sworn proof of loss and a signed work authorization. The Insured also filed a motion to compel appraisal. Before that motion was heard, the Insurer moved for summary judgment on the failure to comply with post loss obligations. The motion was granted and the appeal ensued.

The Forth District Court of Appeal looked at the terms of the policy and determined that a sworn proof of loss was required but material issues of fact remained as to whether the insured had substantially complied by sending the sworn proof of loss after the lawsuit was filed AND listed “Pre-Loss Condition” where the amount of loss needed to be filled in. Because material issues of fact remained, the summary judgment was reversed. Most importantly, the Court went on to state that this particular case was different than prior cases where a failure to comply with post loss obligations resulted in a presumption of prejudice to the Insurer. In the instant case, since it was the Insurer suing, the Insurer would need to prove that it was prejudiced by the failure to comply.

In Judge Conner’s concurring opinion, he points out that, although not addressed in the instant case, he could not see how there could be prejudice to the Insurer as to the very repairs that the Insurer was seeking to do. This concurring opinion could prove instructive in cases where Insurers, like People’s Trust, have sued their own insureds after an invocation of the right to repair under the policy.

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