Denial of Claims and Rejection of Proofs of Loss
The following was a presentation at the February 2006 Southern Loss Association Luncheon. The presentation was given by Paul W. Burke, a partner at the law firm of Drew, Eckl & Farnham, LLP – Atlanta, GA

A. Denial Of Claims

A. Denial Of Claims

1. Significance of Denial Letters
The denial of a claim is a very significant event. It is the so-called “line in the sand” on claim evaluation. It should be taken very seriously, and as such, should not be done prematurely. Denial letters are considered the “official” position of an insurer to a claim.
One should be mindful of the manner and content of a denial letter because it will be an exhibit if suit ensues. This means ample time needs to be spent drafting and revising the letter. In performing this task, it is crucial to seek the input of supervisor and/or claim counsel as appropriate.

2. Content of Denial Letters
A “denial letter need not detail every bit of information in the record; it must have enough information to render the decision to deny benefits susceptible to judicial review.” Orndorf v. Paul Revere Life Ins. Co., 2005 U.S. App. LEXIS 6344 (1st Cir. Mass. Apr. 15, 2005).
Remember, however, you will have to defend each basis for denying a claim, so do not assert defenses that you don’t really care about or would normally not assert. Keep with your strong issues — the real reasons you denied the claim.
a. Denial letters should
(i) State that the insurer’s investigation is complete, but also state that the insurer is willing to consider any information provided by the insured.
(ii) Be sent “personal and confidential,” especially if the letter “accuses” the insured of fraud, etc. Such a letter should not perhaps be copied, for example, to a mortgagee.
(iii) Cite all the policy provision(s) on which the denial is based
(iv) Give a brief, but reasonably detailed, explanation of what facts make policy provision(s) applicable to claim.
(v) List all bases for denial. They should also state that the insurer may rest denial on other facts that may come to light.
(vi) Include language like:
(1) Notwithstanding, ABC Insurance Company reserves the right to continue its investigation and to defend itself with any and all facts revealed in that investigation. If you believe there are facts that ABC Insurance Company has not considered, please provide that information immediately. Additionally, ABC Insurance Company reserves the right to rely upon any policy provisions which may apply to this loss and does not waive compliance or the application of any such provisions.
(vii) Be sent Certified Mail.

3. Musings about Denial Letters
a. Suit Limitation Issues
Some state statutes MANDATE that a denial letter tell the insured of any statute or policy limitations.
Mathis v. Lumbermen’s Mut. Cas. Ins. Co., 822 N.E.2d 543, 2004 Ill. App. LEXIS 1586, 290 Ill. Dec. 958 (Ill. App. Ct. 2004) aff’d, 2005 Ill. LEXIS 586 (Ill. Mar. 30, 2005) .
Spray, Gould & Bowers v. Associated International Ins. Co., 71 Cal. App. 4th 1260, 84 Cal.Rptr.2d 552 (1999).
b. Insurer must have inquired about issue
Some state courts require an insurer to have inquired into a particular matter if they are every going to rely on it as a basis to deny the claim. In other words, the insurer must have investigated the matter at the time of denial.
Warren Davis Props. V, L.L.C. v. United Fire & Cas. Co., 111 S.W.3d 515; 2003 Mo. App. LEXIS 989, June 27, 2003, Filed

c. Comprehensible
Make certain that your denial letter is comprehensible not just to another claims person, but to a reasonable lay person. Opsal v. United Servs. Auto. Assoc., 10 Cal. Rptr. 2d 352, 359 (Ct. App. 1991).

4. Useful Support Tools
a. Make yourself a copy of applicable policy and all its endorsements. When you are reviewing it highlight the applicable provisions to be included in your denial.
b. Prepare a detailed chronology of events. This will help you make sure you have done everything deemed necessary in evaluating the claim. If you discover that something needs to be done, get it accomplished ASAP.
c. Maintain a detailed list of evidence (records or otherwise) which support your proposed denial. Make sure to examine these in detail as you prepare and craft you denial letter.

B. Rejection of a Proof of Loss

In order to properly understand when and how to reject a Proof of Loss, you must understand the purpose and use of Proofs of Loss.

