What Happens If a Proof of Loss Is Filed Late? Can The Policyholder Collect?

Does a late-filed proof of loss automatically result in a forfeiture of all insurance policy benefits? Christina Phillips and Jon Bukowski recently discussed this issue in a seminar. I followed up with Christina Phillips about the Minnesota rule on this issue after reading a Minnesota law review 1 analyzing a Minnesota Supreme Court case 2 regarding late filed proofs of loss.

The article noted:

Insurance policies follow the basic principles of contracts. Most insurance policies are adhesion contracts; therefore courts resolve ambiguities in favor of the insured to avoid interpreting them in a manner that will forfeit rights under the policy.

However, courts will find a forfeiture in an insurance contract if the language is unambiguous and a forfeiture is clearly the intent of both parties. Interpretation of insurance policy and statutory language presents questions of law that courts in every state review de novo.

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At common law, Minnesota courts held specific policy language will expressly make the time requirement to submit the proof of loss a condition precedent would bar recovery by the insured if that time was not met. However, courts held that even though specific language made the proof of loss provision a condition precedent, the insurer can waive the provision through its actions.

Courts noted where the policy does not include specific language making that time requirement a condition precedent to the liability of the insurance company, then the time to submit a proof of loss is not “of the essence” of the contract.

The article concluded:

The Nathe decision correctly determined that the submission of proof of loss in this situation (and under the statute) is a condition subsequent and failure to meet that time requirement should not necessarily bar recovery. This ruling enhances the view that courts should interpret ambiguities in a manner that maintains the insured’s rights under the policy.

The Minnesota view is what most courts, but not all, follow and will only allow a complete denial where the insurer is prejudiced by the late filing.

Christina Phillips wrote a post, “Is Substantial Compliance with a Proof of Loss Enough?” where she noted:

The purpose of a sworn proof of loss is to enable the insurer to properly investigate the circumstances of a loss while the occurrence is fresh in the minds of the witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its rights and liabilities so it may adequately prepare to defend any claim….

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Note, however, that strict compliance with a proof of loss under a Standard Flood Insurance Policy is required. This issue was recently addressed in Scharr v. Selective Insurance Company of New York, where the court granted the insurer’s motion for summary judgment when the insured failed to submit a signed and sworn proof of loss within 60 days of their flood-related loss as required by the policy. The insured attempted to argue substantial compliance through the submission of a proof of loss for the undisputed damage, and the submission of various reports and estimates which included the estimated amount of damages. The court concluded the insureds’ submission of a sworn statement in proof of loss setting forth the undisputed amount did not relieve the insured of obligations under the policy to submit a sworn proof of loss setting forth all damages claimed under the policy, within 60 days.

The lesson is to read the policy duties after loss. If there is a time limit to submit a proof of loss, meet it or ask for an extension. A policyholder can even provide most or whatever information is at hand and ask for an extension for the remainder. Substantial compliance is better than none. However, when dealing with National Flood Insurance or National Crop Insurance, those proofs of loss time frames cannot be extended except in very unusual circumstances by a federal official, as noted in Attention Public Adjusters: Urgent Reminder on Upcoming Deadline for National Flood Proofs of Loss.

Thought For The Day

I don’t need time. What I need is a deadline.
—Duke Ellington

1 Jonathan Schmidt, Contracts: Ensuring Insurance Insures the Insured: The Minnesota Supreme Court Clarifies the Minnesota Standard Fire Insurance Policy—Nathe Bros. v. Am. Nat’l Fire Ins. Co., 28 Wm. Mitchell L. Rev. 1247 (2002).
2 Nathe Bros. v. American National Fire Ins. Co., 615 N.W.2d 341 (Minn. 2000).