Analysis of New Case Law re: Overcoming the Presumption of Prejudice caused by Failure to Provide Prompt Notice

Analysis and Interpretation by Michael A. Cassel

​On May 16, 2018, the Fourth District Court of Appeals released their decision in Carlos De La Rosa v. Florida Peninsula Insurance Company, No. 4D17-1294, 2018 WL 2246781 (4th DCA 2018) (hereinafter "De La Rosa").  The De La Rosa opinion discusses the prejudice analysis as it pertains to the failure to comply with the prompt notice requirement contained within the insured's homeowners insurance policy.

​Background and Facts
 
In April 2014, the insured noted water backing up in the shower in his master bathroom.  He called a plumbing company who replaced the drainage system for the septic tank.  In February 2015, the insured renovated the bathroom due to the water damages spending $4,000.  In July 2015, 14 months after the discovery of the loss, the insured submitted an insurance claim alleging damages in the amount of $22,274.00.  After the insurer denied the claim, litigation commenced.
 
The insurer raised the defenses that the insured failed to comply with the policy conditions by failing to timely report the claim and show the damaged property as often as reasonably required.  During the insured's deposition, he advised that he waited to report his claim as he was not aware of his rights under his insurance policy and that all of the repairs were completed prior to the insurer's initial inspection.
 
In anticipation of a Motion for Summary Judgment, each side filed affidavits.  The insurer submitted an affidavit of their adjuster who inspected the subject property.  In the affidavit, it was stated that, because all repairs were already effectuated in the bathroom, he could not observe any water damage.  The adjuster also reviewed a photograph taken before the renovation but alleged that it did not show any damage.  Finally, the adjuster testified that, while several pieces of building materials (old drywall and piping, were maintained for inspection, the items were kept outside and exposed to the elements of nature and, as such, no determination as to cause or origin of any observed damage could be ascertained.
 
The insured filed an affidavit of his public adjuster who testified that, during a July 2015 inspection, she observed water damage to various areas of the subject property attributable to the loss.  She also stated that the damage to the retained building materials was consistent with a one-time water event occurring in April 2014.  The insured also filed an affidavit of his engineer who testified that the damages were evident during his February 2017 inspection and, as such, would have been evident during the insurer's inspection.  Additionally, and most importantly, the engineer's affidavit incorporated his report of findings which alleged that the damage caused by the insured's loss would have worsened over time if the water was not removed.
 
At the hearing on the insurer's Motion for Summary Judgment, the insured's attorney conceded that the notice provided was untimely and that it was proper for the trial court to presume that the insurer was prejudiced; therefore, the insured needed to present competent evidence to rebut the presumption of prejudice.  The trial court sided with the insurer and stated that the insured failed to rebut the presumption of prejudice as a matter of law.  The appeal followed.
 
4th DCA Opinion
 
The 4th DCA ultimately held that "[w]hile in this case there may be disputed issues of fact as to whether the insurer was prejudiced in determining the cause of the incident, the record forecloses the insured's ability to overcome the prejudice to the insurer in evaluating the extent of the damage because of the delay in making the claim."[1] This seems to have been based solely on the portion of the insured's own engineer's report which explained that the damages worsened over time.
 
Analysis, Impact, and Effect
 
The impact of the De La Rosa holding is troublesome for policyholders as it will no doubt revitalize arguments that have lay dormant for some time as a result of well-established maxims in Florida case law regarding compliance with post-loss conditions, in particular, late notice claims.  In order to understand these maxims, one must first understand the basics of post-loss conditions typically contained within insurance policies in Florida.
 
Insurance policies contain two (2) general types of post-loss conditions: "compulsory" conditions, i.e., conditions that must be fulfilled with or without the request from an insurer,[2] and "cooperation" conditions, i.e., conditions that must be fulfilled upon the request of an insurer. [3]   The "notice" provision is a subset of the "compulsory" post-loss condition category. [4]   Accordingly, the policy provisions which require an insured to provide prompt notice and protect the property from further damage by making reasonable and necessary repairs without the insurer having to request same would be categorized compulsory post-loss conditions.  Conversely, the standard provision requiring that an insured show the damaged property as often as reasonably required would be considered a cooperation condition. 
 
