Conditions Precedent to Coverage

Insurance policies typically are subject to certain conditions precedent to coverage. As the name suggests, conditions precedent to coverage are obligations placed on the insured that, in the normal case, must be complied with in order for coverage to attach. 

Take a commercial general liability (or “CGL”) policy, for example. An occurrence-based CGL policy may purport to require an insured to notify the insurer “as soon as practicable” of an occurrence which may result in a claim. It may state that the insured should “cooperate” with the insurer in the investigation, defense and/or settlement of that claim, and it might further state that the insured shall not settle the claim without the insurer’s consent.

Each of the above examples seemingly provides an “escape hatch” to the insurer; should the policyholder fail to comply with a condition precedent to coverage, the insurer need not pay a claim otherwise covered by the policy. But that isn’t always the case.

The Futility Doctrine and Insurance Recovery

“The law does not require the doing of a futile act.”  Ohio v. Roberts, 448 U.S. 56, 74 (1980), overruled on other grounds Crawford v. Washington, 541 U.S. 36 (2004). The United States Supreme Court’s adage is no less true in the context of insurance coverage.

Consider the “late notice” defense. Where an insurer would have denied coverage for a claim irrespective of when the insured gave notice, many courts recognize that earlier notice would have been futile in such cases, and thus will not permit the insurer to deny coverage because of late notice for an otherwise covered claim. “Numerous jurisdictions have held that where an insurer denies liability on some other policy or coverage ground, the insurer cannot thereafter rely on the insured’s failure to give reasonable notice as a ground for avoiding liability. In other words, the insurer waives its right to argue ‘failure of notice’ once it has denied coverage on other grounds.”  Newman v. Scottsdale Ins. Co., 301 P.3d 348, 360 (Mont. 2013). 

Examples abound. See Tri-State Ins. Co. v. Smith, 449 S.W.2d 698, 700 (Ark. 1970) (“It is well settled that in an action on a liability insurance policy the insurer is precluded from defending its liability upon the ground of a violation by the insured of the policy provisions as to notice and forwarding of suit papers where the insurer has denied liability on some other ground.”); Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal. App. 4th 715, 763 (1993) (“If the insurer asserts that the underlying claim is not a covered occurrence or is excluded from basic coverage, then earlier notice would only result in earlier denial of coverage”); Strickler v. Huffine, 618 A.2d 430, 435 (Pa. Super. Ct. 1992) (where an insurer’s “strategy would have been to deny coverage and to refuse to participate in any defense” regardless of when notice was given, the policyholder “succeed[s] in demonstrating that [the insurer] suffered no prejudice attributable” to late notice).

This “futility doctrine” is not limited to late notice issues. Consent-to-settle clauses can sometimes operate as a forfeiture of coverage if a policyholder settles an underlying claim without the express consent of its liability insurer. But many jurisdictions, including New York and Pennsylvania, will allow a policyholder to enter into a reasonable settlement without first obtaining the consent of its insurer so long as the insurer has already denied coverage. See Isadore Rosen & Sons, Inc. v. Sec. Mut. Ins. Co. of N.Y., 291 N.E.2d 380, 382 (N.Y. 1972) (“The New York rule is that where an insurer unjustifiably refuses to defend a suit, the insured may make a reasonable settlement or compromise of the injured party’s claim, and is then entitled to reimbursement from the insurer, even though the policy purports to avoid liability for settlements made without the insurer’s consent.”) (quotation omitted); Kolve v. Aegis Ins. Co., 537 A.2d 7, 8 (Pa. Super. Ct. 1988) (recognizing the “well-established rule” that “a contracting party by his conduct may render inoperative conditions of the contract on which he might otherwise insist,” and holding “[i]t would have obviously been an unavailing effort for the [insured] to have sought the [insurer’s] consent for the settlement when he had already been advised by the [insurer] that it considered his policy coverage to be inapplicable”). An insurer “also releases its insured from the duty to cooperate by denying coverage or taking measures that render cooperation futile.” J.P. Morgan Securities Inc. v. Vigilant Insurance Co., 53 Misc. 3d 694, 702 (N.Y. Sup. 2016), aff’d, 151 A.D.3d 632 (N.Y. App. Div. 2017).

Takeaways

Policy conditions are important and should not be ignored. Providing timely notice of a claim and cooperating with its insurer gives an insured the greatest opportunity to preserve its rights and benefits under the insurance policy. That said, there clearly are circumstances where compliance with conditions precedent to coverage would be futile, and in such cases, an insured may still be entitled to coverage.

Should a dispute over coverage arise, policyholders should be weary of defenses predicated on a purported failure to comply with the notice condition, the duty to cooperate, or other conditions precedent to coverage. There is no standard, one-size fits all approach to analyzing the validity of such defenses, and policyholders should consider involving coverage counsel as early as possible to assess the availability of such defenses. It may just be that strict enforcement of a condition precedent to coverage would be futile.           

Introduction

Judge Corley’s (N.D. Cal.) January 10, 2025 decision in Bottega, LLC v. National Surety Corporation provides guidance for commercial policyholders who have closed down their businesses due to wildfires, smoke, ash and soot that is especially timely given the ongoing wildfires in Southern California. The decision highlights the complexities of business interruption insurance claims, distinguishes between smoke damage and claims involving COVID-19 and makes clear the importance of establishing a clear causal connection between physical damage and the suspension of operations.

Summary

  1. Business Interruption Coverage Requires Physical Damage: For business interruption coverage to be triggered, there must be a direct physical loss or damage to the property.
  2. Smoke Damage is Physical Damage: Smoke damage constitutes direct physical loss or damage to the property. Analyzing court precedent, Judge Corley (N.D. Cal.) concluded that smoke causes physical contamination that can alter property.
  3. Causal Connection and Genuine Disputes of Fact: The court found that there were genuine disputes of fact regarding whether the smoke damage caused the suspension of operations, which precluded summary judgment for the insurer and policyholders.

Background

In Bottega, LLC v. National Surety Corporation, a restaurant, retail café, and catering company sought insurance coverage for business income losses due to the North Bay Fires in 2017.

The relevant coverage provision in the insurance policy states:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the period of restoration. The suspension must be caused by direct physical loss of or damage to property at the premises described in the Declarations. . .caused by or resulting from any Covered Cause of Loss.

The businesses alleged that smoke damage from the fires caused them to suspend operations. Their insurer, National Surety Corporation, disputed the claims, arguing that there was no causal connection between the smoke damage and the suspension of operations; rather, the business closure was due to other external factors such as finance and staffing shortages. This led to both parties filing cross-motions for partial summary judgment.

