A federal judge in Houston recently adopted a magistrate’s opinion granting summary judgment for an insurer on all extra-contractual claims in a first-party suit concerning roof damage alleged to be from Hurricane Harvey, allowing only the breach of contract claim to proceed. 

Exhibit Network Intern’l, Ltd. v. Union Ins. Co., Defendant., 4:19-CV-4221, 2021 WL 2482563 (S.D. Tex. June 17, 2021) involved a Harvey claim that was reported 15 months after Harvey.  The insurer sought summary judgment based primarily on a late notice defense and argued it did not have to show prejudice to enforce the defense because in addition to the typical prompt notice, the policy also contained an endorsement adding a specific one-year reporting requirement for windstorm or hail losses “in the catastrophe area as defined by the Texas Insurance Code.”  The insurer argued this meant Harvey, which was a designated catastrophe, triggered the one-year reporting requirement, while the policyholder argued the reference to a “catastrophe area” meant only certain geographic areas, and its property was outside any statutory catastrophe area. 

The court agreed with the policyholder, concluding the endorsement did not apply, only “prompt” notice was required, and the insurer must prove prejudice in order to enforce the notice condition.  The court concluded the insurer’s evidence did not show with sufficient specificity how it was prejudiced, such as identifying specific witnesses who could not remember key facts or specific intervening events that changed the condition of the roof. The court also noted the policyholder testified on the conditions he saw in 2017, and his retained expert, Peter de la Mora, testified that in his opinion, the roof was damaged by Harvey and no other cause.  The court concluded this evidence created a fact issue whether the insurer as prejudiced by the delay.  Therefore, the court allowed the breach of contract claim to proceed.

Editor’s Note: This outcome is an object lesson in the difficulty of proving the prejudice required to enforce prompt notice conditions under Texas law.  Under liability policies, a default judgment against the insured or evidence of specific settlement offers that were lost due to the insured’s failure to inform the insurer are generally enough to establish prejudice, but under first-party property policies, there are virtually no clear guidelines.  The implication of this ruling is that mere passage of time and the additional wear and tear that comes with it is not enough, although it remains to be seen what would be enough.  One solution may be expert reports that explain in more detail how the passage of time and intervening weather conditions have made it more difficult or even impossible to determine the true cause of damage.

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