Normally, “[a] material breach of an insured’s duty to comply with a policy’s condition precedent relieves the insurer of its obligations under the contract.”[5]  A total failure to comply with a policy provision amounts to a breach of the policy precluding recovery.[6]  “If, however, the insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented for resolution by a jury.”[7]  That said, “[i]n Florida, different presumptions arise depending on which duty has been breached.”[8]
 
Generally speaking, “[i]n a breach of cooperation clause case… the insurer must show a material failure to cooperate which substantially prejudiced the insurer.”[9]  “Not every failure to cooperate will release the insurance company.  Only that failure which constitutes a material breach and substantially prejudices the rights of the insurer in defense of the cause will release the insurer of its obligation to pay.”[10]
 
The issue regarding receipt of prompt notice commands as different test.  "The question of whether an insured's untimely reporting of loss is sufficient to result in the denial of recovery under the policy implicates a two-step analysis… The first step in the analysis is to determine whether or not the notice was timely given… If the notice was untimely, then prejudice to the insurer is presumed… However, the presumption of prejudice to the insurer 'may be rebutted by a showing that the insurer has not been prejudiced by the lack of notice.'"[11]  Notice requirements in insurance contracts take many forms, such as “prompt,” “immediate,” “as soon as practicable,” etc.  These terms do not require instantaneous notice to the insurer of the loss, but require notice “within reasonable dispatch and within a reasonable time in light of all the facts and circumstances of each particular case.”[12]  Typically speaking, the question of timeliness presents an issue of fact for the jury; however, based on the testimony provided by Mr. De La Rosa, it seems reasonable to believe that, even without the stipulation from the insured's counsel, the court would have found a violation of the prompt notice requirement contained within the subject policy thereby creating a presumption of prejudice.
 
The real issue in De La Rosa lies in both the trial and appellate courts' willingness to ignore clear issues of material fact with regards to the damages apparent at the insured's property in determining whether the presumption of prejudice was adequately rebutted by the insured.  The insured submitted two (2) affidavits which alleged there was still readily observable damage caused by the loss in question in both 2015 and 2017.  This alone should have created an issue to be presented to the trier of fact as "a party cannot create its own prejudice and thereby benefit from it."[13]  Said differently, if there was damage to the property that was readily apparent, and the insurer chose not to inspect it, the insurer cannot benefit from shutting its eyes to the available evidence. 
 
In many instances, a damages expert may be able to observe damages, take into consideration the amount of time that has passed since a loss, determine what damages would have occurred at the onset of the loss, and quantified same.  This should be adequate to, at a minimum, create an issue of fact for the jury to consider thereby precluding summary judgment.  Of course, every case is unique and attention must be paid to every detail.

Should you have any questions about how this analysis may relate to your own claim, please do not hesitate to contact us for a free consultation.

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[1] De La Rosa at 3
[2] Rodrigo v. State Farm Fla. Ins. Co., 144 So. 3d 690, 692 (Fla. 4th DCA 2014)
[3] See generally State Farm Mut. Auto. Ins. Co. v. Curran, 135 So. 3d 1071, 1072 (Fla. 2014) 
[4] See Bankers Ins. Co. v. Macias, 475 So. 2d 1216 (Fla. 1985)
[5] Starling v. Allstate Floridian Ins. Co., 956 So. 2d 511, 513 (Fla. 5th DCA 2007)
[6] Haiman v. Federal Insurance Co., 798 So.2d 811 (Fla. 4th DCA 2001); see also Starling v. Allstate, supra. 
[7] Haiman at 812 (quoting Diamonds & Denims, Inc. v. First of Georgia Ins. Co., 417 S.E.2d 440, 441–42 [Ga.Ct.App.1992])
[8] Id. at 1217
[9] Macias at 1218
[10] Ramos v. Nw. Mut. Ins. Co., 336 So. 2d 71, 75 (Fla. 1976)
[11] LoBello v. State Farm Florida Ins. Co., 152 So. 3d 595, 599 (Fla. 2d DCA 2014) quoting Macias at 1218 (additional citations omitted)
[12] American Fire and Cas. Co. v. Collura, 163 So. 2d 784, 793 (Fla. 2d DCA 1964)
[13] Mid-Continent Cas. Co. v. Basdeo, 742 F. Supp. 2d 1293, 1338 (S.D. Fla. 2010)