Must An Insurer Be Prejudiced In Order To Bar Recovery When A Policyholder Fails To Comply With Their Duties After Loss?
By Kyle Hyman, Esq.
Failing to comply with a duty after loss could potentially be fatal to your first party insurance claim depending on the jurisdiction of your case.
Material Breach of The Policy
In order for a policyholder to forfeit their right to recover insurance benefits, there must first be a material breach of the policy. Therefore, the first question is always whether or not the insured substantially complied with their duties after loss as set forth in the policy.
If an insured substantially complies with the duty at issue, then there is no material breach and the Insured may recover benefits. If, on the other hand, the insured has not substantially complied with the duty, then the Insured has materially breached the policy and, depending on the jurisdiction, may have lost their right to receive insurance benefits for their claim.
I use the term “may” because this is where jurisdiction matters.
In 2014, the Fourth District Court of Appeal held in Rodrigo v. State Farm Fla. Ins. Co., that once material breach has been proven, the Insured has no right to receive insurance benefits owed under the policy. 144 So. 3d 690, 692 (Fla. 4th DCA 2014). That is because an insurance carrier does not have to prove it was prejudiced by the insured’s breach in order to deny payment. According to the Fourth District Court of Appeal, all that must be shown is that there was a material breach of the duty after loss.
The Fifth District Court of Appeal and, most recently, the Third District Court of Appeal have taken a different approach. In Allstate Floridian Ins. Co. v. Farmer, 104 So. 3d 1242 (Fla. 5th DCA 2012), and American Integrity Ins. Co. v. Estrada, 2019 Fla. App. LEXIS 100020 (Fla. 3d DCA 2019), the Third and Fifth both held that not only must an insurer prove lack of substantial compliance before recovery is forfeited, but that there must also be prejudice to the carrier as a result of the lack of compliance.
This effectively creates a two-prong test:
1) did the failure to comply with the duty constitute a material breach of the policy AND
2) was the insurance carrier prejudiced as a result of the material breach. Only if both elements are met does the policyholder lose its right to recover the insurance proceeds under the policy.
Who Has The Burden of Proof?
The insurance carrier always has the initial burden of proving that the Insured did not substantially comply with duties after loss set forth in the policy. In the Fourth, that is the end of the analysis and there is no recovery.
In the Third and Fifth DCA’s, once a jury finds that a material breach has occurred, prejudice is presumed. The burden then shifts to the insured to prove that the insurance carrier has not been prejudiced by the insured’s failure to comply in order to overcome the defense.
The Florida Supreme Court
In its June, 2019 decision, the Third District Court of Appeal certified conflict with the Fourth. The issue of whether there must be prejudice in order to bar recovery when an insured fails to comply with their duties after loss is now almost certainly destined for the Florida Supreme Court.
Until then, it is important to be mindful of your jurisdiction and what must be proven. Attorneys on both sides of the ball should be acutely aware of the elements that must be proven in order to prevail.
Kyle Hyman, Esq.
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