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U.S. Fifth Circuit Holds that Insurer was Prejudiced by Unreasonably Late Notice, May 2016

7 August 2017

In Hamilton Properties v. American Insurance Company, No. 15-103821, the Fifth Circuit affirmed the holding of the district court granting summary judgment to the insurer on the insured’s breach of contract and extra-contractual claims.

The case arose out of the insured hotel’s claim of damage resulting from a July 2009 hail storm. At the time of the hailstorm, the property was covered under a property policy which required prompt notice of claims. The insured, however, failed to report the claim to its insurer until October 2011, 19 months after the storm. After investigating the claim, the insurer denied coverage, stating that because so much time had elapsed since the alleged hail event, and because there were multiple hail events before and after the alleged hail event, it could not determine what caused the damage or when the claimed damage occurred, including whether it had occurred during the policy period.

The insured then sued for breach of contract and various other extra-contractual claims. The district court granted summary to the insurer on all claims.

On appeal, the Fifth Circuit held that the insured failed to establish a prima facie claim for breach of contract for two reasons. The first was that the insured could not show that its claimed damages were covered by the policy. In Hamilton, the policy covered damage by a hailstorm “provided such loss or damage occurred during the term of the policy.” The Fifth Circuit determined that the insured provided no evidence describing or quantifying the extent of the hail damage during the policy period. The insured’s primary fact witness testified that the roof leaks continued since the day they first appeared, but he gave no specific testimony regarding damage occurring during the policy period. Also, the insured’s expert witness determined the hailstorm damaged the roof, but he was unable to determine the extent of the damage during the policy period. The Fifth Circuit determined that this would not allow a jury to segregate property damage caused by the covered peril from damage caused by uncovered perils during the policy period, which was fatal to its claim.

The Fifth Circuit also found that the insured’s claim for breach of contract failed because the insured did not provide prompt notice of the claim as required by the policy. Under Texas law, compliance with a provision in an insurance policy requiring notice is a condition precedent, the breach of which voids policy coverage. When “prompt notice” is not defined in the policy, Texas courts construe the phrase to mean that notice must be given within a reasonable time after the occurrence of the damage. In Hamilton, the insured delayed nineteen months in reporting the claim. Accordingly, the Fifth Circuit held that the insured failed to provide “prompt notice” of the claim as a matter of law. (Other courts have found shorter periods of delay not prompt as a matter of law.2)

To be absolved from any duty under the policy, however, the insurer also had to prove it was prejudiced by the insured’s unreasonably late notice. Prejudice can arise when the failure to timely notify results in the insurer’s inability to investigate the circumstances of an occurrence to prepare adequately to adjust or defend any claims. The Fifth Circuit determined that because of the insured’s delay, the insurer lost access to critical evidence. As a result, the insurer was prejudiced as a matter of law and its obligations under the policy were discharged.

The Fifth Circuit then turned to the insured’s extra-contractual and statutory claims. The court found that those claims flowed from the breach of contract claim, and there was no evidence that the insured suffered an injury independent of that claim. As a result, the insured’s extra-contractual and statutory claims also failed as a matter of law.

The Fifth Circuit’s Hamilton opinion should answer any lingering questions regarding late notice, prejudice, and the burden of proof to sustain contractual and extra-contractual causes of action. In short, a nineteen-month delay in reporting a claim constitutes late notice and, if the insurer’s investigation was severely impacted as a result, prejudice can be proven. Once the insurer proves prejudice, the insured’s breach of contract and extra-contractual causes of action topple as a matter of law.

(Readers should note that the insured filed a petition for rehearing on April 28, 2016.)


  1. (5th Cir. Apr. 14, 2016)
  2. See, e.g., Salinas v. Allstate Texas Lloyd’s Co., 278 F.Supp.2d 820, 825 (S.D. Tex. 2003) (failure to provide notice and make repairs for over a year before notifying insurer is not prompt or reasonable as a matter of law); Flores v. Allstate Texas Lloyd’s Co., 278 F.Supp.2d 810, 820 (S.D. Tex. 2003) (failure to notify insurer of the claim for mold damage for six months is not prompt as matter of law).