Distinguishing Smoke from Cases Involving COVID-19

To trigger coverage, the Court found there must be some physicality to the loss of property, such as a physical alteration, physical contamination, or physical destruction. Bottega, LLC v. Nat’l Sur. Corp., No. 21-cv-03614-JSC, 2025 U.S. Dist. LEXIS 5666, at *10 (N.D. Cal. Jan. 10, 2025) (citing Inns-by-the-Sea v. California Mut. Ins. Co., 71 Cal. App. 5th 688, 707, 286 Cal. Rptr. 3d 576 (2021)).

National Surety cited COVID-19 cases “reject[ing] the claim that the need to clean the business premises during and after the business closure met the plaintiff’s burden of showing physical loss or damage.” Id. at *11.

Judge Corley (N.D. Cal.) found this unpersuasive, and distinguished smoke from COVID-19 by noting that smoke causes physical contamination that can alter property, whereas COVID-19, according to the case law National Surety cited, can be disinfected and does not cause physical alteration. Specifically, the court stated:

[T]he presence of COVID-19 on Plaintiff’s property did not cause damage to the property necessitating rehabilitation or restoration efforts similar to those required to abate asbestos or remove poisonous fumes which permeate property. Instead, all that is required for Plaintiff to return to full working order is for the [government orders and restrictions to be lifted].

Id. at *12. The court compared smoke to asbestos and gases that physically alter property, emphasizing that smoke contamination can render a property uninhabitable or unable to be used as intended. Id. The court referenced Inns-by-the-Sea v. California Mutual Insurance Co., 71 Cal. App. 5th 688, 707, 703 (2021) recognizing that:

Contamination of a structure that seriously impairs or destroys its function may qualify as direct physical loss.

Id. at *11. Accordingly, the court explained that smoke, like asbestos and gases, can cause physical damage that necessitates significant cleaning and restoration efforts. Id. at *11-12. Thus, Judge Corley (N.D. Cal.) held “the summary judgment record establishes as an undisputed fact that the direct physical loss or damage resulted from a Covered Cause of Loss[,]” which includes “[s]moke causing sudden and accidental loss or damage.” Id. at *12-13.

Issues of Fact Precluding Summary Judgment

Though Judge Corley (N.D. Cal.) held that there is no dispute that the fires caused smoke damage to the policyholder’s property, the court identified several issues of fact that were sufficient to deny summary judgment for both parties:

Extent of Cleaning and Repairs: The record did not specify what cleaning was required to reopen Bottega and when that cleaning was completed. Id. at *18-19. This lack of detail created a genuine dispute about the reason for the closure on October 9, 2017.

Reason for Closure: There was conflicting evidence about whether the businesses closed due to smoke damage or other reasons such as lack of customers or general disorder following the fire. Id. at *16-18, *20. The owner testified that the restaurant closed because the “facility prevented customers from coming . . . because it smelled like an ashtray.” Id. at *14. The restaurant, however, re-opened on October 10, 2017 while the Public Safety Order was still in place.  Id. This conflicting evidence created a genuine dispute of fact.

Financial and Staffing Issues: There was evidence suggesting that the closure was a business decision necessitated by finance and staffing shortages, not physical damage from smoke, soot, and ash. Id. at *20-21. The owner testified that he “didn’t have the money” to open the retail café and catering company at the same time as the restaurant. Id. at *20. This conflicting evidence also created a genuine dispute of fact. Id.

Key Takeaways

  1. Document Physical Damage Thoroughly: Under policies like the one in question, there must be a direct physical loss or damage to the property to trigger business interruption coverage. Considering that, immediately after the incident, take detailed images and photos of the damage. Smoke, ash, and soot damage may also constitute direct physical loss or damage to property. Maintain comprehensive records of all cleaning and repair activities, including dates, costs, and the extent of the work done. Reports from third-party experts might also be helpful to substantiate claims. If possible, avoid taking remediation actions without at least notifying the insurer and giving them an opportunity to inspect the premises and consent to the planned work.
  2. Establish a Clear Causal Connection: Under the Court’s ruling, there must be a clear causal connection between the physical loss or damage to property and the suspension of operations. If the loss or damage directly affected the ability to operate, such as making the environment unsafe or uninhabitable for customers and staff, then there may be a sufficient causal connection to claim business interruption coverage.
  3. Consider the Impact of External Factors: Bear in mind that other external factors, like road closures, government orders, finance issues or staffing issues might also cause or contribute to business interruptions. If external factors play a role, consider if and how they intersect with the physical damage to provide a comprehensive picture of the interruption’s causes. Consult with experienced coverage counsel to address these issues and how they should be presented to the insurer.

Reed Smith represented Tyson International Company Limited in obtaining a permanent anti-suit injunction against London market reinsurer, GIC Re, and successfully resisting the reinsurer’s application for a stay under section 9 of the Arbitration Act 1996. The judgment was handed down on 21 January 2025, and you can read it in full here: Tyson International Company Limited v Gic Re, India, Corporate Member Limited [2025] EWHC 77.

The Commercial Court was asked to consider two potentially competing clauses: (1) an exclusive jurisdiction clause in favour of the English Courts and (2) an arbitration clause in favour of arbitration in New York. To add to the complexity, the clauses were contained in two separate documents, both of which governed the terms of the policyholder’s property reinsurance. The Court’s approach to the construction of competing exclusive jurisdiction and arbitration clauses will be of interest to policyholders, brokers and insurers alike, and also provides helpful guidance on the effect of “hierarchy” (or “confusion”) clauses.

Background

Tyson International Company Limited (the “Captive Insured”) is a Bermuda captive reinsurance company of the global food production group, Tyson Foods. GIC Re (the “Reinsurer”) issued two reinsurance policies to the Claimant, for the period 1 July 2021 – 1 July 2022.

A coverage dispute arose between the Captive Insured and the Reinsurer following a substantial fire at one of Tyson Foods’ properties. A threshold issue arose between the Captive Insured and Reinsurer as to the forum of the dispute.

The “confusion” at the core of the jurisdiction dispute arose because two policy documents had been issued, both purporting to set out the terms of the relevant reinsurance cover, but containing conflicting forum selection provisions:

  1. Market Reform Contracts (“MRCs”) (i.e., standard form London (re)insurance market contracts), which contained exclusive jurisdiction clauses in favour of the English Courts; and
  2. Facultative Certificates under a US standard form, known as Market Uniform Reinsurance Agreements (the “MURAs”), which provided for arbitration in New York.

The Captive Insured sought to uphold the exclusive jurisdiction clause in the MRCs. The Reinsurer argued that the arbitration agreement in the MURA governed the coverage dispute.

