Executive Summary

A first-party property insurance policy typically includes provisions that set forth post-loss obligations for the policyholder or assured, including the obligation to submit a proof of loss. One of the key purposes of a proof of loss is to enable an insurer to investigate a claim, and determine its rights and liabilities. If, prior to receiving a policyholder’s formal proof of loss submission, the insurer has sufficient information to determine that a portion of the claim is undisputed and an undisputed payment amount exists, the insurer may confront the question of whether it still has the right under the policy to demand a formal proof of loss. Such is the factual context in which this survey analyzes a policy’s proof of loss requirement – namely:

1. Where the insurer determines an undisputed amount of loss, is the insurer within its rights to agree to pay the undisputed amount subject to the receipt of a sworn or other formal sworn proof of loss form; or, stated another way,
2. May an insurer delay the payment of an undisputed amount until the assured strictly complies with the policy’s specific proof of loss provision.

In consideration of the above inquiry, this survey summarizes relevant case law and statutes within each of the 50 states to provide the following four categories in the context of each state’s law:

1. Overview – A summary of the state’s enforceability of a proof of loss provision as well as the potential extracontractual exposure to which an insurer could subject itself where it arguably delayed a payment while awaiting the assured’s strict compliance with the policy’s proof of loss provision;
2. Enforceability – Whether the state is likely to enforce a policy’s proof of loss provision;
3. Requirements – The state’s general requirements for an insurer to enforce its policy’s proof of loss provision; and
4. Exposure – The bad faith or other extra-contractual damages to which an insurer may be subjected in each state, if any, where it withholds or delays an undisputed payment while awaiting a policyholder’s strict compliance with a policy’s proof of loss requirement.

Overview

As more fully set forth below, in the majority of American jurisdictions, an insurer’s demand for a sworn statement in proof of loss or other measure of strict compliance with the technical terms of a proof of loss provision as a pre-condition to tendering an undisputed amount is a risky step in situations where the insurer has acquired sufficient information to determine that the undisputed amount is indeed due and owing under the contract of insurance. In most states, refusal to pay an undisputed amount absent a proof under those circumstances could well subject the insurer to an extracontractual or bad faith liability claim.

Enforceability

Generally speaking, the majority of states will enforce a policy’s proof of loss provision, particularly where the policy specifically requires a sworn proof of loss as a condition precedent to recovery under the policy. The degree of enforceability becomes less certain where a policy’s proof of loss requirement is not specific as to the form required or uses language that may not create a true condition precedent under the established law in the state at issue. Additionally, most jurisdictions disfavor forfeiture, and, as a result, a policyholder’s failure to provide the required proof of loss within the time prescribed by the policy will not result in a forfeiture of the policy unless the policy expressly includes a stipulation to that effect.

Other factors most states will consider when determining a proof of loss provision’s enforceability is whether the insurer has waived the requirement by some act or conduct; whether the insurer may otherwise be estopped from enforcing the provision; and, though less common, whether the insurer has suffered prejudice as a result of the policyholder’s technical failure to submit a proof in a format that is in literal or strict compliance with a policy’s requirement.

As many of the specific state summaries explain, where an insurer is able to determine an undisputed amount for payment, a court may find that the insurer has waived a proof of loss requirement due to the insurer moving forward with the adjustment to the extent it has calculated an undisputed amount of liability without first requiring a policyholder comply with the policy’s proof of loss provision. In essence, an insurer may waive the enforceability of a policy’s proof of loss provision by failing to demand and require a form sworn proof prior to moving forward with the adjustment and offering to settle the claim. Additional examples of potential waiver include: (1) failing to furnish the policyholder with the necessary forms; (2) failing to respond to the assured’s inquiries concerning whether a proof is necessary; (3) failing to object to perceived deficiencies in the proof submitted; (4) making an offer to settle the claim prior to receipt of the proof; (5) denying liability before a proof is due; and (6) denying liability after the proof is due, but failing to include as a basis for the denial that the policyholder was non-compliant with the policy’s proof of loss provision.

Requirements

The near-universality of the principle that a proof is a condition precedent to liability at first appears to indicate that an insurer can safely demand the policyholder comply with the proof of loss provision and submit a formal sworn proof of loss prior to paying undisputed amounts. While compliance with the provision is typically required, however, the question becomes what constitutes a policyholder’s “compliance” in the various states. Generally speaking, courts frequently hold that proof of loss provisions are to be “liberally construed in favor of the insured,” and some have characterized the provision as a “flexible requirement,” or stated that insurers should not be able to escape liability because of “technical inadequacies” in the policyholder’s submission. Indeed, a handful of jurisdictions have held that such a provision is to be construed in favor of coverage because it has been dictated by the insurer rather than freely negotiated by the two parties to the insurance contract.

As a result, while there are a few states that would likely uphold an insurer’s requirement that the policyholder strictly comply with the policy’s proof of loss provision – particularly where the proof of loss provision is specific as to the form required – the overwhelming majority of states only require that an assured substantially comply with such a provision. Further, there are states that are likely only to require substantial compliance even where the proof of loss provision specifically requires a sworn proof of loss or other specific or technical format.

Courts frequently state that any submission that serves to effectuate the purposes for which proof of loss provisions are written is sufficient.

There are basically four such purposes:

• to allow the insurer adequate opportunity to conduct a proper and timely investigation;
• to allow the insurer to form an intelligent and informed estimate of its rights and obligations;
• to trigger certain deadlines concerning when payment is ultimately due; and
• to prevent fraud

As many of the specific state summaries explain, where an insurer has sufficient information on which to calculate an undisputed payment or amount of liability, a court may view this as evidence of a policyholder’s substantial compliance sufficient to meet the purpose of a proof of loss, and, therefore, also meets the proof of loss requirement or condition precedent set forth in the policy.

Particularly, with respect to the four underlying purposes for a proof of loss outlined above, the first two purposes are presumably accomplished as, by their very nature, undisputed amounts are sums for which the insurer has determined it is liable. In addition, and with respect to the third purpose noted previously, many states have deadlines by which undisputed amounts must be or should be paid. While some of these timelines for payment are set forth in either statutory or regulatory schemes under which an assured has no private right of action, other states provide an assured an express private right of action and recovery for extracontractual damages where undisputed payments are paid outside of the required “prompt payment” timeline adopted by the state.

In consideration of the fourth underlying purpose for a proof of loss submission noted above – the prevention of fraud – where an insurer has determined an undisputed amount, there is a further presumption that the insurer considers the material on which it bases its undisputed payment determination, including the claim information from the policyholder, is accurate. While securing a sworn statement in proof of loss arguably furnishes an additional level of protection against policyholder misconduct to serve in support of a fraud and false swearing defense, substantial compliance jurisdictions seem to focus far more closely on whether the assured provided the insurer the necessary quantum of information on which the insurer may investigate than they do on whether the insurer is entitled to a sworn proof of loss.

Moreover, some states have established a heightened requirement for an insurer to meet before the insurer can raise a coverage defense based on a failure to comply with a proof of loss policy requirement. These requirements can include requiring an insurer to provide the specific proof of loss forms to the assured within a certain number of days after receiving the notice of loss, accompanied by correspondence that informs the assured that strict compliance with the enclosed forms is required. Most states also require that, where an assured submits a proof of loss with deficiencies or defects to which an insurer objects, the insurer must notify the assured in writing within a reasonable time so that the assured has the opportunity to correct the alleged problems with the submission. Finally, in a minority of jurisdictions, an insurer is unable to preclude its liability under a policy for a policyholder’s non-compliance with a proof of loss provision unless it can show that it, as the insurer, was prejudiced due to such non-compliance by the policyholder.

Exposure

In many states, the submission of a proof of loss will trigger certain time periods within which the insurer must complete its investigation, pay a covered loss, or demand appraisal. A jurisdiction may also have regulations that require the insurer to pay the undisputed amount of a covered loss, even if the insurer has been unable to complete its investigation on all aspects of the claim, or where there remain disputed aspects of the claim. In fact, it may also be deemed an “unfair insurance practice” for an insurer to withhold payment on a part of a claim where liability is reasonably clear. In the event an insurer does not make a partial payment at the request of the assured, even if it may have a reasonable basis to do so (i.e., such as the assured’s failure to submit a formal proof of loss), assureds may attempt to characterize such refusal as an unfair insurance practice; as unreasonable conduct to give rise to a bad faith claim; or as an untimely payment to give rise to extracontractual liability under a state’s prompt payment guidelines or statute.

While there are exceptions to the general rule, our review of the various jurisdictions indicate that, as a general premise, conditioning the tender of an undisputed amount on the submission of a sworn or other required form proof of loss where the insurer has determined and perhaps agreed to pay an undisputed amount – e.g., demonstrating that the insurer’s liability, or a portion thereof, is reasonably clear – could create too great a risk of ultimately exposing the insurer to a claim for bad faith and other extracontractual damages. As set forth above, however, we recognize that many states’ adoption of statutes or regulations addressing unfair claims practices do not give a private right of action to an assured through which it could recover against an insurer. Additionally, while a court may not agree with an insurer’s decision to withhold an undisputed payment subject to an assured’s strict compliance with a proof of loss condition, there are states in which we believe it is still unlikely that a court would find that the insurer’s conduct would rise to the culpability to warrant bad faith or extracontractual damages. Nevertheless, bad faith law tends to be fluid and whether extracontractual damages are warranted is very fact- and, thus, case-specific. Thus, our recommendation is that an insurer proceed carefully with respect to proof of loss defenses in substantial compliance jurisdictions.

Accordingly, we conclude that the greatest exposure an insurer is most likely to encounter in the scenario contemplated here – where it withholds an undisputed payment until an assured strictly complies with a proof of loss policy provision – is in the jurisdictions that have adopted a “prompt payment” or other similar statute whereby an insurer is required to make payments within a certain number of days from its receipt of a proof of loss. In jurisdictions that only require substantial compliance with a proof of loss policy provision, this payment deadline could begin as early as when the insurer first has sufficient information on which to determine the undisputed amount. In these jurisdictions, an assured is not typically required to show that an insurer was unreasonable in its decision to delay or failure to make the payment, but an assured may only be required to show that the payment was delayed beyond the time frame prescribed by the statute. Such untimely payments in these jurisdictions warrant the assessment of penalties against the insurer.

Conclusion

In light of the above considerations, the factors an insurer should evaluate before raising a coverage defense based on a policyholder’s failure to submit a form proof of loss in strict compliance with the technical requirements of a policy’s proof of loss provision include:

1. The specificity of the proof of loss provision is at issue and its requirements – i.e., whether the provision expressly requires a particular form for compliance; whether there is a certain timeframe in which the policyholder must submit the proof; whether the provision include an express forfeiture clause;
2. Whether the insurer and its representative(s) took the required steps under applicable law in the relevant jurisdiction, if any, to (1) provide notice to the policyholder of the insurer’s intentions to require strict compliance with the policy’s proof of loss provision; and (2) forward blank proof of loss form(s) for the policyholder’s use in the proof’s submission;
3. Whether the insurer and its representative(s) took steps prior to the receipt of the policyholder’s submission that could waive the insurer’s right to the proof, or that may estop the insurer from raising a coverage defense based on the policyholder’s failure to strictly comply with the proof of loss requirement – i.e., whether the insurer denied the claim before receipt of a proof of loss; whether the insurer denied the claim on grounds other than the policyholder’s alleged failure to adhere to the proof of loss provision; whether the insurer investigated, adjusted and/or began settlement discussions with the policyholder prior to the policyholder’s form proof of loss submission.
4. Whether the applicable law in the relevant jurisdiction indicates that the jurisdiction only requires substantial compliance by a policyholder with respect to a policy’s proof of loss provision; or whether, and under what circumstances, may a jurisdiction uphold an insurer’s requirement for strict compliance with a policy’s proof of loss provision.
5. The relevant jurisdiction’s bad faith or other extracontractual remedies available to a policyholder for delayed payments of undisputed amounts, including but not limited to whether the jurisdiction has a “prompt payment” or similar act with statutory deadlines once liability becomes reasonably clear.

As explained more fully in the following nationwide survey, the insurer has the strongest coverage defense based on the proof of loss provision where the applicable jurisdiction’s law supports a policyholder’s strict compliance with the provision and the proof of loss provision at issue specifically and expressly sets forth: the exact form required, the time limit within which the policyholder must submit the form; and where the provision also expressly includes a forfeiture clause. The strength of the coverage defense is likely to increase where the policyholder received timely written correspondence following the loss through which the insurer placed the policyholder on notice that strict compliance with the proof of loss condition would be required and further provided the required forms to the policyholder.

An insurer’s coverage defense based on noncompliance with a proof of loss provision typically weakens where the provision, itself, is less specific as to the form used and information required in the proof’s submission; and where it does not include a forfeiture clause. The coverage defense is further weakened in jurisdictions that only require substantial compliance by a policyholder with respect to a policy’s proof of loss provision; as well as jurisdictions that may liberally construe an insurer’s post-loss conduct as either waiver of the proof of loss requirement, or as conduct by which the insurer is later estopped from raising a coverage defense based on the failure to comply with the policy’s proof of loss provision.

Accordingly, and returning to the presumed hypothetical at issue here, courts in many states are unlikely to agree with an insurer’s decision to withhold an undisputed loss amount until the policyholder is in strict compliance with the proof of loss provision, or, stated another way, where an insurer considers agreeing to pay an undisputed amount subject to receipt of a sworn or other form proof of loss in strict compliance with the policy’s proof of loss provision. While the courts’ supporting analysis for this conclusion varies throughout the multiple jurisdictions, the main underlying principle(s) typically remain the same – namely:

1. where there is an undisputed amount at issue, the policyholder is likely in substantial compliance with a proof of loss provision, which is all that many states will require;
2. even if the policyholder is not within substantial compliance with the proof of loss requirement, the insurer has sufficient information to fulfill the purpose of the proof of loss requirement, as evident by the fact that the insurer was able to determine an undisputed amount of loss; and/or
3. where the insurer has investigated and adjusted the loss such that it is able to determine an undisputed amount of loss without first requiring a proof of loss from the policyholder, the insurer has either waived, or is otherwise estopped from raising, the proof of loss provision as a coverage defense.

Again, the potential that an insurer has waived the proof of loss requirement, or is otherwise estopped from raising the proof of loss non-compliance as a coverage defense, is significant in most jurisdictions where the insurer has moved forward to determine an undisputed amount before requiring a form proof of loss or other technical compliance with the proof of loss provision by the assured.

The following survey further delves into the above factors and circumstances in each of the 50 states and summarizes relevant points of law of which an insurer should be mindful when considering the particular proof of loss inquiries set forth more fully previously. It is important to note, however, that each claim or loss is unique, with its own set of underlying facts and circumstances. Accordingly, this survey is only intended to be used as a general reference tool. This survey should not be used as a substitute for legal advice from qualified legal counsel, which is based on the specific underlying facts, circumstances and jurisdictional details particular to the unique claim or loss in question.

AUTHORS

CONTRIBUTING AUTHORS

ALABAMA

Overview: Alabama courts are likely only to require an assured’s strict compliance with a policy’s proof of loss condition where a policy expressly requires a sworn proof of loss, a particular proof of loss form, or the assured receives from the insurer a preferred form. Where there is a less specific proof of loss condition, an assured must only substantially comply with the condition – meaning, a proof of loss is sufficient where it provides the insurer with sufficient facts on which the insurer can consider its rights and liabilities with respect to the claim. Where an insurer finds the submitted proofs have a defect, the insurer should object timely or risk waiving the requirement.

Enforceability: A policy’s proof of loss condition is enforceable in Alabama. An assured’s compliance with a policy’s express post-loss obligations, including the submission of a sworn proof of loss (where expressly required by the policy), is a precondition to an insurer’s loss payment obligation. See Baldwin v. Mut. Ins. Co. v. Adair, --- So.3d ---, Civ. No. 1100872, 2014 WL 4851516, at *11 (Ala. September 30, 2014); Nationwide Ins. Co. v. Nilsen, 745 So.2d 264, 267-68 (Ala. 1998); Central City Ins. Co. v. Oates, 86 Ala. 558, 567, 6 So. 83, 84 (Ala. 1889) (finding policy condition that assured must render sworn proof of loss as soon as possible after giving notice of loss is material to the contract and compliance is a prerequisite to the right of recovery, unless such proof is waived by the insurer); United Ins. Co. of Am. v. Cope, 630 So.2d 407, 411 (Ala. 1993) (finding that an insurer’s obligation to pay or to evaluate the validity of the claim does not arise until the assured complies with policy terms for claim submission). In United Ins. Co., the Alabama Supreme Court stated that “no case from this Court places on an [insurer] an obligation to either investigate or pay a claim until the [assured] has complied with all of the terms of the contract with respect to submitting claims for payment.” Id. at 412.

The insurer, however, can waive a policy’s proof of loss condition, rendering the condition unenforceable. For instance, where an assured presents a preliminary proof of loss, and the insurer finds such proof defective or insufficient, the insurer should object to the proof within a reasonable time after receipt, or its objection may be waived (i.e., undue length of silence after presentation). Another instance of waiver could arise when the insurer bases its refusal to pay on another specified ground or coverage defense other than the alleged defect in the proof on which it objected. Central City Ins., 86 Ala. at 568, 6 So. at 84. Alabama does not recognize a waiver as a result of an insurer’s mere silence where no proofs of loss, defective or otherwise, have been presented at all. Id.

Requirements: Code of Alabama, 1975 § 27-14-26 (2015) requires an insurer to furnish forms for proof of loss “upon written request of any person claiming to have a loss under an insurance contract issued or assumed by such insurer[.]” Id. The furnishing of such forms does not give the insurer responsibility for the completion of such proof. Id.

Unless the policy expressly requires a particular form of proof of loss, Alabama is a “substantial compliance” jurisdiction, meaning that “provisions for the giving of notice of loss or the furnishing of proofs of loss to an insurer will be liberally construed in favor of the [assured], and a substantial compliance therewith, as distinguished from a strict compliance, will suffice.” See Hopkins v. Lawyers Title Ins. Corp., 514 So.2d 786, 788 (Ala. 1986), overruled on other grounds, State Farm Fire & Cas. Co. v. Owen, 729 So.2d 834, 839 (Ala. 1998). Unless the policy requires some particular form of proof of loss, no particular form of proof of loss is necessary so long as it enables an insurer to consider its rights and liabilities. See Equitable Life Assur. Soc. v. Dorriety, 229 Ala. 352, 355, 157 So. 59, 62 (Ala. 1934). The object of furnishing a proof of loss is to give an insurer knowledge of particulars of the loss and all data necessary to determine its liability and amount thereof. Id.

