Notice Prejudice Rule in Pennsylvania
It is a well-settled principle of Pennsylvania insurance law that an insured’s violation of an insurance occurrence based policy’s claim notice requirement will not relieve an insurer’s coverage obligation unless the lack of timely notice prejudiced the insurer. Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977). While the “notice-prejudice” rule has been the law of Pennsylvania since the late 1970’s, there are surprisingly few decisions explaining what exactly an insurer needs to prove to establish prejudice. On October 30, 2013 the Pennsylvania Supreme Court issued an opinion which sheds more light on this unresolved issue. Vanderhoff v. Harleysville Ins. Co., 98 MAP 2012, 2013 WL 5826958 (Pa. Oct. 30, 2013).
While the Vanderhoff decision addresses the notice-prejudice rule in the context of a claim for uninsured motorist benefits under the Pennsylvania Motor Vehicle Financial Responsibility Law1 involving a “phantom vehicle”, it has broader application since it provides insight into the Supreme Court’s conception of prejudice in the insurance context.
In Vanderhoff the insured was driving a truck when he rear-ended a vehicle driven by Ryan Piontkowski, who was waiting to make a left-hand turn. The police were summoned, and the investigating officer spoke to the insured and Piontkowski; the police report contained no mention of a phantom vehicle being involved in the accident. The insured later reported the accident to his employer, explaining he momentarily took his eyes off the road, and when he looked again, a vehicle was stopped in front of him; he was unable to stop and rear-ended the vehicle. No phantom vehicle was mentioned. Twenty days later, the insured completed a written Workers' Compensation Employee's Statement in which he reported the accident occurred due to Piontkowski stopping suddenly in front of him. Again, no phantom vehicle was reported.
Over eight months later the insured filed a claim for uninsured motorist benefits, alleging the accident was caused by a phantom vehicle pulling out in front of Piontowski, causing him to stop suddenly. The insurer denied the claim contending, inter alia, that the insured failed to comply with the statutory requirement to notify the insurer of the phantom vehicle within 30 days2 and filed a declaratory judgment action.
The case then followed a lengthy procedural course. The trial court ruled in favor of the insured, the insurer appealed and the Superior Court reversed. The insured appealed to the Supreme Court which accepted the case and, in turn, reversed the Superior Court and remanded to the trial court for a determination of whether the insurer was prejudiced by the untimely notice.3 On remand the trial court again ruled in favor of the insured, the Superior Court again reversed and the insured again appealed to the Supreme Court. The Supreme Court accepted the case to address the question of what constitutes “actual prejudice” to relieve an insurance company of its obligation to pay insurance benefits to an insured.
Citing the Supreme Court’s seminal late notice decision, Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977), the insured argued that an insurer must point to concrete evidence or witnesses that are no longer available due to late notice and the loss of a “substantial defense opportunity” and the likelihood of defending liability and damages. The insurer contended that courts should examine the issue on a “case-by-case basis” and that all an insurer need prove is that its ability to investigate the claim was impaired along with the extent of and the explanation for the delay in notice.
The Supreme Court held that the insurer’s position was the correct one:
Accordingly, we hold these cases must be addressed on a case-by-case basis wherein the court balances the extent and success of the insurer's investigation with the insured's reasons for the delay. . . . While an insurer will not be permitted to deny coverage absent prejudice caused by an insured's delay in notice, showing such prejudice does not require proof of what the insurer would have found had timely notice been provided. To demand such evidence would result in a Mobius strip whereby, to show prejudice, the insurer would have to show through concrete evidence the evidence it was unable to uncover due to the untimely notice. While the insurer is always obligated to investigate the case such as it can, where an insured's delay results in an inability to thoroughly investigate the claim and thereby uncover relevant facts, prejudice is established.
Vanderhoff v. Harleysville Ins. Co., 98 MAP 2012, 2013 WL 5826958 (Pa. Oct. 30, 2013)
Again, Vanderhoff addressed the issue of notice-prejudice in the context of a statutory notice requirement under the Pennsylvania Motor Vehicle Financial Responsibility Law and insureds will certainly argue that the holding is limited to that type of claim. However, the principles underlying the notice requirement in the MVFRL are no different than those applicable to notice requirements in occurrence based insurance policies generally. As a result, Vanderhoff should serve as at least persuasive authority with regard to what an insurer needs to prove in order to establish prejudice under Pennsylvania law.
175 Pa. C.S. §1701 et. seq.
2The Pennsylvania Motor Vehicle Financial Responsibility Law defines an uninsured motor vehicle to include “an unidentified motor vehicle that causes an accident resulting in injury provided the accident is reported to the police or proper governmental authority and the claimant notifies his insurer within 30 days, or as soon as practicable thereafter, that the claimant or his legal representative has a legal action arising out of the accident. 75 Pa. C.S. § 1702.
3Vanderhoff v. Harleysville Ins. Co., 606 Pa. 272, 282, 997 A.2d 328, 335 (2010)