1. What is a Proof of Loss?
A “proof of loss” is a standardized form on which the insured gives information about a claim, and about the property insured. 44 Am. Jur. 2d Insurance § 1323 (1982). Many states have codified, by way of Standard Fire Policy, this claim payment precondition.

The general purpose of proof requirements is “to afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obligated to pay.” 14 Couch on Insurance 2d (Rev. ed. 1982) § 49:390.

2. Typical Policy Proof of Loss Language
Typical policy proof language states:
LOSS CONDITIONS

(7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.

3. Purpose, Function and Intent
a. As stated above, the function of a proof of loss is to compel an insured to state under oath what the amount of his claim is, and other information about his claim
b. The effects of the insured’s submitting a proof of loss are:
(i) As stated in Barnes v State Farm Fire & Casualty Co, 623 F. Supp. 538, 540 (ED Mich. 1985), one purpose of requiring a sworn proof of loss is to “bind an insured to a stated set of facts”.
(ii) Additionally, the purpose of a proof of loss is to afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obligated to pay. Vala v. Pacific Ins. Co, Ltd., 231 Ill. Dec. 64, 296 Ill. App. 3d 968, 695 N.E.2d 581 (1998); Lumbermens Mutual Casualty Co. v. PERCEFULL et al, 638 So. 2d 1026, 1994 Fla. App. LEXIS 6005 (1994).
c. In those cases where an insured refuses to submit a Proof, that failure can be considered material:
(i) In Valiant v. American Family Mutual Ins. Co., 698 S.W.2d 584 (Mo. App. 1985), the court found:
After the plaintiffs gave the police an initial estimate of the stolen property, they met with an independent adjuster and increased their estimate by more than 1,000%. Further, plaintiffs were unwilling to sign a notarized affidavit verifying that their losses were genuine and that they were not attempting to defraud their insurance company. In light of all the facts and circumstances, plaintiffs’ persistent failure to file a sworn proof of loss cannot be considered as an immaterial breach of the policy.

4. When Must the Insured Submit a Proof of Loss?
a. Under most property policies, the insurer’s receipt of a proof of loss form starts a 30 or 60 day period which must elapse before the claim is “payable.” The insured cannot sue the insurer until this period passes, because the claim is not yet “payable.”
b. Some policies have this period run from the company’s “request;” others simply say that the insured must submit a proof of loss.
c. In some states, if an insurer wishes to hold the insured to the requirement of submitting a proof of loss, the company must send the insured a proof of loss form within a reasonable time after the company receives “written notice” of a claim. The main case on this stated that three months was not a “reasonable time.”
d. In the majority of states, an insurer must provide a proof of loss form to an insured if the insured requests one.

5. What if an Insured does not Submit Proof within Set Period of Time?
A majority of the cases hold that submission of a proof beyond the 60 day deadline is not fatal to a claim. Koski v Allstate Ins. Co., 456 Mich. 439, 444, 572 N.W.2d 636 (1998); Wendel v Swanberg, 384 Mich. 468, 185 N.W.2d 348 (1971); But see Pieces of 8, Inc. et al v. Auto-Owners Ins. Co., 2002 Mich. App. LEXIS 1522 (2002); Vena v. State Farm Fire & Casualty Co., 203 A.D.2d 790; 610 N.Y.S.2d 410; 1994 N.Y. App. Div. LEXIS 4150 (1994) (insured’s failure to provide proof of loss within 60 days constituted an absolute defense for the insurer) . Although New York and North Carolina are strict compliance state, if there is any obstacle to the submission, the Courts use a “reasonableness” standard to evaluate compliance. B&H Supply Co. v. Ins. Co. Amer., 311 S.E.2d 643 (N.C. Ct. App. 1984); Guadagno v. Colonial Coop. Ins. Co., 475 NYS2d 926 N.E.2d (1984). Further, some courts look to see if the insurer is prejudiced by the delay. Ball v. Allstate Ins. Co., 595 N.Y.S.2d 711, 616 S.E.2d 750 (1993).

Notwithstanding this majority rule, there are situations when an insureds delay is so lengthy that the insured’s actions bar further pursuit of the claim. In Balogh v. Jewelers Mut. Ins. Co., 167 F. Supp. 763 (S.D. Fla. 1958), where a proof was not received within 10 months following date of loss, the district court ruled any suit by the insured is barred because the insured did not give the insurer 60 days prior to passage of the applicable suit limitation to investigate and decide whether to pay the claim.