Exposure: For an insurer to be liable for the tort of bad faith, it must lack a legitimate or arguable reason for failing to pay the claim. Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981). When a claim is “fairly debatable,” however, an insurer is entitled to debate it. See Nat’l Security Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982) (internal citations omitted). An assured must go beyond a mere showing of nonpayment and prove a bad faith nonpayment, which is to say a nonpayment without any reasonable ground for dispute. See Chavers v. Nat’l Sec. Fire & Cas. Co., 405 So.2d 1, 10 (Ala. 1981); see also Nat’l Savings Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala. 1982).

Absent circumstances of potential waiver, and where a policy expressly requires a sworn proof of loss, an insurer’s obligation to pay or evaluate a claim’s validity does not arise until the assured complies with the policy terms, including the submission of a sworn statement in proof of loss. See United Ins. Co. of Am. v. Cope, 630 So.2d 407, 411-12 (Ala. 1993). The refusal to pay or partially pay a claim under these circumstances alone is unlikely to give rise to an act of bad faith. Id.; see cf. Southeast Nursing Home, Inc. v. St. Paul Fire and Marine Ins. Co. 750 F.2d 1531, 1538-39 (11th Cir. 1985) (applying Alabama law).

A different analysis is warranted, however, where the policy’s proof of loss condition does not mandate specific form requirements, or does not expressly require a sworn proof of loss, and the insurer has sufficient information on which to determine an undisputed payment amount. A court may conclude there has been substantial compliance with the general proof of loss requirement, or a waiver of such provision, due to the fact the insurer had sufficient information on which to determine its liability to a certain extent and the withholding of such a payment was unreasonable.

ALASKA

Overview: Alaska is a substantial compliance jurisdiction where, generally speaking, the assured will not be required to strictly comply with a policy’s proof of loss requirement. For an insurer to deny payment because of an assured’s failure to submit a proof of loss, the insurer must also show that the assured’s failure caused the insurer actual prejudice. Accordingly, conditioning an undisputed payment amount on receipt of a form proof of loss in situations where the insurer likely had sufficient information to determine its indemnity obligation could increase the insurer’s exposure to a bad faith claim.

Enforceability: Generally, Alaska courts will enforce a policy’s proof of loss condition, if such enforcement in the particular matter advances the purpose for which the condition was included in the policy. See Estes v. Alaska Ins. Guaranty Assoc., 774 P.2d 1315, 1320 (Alaska 1989) (explaining that policy’s post-loss requirements are reviewed as to whether their application in a particular case advances the purpose for which they were included in the policy). “Only by so reviewing these clauses can courts satisfy the consumer's reasonable expectation that coverage will not be defeated on arbitrary procedural grounds.” Id. Additionally, where an insurer denies liability due to non-compliance with the proof of loss condition, the insurer, itself, must establish that it suffered the prejudice the policy’s proof of loss condition intended to avoid. See id.; see also McDonnell v. State Farm Mut. Auto. Ins. Co., 299 P.3d 715, 732 (Alaska 2013).

Requirements: Alaska law does not require that an assured strictly comply with a policy’s proof of loss condition, particularly where it is impractical or impossible to do so, so long as the insurer is provided with reasonable information to verify the claim. Ins. Co. of North America v. Univ. of Alaska, 669 P.2d 954, 955 (Alaska 1983). To enforce the policy’s proof of loss condition to preclude coverage completely, the insurer would have to show that the assured did not substantially comply with the condition, and that the insurer was prejudiced by the assured’s failure to do so. See generally, Estes, 774 P.2d 1315.

Exposure: In Alaska, the insurance contract gives rise to an implied covenant of good faith and fair dealing, the breach of which supports a cause of action in tort. Alaska has recognized a tort cause of action for breach of the implied covenant of good faith and fair dealing in both the first-party and the third-party context. State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1156 (Alaska 1989). Although Alaska courts have not set forth elements of the tort of bad faith, case law demonstrates that the assured must prove, at least, that “the insurer’s actions were objectively unreasonable under the circumstances.” See Lockwood v. Geico Gen. Ins. Co., 323 P.3d 691, 697-98 (Alaska 2014); see also Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1324 (Alaska 1993).

Alaska’s Unfair Claims Settlement Practices Act, does not create a cause of action for assureds (see Alaska Stat. § 21.36.125(b) (2014)), but it does provide a yardstick by which to measure the reasonableness of an insurer’s conduct. Among other things, the Act prohibits established practices that include failing “to affirm or deny coverage of claims within a reasonable time of the completion of proof-of-loss statements”; and delaying “investigation or payment of claims by requiring submission of unnecessary or substantially repetitive claims reports and proof-of-loss forms.” See Alaska Stat. § 21.36.125(a)(5), (13) (2014).

Alaska’s Unfair Claim Settlement Practices Act is further augmented by regulations adopted by the state’s Division of Insurance. See Alaska Admin. Code tit. 3, §§ 26.010 et seq. (2015). Among the regulations is the requirement that an insurer shall, within 30 working days after receipt of a properly executed statement of claim, proof of loss, or other acceptable evidence of loss, pay those portions of the claim not in dispute. See Alaska Admin. Code tit. 3, § 26.070(a)(2) (2015) (emphasis added).

Accordingly, in light of Alaska’s relaxed substantial compliance standard, the guidance provided under Alaska’s Unfair Claim Settlement Practices Act, and considering that an insurer must prove prejudice resulting from an assured’s non-compliance with a proof of loss condition, an insurer likely increases its bad faith exposure in Alaska where it withholds a determined undisputed loss payment amount on the sole basis that the assured did not comply with the proof of loss condition. An assured that establishes bad faith can recover attorney fees, as Alaska law provides for attorney fees to the prevailing party in civil litigation. Alaska R. Civ. P. 82(a). An insurer could also potentially be liable for a broad range of tort damages, including consequential and punitive damages. See State Farm Fire Cas. Co. v. Nicholson, 777 P.2d 1152, 1157 (Alaska 1989). Punitive damages are also available to the successful assured, although such an award is limited to conduct by the insurer that is deemed outrageous, malicious or committed with reckless indifference to the interests of another. See Nicholson, 777 P.2d at 1158.

ARIZONA

Overview: Arizona is generally a substantial compliance jurisdiction with respect to a policy’s proof of loss condition, meaning that where the policy is silent as to specific requirements attached to a proof of loss submission, courts look to whether the information provided by the assured adequately allows the insurer to consider its rights and liabilities. If there is no specified time-period in the policy for the submission of the proof of loss, the insurer cannot disclaim coverage for an assured’s failure to submit a proof of loss within a specified time-period. If coverage of the claim is not contested, the insurer has a duty to pay the undisputed portion of the claim immediately, and payment on first party claims must be made within 30 days of receipt of an acceptable proof of loss. Failure to do so can be a basis for a bad faith action. Thus, an insurer’s conditioning an undisputed payment on receipt of a sworn proof (despite the fact that the insurer already has enough information to determine its indemnity obligation, as evidenced by the undisputed amount at issue) could increase the insurer’s exposure to bad faith and extracontractual liability.

Enforceability: Generally, reasonable policy conditions requiring that the assured give notice and submit a proof of loss are valid and enforceable. Courts will not relieve the assured of his failure to comply unless the assured has a valid excuse, or unless the insurer has foregone its right to insist on compliance by estoppel or waiver. See Overland-Arizona Co. v. California Ins. Co. of San Francisco, 35 Ariz. 115, 119-20, 274 P. 784, 786 (Ariz. 1929); Truck Ins. Exchange v. Hale, 95 Ariz. 76, 82-83, 386 P.2d 846, 849-50 (Ariz. 1963) (holding that insurer waived proof of loss provision by negotiating with the policyholder as though no formal proof of loss was required).

Requirements: In the absence of a specific policy requirement that an assured use a particular form or type of proof of loss in reporting to the company, it has generally held that any method that serves to advise the insurer of the loss so as to enable it to consider its rights and liabilities adequately shall suffice. See Aetna Cas. & Sur. Co. v. Valley Nat. Bank of Ariz., 15 Ariz. App. 13, 15-16, 485 P.2d 837, 839-40 (Ariz. App. 1971). Nevertheless, the Arizona Supreme Court has held that substantial compliance with even a detailed proof of loss requirement in a policy is sufficient. See Truck Ins. Exchange v. Hale's, 95 Ariz. 76, 82-83, 386 P.2d 846, 850 (Ariz. 1963).

Exposure: An insurer acts in bad faith when it unreasonably investigates evaluates, or processes a claim (an “objective” test) and either knows it is acting unreasonably or acts with such reckless disregard that such knowledge may be imputed to it (a “subjective” test). Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, ¶ 22, 995 P.2d 276, 280 (Ariz. 2000); Miel v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 104, 110, 912 P.2d 1333, 1339 (Ariz. App. 1995); Trus Joist Corp. v. Safeco Ins. Co. of America, 153 Ariz. 95, 104, 735 P.2d 125, 134 (Ariz. App. 1986). An insurer may be held liable for its bad faith conduct in processing the claim even if it ultimately pays the claim. See Zilisch, 196 Ariz. at 280.

Where coverage is not contested but the amount of the loss is disputed, the insurer is under a duty to pay any undisputed portion of the claim promptly. Failure to do so amounts to bad faith. Borland v. Safeco Ins. Co. of America, 147 Ariz. 195, 200, 709 P.2d 552, 557 (Ariz. Ct. App. 1985) (citing Olson v. Rugloski, 277 N.W.2d 385, 387 (Minn. 1979); Parrett v. Commercial Union Ins. Co., 512 F.Supp. 1074, 1078 (E.D.La. 1981)).

Though there is not a private right of action under Arizona’s Unfair Claim Settlement Practices Act as set forth in Arizona Revised Statutes Annotated § 20-461, it nevertheless includes notable provisions that are instructive as to Arizona law’s view of proofs of loss. See Ariz. Rev. Stat. Ann. § 20-461 (2015). Ariz. Rev. Stat. Ann. § 20-461’s prohibited practices include an insurer’s refusal to pay claims without conducting a reasonable investigation based upon all available information; an insurer’s failure to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; and an insurer’s failure to attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. See id. Pursuant to Ariz. Rev. Stat. Ann. § 20-462, all first party claims are to be paid within 30 days of receipt of an acceptable proof of loss. See Ariz. Rev. Stat. Ann. § 20-462 (2015).

Accordingly, where an insurer withholds payment on an undisputed loss amount on the sole basis that the assured has not strictly complied with the policy’s proof of loss condition, the insurer is at risk to subjecting itself to bad faith exposure under Arizona law.

ARKANSAS

Overview: Generally, a policy’s proof of loss condition is enforceable under Arkansas law, but an assured is only required to substantially comply with such a condition. Where an insurer has information sufficient to determine an undisputed loss payment amount, the court is likely to consider whether that information is indicative of an assured’s substantial compliance with a proof of loss requirement. Accordingly, where an insurer has sufficient information on which to determine an undisputed loss amount, and there is evidence supporting an assured’s substantial compliance with the policy’s conditions, we would recommend that the insurer not delay payment on the undisputed amount due to an assured’s failure to strictly comply with a proof of loss condition. Nevertheless, and given the assured’s heightened burden of proof to establish bad faith under Arkansas, we believe an insurer’s exposure to a bad faith claim is unlikely where the insurer merely required strict compliance with the proof of loss condition.

Enforceability: A failure to comply with the policy’s proofs of loss requirement constitutes a breach of contract and precludes the assured from suing the insurer. Commercial Fire Ins. Co. v. Waldron, 88 Ark. 120, 120, 114 S.W. 210, 210 (Ark. 1908). Nevertheless, Arkansas law does not require strict compliance with a proof of loss condition, but only requires that the proof of loss submitted substantially comply with the policy condition. See Willis-Reed Lumber Co. v. New York Underwriters Ins. Co., 146 F. Supp. 74, 81 (W.D. Ark. 1956). In addition, where the assured submits a proof of loss and the insurer does not timely raise an objection to any alleged insufficiency of the proof, the insurer is likely to waive its objections to the sufficiency of the proof. Id. Failure to substantially comply with proof of loss policy requirements, in the absence of waiver, will result in a forfeiture of coverage if the requirements constitute conditions precedent without regard to prejudice. See Haskins v. Occidental Life Ins. Co. of California, 349 F.Supp. 1192, 1197 (W.D. Ark. 1972).

Given that Arkansas only requires substantial compliance and does not favor precluding coverage on a purely technical ground, where an insurer has sufficient information from an assured on which to determine an undisputed amount, such information may constitute substantial compliance with a proof of loss condition under Arkansas law. In addition, where the insurer has made this determination arguably without the sworn proof of loss as required by the policy, the assured may also endeavor to argue that the insurer has waived such a strict requirement of a proof of loss.

Requirements: As set forth above, Arkansas only requires that an assured substantially comply with a policy’s proof of loss requirement. See e.g., Willis-Reed Lumber Co. v. New York Underwriters Ins. Co., 146 F. Supp. 74, 81 (W.D. Ark. 1956).

Exposure: Ark. Code Ann. § 23-79-208(a)(1) (West 2014) provides for a limited cause of action when the insurer fails to pay the loss within the time specified in the policy after demand is made. Where an insurer is found liable for bad faith, it must pay, in addition to the loss amount, 12 percent damages upon the loss amount, “together with all reasonable attorney's fees for the prosecution and collection of the loss.” Ark. Code Ann. § 23-79-208(a)(1) (West 2014).

This statute does not preempt common law bad faith. “[T]he tort of bad faith requires affirmative misconduct, without a good-faith defense …” Parker v. S. Farm Bureau Cas. Ins. Co., 326 Ark. 1073, 1084, 935 S.W.2d 556, 562 (Ark. 1996). “Neither can this type claim [sic] be based upon negligence or bad judgment so long as the insurer is acting in good faith … Bad faith may give rise to either first or third party claims.” Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 133-34, 664 S.W.2d 463, 465 (Ark. 1983). Punitive damages may be available on bad faith tort claims. See Employers Equitable Life Ins. Co. v. Williams, 282 Ark. 29, 30, 665 S.W.2d 873, 874 (Ark. 1984). While theoretically possible, given the high burden of proof for common law bad faith in Arkansas, absent known waiver or other exceptional circumstances, an insurer merely demanding a sworn proof of loss prior to payment, even when the quantum is undisputed, is unlikely to rise to the level of common law bad faith.

We also note the relevance of the Arkansas Trade Practices Act, Ark. Code Ann. § 23-66-206 (West 2014). Although a private right of action is not created under the Act, "unfair claims settlement practices" includes “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed”; “not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear”; and “delaying the investigation or payment of claims by requiring an assured … to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.” Ark. Code Ann. § 23-66-206 (13)(E)–(F), (I) (West 2014).

CALIFORNIA

Overview: In California, a court will typically enforce a policy provision requiring submission of a sworn statement in proof of loss as a condition to payment, but courts have held that substantial compliance with this requirement is sufficient to trigger the insurer’s duty to pay. Where the policy does not define “proof of loss,” the assured can comply with this requirement simply by submitting “sufficient evidence to establish the validity of [the] claim.” If the assured has submitted evidence to establish the validity of the undisputed amounts the insurer should promptly pay that portion of the claim even if the assured has not complied 100 percent with the proof of loss requirements. The insurer in such a situation could face bad faith or extracontractual liability if it insists on submission of a formal proof as a pre-condition to payment.

Enforceability: Proof of loss conditions are typically enforceable in California. If the assured does not substantially comply with a policy’s proof of loss requirement, it is a material breach of a condition precedent to coverage, and the insurer’s duty to perform is excused. Abdelhamid v. Fire Ins. Exchange, 182 Cal. App. 4th 990, 999-1000, 106 Cal. Rptr. 3d 26, 33-34 (Cal. Ct. App. 2010). However, if the assured substantially complies with the proof of loss requirements – but does not comply 100 percent – then the insurer cannot deny payment on the basis that the assured has not complied with the proof of loss requirements. McCormick v. Sentinel Life Ins. Co., 153 Cal. App. 3d 1030, 1046, 200 Cal. Rptr. 732, 741 (Cal. Ct. App. 1984).

Requirements: If the policy does not define “proof of loss,” then the assured complies with the proof of loss condition if it submits “sufficient evidence to establish the validity of [the] claim.” McCormick v. Sentinel Life Ins. Co., 153 Cal. App. 3d 1030, 1046, 200 Cal. Rptr. 732 (Cal. Ct. App. 1984). Cal. Ins. Code § 2071 (West 2014) provides that an undisputed amount of a claim is payable within 60 days after sworn proof of loss is received by the insurer.

Exposure: The ultimate test for bad faith liability in first-party cases is whether the refusal to pay policy benefits is unreasonable. See Morris v. Paul Revere Life Ins. Co., 109 Cal. App. 4th 966, 973, 135 Cal. Rptr. 2d 718 (Cal. Ct. App. 2003). An insurer may be liable for a bad faith denial or delay. See Waters v. United Servs. Auto. Assn., 41 Cal. App. 4th 1063, 1070, 48 Cal. Rptr. 2d 910 (Cal. Ct. App. 1996). Violations of the California Unfair Insurance Practices Act, Cal. Ins. Code § 790 (West 2014), can give rise to a first-party cause of action under the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 (West 2014). See Zhang v. Superior Court, 57 Cal. 4th 364, 304 P.3d 163 (Cal. 2013).

If an insurer insists upon a proof of loss in a particular form as a condition precedent to payment, that can lead to liability for bad faith and unfair insurance practices (Cal. Ins. Code § 790.03 (West 2014)). See Mock v. Michigan Millers Mut. Ins. Co., 4 Cal. App. 4th 306, 324, 5 Cal. Rptr. 2d 594 (Cal. Ct. App. 1992). If the insurer has received adequate information to adjust the claim, then its failure to pay the claim – or delay payment – can constitute bad faith or violation of Cal. Ins. Code § 790.03 (West 2014).

COLORADO

Overview: In Colorado, courts upheld the proof of loss provisions as a condition precedent to an assured’s recovery under a policy. The state is a substantial compliance jurisdiction meaning that an assured typically does not have to strictly comply with a policy’s proof of loss condition. Accordingly, an insurer can put itself at risk for extracontractual liability where it delays payments that are clearly deemed due. Thus, an insurer may increase its potential for bad faith exposure when it demands a sworn proof before paying an undisputed amount where the insurer has the information necessary to determine its liability.

Enforceability: While research did not reveal a Colorado case specifically discussing the enforceability of a proof of loss condition, in addressing a policy’s notice of loss provision the Colorado Court of Appeals explained that the rights of parties to an insurance policy are contractual and measured by a reasonable and natural construction of a policy’s terms and conditions. Accordingly, a policy’s express provisions, including conditions precedent to coverage, are enforceable. See Hansen v. Barmore, 779 P.2d 1360, 1362 (Colo. Ct. App. 1989). More particularly, the 10th Circuit has further explained that the “purpose of … proof of loss clauses in primary insurance contracts is to afford the insurer an opportunity to form an intelligent estimate of its liabilities." See Security Mut. Cas. Co. v. Century Cas. Co., 531 F.2d 974, 978 (10th Cir. 1976) (applying Colorado law).