The applicable principles of contractual construction

The Court applied the principles set out in Surrey County Council v Suez Recycling and Recovery Surrey Ltd [2021] EWHC 2015, to determine the proper construction of the competing jurisdiction and arbitration clauses:

  1. The Court should strive to give effect to an arbitration clause in the presence of a competing jurisdiction clause, but cannot do so where the clauses are in direct conflict with each other and are wholly irreconcilable;
  2. Unless the parties expressly and clearly say otherwise, there is a strong presumption that they are assumed to have agreed on a single (court or other) tribunal for the determination of all their disputes, at least when there is only one agreement/contractual document;
  3. Where there are two agreements, each containing different provisions for dispute resolution, the outcome may depend on the nature of the second agreement and its relationship to the first. A second agreement which varies the first will probably be treated differently to a situation where a second agreement seeks to make a clean break from the first agreement; and
  4. Where a contract contains a hierarchy or conflict clause, there should be no predisposition towards finding (or not finding) a conflict between two clauses. The ordinary rules of construction should first be deployed and only if those result in a conclusion that the two provisions are irreconcilable is recourse to the conflicts clause required.

Applying these principles, the Court held that, despite the fact that the MURAs were executed after the MRCs, the exclusive jurisdiction clauses contained in the MRCs took precedence, on the basis that the “confusion clause” within the MURAs gave priority to the earlier MRCs where the two clauses were “irreconcilable” and in the event of “confusion” (see [114] of the judgment). 

On the facts before the Court, the Judge held that there was “obvious confusion” (see [110]) and that the two clauses were irreconcilable: the terms of the two clauses inevitably conflicted, and it was not possible to read them together either as a Scott v Avery clause, or in a way that gave the English Court supervisory jurisdiction (see [114]).  

Conclusions

The principles applied by the Court in this decision apply as much to relationships between commercial parties more generally, as to between policyholder/insurers (or, as here, reinsured and reinsurer).

This decision highlights the importance of drafting clear dispute resolution provisions to reflect the intention of the parties at the time of policy placement or contract formation.

In cases that involve multiple contractual documents (whether insurance/reinsurance documentation, or commercial contracts under a framework agreement), what may be dismissed as typical boilerplate provisions should be considered carefully to ensure that there is consistency across the suite of documents.

The history of this case also demonstrates the willingness of the English Courts to grant quick and effective interim anti-suit (or, as here, anti-arbitration) relief to restrain foreign proceedings. In this instance, obtaining prompt interim relief from the English Court enabled the parties to resolve their jurisdiction battle in the single forum of the English Courts, without incurring the costs of fighting a separate dispute in New York.

We have previously reflected on some of our recommendations to approaching jurisdiction challenges– please see our recent article ‘Navigating Challenges to the Jurisdiction of the English Court’ for further guidance.

A Reed Smith team (comprised of Mark Pring, Catherine Lewis, Thomas Morgan and Daniel Sahraee) acted for the successful Claimant.

In the midst of the devastating and ongoing Los Angeles wildfires, on January 9, 2025, Insurance Commissioner Ricardo Lara issued the 2025 Annual Notice on behalf of the California Department of Insurance (DOI). The 2025 Annual Notice highlights what Commissioner Lara describes as “the most significant California laws pertaining to property insurance policies, including those related to a declared state of emergency.” Many of the laws highlighted in the 2025 Annual Notice were passed to address insurance company practices following other historic wildfires in California.[1] Now, these laws are poised to play a crucial role in helping policyholders impacted by the current L.A. wildfires.

For example, the 2025 Annual Notice outlines several key insurance code protections regarding additional living expense (or “ALE”) coverage:

  • Four Months of ALE Coverage in Advance. For policyholders who suffered a covered total loss arising from the L.A. wildfires, insurers are required to provide an advance payment of no less than four months of living expenses on request. Policyholders can also seek subsequent ALE payments by submitting proof of additional living expenses after the advance period.[2]
  • Two Weeks of ALE Coverage When Access Is Restricted Due to Orders of Civil Authorities. When a state of emergency is accompanied by an “order of civil authority restricting access to the home,” such as a mandatory evacuation order, insurers must provide at least two weeks of ALE coverage.”[3] Additional extensions must be provided for “good cause,” subject to other policy provisions.”[4]
  • Minimum ALE Time Periods and Potential Extensions for Reconstruction Delays. In the event of a covered loss relating to a state of emergency, insurers must provide ALE coverage for “no less than 24 months from the inception of the loss,” subject to other policy provisions.[5] If a policyholder encounters delays in the reconstruction process that are “beyond the policyholder’s control”—such as “unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work”—insurers must provide ALE coverage for up to 12 additional months.[6] For policyholders impacted by the L.A. wildfires, it is important to document all efforts taken to rebuild the affected property, including any construction-related delays.
  • ALE Coverage When the Home Is Uninhabitable. A policy that provides ALE coverage cannot restrict a policyholder’s right to recover ALE when the home is rendered uninhabitable due to a wildfire or other covered peril, even if the damage is not to the property itself.[7] An insurer may, however, “provide a reasonable alternative remedy that addresses” the condition making the home uninhabitable “in lieu of making living expense payments.”[8] As explained in a 2021 press release, this law was passed to address “problems after recent major fires when insurance companies denied benefits even though damaged power and water lines made homes uninhabitable,” and requires insurers to either pay ALE benefits while the home remains uninhabitable or provide reasonable alternatives that would restore habitability, such as a “portable generator in the case of downed power lines or a portable water source.”[9]

The 2025 Annual Notice also highlights several key laws regarding personal property (or “contents”) coverage, which may apply when a policyholder has suffered a total loss of their primary residence due to the ongoing wildfires:

  • Itemization Not Needed for Initial Contents Payment. Insurers must offer a payment for personal property coverage equal to at least 30% of the dwelling coverage limit (up to $250,000) without requiring policyholders to itemize their contents upfront. Policyholders retain the right to seek additional amounts by filing a full itemized claim for losses exceeding the initial payment. Insurers must notify policyholders of these options when claims are filed.[10] A guide for creating a home inventory can be found on the DOI’s website here.
  • Insurer-Specific Forms Not Required. Insurers cannot require a policyholder to use a company-specific inventory form if the policyholder can provide an inventory that contains substantially the same information.[11]
  • Categorical Inventory Permitted. Insurers must accept an inventory that includes “groupings of categories of personal property, including clothing, shoes, books, food items, CDs, DVDs, or other categories of items for which it would be impractical to separately list each individual item claimed.”[12] Still, policyholders should categorize items in a manner that reasonably reflects their losses while providing sufficient detail to support their claim.