6. Substantial compliance/equivalent
In the majority of jurisdictions, an insured is required only to demonstrate a “substantial compliance” with the insurer’s request for a proof of loss. Dellar v Frankenmuth Mut. Ins. Co., 173 Mich. App. 138, 145; 433 N.W.2d 380 (1989), DePalma v. Bates County Mutual Ins. Co., 24 S.W.3d 766, 2000 Mo. App. LEXIS 1153 (2000), Home Fire Ins. Co. v. Hammang Bros., 44 Neb. 566; 62 N.W. 883; 1895 Neb. LEXIS 69 (1895). But see Vala v. Pacific Ins. Co., Ltd., 231 Ill. Dec. 64, 296 Ill. App. 3d 968, 695 N.E.2d 581 (1998) (Court held that statute required a proof of loss filed in the form required by the policy in question).

The standard against which the sufficiency of the proof must be measured is typically a “reasonableness” standard and courts have adopted a relaxed approach finding a insured’s unsworn statement, handwritten estimates and EUO testimony sufficient to supply the needed information listed on the proof of loss. Czerwinski v. National-Ben Franklin Fire Ins. Co., 138 Pa. Super. 84; 10 A.2d 40; 1939 Pa. Super. LEXIS 360 (1939) (proof requirement held met when insured provided testimony regarding the value of household goods and the insurer did not object). Capital Fixture and Supply Company v. National Fire Ins. Co. of Hartford, 279 P. 2d 435 (1955); Sevier v. USF&G Company, 497 So.2d 1380 (La. 1986). See Green v. General Accident Ins. Co. of America, 106 N.M. 523, 746 P.2d 152 (1987); Sutton v. Fire Ins. Exchange, 509 P.2d 418 (Or. 1973); Austin Building Co. v. National Union Fire Ins. Co., 403 S.W.2d 499 (Tex.Civ.App. 1966). See Sevier v. USF&G Co., 497 So.2d 1380 (La. 1986). See Maynard v. National Fire Ins. Co., 129 S.E.2d 443 (W.Va. 1963) overruled in part, Smithson v. USF&G Co., 411 S.E.2d 850 (W.Va 1991)(at an EUO, the insurer arguably obtained substantially the same information it would have had the proof of loss been submitted). But see Calhoon v. Girard Fire & Marine Ins. Co., 64 Pa. Super. 82; 1916 Pa. Super. LEXIS 248 (1916) (inventory of goods with their values sent by the insureds to the insurer’s adjuster did not take the place of a sworn proof of loss, the insured’s failure to comply with terms of a fire insurance policy was a bar to recovery).

7. When Should a Proof of Loss be “Rejected?”
Of course, an insurance company can not arbitrarily reject proof of loss for the purpose of postponing the date of payment. St. Paul Fire & Marine Ins. Co. v. Womack, 122 Ark. 396, 183 S.W. 203 (1916). If a proof is deemed “inadequate” by the insurer, the proof should be returned promptly with an explanation of what the omitted information needed is, and if possible, why the omitted information is needed. National Fire Ins. Co. v. Cannon & Byers Millinery Co., 200 Ky. 655; 255 S.W. 154 (1923); Home Fire Ins. Co. v. Hammang Bros., 44 Neb. 566; 62 N.W. 883 (1895)

● A proof of loss should not be “rejected” because the company does not agree that the amount the insured has claimed is what is owed.

● REMEMBER: “Accepting” a proof of loss does not mean that the company agrees to pay the amount the insured has claimed or agrees that the claim is payable.

● A proof of loss should not be “rejected” to buy time.

● A proof of loss should be returned ONLY if it is not filled out correctly, e.g. not signed, information left out. Fidelity-Phoenix Fire Ins. Co. v. Sadau, 167 S.W.2d 334 (Tex. Civ. App. 1914) (failure to state time and origin of fire made proof defective).

If you do reject, state the specific reasons why you are rejecting it and send an additional blank proof to the insured. This is another area where you can be perceived by a jury as being over technical. Even if you feel the claim is fraudulent, if the proof is filled out correctly (technically), no need to reject. Again, not rejecting it does not mean you accept it.