However, based on a 1911 Colorado Supreme Court case addressing a notice of loss provision, a policy provision will not be construed as a condition precedent unless that intention is clearly and unequivocally stated in the insurance contract. Connecticut Fire Ins. Co. v. Colorado Leasing Min. & Mill Co., 50 Colo. 424, 440-41, 116 P. 154, 160 (Colo. 1911); Preferred Accident Ins. Co. v. Fielding, 35 Colo. 19, 25, 83 P. 1013, 1016 (Colo. 1905). As a result, where a policy’s proof of loss requirement is unequivocally a condition precedent in the insurance contract, a Colorado court is likely to enforce it as such, given its prior rulings with a notice of loss provision.

Requirements: In general, Colorado law permits an assured to satisfy a policy condition precedent where the assured substantially complies with the requirement. Colorado law typically does not require that the assured strictly comply with a condition precedent to coverage. Such provisions may be set aside for substantial justification, and do not require strict compliance. See e.g., Hansen v. Barmore, 779 P.2d 1360, 1362 (Colo. Ct. App. 1989) (citing Emcasco Ins. Co. v. Dover, 678 P.2d 1051, 1053 (Colo. Ct. App.1983); Wilson v. U.S. Fidelity & Guar. Co., 633 P.2d 493, 496 (Colo. Ct. App.1981)).

In addition, we note a case out of another state court within the 10th Circuit, Robinson v. Palatine Ins. Co. v. Manchester, England, 1901-NMSC-021, 11 N.M. 162, 162, 66 P. 535, 537 (internal citations omitted), in which the New Mexico Supreme Court found that substantial compliance with the terms of a fire insurance policy as to notice and proof of loss is all that is required. When notice of the loss is given, even if it is not sworn to, the objection that the notice of loss is not verified is waived unless a verification or further information is demanded. Additionally, where the insurer requests no additional proof of the loss than that originally given, and then sends the adjuster to the loss site, the insurer has waived any further notice or proof requirement. Id.

Exposure: Pursuant to Colo. Rev. Stat. Ann. § 10-3-1115 (West 2014), an insurer "shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant." Colo. Rev. Stat. Ann. § 10-3-1115(1)(a) (West 2014). See also Spendrup v. Am. Family Mut. Ins. Co., No. 13-cv-00513-KLM, 2014 WL 321155, at *4 (D. Colo. January 29, 2014 ). A party can also recover reasonable attorney fees, court costs and two times the covered amount. See Colo. Rev. Stat. Ann. § 10-3-1116(1) (West 2014).[1]

Additionally, first-party common law bad faith involves an insurer’s refusal to make or delay in making payments owed to the assured that exposes the assured to personal liability for monetary obligations underlying the claim. See Goodson v. Am. Standard Ins. Co. of Wis., 89 P.3d 409, 414 (Colo. 2004) (citing Farmers Group, Inc. v. Williams, 805 P.2d 419, 421 (Colo. 1991)). Economic, non-economic and punitive damages are recoverable on a bad faith tort action. See Goodson, 89 P.3d at 415. To recover punitive damages, the assured must prove beyond a reasonable doubt that the insurer’s breach was accompanied by fraud, malice, or willful and wanton conduct. Id. at 415-16.

Accordingly, the insurer likely would increase its exposure for a bad faith claim where it withheld an undisputed amount on the sole basis of the assured’s failure to strictly comply with the policy’s proof of loss condition although there is evidence of the assured’s substantial compliance or evidence indicating that the insurer has waived the proof of loss condition. When an insurer has sufficient information from the assured to calculate an undisputed amount, this further increases the likelihood that the failure to pay or delay in payment of the undisputed amount may be deemed unreasonable and provides a basis for bad faith exposure. We, therefore, would not recommend that an insurer withhold payment of an undisputed amount until the assured strictly complies with a policy’s proof of loss condition where Colorado law applies.

CONNECTICUT

Overview: Generally, compliance with a policy’s proof of loss requirement is a condition precedent to an assured’s right of recovery under the policy, and an assured’s failure to comply will preclude payment. There is Connecticut case law wherein the Connecticut Supreme Court, and federal district courts applying Connecticut law, have upheld an insurer’s denial of the claim due to the assured’s failure to be in strict compliance with the policy’s express requirement for a sworn proof of loss within a certain timeframe where the insurer timely rejected the proof of loss on such grounds and did not take significant steps in adjusting the claim based on the unsworn submission of information forwarded in a form that was not within strict compliance with the policy’s proof of loss condition.

Nevertheless, where the policy’s proof of loss condition is less specific, and/or the insurer is able to establish an undisputed amount on unsworn information absent an objection, Connecticut law likely favors a substantial compliance requirement and considers the undisputed amount due and payable. Accordingly, where the insurer is in agreement with a portion of the loss based on information submitted by the assured, without objection, and then withholds the undisputed amount until it receives a sworn proof of loss, the insurer may be at increased risk for common law bad faith exposure under Connecticut law.

Enforceability: An assured’s responsibility to submit a complete proof of loss as required by the terms of the policy is essential. See Palkimas v. State Farm Fire & Cas. Co., No. CV095022078S, 2013 WL 593924, at *8- *9 (Conn. Super. Ct. Jan. 17, 2013), aff’d Palkimas v. State Farm Fire & Cas. Co., 150 Conn. App. 655, 659-60, 91 A.3d 532, 535 (Conn. App. Ct. 2014). An assured’s complete failure to submit a proof of loss as required under a policy is “fatal” to the assured’s claim, and an insurer is not required to prove that it was prejudiced following an assured’s failure to submit such a proof of loss. See Palkimas v. State Farm Fire & Cas. Co., 150 Conn. App. 655, 659-60, 91 A.3d 532, 535 (Conn. App. Ct. 2014).

Further, Connecticut’s statutory standard form fire insurance policy also includes the following sworn proof of loss requirement:

… AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THIS COMPANY, THE [ASSURED] SHALL RENDER TO THIS COMPANY A PROOF OF LOSS, signed and sworn to by the [assured]…

See Conn. Gen. Stat. Ann. § 38a-307 (West 2015), “The Standard Fire Insurance Policy of the State of Connecticut”.

The Connecticut Supreme Court has upheld an insurer’s requirement for strict compliance with similar language requiring a sworn proof of loss expressly set forth in a policy where the insurer timely objected to the unsworn proof of loss submitted after the 60 day time period elapsed. See e.g., Verrastro v. Middlesex Ins. Co., 207 Conn. 179, 188-89, 540 A.2d 693, 698-99 (Conn. 1988).

Requirements: While the Verrastro v. Middlesex Ins. Co. case establishes precedence for strict compliance with the sworn proof of loss policy condition, importantly, the policy at issue there included the express requirement for a sworn proof of loss, and when the assured did not adhere to that requirement, the insurer timely rejected the submitted proof of loss. Id. 207 Conn. at 188-89, 540 A.2d at 698-99. Further, the assured in Verrastro admitted that its earlier and unsworn submission was incomplete, and there was no evidence that the insurer accepted the earlier incomplete proof of loss. Id. As a result, there is no evidence that the insurer was able to determine an undisputed amount of the claim.

Connecticut courts, however, draw a critical distinction between the complete failure to submit a proof of loss as required by a policy and a mere delay in a proof of loss submission. See Palkimas v. State Farm Fire & Cas. Co., 150 Conn. App. 655, 659, 91 A.3d 532, 535 (Conn. App. Ct. 2014). Unless the policy at issue expressly requires a submission of a proof of loss within a specified time as a condition precedent to liability where forfeiture is provided for delay, a delayed submission merely postpones time of payment and for bringing suit. See Elberton Cotton Mills v. Indem. Ins. Co. of North America, 108 Conn. 707, 707, 145 A. 33, 34-35 (Conn. 1929); compare Verrastro, 207 Conn. at 188-89, 540 A.2d at 698-99 (Court upholding insurer’s timely rejection of untimely submitted sworn proof of loss where policy expressly required sworn statement within 60 days of loss, and assured admitted that prior submission was incomplete). “[T]he only effect given to such delay is to postpone the liability of the insurer until such proof is filed.” Id. Forfeiture is not a result of delayed submission, “delay merely postpones the time of payment and for bringing suit … provided the time otherwise limited for bringing suit has not expired.” Elberton Cotton, 108 Conn. at 707, 145 A. at 35.

Even in the unlikely scenario that a court would consider preclusion of the insurer’s payment obligations due to a delayed submission, Connecticut law likely leaves open the door as to whether a court could also require the insurer to prove, by the preponderance of the evidence, that it has been prejudiced for any such forfeiture. See e.g., Arrowood Indem. Co. v. King, 304 Conn. 179, 201, 39 A.3d 712, 725-26 (Conn. 2012); but see Community Sav. Bank v. Federal Ins. Co., 960 F. Supp. 16, 21 (D. Conn. 1997) (The lower district court found the timely filing a proof of loss was a condition precedent to coverage under a bond for a fidelity claim, but its reasoning was primarily based on federal precedent within the 2nd Circuit rather than Connecticut state law).

In addition, where the policy’s proof of loss condition does not expressly require a sworn proof of loss within a stated timeframe or the assured will be subject to forfeiture, Connecticut law would likely only require that the assured substantially require with a general proof of loss requirement. While there is no case law squarely on point, we look to Connecticut’s Unfair Insurance Practices Act, Conn. Gen. Stat. Ann. § 38a-816(6)(L) (West 2015), that provides that the practice of “delaying the investigation or payment of claims by requiring an [assured] … to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information” constitutes an unfair and deceptive act or practice in the business of insurance. Id. (emphasis added). The language in this provision contemplates and endorses, in effect, a substantial compliance requirement with respect to a proof of loss requirement in a policy.

Therefore, where the policy at issue expressly requires submission of a sworn proof of loss within a specified time as an express condition precedent to liability and the insurer timely objects to any unsworn or untimely sworn proof submitted, the insurer likely remains within its rights to demand same. Where the policy language does not require a “sworn” proof of loss and is less specific on form and timeframe of submission, a court is likely to require only that the assured substantially comply with such a provision (particularly where the insurer has reached a conclusion on an undisputed amount based on the assured’s submission of information). Thus, the important inquiries include: the strength of the policy’s proof of loss condition language, including the degree to which the language is specific; whether the insurer has timely objected or rejected the information submitted as the assured’s proof of loss submission; and the conclusions the insurer is able to make based on the informal submissions with respect to the insurer’s own liability.

Exposure: Under Connecticut law, an implied covenant of good faith and fair dealing is applied in the insurance contract context, which is “[e]ssentially … a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended.” Verrastro, 207 Conn. at 190, 540 A.2d at 699 (internal citations omitted). “The examination of good faith and fair dealing in the settling of an insurance claim requires a case by case analysis.” Id. Connecticut recognizes an independent cause of action in tort arising from an insurer’s common law duty of good faith. See McCauley Enterprises, Inc. v. New Hampshire Ins. Co., 716 F. Supp. 718, 721-22 (D. Conn. 1989).

For bad faith, the insurer’s conduct must be designed to mislead or deceive, or the insurer must neglect or refuse to fulfill some duty or contractual obligation not prompted by an honest mistake. See McCulloch v. Hartford Life & Acc. Ins. Co., 363 F. Supp.2d 169, 177 (D. Conn. 2005). “Allegations of a mere coverage dispute or a negligent investigation by an insurer will not state a claim for bad faith. … Thus, a plaintiff cannot recover for bad faith if the insurer denies a claim that is ‘fairly debatable,’ i.e., if the insurer had some arguably justifiable reason for refusing to pay or terminating the claim.” Id.

Courts applying Connecticut law have expressly found that there is no evidence of common law bad faith where a defendant insurer rejects sworn proofs of loss not submitted within the express timeframe set forth in the policy. See McCauley Enterprises, 716 F. Supp. at 721-22; see also Verrastro, 207 Conn. at 188-89, 540 A.2d at 698-99. In McCauley, the plaintiff assureds argued that the deficiencies in the proofs of loss were technical and resulted in no prejudice to defendant, but the court expressly found that such circumstances “[do] not make [the defendant insurer’s] rejection wrongful or in bad faith.” McCauley Enterprises, 716 F. Supp. at 722. Rather, “[e]xercise of a lawful right cannot be either wrongful or in bad faith.” Id. Though the court acknowledged that plaintiff assureds had the right to bring suit arguing that they be excused from strict compliance with the requirements for proof of loss to “avoid a disproportionate forfeiture,” any delay in the insurer’s rejection of the proofs of loss did not prejudice the assureds rights as even a “timely rejection would not have permitted plaintiffs to resubmit the proofs, since the sixty-day period for filing such proofs had expired.” Id.

Where, however, the policy language does not specifically require a sworn proof of loss within a certain timeframe, and/or where the insurer started investigating and determining liability as to the claim based on unsworn information upon which the insurer is able to calculate an undisputed amount, a court applying Connecticut law is likely to find such circumstances distinguishable from those set forth in the McCauley and Verrastro decisions discussed above and determine that the undisputed amount established by the insurer’s own evaluation of unsworn information is reflective of an agreement reached by the insurer and the assured as to, at least, a portion of the claim and, therefore, is payable. Under such circumstances, we believe case law leaves open the door for an arguable cause of action for procedural bad faith based on an allegation of a delayed payment or the failure to pay an undisputed amount. See c.f. United Tech. Corp. v. American Home Assur. Co., 118 F. Supp.2d 181 (D. Conn. 2000).

Connecticut’s Unfair Insurance Practices Act (CUIPA), Conn. Gen. Stat. Ann. § 38a-816(6)(L) (West 2015), prohibits a practice of delaying payment of a claim by requiring an assured to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, where both submissions contain substantially the same information. Id. Notably, the one stand-alone act of requiring a sworn proof of loss from an assured even where an assured may have previously provided substantially similar information is unlikely to establish a “practice” sufficient for penalty under CUIPA. Conn. Gen. Stat. Ann. § 38a-816(6) (West 2015) requires proof that the relevant misconduct was a part of a general business practice. See Capstone Bldg. Corp. v. American Motorists Ins. Co., 308 Conn. 760, 802, 67 A.3d 961, 991 (Conn. 2013) (internal citations omitted).

Where a plaintiff could show such a practice, an insurer could have extracontractual exposure under CUIPA, as well as under Connecticut’s separate Unfair Trade Practices Act (CUTPA), Conn. Gen. Stat. Ann. §§ 42-110a et seq. (West 2015). A plaintiff may assert a private action based on a substantive violation of CUIPA through CUTPA’s enforcement provision, showing that the insurer engaged in an act prohibited by CUIPA’s substantial provisions, and that the act proximately caused the harm alleged. However, again, more must be shown than a single act of insurance misconduct or an isolated incident. See Belz v. Peerless Ins. Co., -- F. Supp.2d --, No. 3:13-CV-01315, 2014 WL 4364914, at *5 (D. Conn. Sept. 2, 2014).

DELAWARE

Overview: A Delaware court is likely to require strict compliance with a policy’s requirement for a sworn proof of loss submission, even within a certain timeframe, absent waiver by the insurer. This likelihood, however, is significantly offset by the liberal nature in which a Delaware court may find that an insurer implicitly waived the policy’s proof of loss condition. Where an insurer has offered to pay an undisputed amount to the policyholder prior to receipt of a sworn proof of loss, a Delaware court is likely to determine that the insurer waived the requirement for a proof of loss. The cumulative effect of these principles, therefore, likely render Delaware effectively a substantial compliance jurisdiction, with respect to a policy’s proof of loss provision.

Nevertheless, absent reckless conduct by an insurer, or other egregious circumstances, where the insurer attempted to enforce a sworn proof of loss condition that a court later determined waived, the assured’s likely damages would be an amount equal to the value of the property destroyed, with interest accruing from 60 days after the date of the waiver to the date of payment. It is unlikely that the insurer would face additional bad faith or extracontractual damages.

Enforceability: Delaware courts uphold the policy requirement that the policyholder submit a sworn proof of loss within a certain period of time, and have found them binding. Limitation of time for filing proofs of loss pursuant a fire insurance policy is of the essence of the contract, and compliance therewith is a “condition precedent” to insurer's liability on policy. Wilmington Amusement Co. v. Pac. Fire Ins. Co., 41 Del. 294, 21 A.2d 194, 196 (Del. Super. Ct. 1941); Downs v. German Alliance Ins. Co., 22 Del. 166, 67 A. 146, 148 (Del. Super. Ct. 1906).

Requirements: Delaware’s Insurance Code requires an insurer to furnish forms of proof of loss, Del. Code Ann. tit. 18 § 2722 (2015). Furnishing such forms for proof of loss and receiving or acknowledging such forms or proofs of loss (completed or incomplete) is not a waiver of any provision of a policy or of any defense of the insurer. See Del. Code Ann. tit. 18 § 2724 (2015). Nevertheless, where an insurer offers to pay a portion of the claim, without first receiving a sworn proof of loss, the insurer risks waiving the sworn proof of loss requirement along with other policy conditions not yet met. See G.M.S. Realty Corp. v. Girard Fire & Marine Ins. Co., 47 Del. 216, 220, 89 A.2d 857, 859 (Del. Super. Ct. 1952).

In G.M.S. Realty, the policyholder submitted two contractor repair estimates and the fire insurance adjuster then secured a third estimate (substantially lower than the other two). The adjuster offered to settle the claim for the amount of the lowest third estimate (presumably the undisputed amount) without ever mentioning the necessity to file a proof of loss, or raising an objection to the insurer’s liability. Even with a non-waiver agreement in place that preserved all conditions in the policy, the court found the insurer waived the proof of loss requirement. The court determined that offering to settle or pay an amount without a proof of loss was well beyond the non-waiver agreement. See generally G.M.S. Realty Corp., 47 Del. 216, 89 A.2d 857 (Del. Super. Ct. 1952).

Delaware decisions indicate a liberal standard for an insurer’s implied waiver or estoppel of policy conditions, including those requiring a proof of loss. See e.g., Nathan Miller, Inc. v. Northern Ins. Co. of New York, 42 Del. 523, 528-29, 39 A.2d 23, 25 (Del. Super. Ct. 1944). Such a waiver may occur by: (1) the insurer’s conduct in denying liability (or other conduct on behalf of the insurer) within the prescribed time for furnishing proof of loss; (2) saying nothing, in response to a demand for indemnity, as to the failure of the assured to render proof of loss, but instead claiming another defense; (3) the insurer making a settlement offer to the assured; or (4) the insurer’s promise to prepare and present to the assured, for execution, a proof of loss in a form satisfactory to the insurer. See Nathan Miller, 42 Del. at 527-531, 39 A.2d at 25-27. However, conduct such as the insurer requesting more information from the assured or making a demand of physical inventory figures does not waive the insurer’s right to insist upon strict compliance with the proof of loss provision. See Standard Acc. Ins. Co. v. Ponsell’s Drug Stores, Inc., 57 Del. 485, 491, 202 A.2d 271, 274 (Del. 1964).