Other significant insurance laws highlighted in the 2025 Annual Notice include:

  • Rebuilding or Replacing a Home in a New Location. Insurers must not limit or deny payment for eligible building code upgrade costs or replacement costs on the basis that the policyholder has decided to rebuild their home at a new location or purchase an already built home at a new location. But the measure of recovery cannot exceed the reasonable replacement cost at the insured property’s original location.[13]
  • No Land Value Deductions. Relatedly, the measure of recovery available to the policyholder to use toward rebuilding or replacing their home at a new location must be the same amount that “would have been recoverable had the insured dwelling been rebuilt at its original location, and a deduction for the value of the land at the new location shall not be permitted.”[14] According to Commissioner Lara’s 2021 press release on this law, after other major wildfires, some insurers “refused to include the value of land when paying a total loss claim, reducing the total payout by tends to hundreds of thousands of dollars. This change gives homeowners more choices in whether to rebuild or relocate their new home.”[15]
  • Ability to Combine Certain Coverages. In the event of a claim relating to a state of emergency, policyholders who choose to rebuild their homes are allowed to combine coverage limits for “dwelling” and “other structures” to meet reconstruction costs.[16]
  • Building Code Upgrade Coverage. If a policy includes building code upgrade (ordinance or law) coverage, it must provide adequate coverage for the increased costs to repair or replace the insured property to comply with current building codes.[17]

In addition to the 2025 Annual Notice, Commissioner Lara continues to issue specific notices and bulletins with important information for impacted policyholders.

For example, Notice 2025-01, also issued on January 9, 2025, directs all insurers to temporarily pause any pending non-renewals or cancellations sent to policyholders within 90 days before January 7, 2025, when Governor Newsom declared a state of emergency, and further requires insurers to take immediate steps to cease any pending non-renewals in L.A. wildfire areas.[18]

In conjunction with Notice 2025-01, Commissioner Lara issued Bulletin 2025-1, listing the known ZIP codes impacted by the Palisades and Eaton Fires, which would be subject to the one-year moratorium on cancellations and non-renewals. More recently, on January 14 and again on January 17, 2025, Commissioner Lara issued Amended Bulletin 2025-1, expanding the list of ZIP codes subject to the moratorium. The January 17 Bulletin includes ZIP codes of properties in the numerous areas impacted by the Palisades Fire, Eaton Fire, Hurst Fire, Lidia Fire, Sunset Fire and Woodley Fire. Policyholders living in affected areas should confirm their insurers’ compliance with these moratoriums and seek assistance if policies are improperly cancelled or not renewed.

The ongoing wildfires in Los Angeles present immense challenges for policyholders, ranging from evacuation and displacement to navigating the complexities of insurance claims. These difficulties are further exacerbated by the long-term repercussions of wildfire damage, including delays in reconstruction and disputes over coverage. This information is intended to help alleviate some of these concerns by outlining key California insurance laws that provide critical protections during a declared state of emergency.

We at Reed Smith would be pleased to speak with you about ways we can help navigate your insurance claims during this challenging time. If there are any questions please do not hesitate to contact the authors: Nicholas M. Insua, Garrett S. Nemeroff, Kya R. Coletta, Kalid Q. Knox, or the Global Chair of Reed Smith’s premier Insurance Recovery Group, Amber Finch.

[1] See https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201920200SB872#.

[2] See Cal. Ins. Code § 2061(a).

[3] See Cal. Ins. Code. § 2060(c).

[4] Id.

[5] See Cal. Ins. Code § 2060(b)(1).

[6] See id.

[7] See Cal. Ins. Code. § 2060(b)(2).

[8] See id.

[9] See https://www.insurance.ca.gov/0400-news/0100-press-releases/2021/release078-2021.cfm.

[10] See Cal. Ins. Code § 10103.7(b).

[11] See Cal. Ins. Code § 2061(a)(2).

[12] See Cal. Ins. Code § 2061(a)(3).

[13] See Cal. Ins. Code § 2051.5(c)(1).

[14] See Cal. Ins. Code § 2051.5(c)(2) (emphasis added).

[15] https://www.insurance.ca.gov/0400-news/0100-press-releases/2021/release078-2021.cfm.

[16] See Cal. Ins. Code § 10103.7(a).

[17] See Cal. Ins. Code § 10103(c).

[18] Notice 2025-01 provided additional protections to policyholders. See https://www.reedsmith.com/en/perspectives/2025/01/california-commissioner-pauses-property-insurance.

The wildfires in Los Angeles, including the Palisades, Eaton, Hurst, and Runyon Canyon fires, are fast-moving, destructive, and scary. As of the evening of January 8, 2025, they have caused extensive damage and led to the evacuation of more than 100,000 residents. The Palisades Fire has burned 18 square miles, the Eaton Fire 16.5 square miles, and the Hurst Fire 0.8 square miles. At 5:50 p.m. PT, a new blaze had broken out in Hollywood Hills near Runyon Canyon, and by 7:40 p.m. PT, the Runyon Canyon Fire had spread 10 acres. Additionally, nearly 400,000 power customers were left without electricity due to preventive power shutoffs.

We at Reed Smith are closely following the progression of the devastating and costly wildfires ravaging Southern California. Our thoughts and prayers are with the entire region, especially those under mandatory evacuation orders. We offer the below tips and recommendations in the hope that they will help homeowners navigate the insurance claim process more effectively.

Wildfire Evacuation Tips

Of utmost importance is everyone’s safety. All homeowners subject to an evacuation order should prioritize evacuating promptly and safely and finding temporary housing. Insurers sometimes help homeowners find a place of similar size.

If possible, homeowners should try and take pictures or videos of each room and the exterior of their homes prior to evacuating. This documentation will be invaluable if an insurance claim needs to be filed. It is also important to pack important documents, such as insurance policies and related correspondence, tax and loan documents, passports, birth certificates, plans/blueprints of the home, wills, trusts, and other related documents. These steps ensure that homeowners are prepared to file comprehensive insurance claims if their property is damaged.

Save Your Evacuation Expense Receipts

Save receipts for any expenses incurred during evacuation. Claimants may be able to claim reimbursement for Additional Living Expenses (ALE) incurred due to the loss of use of their home because of a mandatory evacuation order or damage that makes it uninhabitable. ALE typically includes extra food and housing costs, furniture rental, relocation and storage, and transportation expenses. All may be reimbursed, but insurers will always require receipts.