Omaha Paper Stock Co. v. California Union Ins. Co., 200 Neb. 31, 262 N.W.2d 175, 179 (Neb. 1978) (finding that where an insurance company rejected an insured’s proof of loss statements, it could not have relied on or been prejudiced by the insured’s misrepresentations in a record supporting the rejected proof of loss statements).

8. When Should you Reject a Proof of Loss?
Policies often define the time for responding. State statutes may also set a deadline. The National Association of Insurance Commissioners Model Regulations recommend a 15 working day response time.

9. Proof of Loss Requirement can be Waived by Insurer
Insurers frequently, although inadvertently, waive policy proof of loss requirements. Waiver of proof of loss requirements are typically jury issues, so keep that in mind. Brandon v. Nationwide Mut. Fire Ins. Co., 301 N.C. 366; 271 S.E.2d 380; 1980 N.C. LEXIS 1170 (1980).
a. Waiver Examples
By asking and proceeding with an Examination Under oath, when an insured has not returned a completed proof of loss can waive this condition precedent. Cotton States Mut. Ins. Co. v. Walker, 232 Ga. App. 41, 500 S.E.2d 587 (1998); Williams v. Southern General Ins. Co., 211 Ga. App. 867, 440 S.E.2d 753 (1994).
If the policy requires proofs of loss to be made on blank forms to be furnished by the insurer, the failure or refusal to furnish such blank forms constitutes a waiver of the policy requirements. 44 Am. Jur. 2d Insurance § 1382 (1982). Tarzian v. West Bend Mut. Fire Ins. Co., 74 Ill. App. 2d 314, 221 N.E.2d 293 (1966)

An insurer’s denial of liability on grounds other than the insured’s failure to file proof of loss “‘waives or renders unnecessary compliance with the policy requirement respecting the filing of proof of loss.'” Tarzian v. West Bend Mut. Fire Ins. Co., 74 Ill. App. 2d 314, 221 N.E.2d 293 (1966); Nebraska Drillers, Inc. v. Westchester Fire Ins. Co., 123 F.Supp. 678 (D. Colo. 1954); Stoltz v. National Indem. Co., 345 Ill. App. 495, 502, 104 N.E.2d 320, 323-24 (1952).

Insurer waived proof of loss requirement when it denied claim on ground that made it unnecessary to submit perfect proofs. Marthinson v. North British Mercantile Ins. Co., 64 Mich. 372; 31 N.W. 291(1887).

Insurer waived the requirement of filing a proof of loss because it did not pursue the requirement. United States Fidelity & Guaranty Co. v. Whitfield, 355 So. 2d 307; 1978 Miss. LEXIS 1961(1978).

An insurer waived its right to insist upon the insured’s strict compliance with the form of notice of loss required by a fire insurance policy where the insurer gave the insured advance notice that proofs made in the required form would be rejected.
McManus v. Western Assurance Co., 43 A.D. 550; 60 N.Y.S. 1143; 1899 N.Y. App. Div. LEXIS 2017 (1899).

Proof requirement waived when insurer accused insured of fraud. Beckley v. Otsego County Fire Ins. Coop. Fire Ins. Co., 159 N.Y.S.2d 270 (3d Dept. 1957).

An insurer was estopped from raising the technical deficiencies in an insured’s proof of loss notice because it had not returned the notice to the insured’s agent as requested, thereby preventing her from complying with the insurer’s requirements. Findeisen v. Metropole Fire Ins. Co., 57 Vt. 520; 1885 Vt. LEXIS 91(1885).

Where insurance company rejected offer of proof of loss and then insured tendered correct forms, insurance company could not base its denial on the lack of proper proof of loss or for false swearing on the first proof of loss, which it had rejected. Hennessy v. Niagara Fire Ins. Co., 8 Wash. 91; 35 P. 585; 1894 Wash. LEXIS 16 (1894).

An insurer was required to provide fire insurance coverage even though the insureds made misrepresentations in the proof of loss form because the policy did not provide notice that such misrepresentations could serve to void the policy. Tempelis v. Aetna Casualty & Surety Co., 164 Wis. 2d 17; 473 N.W.2d 549; 1991 Wisc. App. LEXIS 1009 (1991).