Where an insurer determines an undisputed amount and offers to settle that portion of the claim, without first having a sworn proof of loss, a court is likely to determine that the insurer waived its proof of loss policy condition under Delaware law where no proof of loss would then be required.

Exposure: Under Delaware law, “a first-party claim against an insurer for bad faith denial or delay in claim payments sounds in contract and arises from the implied covenant of good faith and fair dealing.” Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 440 (Del. 2005). A breach of the duty of good faith occurs “[w]here an insurer fails to investigate or process a claim,” “delays payment,” or denies a claim and “the [assured] can show that the insurer's denial of benefits was ‘clearly without any reasonable justification.’” Id. (quoting Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 264 (Del. 1995), declined to follow on other grounds by E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 446-49 (Del. 1996)). In first-party actions, the assured “attempts to show the absence of a reasonable basis for not paying benefits along with the defendant insurer’s knowledge or reckless disregard of the fact that it lacked a reasonable basis for denying the claim.” Clausen v. Nat’l Grange Mut. Ins. Co., 730 A.2d 133, 141 (Del. Super. Ct. 1997).

One of Delaware’s early proof of loss cases, Reed v. Continental Ins. Co., 22 Del. 204, 65 A. 569, 571 (Del. Super. Ct. 1906), provides that, where the technical requirements of the policy’s proof of loss condition were deemed waived, the assured is entitled to “recover an amount equal to the value of the property destroyed, with interest thereon from 60 days after the date of the waiver to the date of payment.” Id. Punitive damages are available if the insurer’s conduct is particularly egregious, i.e., rising to the level of recklessness or malice. See Tackett, 653 A.2d at 265, declined to follow on other grounds by E.I. DuPont de Nemours & Co. v. Pressman, 679 A.2d 436, 446-49 (Del. 1996)(distinguishing punitive damages, which are not available for breach of an employment contract). The assured can also recover uncovered economic losses, emotional distress damages, and attorneys’ fees. See Clausen, 730 A.2d at 140.

Delaware’s Insurance Code also provides that an insurer should not fail to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed and should not delay the investigation or payment of claims by requiring an assured “to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.” Del. Code Ann. tit. 18 § 2304(16) (2015). Delaware’s Insurance Code also prohibits an insurer from “[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” Id.

At most, and absent reckless conduct by an insurer, or other egregious circumstances, where the insurer attempted to enforce a sworn proof of loss condition that a court later determined was waived, it stands to reason that the assured’s likely damages would be an amount equal to the value of the property destroyed, with interest thereon from 60 days after the date of the waiver to the date of payment. See Reed, 22 Del. at 204, 65 A. at 571.

FLORIDA

Overview: Florida law is a substantial compliance jurisdiction, meaning that a Florida court could find that a policyholder substantially complied with the proof of loss condition where the assured provided sufficient information on which to determine an undisputed amount of a loss. As a result, we believe that an insurer’s demand for a formal and/or sworn proof before paying an undisputed amount (i.e., where the insurer’s liability has already been demonstrated) could create potential exposure for an insurer to a statutory bad faith cause of action. Moreover, where an insurer offers to settle a claim and admits liability prior to the receipt of a sworn proof of loss – even to a limited extent and based on a lesser undisputed amount – a requirement for a formal proof of loss is likely waived.

Enforceability: Under Florida law, a policyholder is responsible for notifying the insurer of the loss and providing proof that the loss took place, along with values for items allegedly damaged or destroyed. “The provisions in a standard fire insurance policy requiring the [assured] to notify the company in writing of the loss and to furnish proof of such loss are conditions precedent to the right to sue[.]” See National Union Fire Ins. Co. of Pittsburg, Pa., v. Cone, 80 Fla. 265, 267, 85 So. 913, 914 (Fla. 1920).

Both the Florida Administrative Code and Florida Statutes incorporate provisions regulating the handling of property insurance claims. The code provisions relevant to property insurers are found at Florida Administrative Code Annotated Chapter Nos. 69O-166, 167, 170 and 171. The statutory provisions relevant to property insurers are found under Title XXXVII, Chapter 627, Part X, sections 701 through 714.

Fla. Stat. Ann. § 627.425 (West 2014) provides:

627.425 Forms for proof of loss to be furnished.—An insurer shall furnish, upon written request of any person claiming to have a loss under an insurance contract issued by such insurer, forms of proof of loss for completion by such person, but such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion.

Relevant to an assured’s submission of a sworn statement in proof of loss and an insurer’s commencement of a claim investigation, Florida Administrative Code Annotated sets forth the following claim handling guidelines for insurers:

Unless otherwise provided by the policy of insurance or by statutes, such insurer shall within 10 working days of its receipt of proof of loss statements begin such investigation as is reasonably necessary, unless the failure to begin such investigation is caused by factors beyond the control of the insurer which reasonably prevent the commencement of such investigation. (Fla. Admin. Code Ann. r. 69O-166.024(3) (2015)).

Similarly, Fla. Stat. Ann. § 627.70131 (West 2014) sets forth the following claim handling guidelines for insurers relevant to proofs of loss and payment of undisputed amounts:

Unless otherwise provided by the policy of insurance or by law, within 10 working days after an insurer receives proof of loss statements, the insurer shall begin such investigation as is reasonably necessary unless the failure to begin such investigation is caused by factors beyond the control of the insurer which reasonably prevent the commencement of such investigation. (Fla. Stat. Ann. § 627.70131(3) (West 2014))

Within 90 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay is caused by factors beyond the control of the insurer which reasonably prevent such payment. Any payment of an initial or supplemental claim or portion of such claim made 90 days after the insurer receives notice of the claim, or made more than 15 days after there are no longer factors beyond the control of the insurer which reasonably prevented such payment, whichever is later, bears interest at the rate set forth in [Fla. Stat. Ann. § 55.03 (West 2014)]. Interest begins to accrue from the date the insurer receives notice of the claim. The provisions of this subsection may not be waived, voided, or nullified by the terms of the insurance policy. If there is a right to prejudgment interest, the [assured] shall select whether to receive prejudgment interest or interest under this subsection. Interest is payable when the claim or portion of the claim is paid. Failure to comply with this subsection constitutes a violation of this code. However, failure to comply with this subsection does not form the sole basis for a private cause of action. (Fla. Stat. Ann. § 627.70131(5)(a) (West 2014)).

A failure to provide the required information or proof of loss, as requested by the insurer, permits the insurer to delay paying the claim until such time as it receives the needed information. See Hartford Fire Ins. Co. v. Redding, 47 Fla. 228, 238-39, 37 So. 62, 66-67 (Fla. 1904). A failure to make proofs of loss, as required in the standard insurance policy, within the time stipulated, will not invalidate the policy, in the absence of a stipulation to that effect, but will postpone the day of payment. Id. Consequently, the legal effect of a policy provision requiring proofs of loss within a certain number of days does not make the policy void or forfeited on failure to furnish such proofs but, rather, postpones the time when the amount of the loss becomes payable and/or when suit may be brought, so long as the requirement was not waived. Id.; see also Starling v. Allstate Floridian Ins. Co., 956 So.2d 511, 513 (Fla. Dist. Ct. App. 2007) (finding “a material breach of an [assured]’s duty to comply with an insurance policy’s condition precedent relieves the insurer of its obligations under the contract.”); Haiman v. Federal Insurance Co., 798 So.2d 811, 812 (Fla. Dist. Ct. App. 2001) (finding that “a total failure to comply with policy provisions made a prerequisite to suit under the policy may constitute a breach precluding recovery from the insurer as a matter of law.” (internal citations omitted). Moreover, if the proof of loss provision compels submission of a sworn statement in proof of loss when “requested” by the insurer, an assured’s failure to submit a proof of loss will not bar recovery or a suit on the policy if an insurer never made the request. See First Home Ins. Co. v. Fleurimond, 36 So.3d 172, 174 (Fla. Dist. Ct. App. 2010).

As a corollary to this issue, submission of a sworn proof of loss is also a precondition to appraisal. See Jacobs v. Nationwide Mut. Fire Ins. Co., 236 F.3d 1282, 1285 (11^th Cir. 2001); Pando v. U.S. Fidelity and Guar. Co., 1998 WL 708619, at *3 (S.D. Fla. 1998). After recognizing the assureds’ failure to file a requested proof of loss, the federal district court in Pando (construing Florida law) held that the “[assured] cannot require [insurer] to submit to the appraisal process at this time until they comply with the policy.” Pando, 1998 WL 708619 at *3. Additionally, supplemental claims — i.e., those claims that are due to the original peril, but arise subsequent to the initial reporting of a claim — are also subject to an insurer’s request for a proof of loss. Id.

Finally, where an insurer makes an offer of settlement on a particular claim based on the undisputed amount of the loss, the insurer is deemed to have waived the formal proof of loss requirement for damages pertaining to that particular claim. Id.; see also Llerena v. Lumbermens Mut. Cas. Co., 379 So.2d 166, 167 (Fla. Dist. Ct. App. 1980); American Bankers Ins. Co. of Florida v. Terry, 277 So.2d 563, 564 (Fla. Dist. Ct. App. 1973); but see Bednarz v. Castle Key Indem. Co., No. 812-CV-2827-T-35EAJ, 2014 WL 4635707, at *11 (M.D. Fla. Sept. 15, 2014) (finding the Llerena decision inapposite where the insurer’s payment of certain damages does not include an offer of settlement or other insurer admission of liability).

Requirements: Generally, a provision requiring the submission of a proof of loss to an insurer will be liberally construed in favor of the assured so that substantial compliance with such a provision will be deemed sufficient. See Fireman's Fund Indem. Co. v. Perry, 149 Fla. 410, 421, 5 So. 2d 862, 866 (Fla. 1942). Thus, no particular form of proof of loss is required; if the proof tendered gives sufficient information to enable the insurer to determine its liability and it is sworn to, it is usually sufficient. See General Motors Acceptance Corp. v. American Ins. Co., 50 F.2d 803, 805 (5th Cir. 1931) (Florida law).

Florida courts consistently hold that sufficiently detailed notices of loss may be considered “proofs of loss,” covering both of the assured's post-loss responsibilities – i.e., notice of loss and proof of loss. Where proofs of loss are sufficiently full to give insurer notice of loss required by another provision in the policy, the same document will be sufficient as a notice of loss, as well as proof of loss. See generally Hartford Fire Ins. Co., 47 Fla. 228, 37 So. 62 (Fla. 1904).

Exposure: A claim for bad faith failure to settle is “founded upon the obligation of the insurer to pay when all conditions under the policy would require an insurer exercising good faith and fair dealing towards its [assured] to pay.” See Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000); see also 316, Inc. v. Maryland Cas. Co., 625 F. Supp.2d 1187, 1191-92 (N.D. Fla. 2008). The Florida Supreme Court explained:

What is owed on the contract is in turn governed by whether all conditions precedent for payment contained within the policy have been met. An insurer, however, must evaluate a claim based upon proof of loss required by the policy and its expertise in advance of a determination by a court or arbitration.

Vest, 753 So. 2d at 1275-76. Accordingly, an insurer cannot be deemed to have engaged in bad faith failure to settle a claim unless and until the policyholder submits a sworn statement in proof of loss, which, consequently, must be satisfied before an insurer can ever be held in bad faith. See Vest, 753 So. 2d at 1275.

Moreover, “[n]o action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.” Fla. Stat. Ann. § 624.155 (3)(d) (2014). Accordingly, where the insurer is placed on notice of an alleged violation, the insurer has time to address and correct the misstep, if any, further limiting actual exposure. There is no common law, first-party bad faith cause of action in Florida. QBE Ins. Corp. v. Chalfonte Condominium Apartment Ass’n, Inc., 94 So. 3d 541, 547 (Fla. 2012).

The more critical and likely more relevant bad faith scenario arises where a policyholder has not submitted a formal proof of loss, but there has been information provided to the insurer such that the insurer has determined an undisputed amount. Under these circumstances, the insurer is likely to increase its bad faith exposure where it delays payment of the undisputed amount while awaiting the formal sworn proof of loss. We base this analysis on Fla. Stat. Ann. § 624.155 (West 2014) – Florida’s bad faith statute.

Fla. Stat. Ann. § 624.155 sets forth a series of additional claim handling violations constituting bad faith conduct by insurers relevant to proofs of loss and payment of undisputed amounts:

Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the [assured] within 30 days after proof-of-loss statements have been completed. (Fla. Stat. Ann. § 626.9541(1)(i)(3)(e) (West 2014)).

Failing to pay undisputed amounts of partial or full benefits owed under first-party property insurance policies within 90 days after an insurer receives notice of a residential property insurance claim, determines the amounts of partial or full benefits, and agrees to coverage, unless payment of the undisputed benefits is prevented by an act of God, prevented by the impossibility of performance, or due to actions by the [assured] or claimant that constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed. (Fla. Stat. Ann. § 626.9541(1)(i)(4) (West 2014)).

A violation of any of the above cited code and statutory provisions are grounds for a statutory bad faith cause of action. As Florida is a substantial compliance jurisdiction, we caution that an insurer with sufficient information on which to determine an undisputed amount of the loss may be deemed indicative of a policyholder in substantial compliance with a proof of loss policy condition. In essence, an insurer may be at risk for a violation of the above sections where there are “partial” amounts owed for an undisputed portion of the claim (particularly where this amount is based on information provided by the policyholder), but the insurer withholds them while awaiting a formal sworn proof of loss (with much of the same information). We would, therefore, recommend that an insurer not withhold undisputed amounts in such a scenario.

GEORGIA

Overview: Georgia law requires policyholders to comply with express policy conditions, including those provisions that require a sworn proof of loss from a policyholder prior to an insurer making a payment. Where a policy does not require a “sworn proof of loss” prior to payment, it is likely sufficient that a policyholder only substantially comply with a proof of loss requirement. In essence, the policyholder is likely entitled to payment of undisputed amounts once he or she provides proof sufficient to enable an insurer to verify or disapprove, in the exercise of reasonable diligence, basic components of an assured’s claim undisputed amounts.

As a result, where there is no express condition for a sworn proof of loss and the policyholder has complied with all other policy condition precedents for payment, the insurer should pay the undisputed amounts within 10 days of determination that amounts are not in dispute in order to avoid risking bad faith and extracontractual liability.

Enforceability: “Absent [an insurer’s] waiver, the furnishing of the proof of loss as required by the policy is a condition precedent to the accrual of liability on the part of the company and to the institution of suit by the [assured].” Whitehead v. Lumbermens Mut. Cas. Co., 543 F. Supp. 967, 969 (N.D. Ga. 1982) aff'd sub nom. Whitehead v. Lumbermens Mut., 703 F.2d 580 (11th Cir. 1983) (citing Buffalo Ins. Co. v. Star Photo Finishing Co., 120 Ga.App. 697, 708, 172 S.E.2d 159, 166 (Ga. Ct. App. 1969). Where an insurer is clear that it will require compliance with a policy’s express condition requiring a sworn proof of loss, and the assured does not provide one, the insurer is entitled to judgment as a matter of law on the assured’s claims under the terms of the insurance. Whitehead, 543 F. Supp. 967 at 970. Georgia, therefore, requires strict compliance with the express requirement for a sworn proof of loss. Id.

An insurer could waive the proof of loss requirement where it stated – after notice, investigation and within the timeframe in which to provide the proof of loss – that a prompt settlement would be made. In essence, such a scenario could be deemed waiver by implication of the right to require proof of loss forms and the insurer would have no right to demand such proof at a later time. See, e.g., Progressive Mut. Ins. Co. v. Burrell Motors, Inc., 112 Ga. App. 88, 89, 143 S.E.2d 757, 759 (Ga. Ct. App. 1965).

Additionally, a policyholder’s failure to provide the required proof of loss within the time prescribed by the policy will not result in a forfeiture of the policy unless the policy includes an express stipulation to that effect. See Farm Bureau Mut. Ins. Co. v. Bennett, 114 Ga. App. 623, 624, 152 S.E.2d 609, 610 (Ga. Ct. App. 1966).

Requirements: If the policy does not expressly require a sworn proof of loss, there is the risk that the policy provisions for furnishing of proof of loss would be liberally construed in favor of the assured, and substantial compliance with the terms of the policy (rather than strict compliance) would suffice in this regard. In such a scenario, Georgia secondary sources opine that the proof must be reasonable, and reasonable proof is proof sufficient to enable an insurer to verify or disapprove, in the exercise of reasonable diligence, basic components of an assured’s claim. See 16 Ga. Jur. Insurance § 18:20, citing Jones v. State Farm Mut. Auto. Ins. Co., 156 Ga. App. 230, 235, 274 S.E.2d 623, 627 (Ga. Ct. App. 1980) (overruled on other grounds by, Atlanta Cas. Co. v. Flewellen, 164 Ga. App. 885, 300 S.E.2d 166 (Ga. Ct. App. 1982))(reversed in part on other grounds by Flewellen v. Atlanta Cas. Co., 250 Ga. 709, 300 S.E.2d 673 (1983)).^[2]

Exposure: Georgia law recognizes a statutory first-party bad faith claim under Ga. Code Ann. § 33-4-6 (West 2014), under which the policyholder must prove for recovery that: (1) the claim is covered under the policy; (2) a demand for payment was made against the insurer at a time when immediate payment is due and within 60 days prior to filing suit; and (3) that the insurer’s failure to pay was motivated by bad faith.” Id.; see also Lavoi Corp., Inc. v. Nat’l Fire Ins. of Hartford, 293 Ga. App. 142, 145, 666 S.E.2d 387, 391 (Ga. Ct. App. 2008). “Bad faith” by an insurer means a frivolous and unfounded refusal to pay a claim. Where there is any reasonable ground for an insurer to contest a claim, there is no bad faith. See Swyters v. Motorola Employees Credit Union, 244 Ga. App. 356, 358, 535 S.E.2d 508, 510 (Ga. Ct. App. 2000) (citing Canal Ins. Co. v. Savannah Bank & Trust Co., 181 Ga. App. 520, 523, 352 S.E.2d 835, 839 (Ga. Ct. App. 1987)).

Ga. Code Ann. § 33-4-6 (West 2014) imposes a penalty, in addition to the loss amount, of “not more than 50 percent of the liability of the insurer for the loss or $5,000, whichever is greater[.]” Id. As the bad faith statute is penal in nature, it is strictly construed, and a proper demand for payment is essential to recovery. Id. Since a policyholder’s bad faith demand is only proper where it is made at the time a loss payment is immediately due, a bad faith demand must be made after the policyholder has complied with the policy’s conditions precedent. It is therefore axiomatic that, where a policy expressly requires a sworn proof of loss, a bad faith demand is not proper until the policyholder is in strict compliance with this express sworn proof of loss condition. See Lavoi, 293 Ga. App. at 145, 666 S.E.2d at 391-92. Where an insurer demands compliance with its sworn proof of loss policy condition before making a payment, absent a waiver of that requirement, bad faith exposure is unlikely even where the amount is undisputed.