In his January 8, 2025 Press Release, California Insurance Commissioner Lara advised that he sponsored SB 872, which: “requires insurance companies pay at least two weeks of ALE benefits to evacuees and provide an advance payment for no less than four months of ALE without an itemized inventory form, among other consumer protections. This important consumer protection law removes barriers for disaster survivors to get critical insurance benefits and streamlines wildfire recovery processes for homeowners who suffer from a loss.”

First Steps After a Wildfire:

  1. Those affected should take care of themselves and their family’s immediate needs first.
  2. They should also notify their insurance companies about the damage as soon as possible.
  3. Policy provisions, including deductibles, vary, so those affected should review their policies to confirm coverage, limits, and any other limitations and documentation requirements.
  4. Be sure to provide insurers with all documentation collected, follow their instructions for filing a claim, and keep a record of all communication with your insurance company, including the names of representatives spoken with and the dates of all conversations. Keep your paperwork organized.
  5. A certified industrial hygienist can test the air quality to ensure it is safe to return. Starting the cleanup process early is crucial to prevent further damage, especially for those with health sensitivities. The process should include clean up of debris, soot and ash, and address any water damage caused by fire suppression efforts. Homeowners with health sensitivities such as asthma should alert their insurer and ensure that the cleanup process is thorough to avoid aggravating respiratory conditions.

Insurance Claim Tips for Fire Losses

If an insurance claim is submitted, an insurance adjuster will eventually come and inspect. If they make a settlement offer on the spot, get a second opinion. Do not rush into signing contracts. If a claimant is considering hiring a public adjuster, check the public adjuster’s license and make sure they are properly licensed and in good standing.

Get copies of all paperwork signed. Fire claims can be complex due to hidden damage and potential disputes over repairs. Claimants should ensure thorough inspections of their property, address matching issues for repairs, and insist on proper cleaning to mitigate health risks. Those affected should also document all damage, and get professional inspections to assess the extent of the damage. Contractors and structural engineers can evaluate the damage and estimate the cost of repairs. Understanding the nuances of mold and smoke damage coverage is also essential for a successful claim. Insurers may ask claimants to inventory damaged and destroyed property.

For tips and tools on how to properly inventory damage, check out uphelp.org.

Give the insurer a chance to do the right thing, but, if the insurer is acting unfairly, be prepared to push back or get help. Insurance companies, for example, cannot cancel or refuse to renew insurance policies for homes in affected areas. On January 9, 2025, Commissioner Lara announced that he is using “moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event.” His full press release can be found at insurance.ca.gov.  

By following the outlined tips, homeowners can navigate the insurance claim process more effectively and ensure their homes are restored to a safe and livable condition.

Speak with Policyholder-Side Insurance Experts

Insurers do not profit from paying claims, and will likely assert whatever defense they believe will absolve or mitigate their coverage obligations. Those affected should have an advocate that is highly experienced in making sure they receive the full benefit of their policies. This is what the attorneys in Reed Smith’s Insurance Recovery Group do all day, every day. We would be pleased to speak with you about ways we can help navigate your insurance claims during this challenging time. 

We at Reed Smith will continue to follow the progression of these devastating wildfires and all those affected will remain in our thoughts and prayers.

This autumn, the Court of Appeal of England and Wales handed down judgment in UnipolSai Assicurazioni SpA v Covéa Insurance Plc [2024] EWCA Civ 1110. This was an appeal of an Award made in a reinsurance arbitration under section 69 of the Arbitration Act 1996. UnipolSai’s challenge was at first instance before (and dismissed by) Mr Justice Foxton in the Commercial Court. The Court, at both first instance and appeal, considered the recoverability of business Covid-19 interruption losses under a reinsurance policy, and in particular two key issues:

  1. Whether the Covid-19 losses for which Covéa sought indemnity under the Reinsurance Policy arose out of and were directly occasioned by one ‘catastrophe’ on the proper construction of the Reinsurance Policy.
  2. Whether the effect of the “Hours Clause” in the Reinsurance Policy, which confined the right to indemnity to “individual losses” within a set period, had the effect that the reinsurance only responded to payments in respect of the closure of the insured’s premises during the stipulated period.

At first instance, Foxton J decided both issues in favor of the reinsured, Covéa (you can read his judgment here). The Court of Appeal upheld Foxton J’s decision.

Following a string of policy-holder friendly decisions by the Courts (you can read our most recent update here) this will be welcome news to insurers, albeit to the detriment of their reinsurers, and not original policyholders.

Background

The original insureds were operators of children’s nurseries and related childcare facilities. They purchased insurance from Covéa for various property-related perils, including non-physical damage business interruption cover. Covéa, in turn, purchased reinsurance from UnipolSai in the form of a Property Catastrophe Excess of Loss Reinsurance policy (the “Reinsurance Policy”).

As a result of the onset of the Covid-19 pandemic, and the consequent closure of nurseries, schools, and colleges, Covéa paid out significant sums under the insurance, and sought an indemnity under the Reinsurance Policy.

Issue in Appeal

UnipolSai raised two objections in refusing to pay the indemnity. First, it argued that Covid-19 losses did not arise out of and were not directly occasioned by a ‘catastrophe’.

Secondly, it contended that, for the purposes of aggregation, the ‘Hours Clause’ in the Reinsurance Policy had the effect of limiting any recovery of Covid-19 business interruption losses to payments in respect of the closure of insured premises during a stipulated period of 168 hours (on the basis that no “individual loss” which occurs outside that period could be included).

Application of “Catastrophe”

First, the Court of Appeal held that the underlying Tribunal’s conclusion on this issue was “evaluative” in nature, and did not involve an error of law. As a result, it was not open to UnipolSai to appeal the Tribunal’s decision.  

However, potentially of more interest, is the Court of Appeal’s additional finding that the Covid-19 pandemic was, in any event, capable of being a ‘catastrophe’. As the Reinsurance Policy did not define “catastrophe”, and in the absence of a market definition, the Tribunal considered the ordinary meaning of the word by reference to dictionary definitions and expert evidence. It decided that there was no applicable law or market practice that would limit the meaning of “catastrophe”.

UnipolSai, in the Court of Appeal, argued there were three aspects of the word “catastrophe” that the arbitral tribunal had failed to recognise:

  1. That it must be an event or species of event, whereas Covid-19 was a state of affairs. The Court of Appeal rejected this, upholding the Tribunal’s determination that a “catastrophe” was not limited by a requirement that it is a species of event since neither the word “event” nor “occurrence” appeared in the Reinsurance Policy [paras 105 and 132-137].
  2. That it must be a sudden and violent event. This was also rejected, with the appeal judges agreeing with the Tribunal’s finding that “it is evident that the exponential increase in Covid-19 infections in the UK during the first three weeks of March 2020 did amount to a disaster of sudden onset such as to qualify as a catastrophe” [paras 138-139]
  3. That it must cause or be capable of causing physical damage. This too was rejected, with a finding that UnipolSai’s attempt to rely on the ejusdem generis principle (i.e., where general words follow particular and specific words, the general words must be confined to things of the same kind as those specifically mentioned) was misconceived [paras 140-143]

The Court of Appeal therefore rejected all of UnipolSai’s arguments and concluded that the Covid-19 outbreak did constitute a ‘catastrophe’ under the terms of the Reinsurance Policy.

