Most commercial insurance policies require a proof of loss when there is a disagreement over the amount of the loss. The Policy usually reads:
Action Against Us
No one may bring an action against us in any way related to the existence or amount of coverage , or the amount of loss for which coverage is sought unless:
- C) ….you have previously provided to us a signed sworn proof of loss…no later than 91 days prior to commencing any action against us.
The proof of loss is set forth as a post-loss obligation but Courts have disagreed on whether they are a mandatory prerequisite to filing suit. The proof of loss is a formalized statement on a form usually provided by the insurance company. It requires a sworn, notarized statement by the insured and usually contains information including:
- The amount of the loss;
- The parties claiming the loss;
- The date and cause of the loss;
- The identity of all parties who may have an interest in the claim.
Oftentimes an insured will attach an estimate from a contractor to substantiate the amount of the loss. An insured will also separate the loss into categories. For example the proof of loss may list separate damage for remediation, construction, code upgrades, emergency repairs, business interruption etc.
On occasion, an adjuster will ask the insured to submit a proof of loss that has the amounts already filled in. Or the adjuster will ask the insured to fill in the undisputed amounts that the insurance company has agreed to pay.
I advise my clients to fill in the proof of loss with the amounts that my client claims are owed. This statement should be as accurate and complete as possible because this will serve as a foundation for any later disputes you may have regarding the claim. And since it is sworn to, a lawyer for an insurance carrier can and will use this against you in the event you are ever asked to give an Examination Under Oath or deposition in your case.
So what happens if you haven’t filed a proof of loss? Actually you might be surprised to know that, in Texas, the Courts have taken a measured, practical approach to this issue.
Texas cases hold that the primary purpose of a proof of loss provision in a policy is to allow the insurer to investigate the incident close in time to the occurrence so that it may accurately determine its rights and liabilities under the Policy. See Stonewall Ins. Co. v Modern Expl. Co., 757 S.W.2d 432,435 (Tex.App. Dallas 1988).
However there is Texas case law which stands for the proposition that a “timely notice provision was not an essential part of the bargained for exchange under [an] occurrence based policy.” PAJ, Inc. v. Hanover Ins., 243 S.W.2d 630, 635 (Tex. 2008).
Therefore the question becomes whether the failure to submit a sworn Proof of Loss has prejudiced the insurer. See PAJ, 243 S.W.2d at 634-35.
The Texas Supreme Court explains prejudice as follows:
In determining the materiality of the breach, courts will consider the extent to which a party will be deprived of the benefit that it could have reasonably anticipated from full performance. The less the non-breaching party is deprived of the expected benefit, the less material the breach.
Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994)
In these cases the court should balance whether a failure to provide a proof of loss deprives the insurer of the benefit of being able to fully investigate the claim. Since most insurance companies adjust and investigate the loss regardless of when or whether they receive a proof of loss, it could be difficult for an insurer to prove that it was prejudiced by a failure to provide a proof of loss.
What am I trying to say? An accurate proof of loss can be critical to the claims process. But if you haven’t provided a proof of loss, don’t be duped into thinking you have no rights or remedies. Consult a lawyer to determine whether you still have a claim.