In the instance where the insurer has determined an undisputed amount of the loss and the policy only requires a “proof of loss,” rather than a “sworn proof of loss,” we would recommend the insurer consider paying the undisputed amount. The decision to withhold the amount while awaiting a sworn proof of loss, absent express policy language on which to support it, could increase an insurer’s bad faith exposure (provided the proper statutory notice and other requirements of Ga. Code Ann. § 33-4-6 have been previously met).

HAWAII

Overview: In Hawaii, the issues surrounding enforcement of proof of loss provisions have largely been untested. Nevertheless, based on the Supreme Court suggestions in dicta that proof of loss provisions are strictly enforced, and that Hawaii has adopted New York’s Standard Fire Policy, an insurer should be able to require strict compliance with a “sworn proof of loss” requirement in its policy, absent an insurer’s express or implicit waiver of the condition precedent. Where the insurer, however, has admitted liability to an undisputed amount prior to the receipt of a sworn proof of loss, we would not recommend that an insurer withhold the admitted payment amount on the sole basis that the assured has not submitted a sworn proof of loss. The state’s Unfair Claims Settlement Practices Act (UCSPA) requires payment of undisputed amounts within 30 days of “affirmation of liability.” Haw. Rev. Stat. § 431:13-101 et. seq. (2014).

Enforceability: A policy’s proof of loss requirements are enforceable in Hawaii. Boardman v. Fireman’s Fund Ins. Co., 14 Haw. 21, 24-25 (Haw. 1902) (overruled in part by Best Place, Inc. v. Penn America Ins. Co., 82 Haw. 120, 140, 920 P.2d 334, 354 n.12 (Haw. 1996), as amended (June 21, 1996), to the extent the Boardman holding mandated that a waiver of the time submitting proof of loss be in writing). Further, the Hawaii Supreme Court decision, Best Place, Inc., 82 Haw. 120, 920 P.2d 334 (Haw. 1996) held that the insurer’s failure to respond to the assured’s inquiries regarding proofs of loss warranted an inference that the insurer waived the policy’s 60 day time limitation for submission of the proof of loss. Id., 82 Haw. at 139, 920 P.2d at 353. However, the court noted, “if [the insurer] intended to enforce the sixty-day time limitation for the proof of loss, it could have simply denied the claim on that basis alone.” Id., 82 Haw. at 140, 920 P.2d at 354.

With respect to waiver, however, under Haw. Rev. Stat. § 431:10-236 (2014), furnishing or receiving proof of loss forms, or investigating any loss or claim, or engaging in negotiations looking toward a possible settlement of any such claim, does not constitute a waiver on the insurer’s part. Id.

Requirements: HAW. REV. STAT. § 431:10-210 (2014) adopts the standard form fire insurance policy as authorized and in effect in the state of New York, which includes a proof of loss requirement that “within sixty days after the loss, unless such time is extended in writing by [the insurer], the [assured] shall render … a proof of loss, signed and sworn to by the [assured][.]” See id.; see also N.Y. INS. LAW § 3404 (McKinney 2010). Given Hawaii’s adoption of the standard New York fire policy, and its apparent silence on whether Hawaii law requires strict compliance or substantial compliance with a proof of loss requirement, we believe that a Hawaii court could look to New York law for instruction where express sworn proof of loss requirements are strictly enforced, absent a waiver. See e.g., Anthony Marino Const. Corp. v. INA Underwriters Ins. Co., 69 N.Y.2d 798, 800, 505 N.E.2d 944, 944 (N.Y. 1987).

Nevertheless, and in further consideration of Hawaii’s silence on the extent to which it will require strict compliance with a proof of loss condition, in circumstances where an undisputed amount exists to which an insurer has accepted liability prior to receipt of a proof of loss, we would not recommend that the insurer withhold the amount solely on the ground it has not received a sworn proof of loss. We primarily base this recommendation on HAW. REV. STAT. § 431:13-103(a)(11)(F) (2014), providing that it is unlawful for an insurer to fail to offer payment within 30 days of “affirmation of liability” if the amount of the claim is not in dispute.

As a result, where an insurer wishes to preserve its proof of loss policy condition through the investigation of the claim, it is in the best interest of the insurer to expressly confirm the assured’s responsibility to provide the sworn proof of loss within the time frame required by the policy; expressly reserve its rights under HAW. REV. STAT. § 431:10-236 (2014); and, although the insurer may look toward a possible settlement, consider the extent to which it should formalize the negotiations and offer of settlement(s) prior to the receipt of the sworn proof of loss, as required by the policy.

Exposure: Hawaii recognizes a bad faith cause of action in the first-party insurance context. See Best Place, Inc., 82 Haw. 120, 127, 920 P.2d 334, 341 (Haw. 1996). While an assured need not show a conscious awareness of wrongdoing or unjustified conduct by the insurer, “[a]n unreasonable delay in payment of benefits will warrant recovery for compensatory damages[.]” Best Place, 82 Haw. at 133, 920 P.2d at 347 (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 510 P.2d 1032 (Cal. 1973))(internal citations omitted). Neither “conduct based on an interpretation of the insurance contract that is reasonable” or “an erroneous decision not to pay a claim for benefits due under a policy” constitutes bad faith. See Best Place, 82 Haw. at 133, 920 P.2d at 347 (internal citations omitted).

Hawaii also has an Unfair Claim Settlement Practices Act (UCSPA), Haw. Rev. Stat. §§ 431:13-101 et. seq. (2014). Although the Act does not provide a private right of action for an assured, the assured may use evidence of statutory violations of the UCSPA to support a common law cause of action for bad faith.  See Haw. Rev. Stat. § 431:13-103 (2014); see also Wailua Assoc. v. Aetna Cas. & Sur. Co., 27 F.Supp.2d 1211, 1220-21 (D. Haw. 1998). As set forth more fully above, if an insurer fails to pay an undisputed claim within 30 days after “affirmation of liability,” then it has violated the UCSPA. See Haw. Rev. Stat. § 431:13-103(a)(11)(F) (2014).

With respect to bad faith damages, emotional distress damages may be available even in the absence of economic or physical loss. See Miller v. Hartford Life Ins. Co., 126 Haw. 165, 176-79, 268 P.3d 418, 429-32 (Haw. 2011). Punitive damages also are recoverable when the plaintiff assured proves “by clear and convincing evidence that the [insurer] acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference to civil obligations, or where there has been some willful misconduct or that entire want of care which would raise the presumption of a conscious indifference to consequences.” Best Place, 82 Haw. at 134, 920 P.2d at 348.

Therefore, a proof of loss scenario that likely indicates the most potential bad faith exposure to an insurer, in and itself, is where the insurer has waived the proof of loss policy condition (either expressly or implicitly), and withheld an undisputed payment amount on the sole ground that the assured has not met the sworn proof of loss condition in the policy. It stands to reason that the greater extent to which the insurer has expressly waived the policy’s proof of loss condition, the greater exposure the insurer likely has for a common law bad faith claim in Hawaii.

IDAHO

Overview: Although proof of loss requirements, as a condition of payment for covered first-party claims, are enforceable in Idaho, Idaho law is generous to assureds as to what constitutes compliance with such requirements. Generally, an assured must only provide information sufficient to enable the insurer to investigate the loss and determine its liability. This will suffice to satisfy the policy requirement.

Idaho courts have not specifically addressed the issue of enforcement of a proof of loss provision as a condition to payment of undisputed amounts of a claim. Failure to pay undisputed amounts of a claim, if found intentional or unreasonable, however, could lead to liability for bad faith and, under Idaho law, the possibility of punitive damages. Thus, conditioning the payment of such a sum on submission of a proof could increase an insurer’s exposure to a bad faith claim where sufficient information to determine liability has already been provided.

Enforceability: Idaho courts will enforce a policy requirement for submission of a proof of loss. However, the courts are generally lenient as to what constitutes a proof of loss, allowing assureds to satisfy the policy condition by submission of information that may not include a formal sworn proof of loss. See Brinkman v. Aid Ins. Co., 115 Idaho 346, 349-50, 766 P.2d 1227, 1230 (Idaho 1988), overruled on other grounds by Greenough v. Farm Bureau Mut. Ins. Co. of Idaho, 142 Idaho 589, 592-93, 130 P.3d 1127, 1130-31 (Idaho 2006).

Requirements: The Idaho Supreme Court explained what constitutes an adequate proof of loss:

The amount of information provided should be proportional to the amount reasonably available to the [assured]. If the information provided is insufficient to give the insurer an opportunity to investigate and determine its liability, the insurer may deny coverage. Otherwise, the insurer must investigate and/or determine its rights and liabilities. The documentation is the “proof.” The explanation of physical and/or financial injury is the “loss.” “Loss” must be distinguished from liability. The insurer will determine its liability with the knowledge that it must be fair and accurate or suffer the consequences.

Brinkman, 115 Idaho at 350, 766 P.2d at 1231.

Therefore, the proof of loss need not prove with “mathematical certainty” the amount of damages, and it need not conclusively prove the insurer's liability for the claimed loss. See Boel v. Stewart Title Guar. Co., 137 Idaho 9, 14, 43 P.3d 768, 773 (Idaho 2002); see also Greenough v. Farm Bureau Mut. Ins. Co. of Idaho, supra. This amounts to a substantial compliance standard for the enforcement of proof of loss conditions. An insurer may also waive strict compliance with a proof of loss requirement through its conduct or statements to the assured. See e.g., March v. Snake River Mut. Fire Ins. Co., 89 Idaho 275, 284, 404 P.2d 614, 620 (Idaho 1965).

Exposure: Idaho has recognized the tort of bad faith in the handling of first-party insurance claims. White v. Unigard Mut. Ins. Co., 112 Idaho 94, 96-97, 730 P.2d 1014, 1016-17 (Idaho 1986). The mere failure to settle immediately what later proves to be a valid claim does not, however, in and of itself, establish bad faith. Rather, “where an insurer ‘intentionally and unreasonably denies or delays payment’ on a claim, and in the process harms the assured in such a way not fully compensable at contract, the assured can bring an action in tort to recover for the harm done.” White, 112 Idaho at 98, 730 P.2d at 1018. “In order for a first-party assured to recover on a bad faith claim, the assured must show: (1) the insurer intentionally and unreasonably denied or withheld payment; (2) the claim was not fairly debatable; (3) the denial or failure to pay was not the result of a good faith mistake; and (4) the resulting harm is not fully compensable by contract damages.” Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 176, 45 P.3d 829, 832 (Idaho 2002); see also Weinstein v. Prudential Prop. & Cas. Ins. Co., 149 Idaho 299, 315, 233 P.3d 1221, 1237 (Idaho 2010).

In Chester v. State Farm Ins. Co., 117 Idaho 538, 541, 789 P.2d 534, 537 (Idaho Ct. App. 1990) a trial verdict that the insurer had acted in bad faith was affirmed where the insurer delayed payment of the actual cash value of the assured’s property – which it conceded it owed – for more than eight months by continually requesting additional information and additional forms from the assured. Attorneys’ fees are also recoverable if (1) the assured provides proof of loss as required by the insurance policy, and (2) the insurer fails to pay the amount justly due within 30 days after receipt of the proof of loss. See Idaho Code Ann. § 41-1839 (2014); Parsons v. Mut. of Enumclaw Ins. Co., 143 Idaho 743, 746-47, 152 P.3d 614, 617-18 (Idaho 2007). Punitive damages may be awarded where the insurer’s conduct “was an extreme deviation from reasonable standards of conduct, performed with an understanding of its consequences.” Linscott v. Rainier Nat’l Life Ins. Co., 100 Idaho 854, 860, 606 P.2d 958, 964 (Idaho 1980). Conduct warranting punitive damages must be proven by clear and convincing evidence and is limited to the greater of $250,000 or three times the compensatory damages. See Idaho Code Ann. § 6-1604 (2014).

Idaho also has an Unfair Claim Settlement Practices Act, patterned after the model act adopted in many states. Although there is no private right of action under the Act, (see Idaho Code Ann. § 41-1329 (2014); White, 112 Idaho at 100, 730 P.2d at 1020), we note the relevant practices defined as unfair methods of competition or unfair or deceptive acts or practices in the business of insurance are the following:

(5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

* * *

(12) Delaying the investigation or payment of claims by requiring an [assured] … to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

Idaho Code Ann. § 41-1329(5), (12) (2014). Accordingly, an undisputed payment amount is likely to signify either that the assured has complied with the proof of loss requirement, or that the insurer may have waived such a requirement. In either circumstance, Idaho would likely view withholding such a payment as an unfair delay after receipt of a sufficient proof of loss or while demanding substantially the same information already in the insurer’s possession but just in a different form. Therefore, given Idaho’s liberal requirement for compliance with a proof of loss policy condition, in addition to the bad faith extra-contractual damages available to the assured, we would recommend that the insurer make the undisputed payment promptly.

ILLINOIS

Overview: As in other states, Illinois generally adheres to the rule that a proof of loss is a pre-condition to payment. Illinois, however, is a substantial compliance jurisdiction, meaning an assured is not required to strictly comply with the policy’s proof of loss condition. We, therefore, conclude that insurers demanding a formal proof of loss in strict compliance with the policy’s condition, before paying an undisputed amount, could give rise to extracontractual liability exposure where the insurer already has a sufficient quantum of information to determine liability.

Enforceability: In Illinois, a court will typically enforce a policy provision requiring submission of a sworn statement in proof of loss as a condition to payment, concluding that such a requirement in the policy is a valid condition of coverage. Tarzian v. West Bend Mut. Fire Ins. Co., 74 Ill. App. 2d 314, 322-23, 221 N.E.2d 293, 297-98 (Ill. App. Ct. 1966). An insurer can contractually require that proofs of loss be submitted in a particular form or with certain detail or substantiation. See Second New Haven Bank v. Kobrite, Inc., 86 Ill. App. 3d 832, 835-37, 408 N.E.2d 369, 370-72 (Ill. App. Ct. 1980); Amber Grove Homeowners Ass’n v. QBE Ins. Corp., No. 12 C 9142 2013 WL 1679425, at *4 (N.D. Ill. April 17, 2013), appeal dismissed (Oct. 21, 2013); Vala v. Pacific Ins. Co., 296 Ill. App. 3d 968, 971, 695 N.E.2d 581, 583 (Ill. App. Ct. 1998). Where a policy only requires a general “proof of loss,” courts will not find that a sworn proof is required. Id.; see also, Marino v. Firemen’s Ins. Co. of Newark, N.J., 345 Ill. App. 540, 545-46, 104 N.E. 2d 317, 319 (Ill. App. Ct. 1952).

In addition, such a requirement can be waived expressly or impliedly by writing or acceptance of a lesser proof. See Piro v. Pekins Ins. Co., 162 Ill. App. 3d 225, 229, 514 N.E. 2d 1231, 1234 (Ill. App. Ct. 1987). If the insurer believes a partial, inaccurate, undocumented or unsworn proof of loss has been submitted in contravention of specific policy requirements, the insurer must advise the assured of the non-compliance, otherwise an objection to the proof will be deemed waived. See Piro, supra. For example, stating an examination under oath will serve as satisfactory documentation of the claim or stating the assured “will be taken care of” will be deemed a waiver of a proof of claim. Koclanakis v. Merrimack Mut. Fire Ins. Co., 709 F. Supp. 801, 806-07 (N.D. Ill. 1988) aff'd, 899 F.2d 673 (7th Cir. 1990); Marino, 345 Ill. App. at 545-46, 104 N.E. 2d at 319. Failure to adhere to such payment guidelines could give rise to bad faith exposure or extracontractual liability, as more fully set forth below.

Requirements: If the policy does not require some particular form of proof, such as the proof be sworn, the courts will not impose such a requirement. When an assured submits sufficient proof to document the nature and extent of the loss and no particular form is required by the policy, the assured will not be barred from recovery when it substantially complies, unless the insurer is somehow prejudiced. McDonald v. American Family Mut. Ins. Co., 251 Ill. App. 3d 354, 356-57, 622 N.E.2d 63, 65 (Ill. App. Ct. 1993).

Exposure: Failure to timely affirm or deny coverage within a reasonable time after a proof of loss is submitted is a violation of Illinois law, which may trigger Department of Insurance action, 215 Ill. Comp. Stat. Ann. 5/154.6(i) (West 2014), as well as serve as a potential waiver of any dispute over the amount. Piro v. Pekin Ins. Co., 162 Ill. App. 3d 225, 228-29, 514 N.E. 2d 1231, 1233-34 (Ill. App. Ct. 1987). It is also a violation of the insurance code to require duplicative verifications or proofs of loss. See 215 Ill. Comp. Stat. Ann. 5/154.6(m) (West 2014). It is a violation of Illinois law to tell an assured he has less time to submit a proof of loss than required by the policy. See Ill. Admin. Code tit. 50, § 919.60 (2015). Further, a proof of claim submitted under one policy fulfills the assured’s obligations under “any and all similar policies” issued by the company. Ill. Admin. Code tit. 50, § 919.50 (2015).

When it is apparent to the company that additional benefits would be payable upon submission of additional proofs of loss, the company must communicate that fact to the assured. Ill. Admin. Code tit. 50, § 919.50 (2015). If an undisputed amount is not paid within 25 days of receipt of an appropriate proof of loss, the insurer must explain in writing the reason for the delay and advise the assured of the contact information for the Department of Insurance. Ill. Admin. Code tit. 50, § 919.80 (2015). Failure to timely pay undisputed amounts following submission of an adequate proof of loss may subject the insurer to penalties of attorney’s fees, costs and interest. Id. Finally, an assured may also bring a claim under the Consumer Fraud and Deceptive Business Practices Act against an insurer for deception in the adjustment of a claim. See Elder v. Coronet Ins. Co., 201 Ill. App. 3d 733, 750, 558 N.E.2d 1312, 1321 (Ill. App. Ct. 1990).

Accordingly, where the insurer has a policy condition requiring a sworn proof of loss, absent a waiver of that condition, the insurer is within its rights to require such a proof. Nevertheless, where there is a less specific proof of loss condition and the insurer has sufficient information on which to determine an undisputed amount, we would recommend that the insurer pay this portion in compliance with the deadlines set forth above. Where the insurer believes it has a valid argument that the assured has not substantially complied with the less specific proof of loss requirement, it is in the insurer’s best interest to place the assured on notice of the objections and defects in the proof of loss as soon as possible so as to preserve waiver of these objections, and ultimately, the proof of loss condition.

