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Insurance Litigation – California Court Prevents Insurers from Avoiding Payouts

On Behalf of | Dec 20, 2012 | Articles

In recent insurance litigation, A California court’s decision has made it harder for insurance companies to avoid paying out on legitimate claims.

­In late summer 2009, a wildfire (known as the Station Fire) destroyed 250 square miles of forest and 89 homes in Southern California. Ocie Henderson, along with five other plaintiffs in the case, all owned homes near the fire line and were insured by Fire Insurance Exchange and other related insurers. Their homes were damaged by fire, soot, and smoke in the fire, and they made claims on their insurance policies to cover the damage. Their insurance contracts required a timely notice of loss, known as a proof-of-loss requirement. The contract specified that the homeowners needed to provide the proof-of-loss notice within 60 days of a request by the insurer, and further stated that they could not sue Fire Insurance Exchange unless they had fully complied with their contracts.  The owners, for various reasons, did not provide the insurance companies with the proof-of-loss documentation and the insurance company denied their claims.

Henderson and the plaintiffs sued the companies in order to compel them to pay out on their policies, and the company argued at trial that they did not need to pay on the claims because the plaintiffs had not provided them with the required documentation.

Fortunately for consumers, in California, there is a legal rule known as the “notice-prejudice” rule, which holds that an insurance company can only successfully avoid paying out on a claim because of a policyholder’s breach of contract, if the company was “substantially prejudiced” by the breach. What this means is that even if a policyholder does not comply with their contract, the company still must honor the claim unless the company can show that the non-compliance created a situation that made it difficult to investigate or settle the claim. The rule exists to protect consumers from insurance companies using technicalities to avoid paying out on claims.

Because the companies were unable to show substantial prejudice, the court ordered the insurance company to pay the plaintiffs.

When insurance companies refuse to pay, you need to hire an experienced insurance litigation attorney to represent you. The Los Angeles litigation attorneys of Makarem & Associates are experienced lawyers who know how to get insurance companies to pay. Mr. Makarem obtained a $2.15 million dollar settlement from an insurance company for a disabled physician who had become disabled as the result of a stroke. Our attorneys are committed to representing insured persons who are having problems collecting from their insurance companies, and strive to get each client the highest possible settlement. If you are having a dispute with your insurance company, Makarem & Associates can help. To schedule a consultation, call us today at 310.312.0299 or email us at [email protected].