The “Hours Clause”

The key issue considered by the Court was identifying when the “individual loss” incurred by the original policy holder(s) occurred – if the individual loss occurred outside the relevant period of hours (in this case, 168 hours), it could not be included in the “Loss Occurrence” (as per the wording in the Hours Clause).

The Tribunal found that an “individual loss” occurred for the purpose of the “Hours Clause” when the nurseries were closed on 20 March 2020. This was despite the fact that the business interruption continued until the nurseries were allowed to re-open when the first lockdown restrictions were lifted, that being when ” indemnifiable business interruption loss within a nominated 168 hour period” [PARA REF.]. It followed that the loss which the insured continued to sustain afterwards would be aggregated with the loss sustained during the 168 hour period.

The Court again agreed with the Tribunal’s analysis, finding that “individual loss” first occurs when a covered peril strikes or affects insured property. Further, when the covered peril which strikes the property is the loss of the ability to use it (whether through damage to other property or premises or through a closure order as in this case) the individual loss occurs at the same point. The Court also considered it immaterial for these purposes how precisely the property is affected and by what type of peril occurs. The “individual loss” encompasses the entirety of the loss caused by the relevant peril (or to use the wording in the Reinsurance Policy in this case, the relevant catastrophe).

Finally, the Court held that “occur” in this case meant “first occur” so that what can be aggregated is individual losses which first occur during the relevant period here (the 168 hours or one week) even if the financial loss in question continues to develop over time after the 168 hours has expired.

Conclusion

Following a string of policyholder victories since Financial Conduct Authority v Arch Insurance (UK) Ltd & others, some insurers will no doubt breathe a sigh of relief following the Court of Appeal’s decision in this case. It is equally helpful that reinsured’s will be able to rely on a public judgment, given that reinsurance disputes are often resolved in confidential arbitrations.

Insurers are expected to pay an estimated £2bn in Covid-19 business interruption claims, in part as a result of the Courts’ various decisions on business interruption cover. But now that the Court has curtailed reinsurers’ chances of challenging claims paid by their cedants, it may relieve some of the potentially heavy financial exposures faced by paying insurers.

Today, generative AI (“Gen AI”) is one of the world’s fastest growing technologies, with businesses around the globe developing, adopting and incorporating machine-learning and AI technologies into their business models. The very nature of this fast-paced and novel technology brings unique risks that can implicate various lines of insurance coverage including, among others, Cyber, Professional Liability, Media Liability, IP Liability and Errors and Omissions. Moreover, an expanding regulatory landscape aimed at protecting shareholders and consumers creates financial and reputational challenges for businesses utilizing AI technology. As is often the case with emerging technological risks, the insurance market is struggling to keep up. In particular, the cyber liability insurance market has been slow to offer products aimed at covering the different Gen AI risks that policyholders face, whether those policyholders are incorporating existing generative AI products or developing their own Gen AI.

Where traditional AI is known for analyzing and automating data that the system receives, Gen AI is broadly defined as any AI system that generates creative content. Gen AI models are now being used across various industries to create content, initiate and execute computer code, summarize complex data, track equipment performance or maintenance and improve supply chain management. When this concept is overlaid to policyholder risks, one of the most nascent risks is the use (or misuse) of Gen AI. 

Policyholders adopting Gen AI as a form of cybersecurity face a double-edged sword, in terms of risk. On the one hand, Gen AI can enhance the function of cyber security by analyzing a vast network of data in real time to identify anomalies that might indicate a security breach. On the other, AI vulnerabilities, along with an increase in the use of large language models (LLMs), may open a whole new frontier of cybercrime.

Policyholders developing Gen AI models face different cyber risks. Those risks include: (a) data poisoning, where attackers manipulate input data in order to compromise the output of the AI model; (b) infringement, where the AI model incorporates copyrighted or otherwise protected intellectual property into its content creation; and (c) regulatory violations, including violations of laws intended to regulate the development and deployment of AI systems. 

Whether policyholders are adopting Gen AI as part of a comprehensive cybersecurity program or developing their own Gen AI product, it is imperative to adequately insure against these cyber- and AI-related risks. 

Like other evolving technology risks before it, the cyber liability insurance market has not kept pace with AI technology. But options are available to tailor coverage to a policyholders’ particular needs. For example, in early 2024, cyber liability insurer Coalition introduced a policy endorsement aimed to cover risks pertaining to security breaches resulting from actors using Gen AI. 

For developers of Gen AI, traditional cyber insurance policies have excluded risks associated with the development of Gen AI models because the risks associated therewith are both novel and potentially catastrophic. However, as more businesses invest in the development of Gen AI technology to streamline operations and improve the customer experience, the insurance market is, and will continue to be, forced to adapt. 

In late October 2024, global insurance company AXA XL became one of the first to introduce an insurance product designed to protect against the specific risks faced by companies investing in or creating Gen AI models. AXA’s new endorsement expands cyber coverage to address data poisoning, infringement and usage and regulatory violations (particularly the European Union’s AI Act). This new coverage can be purchased as an add-on to their traditional cyber insurance policy and helps to fill the existing gaps in cyber coverage for policyholders investing in and developing Gen AI technology. Other insurance carriers will likely follow suit. 

For policyholders that are either currently developing or considering developing a Gen AI model to streamline their business, additional coverage may be needed to adequately protect against the potential risks of developing a model. Accordingly, policyholders should consult with coverage counsel to review existing coverage and ensure that future coverage is designed to protect against and mitigate the specific risks associated with their business.      

The insurance sector in the UK is subject to a complex and dynamic regulatory framework, which aims to ensure the protection of policyholders, the stability of the financial system and the promotion of fair and effective competition.

The main sources of regulation in the UK come from legislation, the rules and guidance of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Underpinning these sources are the common law and contractual principles that govern the relationship between insurers and insureds.

In this blog, we will take a quick look at some of the key regulatory frameworks that players in the market need to be aware of.

Solvency and capital requirements for Insurers

The Solvency Capital Requirements (SCR) set out that insurers must maintain adequate financial resources to ensure they can meet their liabilities and withstand difficult situations and periods.