INDIANA

Overview: Indiana courts will typically enforce a policy provision requiring an assured to submit a sworn statement of a proof of loss as a condition to payment, concluding that such a requirement in the policy is a valid condition of coverage. Indiana is a substantial compliance jurisdiction, which becomes particularly critical where the policy’s proof of loss condition is less specific and does not expressly require a certain form or that the proof is sworn.

Accordingly, where the insurer has been able to calculate an undisputed amount of liability, the likelihood increases that a court may determine that either a) the assured substantially complied with the policy’s unspecific proof of loss condition, as the insurer had sufficient information on which to determine an undisputed amount; or b) the insurer may have waived the right to enforce the proof of loss condition where it agreed to an undisputed amount prior to requiring compliance or additional compliance with the proof of loss condition. Either way, failing to pay an undisputed amount until after receiving a particular form of a proof of loss, particularly where the condition is not specific as to form or whether it must be sworn, could increase an insurer’s exposure to bad faith and extracontractual claims when the policyholder has already furnished enough information for the insurer to determine liability, even if only for an initial undisputed amount.

Enforceability: An insurer can contractually require that sworn proofs of loss be submitted as a precondition to recovery. See Midwest Mut. Ins. Co. v. Indiana Ins. Co., 412 N.E.2d 84, 86 (Ind. Ct. App. 1980); Miller v. Fid. Nat. Property & Cas. Ins. Co., No. 4:08-CV-127-TWP-WGH, 2010 WL 2773305, at *3 (S.D. Ind. July 12, 2010). However, the proof of loss condition is easily waived where the insurer fails to object to an unsatisfactory proof of loss. See Midwest Mut. Ins. Co., 412 N.E.2d at 86; Huff v. Travelers Indem. Co., 266 Ind. 414, 424, 363 N.E.2d 985, 991 (Ind. 1977) (“Requirements of written notice and verified proofs of loss are also valid although easily waived.”). If the insurer (or its agents) acted in such a way toward the assured as to cause the assured to reasonably believe written notice and formal proofs of loss will not be required, the insurer will not be permitted to raise such matters as a defense. See Integrity Ins. Co. v. Lindsey, 444 N.E.2d 345, 347 (Ind. Ct. App. 1983).

Requirements: The policy requirements for proofs of loss are interpreted according to the ordinary meaning of the terms. See Metro. Life Ins. Co. v. Johnson, 214 Ind. 1, 8, 12 N.E.2d 755, 758 (Ind. 1938) (“the absence of a stipulated meaning in the policy … the words ‘furnish’ and ‘due’ and ‘proof’ are given their ordinary meaning in determining whether ‘due proof’ of loss has been made in compliance with the requirements of the policy.”). Where a policy provides for notice and proof of loss, the assured must comply with the provision as a condition precedent to recovery under the policy. Ebert v. Grain Dealers Mut. Ins. Co., 158 Ind. App. 379, 390, 303 N.E.2d 693, 700 (Ind. Ct. App. 1973). However, an assured may recover where the assured can show a waiver of that condition by the insurer or a substantial compliance on his part with the condition. Id.

Exposure: Under Indiana law, an insurer has a legal duty, implied in all insurance contracts, to deal in good faith with its assured. Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002). It would be a breach of the duty of good faith and fair dealing for an insurer to make “an unfounded refusal to pay policy proceeds” or cause “an unfounded delay in making payment.” Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 519 (Ind. 1993). In the instance where the policy has a less specific proof of loss condition, and the insurer has sufficient information on which to determine an undisputed amount, we believe the potential for an “unfounded delay” could increase, particularly since Indiana only requires substantial compliance under such circumstances.

To prove bad faith, there must be an element of “dishonest purpose, moral obliquity, furtive design, or ill will.” Foster v. State Farm Fire & Cas. Co., 674 F.3d 663, 671 (7th Cir. 2012) (applying Indiana law). “A good faith dispute concerning insurance coverage cannot provide the basis for a claim in tort that the insurer breached its duty to deal in good faith with its assured ... And ‘[t]his is so even if it is ultimately determined that the insurer breached its contract.’” Id. Accordingly, absent circumstances of dishonesty or deliberate wrongdoing, an insurer is unlikely to be found acting in bad faith on the sole ground that it required strict compliance to a proof of loss condition in exchange for a payment of an undisputed amount.

Finally, where bad faith is found, however, we note that attorneys’ fees are also available for recovery due to bad faith conduct. See Mikel v. Am. Ambassador Cas. Co., 644 N.E.2d 168, 172 (Ind. Ct. App. 1994). Punitive damages are available if the plaintiff proves by clear and convincing evidence that the insurer “acted with malice, fraud, gross negligence, or oppressiveness which was not the result of a mistake of fact or law, honest error or judgment, overzealousness, mere negligence, or other human failing . …” Hickman, 622 N.E.2d at 520.

IOWA

Overview: Under Iowa law, a proof is required before recovery if the policy so provides, but an assured is likely only required to show substantial compliance with a policy’s sworn proof of loss requirement to trigger an insurer’s obligation to pay the undisputed amount(s). Given that this is a substantial compliance jurisdiction, an insurer may be subject to bad faith exposure where an insurer in possession of sufficient facts to determine liability for an undisputed amount refuses to pay until a particular form proof of loss is submitted by the policyholder.

Enforceability: If the need for a proof is specified in the contract of insurance, then its submission is a necessary pre-condition to recovery. As the state Supreme Court explained in Henschel v. Hawkeye-Security Ins. Co., 178 N.W.2d 409, 415 (Iowa 1970):

[W]here an insurance policy provides [assured] shall give notice and furnish proofs of loss within a reasonable time, and this is made a condition precedent to the right to bring an action on the policy, no recovery can be had thereon unless some legal justification or excuse for the delay appears.

As in most jurisdictions, however, an insurer can waive its policy’s proof of loss condition where it moves forward in the investigation without demanding any additional or further proof of loss than that initially furnished by the assured, or where the insurer fails to object to the insufficiency of the proof of loss provided by the assured in a reasonable time. See e.g., Kroloff v. Southern Surety Co., 197 Iowa 1244, 1244, 198 N.W. 629, 631 (Iowa 1924).

Requirements: Regardless of whether a policy requires the submission of a sworn proof of loss, or a less specific or general proof of loss, Iowa law only requires that an assured substantially comply with a condition precedent of an insurance contract. See Watson v. Nat’l Sur. Corp. of Chicago, Illinois, 468 N.W.2d 448, 451 (Iowa 1991). Iowa law places the burden to prove compliance on the assured, though proof of strict compliance is not required. Id. While there is not an Iowa case that examines substantial compliance in the specific context of a proof of loss policy condition, the Watson analysis applied in the context of compliance with an EUO requirement reasoned that substantial compliance would be the assured providing the insurer the evidence at the time of the investigation so that it may determine whether to pay or deny the claim. Id. 468 N.W.2d at 451-52.

Exposure: Iowa recognizes a first-party bad faith claim. See Penford Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 662 F.3d 497, 504 (8^th Cir. 2011) (applying Iowa law). To establish a first-party bad faith claim, a plaintiff must prove that (1) the insurer had no reasonable basis for denying the plaintiff's claim or for refusing to consent to settlement; and (2) the insurer knew or had reason to know that its denial or refusal lacked a reasonable basis. Id.; see also Sampson v. Am. Standard Ins. Co., 582 N.W.2d 146, 149 (Iowa 1998). “[A] plaintiff [assured] must show the absence of a reasonable basis for denying benefits of the policy and defendant [insurer]'s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988)(internal citations omitted). An insurance company can challenge “fairly debatable” claims without being subject to a bad faith tort claim. Sampson, 582 N.W.2d at 150. A claim is fairly debatable when it is “open to dispute on any logical basis.” Bellville v. Farm Mut. Bureau Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005).

In its application of Iowa law, the 8th Circuit held that flood insurers did not unreasonably delay a payment so as to amount to bad faith under Iowa law where the policy required only that the insurer make a payment within 30 days of receiving the sworn proof of loss. See Penford Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 662 F.3d 497, 504 (8^th Cir. 2011) (applying Iowa law). The 8th Circuit determined that the insurers complied with the provision on each of the four separate occasions that the assured submitted a sworn proof of loss statement, and, therefore, the insurer had not waived the requirement. The insurers, therefore, had a reasonable basis for denying coverage and cannot be held to have acted in bad faith. Id. at 504.

Punitive damages are available if the plaintiff proves that the insurer’s conduct amounted to “wanton and willful disregard” for the plaintiff’s rights. See Iowa Code § 668A.1 (West 2015). Attorneys’ fees are also available if an insurer acted in bad faith or was “stubbornly litigious.” United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642 N.W.2d 648, 658 (Iowa 2002). Accordingly, and in reliance on Penford, we believe an insurer is unlikely to subject itself to bad faith exposure where it seeks to enforce a sworn proof of loss policy condition prior to making an undisputed loss payment that it has not previously waived. See Penford Corp., 662 F.3d at 504. Where the policy’s proof of loss condition is less specific and only generally requires a proof of loss, failing to pay an undisputed amount until the receipt of a particular form of a proof of loss could increase an insurer’s exposure to bad faith when the policyholder has already furnished enough information to determine liability in an undisputed amount.

KANSAS

Overview: Kansas only requires that an assured substantially comply with a policy’s proof of loss condition. In addition, for an insurer to base a coverage defense on the assured’s non-compliance with a proof of loss condition, the insurer must first prove it provided proof of loss forms to the assured within 10 days from the notice of loss; and show that the insurer was substantially prejudiced by the assured’s failure to comply with the proof of loss condition. An insurer likely will also be assessed an amount for the assured’s reasonable attorneys’ fees for litigation, including an appeal, where the assured secures a judgment in excess of the amount(s) tendered prior to the litigation, and where the insurer’s coverage or valuation decision is deemed without a basis or unreasonable.

Accordingly, given the heightened burden placed on the insurer to enforce a proof of loss, and the liberal determination of an insurer’s waiver of the proof of loss condition, we would recommend that, under Kansas law, an insurer not withhold an undisputed amount while awaiting receipt of a sworn proof of loss. Where an insurer has confirmed its indemnity liability up to a certain amount, we would recommend that the insurer consider making that payment without delay. Otherwise, the insurer risks increasing its extracontractual exposure, including attorneys’ fees for the assured.

Enforceability: Where the policy requires it, a proof of loss must be given or facts constituting a waiver must be shown. A party asserting waiver of the furnishing proof of loss has the burden of proof on that issue. See Lyon v. Kansas City Fire & Marine Ins. Co., 176 Kan. 411, 415, 271 P.2d 291, 294 (Kan. 1954). An assured has provided reasonable proof of loss when the insurer is provided with a bill that shows a clear relation to a covered loss. A clear relation exists when reasonable minds would conclude that there is a substantial likelihood that the loss evinced by the bill bears a logical connection to a covered loss. See Hephner By & Through Hephner v. Traders Ins. Co., 254 Kan. 226, 230, 864 P.2d 674, 677 (Kan. 1993); see also DiBassie v. Amer. Standard Ins. Co. of Wisconsin, 8 Kan. App. 2d 515, 519-20, 661 P.2d 812, 817-18 (Kan. Ct. App. 1983).

Requirements: Under Kansas law, a property insurer must provide blank proof of loss forms to the assured within 10 days from its receipt of the notice of loss from the assured, before the insurer can deny coverage based on the assured’s failure to comply with a proof of loss condition. See West Amer. Ins. Co. v. King, 14 F. Supp.2d 1208, 1212 (D. Kan. 1998) (discussing Kan. Stat. Ann. § 40-924 (2014)) (other internal citation omitted).

Pursuant to Kan. Stat. Ann. § 40-924 (2014), in the case of property damage by fire or tornado,

it shall be the duty of the [insurer], within ten days after receiving notice thereof and upon written request, to furnish to the [assured] proper blanks upon which to make the required proof of such loss with full directions as to what proof is required, and if any such company fails to comply with this section the failure of the [assured] to make proper proof of loss prior to the suit shall be no defense to a suit upon the policy, and in all cases the [assured] shall have a reasonable time in which to make such proof after the blanks and directions are received: Provided, however, that the furnishing of such blanks and directions shall in no way be construed as an admission of liability by the insuring company or companies.

Id. (emphasis added). The King case has since held that the Kansas legislature intended to require an insurer to provide a blank proof of loss within 10 days whenever a notice of claim is received, without waiting for a request for the form from the assured. See King, 14 F. Supp.2d at 1212.

In addition to the failure to furnish a proof of loss form to the assured within 10 days after receipt of the notice of the loss, Kansas civil pattern jury instructions direct a jury to find that an insurer has waived the proof of loss condition where the insurer denied liability on grounds other than a failure to furnish a proof of loss; the insurer attempted to make a settlement with the assured; it offered to pay all or part of the loss; its general agent orally granted an extension of time to furnish a proof of loss; or it retained an incomplete proof of loss for an unreasonable period of time without objection. See Pattern Inst. Kan. Civil 124.37 (addressing proof of loss waivers).

Additionally, for an insurer to prevail on a coverage defense based on the assured’s failure to provide a proof of loss defense, an insurer must show that it was substantially prejudiced by the assured’s failure to comply with the policy’s proof of loss condition. National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. F.D.I.C., 264 Kan. 733, 751, 957 P.2d 357, 368 (Kan. 1998); see also King, 14 F. Supp.2d at 1212.

Exposure: Though Kansas does not recognize a tort of bad faith, there are statutory penalties against an insurer for lack of good faith. Spencer v. Aetna Life & Cas. Ins. Co., 227 Kan. 914, 922-26, 611 P.2d 149, 155-58 (Kan. 1980) (internal citations omitted); Patterson v. Allstate Ins. Co., 31 Kan. App. 2d 919, 922, 75 P.3d 763, 766 (Kan. Ct. App. 2003); but see Hedges v. Allstate Vehicle and Prop. Ins. Co., No. 14-1269-JWL, 2014 WL 5465306, at *2 (D. Kan. Oct. 28. 2014) (finding that although Kansas does not recognize a tort of bad faith in the first-party insurance context, the tort of outrage or misrepresentation could still be available).

With respect to statutory penalties, and under Kansas statutory law, an assured who successfully obtains a judgment against an insurer in excess of amounts tendered before the commencement of the action, the court shall allow the plaintiff assured recovery of reasonable attorneys’ fees, including proceeding upon appeal. See Kan. Stat. Ann. § 40-256 (2014). Kan. Stat. Ann. § 40-908 (2014) specifically mandates such a recovery in first-party policy claims for damage to real property or contents of real property caused by loss from fire, tornado, lightning or hail, “the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney’s fee …, including proceeding upon appeal,” for an assured to recover and collect as a part of costs, except that when a tender is made by the insurer before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender. Id. These provisions are primarily based on the special standard imposed by the Kansas Legislature on companies insuring against fire, tornado, lightning and hail losses. See Iowa Nat. Mut. Ins. Co. v. City of Osawatomie, Kan., 458 F.2d 1124, 1131 (10th Cir. 1972) (applying Kansas law).

Case law supports that the attorney’s fee award must follow a determination that the insurer’s failure to pay was unreasonable and unjustified. See Smart v. Hardware Dealers Mut. Fire Ins. Co., 181 F.Supp. 575, 578 (D. Kan. 1960), remanded Hardware Dealers Mut. Fire Ins. Co. v. Smart, 293 F.2d 558 (10th Cir. 1972) (applying Kansas law). Under the Kansas statute requiring an insurer to pay attorneys’ fees to an assured in whose favor a judgment has been returned on a policy, when it appears that the insurer has refused without just cause or excuse to pay the full amount of such loss, the fact that a question as to coverage is determined adversely to insurer does not ipso facto render insurer liable for attorney's fees. See generally id.

Additionally, Kan. Stat. Ann. 40-2404 (2014), addresses unfair claim settlement practices, which includes certain business practices in “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed”; “not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear”; “compelling [assureds] to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such [assureds]”; and “delaying the investigation or payment of claims by requiring an [assured] … to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submission contain substantially the same information[.]” See id. Subsection (9), (e) – (g), (l). However, no private right of action exists under the statutory provisions governing unfair methods of competition in the business of insurance. See Bonnell v. Bank of Am., 284 F.Supp.2d 1284, 1289 (D. Kan. 2003). Punitive damages are only recoverable if the plaintiff can show an independent tort that “indicate[s] the presence of malice, fraud or wanton disregard for the rights of others.” Guarantee Abstract & Title Co., Inc. v. Interstate Fire and Cas. Co., Inc., 232 Kan. 76, 78-79, 652 P.2d 665, 667–68 (Kan. 1982).

Based on the above, however, where an insurer withholds an undisputed loss payment amount while awaiting a sworn proof of loss or other formal compliance with a proof of loss condition, the insurer is likely increasing its likelihood of exposure to statutory penalties, including the assured’s attorneys’ fees where the assured files suit and recovers a judgment in excess of the amount(s) tendered prior to the filing of the lawsuit.

KENTUCKY

Overview: Kentucky courts are likely to require an assured to comply with providing a sworn proof of loss before an insurer is obligated to pay the undisputed amount of any claim, where a sworn proof of loss is required by the express terms of the policy, and absent an insurer’s waiver of such condition precedent. Where the policy does not require a particular proof of loss form, or does not require that it be sworn, we would not recommend that an insurer withhold undisputed amounts from payment on the sole ground that the assured has not submitted a sworn proof of loss or otherwise failed to strictly comply with the policy’s condition. Under such circumstances, the insurer may increase its likelihood of exposure for a bad faith claim.

Enforceability: A policy’s proof of loss condition is enforceable under Kentucky law. “In an action on an insurance policy, the [assured] must prove compliance with the policy’s conditions precedent or a waiver thereof to recover under its terms.” Amer. Centennial Ins. Co. v. Wiser, 712 S.W.2d 345, 346 (Ky. Ct. App. 1986) (citing Aetna Life Ins. Co. v. Milward, 118 Ky. 716, 716, 82 S.W. 364, 366 (Ky. 1904)). Kentucky will also uphold a policy’s condition expressly providing for forfeiture of the policy – i.e., the forfeiture clause – where the assured does not render the required sworn statement of loss to the insurer within the timeframe expressly required by the policy. See e.g., Standiford v. Amer. Ins. Co., 208 Ky. 731, 731, 271 S.W. 1042, 1043 (Ky. 1925).

Where the policy only requires that the proof of loss be sworn and does not require the proof of loss to be made out on its blank forms or the insurer to furnish same, the assured only has to provide a sworn statement, and “a piece of blank paper would be as suitable as any blanks that could be prepared.” See Standiford, 208 Ky. at 731, 271 S.W. at 1043. Accordingly, while Kentucky law likely requires strict compliance with express proof of loss conditions, it may only require substantial compliance on less specific and general proof of loss requirements. See id.

