Notifying Your Insurer of a Loss

Failure to do so may result in a loss of coverage.

A church’s failure to comply with all of the terms and conditions in its insurance policy following a personal injury or damage to its property may result in a loss of coverage. One charity learned this lesson the hard way.

Background. A charity leased a building that it used as a shelter for the homeless. The lease required the charity to maintain liability and property insurance coverage on the building. The charity purchased insurance, and used the building for a few years. Shortly after the charity vacated the building at the end of its lease, it was sued by the property owner as a result of severe water damage that had occurred during the charity’s lease. The charity notified its insurance company of the claim, and was asked by its insurer to submit a written “proof of loss” form within 60 days as required by the insurance policy. The charity did not submit the required proof of loss form until after the 60-day period had expired, and the insurer denied coverage on this basis. The charity sued its insurer for breach of contract. The insurer defended itself by pointing to the charity’s failure to submit written proof of loss in a timely manner, and its failure to cooperate with the insurer’s investigation of the claim. The court agreed with the insurer, and awarded it $20,000 in attorney fees.

The court’s decision. Did the charity’s failure to submit written proof of loss within 60 days bar recovery under the insurance policy? The charity acknowledged that it failed to comply with the policy’s proof of loss requirement, but it insisted that timely filing was not a legal requirement that should result in a loss of coverage unless the insurer was somehow prejudiced by the delay.

The court concluded that the charity’s failure to comply with the proof of loss requirement resulted in a loss of coverage. It pointed out that the policy “unambiguously makes submission of written proof of loss within 60 days after request from the insurer” a precondition to coverage. The policy states:

Duties in the event of loss or damage. You must see that the following are done in the event of loss or damage to covered property … send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.

No one may bring a legal action against us unless … there has been full compliance with all of the terms of this coverage part.

The court concluded, “Because the language of the insurance policy is clear … submission of written proof of loss within 60 days after request from [the insurer] is a condition precedent to recovery.” It rejected the charity’s argument that the insurer must have been “prejudiced” by the delay in order to deny coverage, noting that “when a time limit in a policy for providing notice of loss is authorized by statute and an insured fails to comply, recovery is barred regardless of whether the insurer was prejudiced.”

Relevance to church treasurers. The tragic lesson of this case is clear—church treasurers should be familiar with all of the provisions of their church’s liability and property insurance policies, and ensure that all “conditions” are satisfied. Special attention should be paid to those provisions calling for notice following a loss or potential claim. It is imperative that all conditions be met in order to avoid denial of coverage. Leamington Co. v. Nonprofits Insurance Association, 1999 WL 561951 (Minn. App. 1999).

Key point. After reviewing your policies, discuss any questions regarding the notice provisions and other “conditions” with your insurance agent.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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