The SCR are set out in the Solvency II Directive and prescribe certain levels of capital that an insurer is expected to hold to pay claims as they fall due. In calculating the level of capital required, a diverse range of risks are taken into account with the requirement being that the SCR is calculated at a “value at risk” subject to a 99.5% confidence level.

This effectively means that the SCR levels should allow for an insurer to be able to withstand all but the most extreme risks without the depletion of its capital.

The SCR functions alongside the Minimum Capital Requirement (MCR) which is a lower threshold to establish the absolute minimum level of capital an insurer should maintain. The PRA, as the regulatory arm of the Bank of England, oversees this regime and should an insurer’s capital fall below the SCR the PRA is able to intervene in the management and operation of the insurer. If the level of capital falls below the MCR then the PRA is able to withdraw authorisation and prevent the insurer from taking on new business.

These protections offer peace of mind to insureds taking out insurance, which is often increasingly expensive.

Regulation of consumer insurance

The UK’s financial regulator, the FCA, maintains a specific set of insurance-focused conduct of business rules (ICOBS) alongside its more general conduct of business rules (COBS).

These rules focus on consumer protection and set out that an insurer and its intermediaries must treat their customers fairly and conduct themselves in a way that is clear, fair and not misleading. The rules cover the entire lifecycle of an insurance product from design and governance to distribution and sales, claims handling and complaints and customer communications.

While these provisions are high-level, the FCA has the ability to impose fines, bans or other measures where they determine the rules have been breached. In September 2023, for example, a Final Notice was published against the insurer Direct Line for a breach of ICOBS rules relating to pricing structures where existing home and motor insurance customers were charged more for their renewals than new customers.

In a similar theme of consumer protection, the FCA has spearheaded the introduction of new consumer duty rules aimed at improving the standard of communication and consumer protection across financial services, including insurance. The stated core principle of these rules is that firms must act to deliver good outcomes for retail customers. The duty came into effect for new sales from 31 July 2023 with this being expanded to cover existing sales from 31 July 2024. The duty includes requirements for firms to:

  • Make it as easy to switch or cancel products as it was to take them out. 
  • Provide helpful and accessible customer support. 
  • Provide timely, clear and understandable information about products and services so that people can make good financial decisions. 
  • Provide products and services that are right for their customers. 
  • Focus on the real and diverse needs of customers, including those in vulnerable circumstances.

The duty does not regulate what an insurer may charge for product-specific features such as premiums paid by installments, administrative charges and mid-term cancellation fees. Insurers will, however, need to demonstrate that any charges are reasonable and that they meet the price and value outcome.

The FCA completed a thematic review of the regulations in August 2024 and explicitly referenced insurers when reporting on the outcome of the review, stating that insurers were failing to meet the new requirements, particularly in relation to demonstrating to consumers how products offer fair value and outcomes.

Regulation of commercial insurance

The FCA Handbook applies different regulatory rules to the provision of commercial insurance where a contract of insurance fits the definition of a “contract of large risks”. This includes insurance relating to:

  1. railway rolling stock, aircraft, ships (sea, lake, river and canal vessels), goods in transit, aircraft liability and liability of ships (sea, lake, river and canal vessels);
  2. credit and suretyship, where the policyholder is engaged professionally in an industrial or commercial activity or in one of the liberal professions, and the risks relate to such activity;
  3. land vehicles (other than railway rolling stock), fire and natural forces, other damage to property, motor vehicle liability, general liability and miscellaneous financial loss, in so far as the policyholder exceeds the limits of at least two of the following three criteria:
    • balance sheet total: €6.2 million;
    • net turnover: €12.8 million;
    • average number of employees during the financial year: 250

Where an insurance contract falls into the above definition, the majority of the ICOBS rules do not apply and aspects of the “PROD 4” regime relating to product governance are also not applicable, creating a looser framework of regulation for commercial insurance.

However, in July 2024 the FCA published its discussion paper DP24/1 which identified issues with the current regime and stated its aim to potentially amend definitions to distinguish small and medium enterprises (SMEs) from larger business customers, bringing SMEs more in line with consumer regulation, and ultimately offering them greater regulatory protection.

All too often it is only when there is a major incident that businesses think about the terms of their insurance. However, it is important that businesses understand their insurance coverage obligations ahead of crises to ensure they don’t inadvertently lose the ability to recoup any future losses through insurance when an incident does occur.

The Need to Notify

One important obligation that insureds must understand is notification. Many policies list notification obligations as a condition precedent to coverage, meaning that if they are not complied with, insurers may have a right not to cover an insured’s claim.

In this blog we set out the common components of notification provisions that can be found in insurance policies, which should be considered when there is any possibility of a claim.

Notification requirements serve several purposes. As an insured, notifying your insurer promptly can help you:

  • Preserve your rights and benefits under the policy
  • Obtain advice and assistance from your insurer
  • Avoid disputes and delays in the claim process
  • Comply with any legal or contractual obligations

Claim or Circumstance?

The first step to understanding your notification obligations is to determine whether the policy requires you to notify a claim, a potential claim, and/or a circumstance.

In addition to needing to notify known claims or potential claims, your policy may allow for or, indeed, require, notification of a “circumstance” which could lead to a claim. A “circumstance” may or may not be defined in the policy. Normally, a “circumstance” is a known matter that could indicate a potential for future claims. Failure to notify a “circumstance”, when required, could result in insurers refusing to cover claims found to be arising out of that circumstance.

Awareness is Key

Only if an insured is aware of a claim or a circumstance can it be notified to insurers. Therefore, practically, the risk manager or individual/team charged with the management of your company’s insurance suite must monitor the company’s risk exposure on a regular basis and have a reliable pipeline of information from the business to ensure it is capturing claims, and also possible “circumstances” that could give rise to a claim.

Threshold for Notification

In respect of notifying circumstances, you should also be aware of the threshold for notification required under your company’s insurance policies. You may need to notify circumstances that are “likely” or “may/might” or “are reasonably expected” to give rise to a claim. Determining the threshold required for notification is important to ensure the ability to bring a claim related to the circumstances is preserved.

Making a Notification

Once you determine that either a claim or a circumstance needs to be notified to insurers under your policy, notification will need to be made to insurers.

The best way to notify your insurer is to follow the instructions and procedures outlined in your policy document or contact your insurance agent or broker. You may need to provide written notice, verbal notice, or both, depending on the nature and urgency of the matter. You may also need to provide supporting documents, evidence, or information to substantiate your notification.

You should keep a record of your notification, including the date, time, method, and content of your communication, and the name and contact details of the person you spoke to or corresponded with. You should also keep a copy of any correspondence or documents you send or receive from your insurer.