Kentucky’s Unfair Claims Settlement Practices Act (UCSPA), Ky. Rev. Stat. Ann. §§ 304.12-230 et seq. (West 2014), further establishes that all insurance claims “shall be paid to the named [assured] … not more than … (30) days from the date upon which notice and proof of claim, in the substance and form required by the terms of the policy, are furnished the insurer.” Id. Ky. Rev. Stat. Ann. § 304.12-235(1) (West 2014).

Requirements: To enforce a policy’s sworn proof of loss provision under Kentucky law, an insurer must not waive the provision; and, it is also recommended that the insurer take an additional step and affirmatively preserve the requirement in writing to the assured. With respect to waiver, where an insurer interacts with the assured regarding a claim – and never specifically requests a proof of loss, or fails to send a form proof of loss to the assured – a court will likely deem the policy condition waived even where the insurer’s correspondence includes boilerplate language that the insurer “expects [the assured] to comply with the requirements in case of loss with regard to this claim.” Ashland Hosp. Corp. v. Affiliated FM Ins. Co., No. CIV.A. 11-16-DLB-EBA, 2013 WL 4400516, at *13 (E.D. Ky. Aug. 14, 2013), appeal dismissed (July 2, 2014). Accordingly, an assured would not be required to comply with the proof of loss condition.

Although the Kentucky Administrative Regulations do not provide a private right of action for an assured and is only used by the executive director of insurance to determine a violation (see 806 Ky. Admin. Regs. 12:095 § 2(1) (2015)), we note two points for an insurer’s further consideration. First, 806 Ky. Admin. Regs. 14:010 (2015), “Proof of loss; form” provides that:

[a]n insurer shall not refuse to accept a proof of loss submitted by a policyholder in support of a claim under its policy solely because it is not in or upon a particular form required by the insurer, unless within a reasonable time following receipt of notice of claim the insurer notifies the policyholder in writing as to the minimum requirements in a particular form which will be acceptable.

Accordingly, we would recommend that, when possible, in the insurer’s first written communication to a policyholder regarding the particular claim, the insurer set forth the policy’s particular proof of loss requirement in an effort to preserve its rights to enforce the proof of loss condition.

Second, 806 Ky. Admin Regs. 12:095 § 6(6) (2015) requires, that “… [i]f claims involve multiple coverages, and if the payee is known, payments which are not in dispute shall be tendered within thirty (30) calendar days.” Id. Where the policy requires a sworn proof of loss, however, and the insurer has not waived the proof of loss condition, we do not believe this provision should require a 30-day payment when the assured has not provided the sworn proof of loss.

Out of an abundance of caution, we further note an unreported decision from the U.S. District Court for the Western District of Kentucky, Cincinnati Ins. Co. v. Taylor, No. 1:01CV-102-M, 2003 WL 1742148 (W.D. Ky. March 26, 2003), which reasoned, in part, that Kentucky law may require an insurer to show prejudice before declining coverage based on a breach of a policy’s proof of loss condition. See id. at *3 (citing Jones v. Bituminous Cas. Corp., 821 S.W.2d 798, 803 (Ky. 1991)). This unreported decision is not controlling and, in light of the case law above (which was not addressed by the Taylor court), we believe the Taylor analysis would be less persuasive to a court applying Kentucky law. Additionally, the Jones decision (the Kentucky Supreme Court case on which the Taylor court relied) did not specifically address the condition precedent of submitting a proof of loss. See generally Jones, 821 S.W.2d 798. Rather, the Jones case involved a late notice defense in a third-party liability claim. Id. The Taylor court explained that it believed “it would logically follow, in light of Jones, that a showing of prejudice is required before an insurance provider is permitted to defeat liability where an [assured] fails to submit a proof of loss.” Taylor, 2003 WL 1742148 at *4. We find it unlikely that a Kentucky court would agree with the Taylor court’s analysis primarily based on Jones, which did not even address a policy condition regarding submissions of a sworn proof of loss, and research reveals no additional cases specifically supporting such a prejudice requirement under Kentucky law with respect to the proof of loss condition.

Exposure: In the first-party bad faith context, Kentucky recognizes a common-law bad faith claim which “arises when an insurer refuses to pay the claim of its own [assured,]” as well as a bad faith claim in violation of the Kentucky Consumer Protection Act (KCPA), which provides an assured a right of recovery for an insurer’s “unlawful act.” See Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 527-28 (6^th Cir. 2006) (applying Kentucky law) (internal citations omitted). To show bad faith, the policyholder must prove that the insurer is obligated to pay the claim; that the insurer lacks a reasonable basis in law or fact for denying the claim; and that the insurer either knew there was no reasonable basis for its denial or acted with reckless disregard. Id. (quoting Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993)). We believe that, absent an insurer’s waiver and where the policy required a sworn proof of loss with which the assured has not provided, the insurer should not yet be obligated to pay an undisputed amount of the claim, as the policy’s conditions precedent have not been met.

In addition, there should not be exposure under the KCPA, as the 30-day payment timeframe to pay a claim should not begin to run until the insurer receives the proof of loss in the form required by the policy. Ky. Rev. Stat. Ann. § 304.12-235(1) (West 2014). Nevertheless, where circumstances arise where the insurer has accepted liability with respect to an undisputed amount of the loss, without previously notifying the assured that the insurer expects full compliance with the policy’s specific proof of loss conditions, or upon receipt of information from the assured that the insurer has not objected on the grounds it was not in full compliance with the proof of loss condition, the insurer may have waived the proof of loss condition such that it can no longer require compliance before payment. In such an instance of express or implied waiver, an insurer likely increases its exposure to a bad faith claim when it withholds undisputed amounts until the assured submits a sworn proof of loss.

Plaintiffs may recover consequential and punitive damages in bad faith actions. See Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 451 (Ky. 1997), as modified (Feb. 18, 1999). To recover punitive damages, however, “there must be proof of bad faith sufficient for the jury to conclude that there was conduct that was outrageous, because of the defendant [insurer]’s evil motive, or its reckless indifference to the rights of others.” Id. Attorneys’ fees also may be recovered. See Ky. Rev. Stat. Ann. § 304.12-235 (West 2014).

LOUISIANA

Overview: In Louisiana, a court will not enforce a policy provision requiring submission of a form sworn statement in proof of loss as a condition to payment of undisputed amounts otherwise owing under the policy. Where an undisputed amount is owed, an insurer generally must pay within 30 days of its receipt of sufficient information to act on the claim or will be subject to payment of statutory penalties. When an insurer is able to determine the amount of an undisputed payment, Louisiana law generally finds that the insurer has received sufficient information on which to act.

Enforceability: Louisiana will not require an assured to comply with a proof of loss provision where the insurer has determined an undisputed amount of payment due, and the insurer cannot delay undisputed amounts while waiting on a formal proof of loss. The Louisiana Supreme Court has held that, where an insurer has sufficient information on which to determine the undisputed portions of the claim, the undisputed payment must be paid within 30 days, or the insurer may face exposure to statutory penalties under La. Rev. Stat. Ann. § 22:658 (now La. Rev. Stat. Ann. § 22:1892)(2012)). See Louisiana Bag Co., Inc. v. Audubon Indem. Co., 2008-0453. pp. 23-24 (La. 12/2/08), 999 So.2d 1104, 1119-20 (La. 2008) (internal citations omitted). In Louisiana Bag Co., the Louisiana Supreme Court addressed the insurer’s obligation to pay undisputed amounts under a first-party property claim and whether it could condition such payments on receipt of a satisfactory proof of loss from the assured. See id. The Louisiana Supreme Court expressly rejected the trial court’s conclusion that the insurer was reasonable in delaying payment until after it had received the assured’s proof of loss forms. Id. According to the Louisiana Supreme Court, an insurer's requirement that it receive its proof of loss form back before issuing payment does not justify delaying payment when the insurer has sufficient information to act on the claim. Id. Specifically the court stated, “[t]o allow an insurer to do so would frustrate the intent and purpose of La. Rev. Stat. Ann. § 22:658 (now § 22:1892)(2012)), as it would allow the insurer to be solely in control of when the proof of loss is received. Id. at 1120.

Additionally, La. Rev. Stat. Ann. § 22:1314 (2011), expressly provides that “[n]o policy of fire insurance issued by any insurer on property … shall hereafter be declared void by the insurer for the breach of any representation, warranty or condition contained in such policy or in the application therefor. Such breach shall not allow the insurer to avoid liability unless such breach: (1) exists at the time of loss, and be such a breach as would increase either the moral or physical hazard under the policy; or (2) shall be such a breach as would be a violation of a warranty or condition requiring the insurer to take and keep inventories and books showing a record of his business.” Id.

Requirements: Louisiana courts only require that an assured substantially comply with a proof of loss requirement. In Louisiana Bag, the Louisiana Supreme Court explained that a "satisfactory proof of loss" under the statute is only that which is "sufficient to fully apprise the insurer of the [assured’s] claims." Louisiana Bag, 2008-0453, p.23, 999 So.2d at 1119 (citing McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1092 (La. 1985)). The form of a proof of loss is a "flexible requirement to advise an insurer of the facts of the claim," and that it need not "be in any formal style." Id. (quoting Sevier v. US. Fid. & Guar. Co., 497 So.2d 1380, 1384 (La. 1986)). "As long as the insurer receives sufficient information to act on the claim, 'the manner in which it obtains the information is immaterial.'" Id. The court’s reasoning in Louisiana Bag shows that, where an insurer is able to determine an undisputed amount of loss, that insurer has sufficient information and thus the purpose of the proof of loss requirement has been satisfied.

Finally, under La. Rev. Stat. Ann. § 22:1312 (2011), an insurer must “provide within thirty days [from receiving the notice of loss from the assured] a form suitable for filing a proof of loss and shall advise the [assured] that he is required under the terms of the policy to submit a proof of loss.” Id.

Exposure: Louisiana has an Unfair Trade Practices Act, which provides, in part, that “[a]n insurer … owes to his [assured] a duty of good faith and fair dealing” and “has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the [assured], the claimant, or both.” La. Rev. Stat. Ann. § 22:1973 (2012). If committed knowingly by the insurer, the acts that constitute a breach of the insurer’s duties include:

* * *

(2)  Failing to pay a settlement within thirty days after an agreement is reduced to writing;

* * *

(5)  Failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious or without probably cause.

La. Rev. Stat. Ann. § 22:1973 (B)(2)-(5) (2012). In addition to any general or special damages to which an assured is entitled for breach of the imposed duty, La. Rev. Stat. Ann. § 22:1973 also allows penalties assessed against the insurer “in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater.” Id., § 22:1973 (C).

Section 22:1892 further provides that, in pertinent part:

A.  (1) All insurers issuing any type of contract, … shall pay the amount of any claim due any [assured] within thirty days after receipt of satisfactory proofs of loss from the [assured] or any party in interest. …

* * *

(4) All insurers shall make a written offer to settle any property damage claim … within 30 days after receipt of satisfactory proofs of loss of that claim.

B.  (1) Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor or failure to make a written offer to settle any property damage claim, … within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4) of this Section, respectively, … when such failure is found to be arbitrary, capricious or without probably cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the [assured], or one thousand dollars, whichever is greater, payable to the [assured], … or in the event a partial payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.

Id. Notably, these payment periods would not apply where the loss from fire was arson related. Id., § 22:1892 B.(2)-(3); see also Dupree v. Lafayette Ins. Co., 2009-2602 (La. 11/30/10); 51 So.3d 673.

The Louisiana Supreme Court held that a cause of action for such penalties requires a showing that (1) an insurer has received satisfactory proof of loss, (2) the insurer fails to tender payment within 30 days of receipt thereof, and (3) the insurer’s failure to pay is arbitrary, capricious, or without probable cause. Louisiana Bag Co., Inc. v. Audubon Indem. Co., 999 So.2d at 1112-13. Louisiana courts interpret arbitrary, capricious, or without probable cause to mean “unjustified, without reasonable or probable cause or excuse.” See Louisiana Bag, 2008-0453, p. 14, 999 So.2d at 1114 (citing Reed v. State Farm Auto. Ins. Co., 03-0107 (La. 10/21/03), 857 So.2d 1012, 1020-21; La. Maint. Servs., Inc. v. Certain Underwriters at Lloyd’s of London, 616 So.2d 1250, 1253 (La. 1993)).

Particularly, the Louisiana Supreme Court has expressly found that “‘there can be no good reason’ – or no probably cause – for withholding an undisputed amount.” Louisiana Bag, 2008-0453, p. 15, 999 So.2d at 1114 (internal citations omitted) (quoting Hammett v. Fire Association of Philadelphia, 181 La. 694, 160 So. 302, 304–05 (1935)). Where, however, “there is a substantial, reasonable and legitimate dispute as to the extent or amount of the loss, the insurer can avoid the imposition of penalties only by unconditionally tendering the undisputed portion of the claim.” Id. at 1114-15 (citing McDill v. Utica Mut. Ins. Co., 475 So.2d 1085, 1091 (La. 1985)).

Accordingly, where an insurer has determined an undisputed amount of loss, Louisiana law will generally require that the insurer pay it within 30 days from receipt of the sufficient proof of loss. Louisiana case law illustrates that the existence of an undisputed amount is evidence that the purpose of the proof of loss has been substantially met and the payment is due. An insurer that delays an undisputed payment while awaiting formal or strict compliance with a proof of loss requirement in the policy is likely acting unreasonable under Louisiana law and subject to extracontractual penalties under the statutes discussed above.

MAINE

Overview: Maine courts will typically enforce a proof of loss provision in a policy, but they are likely only to require that an assured substantially comply with a policy’s proof of loss provision. Where the insurer has determined an undisputed amount of the loss, the undisputed portion of the loss is likely due and payable under Maine law. An insurer withholding the undisputed payment while insisting on an assured to strictly comply with a proof of loss provision could increase the insurer’s exposure to bad faith and extracontractual liability under Maine law.

Enforceability: As stated in Davis v. John F. Davis and The Niagara Insurance Co., 49 Me. 282 (1862), “the preliminary proof required by the policy was a condition precedent to the right of the insured to recover.” Id. at 283. The Davis court added, “‘[i]t was a condition rightfully imposed, fully accepted, and made a part of the policy.’” Id. at 283-84 (quoting Leadbetter v. Etna Insurance Co., 13 Me. 265, 265 (1836)). Further, “the liability of the insurer does not become absolute, unless the preliminary proof, as required in the conditions of the policy, is obtained. If no proof is furnished, the liability does not attach.” Id. at 284.

Additionally, as set forth below, an insurer’s payment obligation pursuant to Maine’s Late Payment of Claims Act, 24-A M.R.S.A. § 2436, is only triggered by receipt of the proof of loss.

Requirements: Analysis of Maine law did not reveal authority specifically addressing whether Maine would require strict compliance or only substantial compliance by an assured with respect to a policy’s proof of loss requirement. Nevertheless, case law suggests that Maine likely considers substantial compliance sufficient. See Russell v. Granite State Fire Ins. Co., 121 Me. 248, 116 A. 554, 556 (1922) (internal citations omitted) (reasoning that conditions of an insurance policy are construed liberally and in favor of the assured). Further, a Maine court would be reluctant to find that an assured forfeited coverage by non-compliance with a condition unless the policy expressly provided for such a forfeiture. See id. Where an insurer objects to a proof of loss due to insufficiency, or determines that additional information is needed to determine an undisputed amount, the insurer should advise the assured within 30 days of receipt of the assured’s proof of loss submission so the insurer may protect itself from the statutory penalties associated with failure to pay undisputed payments timely and making overdue payments. See Chiapetta v. Lumbermens Mut. Ins. Co., 583 A.2d 198, 201 (Me. 1990) (citing Me. Rev. Stat. Ann. tit. 24-a, § 2436 (2013)).

Notably, where a proof of loss is filed outside of the time specified in the policy, and such late filing prejudiced the insurer, a Maine court has found an insurer is relieved of its loss obligations. See e.g., Acadia Ins. Co. v. Keiser Industries, Inc., 793 A.2d 495, 499, 2002 ME 57 (2002).

Exposure: Maine does not recognize an independent tort of bad faith resulting from an insurer’s breach of its duty to act in good faith and deal fairly with an assured. See Marquis v. Farm Family Mut. Ins. Co., 628 A.2d 644, 652 (Me. 1993). Maine courts do recognize that “[a]n insurer’s duty to act in good faith and deal fairly ‘derives from a covenant implicit in the provisions of the insurance contract[.]’” Id. Thus, the traditional remedies for breach of contract, including consequential damages, are available to an assured. See Id. Neither Maine’s bad faith statute nor common law provides for the recovery of punitive damages.

Maine has an Unfair Claims Settlement Practice Act, Me. Rev. Stat. Ann. tit. 24-A, § 2436-A (2014), which allows statutory interest and attorney fees. Specifically, the act allows a private cause of action pursuant to which an assured may recover interest on damages at the rate of 1½ percent per month on overdue payments. It may be considered an unfair claims practice to insist on a sworn proof of loss if the policy does not require it to be sworn, and an insurer withholds payment of an undisputed amount on that basis. Maine’s Unfair Claims Settlement Practices Act provides that it is an unfair claims settlement practice for an insurer, without just cause, to fail “to acknowledge and review claims, which may include payment or denial of the claim, within a reasonable time following receipt of written notice by the insurer of the claim by an insured arising under a policy”; “[f]ailing to affirm or deny coverage, reserving any appropriate defenses, within a reasonable time after having completed its investigation related to a claim”; or “[f]ailing to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear.” Me. Rev. Stat. Ann. tit. 24-A, § 2436-A(1)(B),(D)-(E)(2014). Thus, where liability has become clear – as with an undisputed amount – an insurer may be in violation of the statute if it improperly fails to effectuate payment.

We further note Maine’s Late Payment of Claims Act, Me. Rev. Stat. Ann., tit. 24-A, § 2436 (2013), providing for the payment by an insurer of interest and attorney’s fees on certain claims that are not timely paid. Specifically, the Act provides that an assured is entitled to interest on overdue payments as follows:

1.  A claim for payment of benefits under a policy or certificate of insurance delivered or issued for delivery in the State is payable within 30 days after proof of loss is received by the insurer and ascertainment of the loss is made either by written agreement between the insurer and the insured or beneficiary or by filing with the insured or beneficiary of an award by arbitrators as provided for in the policy .… A claim that is neither disputed nor paid within 30 days is overdue. If, during the 30 days, the insurer, in writing, notifies the insured or beneficiary that reasonable additional information is required, the undisputed claim is not overdue until 30 days following receipt by the insurer of the additional required information; except that:

A.  The time period applicable to a standard fire policy and to that portion of a policy providing a combination of coverages, as described in section 3003, insuring against the peril of fire must be 60 days, as provided in section 3002.

* * *

2.  An insurer may dispute a claim by furnishing to the [assured] … a written statement that the claim is disputed with a statement of the grounds upon which it is disputed.

§ 2436(1)-(2)(2013).

