Failure to Comply with Duties under Policy

We have run into a situation in which an insured has failed to respond to our attempts at contact in order to obtain necessary information to investigate a businessowners liability claim. While the specific language in the businessowners policy does not state that failure to cooperate will result in a denial of coverage, page 188 of the Businessowners policy coverage guide (published by the National Underwriter) does state that “failure by the insured to comply with any of these duties may result in coverage being voided. Is there a specific section of the policy that addresses this issue?

Pennsylvania Subscriber

There is not a specific section of the policy that provides that failure by the insured to comply with its duties may result in voiding of coverage. Rather, the voidable idea is based on contract law and a breach of the insurance contract by the insured.

While it will vary by jurisdiction, most courts have taken the view that for an insurer to be relieved of its obligations under the policy, it must show not only that the insured breached the contract, but also that the insurer was prejudiced as a result. In some jurisdictions, the requirement for a showing of prejudice applies to breaches of the cooperation clause, even when the jurisdiction requires no showing of prejudice as to breaches of timely notice provisions.

Alternatively, it has been stated that an insurer must show prejudice before the insured's failure will be regarded as a material breach of the condition requiring the insured's cooperation.

So although to void coverage, it might be necessary to show that the insurer was prejudiced by the insured's failure to respond to the contact attempts, it is certainly a route to potentially take with success.

 

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