We also note that insureds are often required to notify any change or development in a notified claim or circumstance. Accordingly, you should liaise with your broker to ensure insurers are kept updated as a notified claim/circumstance develops.

Timing of Notification

Your company’s policy may contain specific wording as to how long your company has to notify insurers of a claim and/or circumstance. If the policy is unclear or silent as to timing, it is recommended that notification is made to insurers as soon as possible.

Notification of a Claim Against Insurers

Not only does your company have to notify insurers of a claim in accordance with the terms of the policy, but your company should also check to see if there is a clause in the policy providing that legal proceedings against insurers must be commenced within a specific period (the period specified can sometimes be shorter period than the usual six-year limitation period for contractual or tortious claims under English law).

Considerations when Negotiating Policy Terms

Insureds should be familiar with the notification obligations in their insurance policies to ensure that opportunities for indemnification for claims and potential future claims are not lost.

When it comes to renewing or placing a new policy, insureds might want to attempt to negotiate the notification wording. The wording of the notification clause should be clear and unambiguous to ensure that the insured knows exactly what to do when it comes to notifying insurers of a claim/potential claim or circumstances that could give rise to a claim.

Under the Insurance Act 2015, the insured must disclose every material circumstance that they know or ought to know or give the insurer sufficient information to put a prudent insurer on notice of the need to make further enquiries. The insured is deemed to know what is known by its senior management and those responsible for arranging the insurance, as well as what should reasonably have been revealed by a reasonable search of information available to the insured. It is typically preferable to seek to limit the knowledge to specific individuals in the insurance team, or the risk manager at the company.

Key takeaway: Compliance with notification requirements under an insurance policy is important. It will preserve your rights and benefits under the policy and ultimately avoid disputes and delays in the claim process.

Earlier this year, in Gregory v. Safeco Insurance Co., the Supreme Court of Colorado addressed the question whether, under Colorado law, the notice-prejudice rule should apply to first-party property insurance claims under occurrence-based, homeowners’ insurance policies. 545 P.3d 942 (Colo. 2024). In a thoughtful and lengthy opinion, the Supreme Court adopted the rule by at 4-3 vote. Id. at 961. The facts and holding are discussed in several articles.[1] Rather than retread those details, this blog highlights three other important takeaways from the opinion.

1. Stare decisis remains vital

Stare decisis, the court in Gregory explained, “is a judicially created doctrine under which courts follow preexisting rules of law.” Gregory, 545 P.3d at 950. This bedrock principle of Anglo-American jurisprudence, which has gone through some rough times of late, remains strong in Colorado. In applying the doctrine, the court in Gregory thoroughly walked through its past decisions on late notice, tracing its own jurisprudence back one hundred and fifteen years, to its decision in Barclay v. London Guarantee & Accident Co., 105 P. 865 (Colo. 1909). The court then methodically plotted a course forward, to the present day and the embracing of the notice-prejudice rule in the context of occurrence-based, first-party homeowners’ property insurance policies.

Although it is self-evidently anachronistic and lowercase “c” conservative – asking lawyers and judges to look backwards, with the express purposes of adhering to precedent (history and “tradition”), fostering stability and predictability,[2] and curbing judicial activism[3] – stare decisis is nonetheless a pillar (if imperfect) of our judicial system. The Gregory decision is a wonderful example of the application of this seminal principle.

2. Insurance law is a creature of state law and it must be mined carefully and comprehensively

Just as stare decisis is a foundational tenet of Anglo-American jurisprudence, so, too, is the notice-prejudice rule a universally adopted rule of American insurance law, at least for occurrence-based policies. Or, almost, as it is, apparently, a near-universal rule of several states. Indeed, for many years, it was a matter of insurance law dictum that everywhere adhered to the notice-prejudice rule for occurrence policies, except New York, and that was changed by the New York legislature more than fifteen years ago.[4]

But the broader point is that Colorado law on notice was, and is, different from the law of other states. Even different within Colorado depending on the type of insurance policy. And this is not uncommon. Unlike most businesses in the United States, the business of insurance is subject to regulation by the individual states.[5] Likewise, there is no national or federal body of insurance law. Courts in all states are bound only by the precedents of their own state appellate courts. Thus, one of the first steps to take in any insurance case is to determine what state’s law might apply to the interpretation of the insurance policy at issue, and then how that state or those states have ruled (or might rule) on the important questions and defenses to the claim.

3. Policyholders should always identify and comply with deadlines in their insurance policies

Although listed third, this might be the most important lesson to take from Gregory – policyholders should always pore over their policies to ensure they know of and comply with any deadlines in them. In Gregory, the policyholders were required to give notice within one year of the date of the loss. Other policies might require proofs of loss to be provided 60 or 90 days from the date of loss or the date they are requested by the insurance company; still others might require that a lawsuit be brough within one, two, or even three years from the date of loss. Adding to the difficulty is that different states might apply different rules to these deadlines – some might require strict compliance, while others have put in place various equitable rules, such as requiring prejudice or equitable tolling, which might blunt the otherwise draconian impact of some of these provisions. But it all starts with the policy language. A policyholder must look at that first, hopefully at or not long after the time of the loss, and do as much as it can to comply with any deadlines.

[1]  See, e.g., ACCC_Articles_COSupCrtPrejAndPropClaims_Law360_20240312.pdf; https://www.cohenziffer.com/law360-insurance-authority-the-top-property-insurance-decisions-of-2024-so-far/;  https://cl.cobar.org/from-the-courts/gregory-v-safeco-insurance-co-of-america-runkel-v-owners-insurance-co/; https://www.insurancebusinessmag.com/us/news/legal-insights/can-an-insurance-carrier-reject-a-homeowners-claim-if-it-is-late-481599.aspx;

[2]  Lindquist and Cross, Stability, Predictability and the Rule of Law:  Stare Decisis as Reciprocity Norm, Univ. of Tex. Rule of Law Conf., 2010.

[3]  Federalist No. 78.

[4]  “Chapter 388 of the Laws of 2008 (“Chapter 388”), which amends Insurance Law §§2601 and 3420” and “bring[s] New York into the mainstream with respect to establishing a “prejudice” standard applicable to the late notice of claims.  The law t[ook] effect on January 17, 2009 (180 days after it was signed by the Governor on July 21, 2008).”  https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2008_26.

[5]  In the United States, the McCarran-Ferguson Insurance Regulation Act, 15 U.S.C.A. §§ 1011-1015, statutorily prohibits the federal government from regulating the insurance industry. This regulatory authority is left solely to the individual states.