No Harm, No Foul: Supreme Court of Nevada Holds that Insurer Must Show Untimely Notice of Claim Caused Prejudice to Insurer Before Denying Coverage
In Las Vegas Metro. Police Dep’t. v. Coregis Ins. Co., 256 P.3d 958, 959-65 (Nev. 2011), the Supreme Court of Nevada joined the majority of jurisdictions in holding that an insurer may not deny insurance coverage on the basis that the insured did not provide timely notice of a claim, unless the insurer is able to prove that it suffered prejudice as a result of the untimely notice.
Characterizing the matter before it as raising “important issues about insurance claim notice provisions,” the Supreme Court of Nevada held that “when an insurer denies coverage of a claim because notice of the claim was late, the insurer must show: (1) the notice was late; and (2) that it was prejudiced by the late notice.”
The factual circumstances giving rise to the court’s decision involved an insurance coverage dispute over a § 1983 civil rights action filed against the Las Vegas Metropolitan Police Department (“LVMPD”). The civil rights action was premised on the LVMPD’s alleged attempt to cover up the circumstances surrounding the death of a bicyclist who was allegedly struck and killed by an automobile operated by the spouse of an LVMPD officer. The civil rights action, which was originally filed in 1996 by the bicyclist’s estate, was initially dismissed as premature, but refiled in 2000. After the case was reactivated, the trial court granted summary judgment to the LVMPD in 2002; however, the court later vacated its summary judgment order in 2005 as a discovery sanction for the LVMPD’s failure to produce responsive documents. In August 2006, the estate made its first settlement demand for $4.5 million and the case settled seven months later for close to $1.5 million.
Following the settlement, the LVMPD filed a declaratory judgment action against its excess insurer, Coregis Insurance Company (“Coregis”), seeking a determination that the insurer was required to defend and indemnify the LVMPD in the civil rights action. Coregis denied coverage based on the LVMPD’s failure to provide timely notice. Coregis was not notified of the civil rights action until after the first settlement demand was made in 2006, ten years after the lawsuit was initially filed. The lower court agreed that the LVMPD’s notice was untimely and granted summary judgment in Coregis’s favor.
The Supreme Court of Nevada reversed, holding that the lower court erred in concluding that the LVMPD’s notice was late as a matter of law. The court reasoned that the case was essentially dormant until 2005 when the lower court vacated its own summary judgment ruling. Given the procedural history of the underlying case, the court concluded that a genuine question of material fact existed as to whether the LVMPD was required to notify Coregis before the first settlement demand was made.
More significantly, the court emphasized that an insurer bears the burden of proving that an insured’s untimely notice resulted in prejudice to it. The court explained that it is “more practical and equitable to require the insurer to prove it has been prejudiced than it would be to place that burden on the insured party and require him or her to prove a negative, namely, that the insured had not been prejudiced.” Remarking that the “majority of jurisdictions since 1950 have adopted a notice-prejudice rule,” the court concluded that “equity principles support placing the burden to prove prejudice on the insurer because it is trying to deny its obligations under a contract of adhesion.”