Since the language of the Act expressly states that “a claim that is neither disputed nor paid within 30 days is overdue,” an insurer that insists on receiving a proof of loss in a particular form before making payment on an undisputed amount may be at risk for penalties under the act. Accordingly, where the insurer finds a deficiency in the proof of loss, or needs additional information with respect to the claim, it should advise the assured in writing immediately. Critically, however, where the insurer has been able to determine an undisputed amount, a Maine court is likely to find that no additional information is needed with respect to that portion of the claim and it should be paid within the statutory payment timeframe.

MARYLAND

Overview: Maryland courts will enforce a proof of loss provision. While there may be a forfeiture of coverage where an assured completely fails to submit a proof of loss within a certain number a days after an insurer requests a proof of loss from the assured, a Maryland court will likely only require substantial compliance by an assured who submits some information to an insurer within the proof of loss timeframe set forth in the policy.

Where an insurer has information on which to determine an undisputed amount of loss, it is more than likely that the assured is in substantial compliance with a proof of loss provision. Under such circumstances, therefore, the insurer should pay the undisputed amount without delay. Where the insurer withheld the undisputed amount of payment, and the assured filed suit as a result, the assured would only be able to recover for actual and consequential damages arising from breach of contract under Maryland law. Extracontractual bad faith damages would not be recoverable under a first-party bad faith claim, as the law currently stands in Maryland.

Enforceability: Maryland enforces a proof of loss requirement. The Maryland Court of Appeals, Maryland’s highest court, has found that “the insurer’s right to a proof of loss, where required by the policy, has been characterized as ‘an important one to the insurer, and one in which it is to be protected.’” Government Employees Ins. Co. v. Harvey, 278 Md. 548, 553, 366 A.2d 13, 17 (1976). Where there is a complete failure of the assured to provide a proof of loss as required by the policy, Maryland allows for a forfeiture of coverage. See Md. Code Ann., sworn statement in proof of loss or written notice required by insurance contracts, § 19-111 (2002). In § 19-111(b)(2), an assured “may be prevented from recovering under an insurance contract if the [assured] fails to provide the sworn statement in proof of loss or written notice required by the insurance contract within 15 days after receiving the insurer’s written request for the statement or notice.” Id. Given that the complete failure to provide a proof of loss triggers this statute, the insurer may disclaim coverage without demonstrating prejudice. See Snyder, 264 F.Supp.2d at 337 (discussing Md. Code Ann § 19-111).

Requirements: While Maryland will allow forfeiture of coverage where there is a complete failure to submit a proof of loss, where the assured has submitted information to the insurer within the policy’s deadline to submit a proof of loss, a Maryland court will only require that such information substantially comply with a policy’s proof of loss provision. See Hartford Fire Ins. v. Himelfarb, 355 Md. 671, 680, 736 A.2d 295, 300 (Md. 1999).

Particularly, Maryland courts are likely to find that a proof of loss provision is a covenant, rather than a condition, and only require substantial compliance as a result. See e.g., id.; see also Snyder v. Chester County Mut. Ins. Co., 264 F. Supp.2d 332, 337 (D. Md. 2003). A proof of loss requirement is considered a covenant when it is not stated as an express condition precedent and forfeiture is not stated as a consequence of noncompliance. Id. (citing Himelfarb, 355 Md. at 681, 736 A.2d 295). Where the provision is a covenant, the court will find substantial performance by the policy’s specified date for a proof of loss submission where the assured has: (1) furnished the insurer with information reasonably requested by the insurer to the extent that it is reasonably possible for the assured to do so; and (2) expressly or impliedly promises to submit, when and as it is reasonably possible to do so, the balance of the information. Where, however, the assured satisfies both elements by the proof of loss timeframe in the policy, but later fails to perform the promise in element two, the insurer ordinarily will not be liable. See Himelfarb, 355 Md. at 691, 736 A.2d at 306.

In an instance where the insurer is able to determine an undisputed amount, it is more than likely that the assured has met the substantial compliance standard. Under such circumstances, Maryland law would not provide grounds on which an insurer could withhold an undisputed payment amount.

Exposure: Where an insurer delayed payment of an undisputed amount while demanding the assured’s strict compliance with a policy’s proof of loss requirement (where the assured already substantially complied), the insurer could subject itself to exposure to damages recoverable under Maryland’s breach of contract cause of action. Additional extracontractual damages, however, are unlikely under the current state of Maryland insurance law, as set forth more fully below.

Maryland law does not recognize a tort or statutory-based action against an insurer for bad faith failure to pay a first-party insurance claim. See Johnson v. Fed. Kemper Ins. Co., 74 Md. App. 243, 248-49, 536 A.2d 1211, 1213-14 (1988). An assured would only be able to recover damages for breach of contract – namely, those which arise naturally from the breach itself, or those that can be shown contemplated by the parties when they entered into the contract as the probable result of the breach. See id.

The Maryland legislature has held that “[i]t is an unfair claim settlement practice … for an insurer … to … refuse to pay a claim for an arbitrary or capricious reason based on all available information … [and] fail to settle a claim promptly whenever liability is reasonably clear under one part of a policy[.]” Md. Code Ann., Ins. § 27-303(2),(5)(2014). The Maryland legislature also provides that “[i]t is an unfair claim settlement practice … for an insurer … when committed with the frequency to indicate a general business practice, to … fail to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; fail to make a prompt, fair, and equitable good faith attempt, to settle claims for which liability has become reasonably clear; …[or] delay an investigation or payment of a claim by requiring a claimant or a claimant's licensed health care provider to submit a preliminary claim report and subsequently to submit formal proof of loss forms that contain substantially the same information[.]” Id. at § 27-304(5)(6),(12)(2014). The Maryland Unfair Insurances Practice Act, however, does not afford a private cause of action.

MASSACHUSETTS

Overview: Generally, a proof of loss is a condition precedent to liability, and the failure to satisfy that condition within the time specified by the policy can excuse the insurer from its obligations under the policy. However, an assured’s written notice of loss may be a valid substitute for the proof of loss required under a policy if the insurer does not specifically request that the assured comply with the policy’s proof of loss requirements and sends a representative or agent to the loss site for purposes of investigation and adjustment of the loss. Moreover, where an assured submits a proof of loss that the insurer objects, the burden is on the insurer to place the assured on notice of the alleged insufficiencies and that more information is needed. Essentially, Massachusetts will only require that an assured substantially comply with the proof of loss provision, and where the insurer believes the assured has not done so, the insurer has the burden to communicate the proof’s insufficiencies to the assured.

Where an insurer has been able to determine an undisputed amount, however, an argument that the proof of loss was insufficient, or that the assured did not comply with the proof of loss requirement, is unlikely to be successful, as the insurer had sufficient information to calculate an undisputed amount. Given the existence of an undisputed amount, we would recommend payment without delay, as a delay of an undisputed payment amount could increase the insurer’s exposure to allegations of bad faith and extracontractual damages under Massachusetts law.

Enforceability: Generally, absent an insurer’s waiver of a policy’s proof of loss requirement, the submission of a proof of loss is a condition precedent to an insurer’s liability. The failure to satisfy that condition within the time specified by the policy will excuse the insurer from its obligations. See Romanos v. Home Insurance Co., 355 Mass. 499, 502, 246 N.E.2d 173, 175 (Mass. 1969); Smith Beverages Inc. v. Metropolitan Casualty Insurance Co., 337 Mass. 270, 270, 149 N.E.2d 146, 147-148 (Mass. 1958) (“the seasonable filing of the prescribed proof of loss was a condition precedent to the defendant’s liability upon the policy [and] [f]ailure to file such proof of claim within the sixty day period mentioned in the policy ‘bars recovery unless the failure is excused or has been waived.’”); see also Boruszewski v. Middlesex Mut. Assur. Co., 186 Mass 589, 72 N.E. 250 (1904) (“Until a sworn statement containing the information called for is rendered, the company is under no duty to take up the question of adjustment of the loss.”).

However, Massachusetts recognizes exceptions to the enforceability the proof of loss requirement. For instance, Mass. Gen. Laws Ann. ch. 175, § 102 (2014) prohibits an assured’s failure to submit a sworn proof of loss under a fire policy from precluding recovery where the assured gives written notice of the fire and its location to the insurer; and, immediately after receiving the insurer’s written request for a sworn statement in proof of loss, provides such a sworn statement. When the insurer does not request such a proof after receipt of the assured’s notice of loss, the period of time wherein the insurer shall pay the loss under the policy is computed from the time when the insurer receives the assured’s written notice. See id. When the assured fails to submit a proof of loss as required by the policy and to give written notice, and the insurer sends out an agent to the assured for purposes of adjustment, the assured’s failure to give notice and submit a proof of loss does not preclude recovery under the policy, “provided, that the [assured] … immediately upon receipt of any written request … made by the [insurer] … after sending of an agent …, renders said sworn statement to the [insurer].” Id. Where the insurer sends an agent out to investigate for purposes of adjusting the loss and does not make a written request for the said sworn statement, the insurer’s payment deadlines run from the time when the agent visited the loss site. See id.

Requirements: Massachusetts is unlikely to hold an assured to a strict compliance standard with respect to a proof of loss requirement in a policy. Instead, “[i]f the initial proof is inconclusive but contains information reasonably suggesting that the claim may be valid, an insurer has the duty of further inquiry, at least to the extent of inviting the submission of further information in support of the [assured’s] position.” Washington v. Metro. Life Ins. Co., 372 Mass. 714, 719, 363 N.E.2d 683, 687 (1977). Massachusetts’ highest court, the Massachusetts Supreme Judicial Court, expressly found that it has “long recognized that an insurer may request further proof and any additional submission [that] should be considered in assessing whether the [assured] submitted adequate proof under the policy.” Id. (internal citations omitted).

Furthermore, with respect to Mass. Gen. Laws Ann. ch. 175, § 102 discussed above, the general purposes of Section 102 and Section 186B are: “(a) to provide that an [assured] under a policy (who has seasonably notified his insurer that there has been a loss) shall not lose his rights to recover for a loss because of any failure to comply with policy requirements for filing any proof of claim; and (b) to shift to an insurer, which has received reasonable notice that a loss has occurred, the burden of notifying the [assured] if, and to what extent and in what form, further information about the loss is desired.” Employers’ Fire Ins. Co. v. Garney, 348 Mass. 627, 630, 205 N.E.2d 8, 11 (Mass. 1965). Under Section 102, “a written notice of loss which meets” the requirements of Section 102 “is a valid substitute for the proof of loss required under the policy if the insurer does not specifically request the latter.” U.S. v. Raphelson, 802 F.2d 588, 593 (1^st Cir. 1986) (insurer held liable for interest on amount of assured’s loss even though the assured never filed properly executed proof of loss, as assured submitted written notice of loss that became valid substitute for proof of loss required under the policy when the insurer failed to specifically request properly executed proof of loss, such that insurer became obligated to pay interest on amount of loss).

As a result, where an insurer has been able to determine an undisputed amount of loss, Massachusetts law is unlikely to support the position that the assured must strictly comply with a proof of loss requirement in the policy prior to the payment of an undisputed amount. We, therefore, would not recommend an insurer condition an undisputed payment amount on the receipt of the sworn proof of loss, given that the circumstances already dictate that the assured is more than likely in substantial compliance with a proof of loss requirement (as the insurer was able to determine an undisputed amount in the first instance).

Exposure: Massachusetts statutes provide a private cause of action for first-party bad faith claims. See Mass. Gen. Laws Ann. ch. 176D § 3(9)(2012), ch. 93A § 9 (2014). If an insurer improperly insists upon submission of a sworn statement in proof of loss as a condition to payment of undisputed amounts, it may increase the likelihood that it face bad faith or extracontractual exposure pursuant to Massachusetts’ Unfair and Deceptive Acts and Practices in the Business of Insurance statute, Mass. Gen. Laws Ann. ch. 176D, § 3(9)(f)(l)(2012), which provides that the following acts or omissions are unfair settlement practices:

(f)  Failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;

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(l)  Delaying the investigation or payment of claims by requiring that an insured or claimant, or the physician of either, submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; …

See Mass. Gen. Laws Ann. ch. 176D, § 3(9)(f) and (l). A single act or claim can constitute a violation of the statute. See Hopkins v. Liberty Mut. Ins. Co., 434 Mass. 556, 750 N.E.2d 943 (2001) (internal citations omitted).

Massachusetts statutes allow plaintiffs to recover consequential damages in bad faith claims. See, e.g., Mass. Gen. Laws ch. 93A § 9. Plaintiffs may also recover treble damages for knowing or willful violations of the above statutes. See Hopkins, 434 Mass. at 564, 750 N.E.2d at 949 (internal citations omitted).

Massachusetts common law, however, does not provide a separate basis for a first-party bad faith claim. See, e.g., Kraft Power Corp. v. Merrill, 981 N.E.2d 671, 683 (Mass. 2013) (recognizing that Chapter 93A “created new substantive rights by making conduct unlawful which was not unlawful under the common law or any prior statute”).

MICHIGAN

Overview: Michigan is a substantial compliance jurisdiction, and insurers are obligated to pay claims within 60 days of receipt of a “satisfactory” proof. The term is interpreted by courts to mean sufficient information to allow investigation, to permit a determination of liability, and to prevent fraud. Accordingly, where an insurer receives sufficient information to allow it to investigate a claim and determine that it is liable under its policy for an undisputed amount, the proof of loss requirement will likely be deemed satisfied. If the insurer nonetheless conditions payment of an undisputed amount upon receipt of a formal sworn statement in proof of loss, it risks exposure to statutory penalties.

Enforceability: Generally, Michigan courts will enforce a policy provision requiring an assured to submit a sworn statement in proof of loss as a condition to payment. See D.J. Manufacturing, Inc. v. Citizens Ins. Co. of Amer., No. 205338, 1999 WL 33451702, at *2 (Mich. Ct. App. Apr. 2, 1999)(“[t]he failure to furnish proof of loss within the time provided in the policy is fatal to plaintiff's claim.”) (internal citations omitted) (quoting Helmer v. Dearborn Nat'l. Ins. Co., 319 Mich. 696, 700; 30 N.W.2d 399, 401 (Mich. 1948)).

However, an insurer can waive or be estopped from presenting a proof of loss defense. See Johnson v. Memberselect Ins. Co., No. 302469, 2012 WL 1415114, at *4 (Mich. Ct. App. Apr. 24, 2012) (citing Dellar v. Frankenmuth Mut. Ins. Co., 173 Mich. App 138, 145; 433 N.W.2d 380, 383 (Mich. Ct. App. 1988)). In the Dellar case, the insurer sought summary judgment based on the assured's failure to file a sworn proof of loss within 60 days as required by the assured’s insurance contract. See Dellar v. Frankenmuth Mut. Ins. Co., 173 Mich. App. 138, 141-42, 433 N.W.2d 380, 381 (1988). However, the court found that summary judgment was not appropriate because the assured did not receive a copy of the insurance policy from insurer until after expiration of the 60-day period despite at least two timely demands for it. See id. 173 Mich. App. at 147, 433 N.W.2d at 384. In overturning the trial court’s grant of summary judgment for the insurer, the Court of Appeals of Michigan noted that a question of fact arose as to whether the insurer had waived its noncompliance defense by failing to provide the assured with the policy until after the 60 days had expired. Id.

Requirements: Michigan follows the substantial performance rule for insurance contracts. Johnson, 2012 WL 1415114, at *4. Substantial performance occurs “when all the essentials necessary to the full accomplishment of the purposes for which the thing contracted has been performed with such approximation that a party obtains substantially what is called for by the contract.” Johnson, 2012 WL 1415114, at *4 (quoting Gibson v. Group Ins. Co., 142 Mich. App. 271, 275; 369 NW2d 484, 486 (Mich. Ct. App. 1985)). Michigan courts have applied the doctrine of substantial performance to the submission of proofs of loss. See Pearson v. Flood Professionals, Inc., No. 298359, 2012 WL 205799, at *4, n.2 (Mich. Ct. App. Jan. 24, 2012) (“[W]e have also applied the doctrine to determine whether an insured substantially complied with his contractual obligation to submit a proof of loss.”)(citing Jajo v. Hartford Cas Ins Co, unpublished memorandum opinion of the Court of Appeals, issued November 26, 2002 (Docket No. 237955)). Whether the proof of loss is satisfactory depends on whether it has “fulfilled its three intended purposes: (1) allowing the insurer an opportunity to investigate the loss; (2) allowing the insurer to estimate its rights and liabilities; and (3) preventing fraud.” Wineholt v. Cincinnati Ins. Co., 179 F.Supp.2d 742, 752 (W.D. Mich. 2001)(citing Barnes v. State Farm Fire & Cas. Co., 623 F. Supp. 538, 540 (E.D. Mich. 1985)).

Michigan law also requires an insurer to specify in writing the materials that constitute a satisfactory proof of loss not later than 30 days after receipt of a claim and then pay the amount supported by proof of loss within 60 days after receipt of proof of loss from the insured. Mich. Comp. Laws Ann. § 500.2006(3)(2014). In D.J. Manufacturing, Inc. v. Citizens Ins. Co. of Amer., No. 205338, 1999 WL 33451702, at *2-4 (Mich. Ct. App. Apr. 2, 1999), the court reasoned that the insurer’s failure to comply with Mich. Comp. Laws Ann. § 500.2006(3)(2014) and “specify in writing the materials which constitute a satisfactory proof of loss not later than 30 days after receipt of a claim” did not preclude the insurer's defense that the assured did not submit a proof of loss as required by the insurance policy, especially when there was evidence that the assured was fully aware, but ignored, the proof of loss requirement. Id. (quoting Mich. Comp. Laws Ann. § 500.2006(3)(2014)). The Court of Appeals concluded that the insurer’s “failure to comply with Mich. Comp. Laws Ann. § 500.2006(3)(2014) constitutes a factor ‘relevant’ to (but not controlling of) the issue of defendant's right to maintain its ‘proof of loss’ defense.” Id. at 1999 WL 33451702, at *3.

Exposure: Refusing to pay an undisputed amount of loss covered under a policy may give rise to exposure to extracontractual damages. Michigan has adopted the Uniform Trade Practices Act (UPTA), Mich. Comp. Laws Ann. § 500.2001 et seq. Mich. Comp. Laws Ann. § 500.2006(4)(2014) of the UPTA provides a private right of action for a 12 percent interest penalty against an insurer that fails to timely pay a claim that is not reasonably in dispute. If the claim involves a first-party action, and benefits are not paid on a timely basis, the assured is entitled to 12 percent interest penalty, irrespective of whether the claim is reasonably in dispute. Griswold Properties, L.L.C. v. Lexington Ins. Co., 276 Mich. App. 551, 566, 741 N.W.2d 549, 557 (Mich. Ct. App. 2007).

MINNESOTA

Overview: A Minnesota court is unlikely to find that an assured’s failure to comply with a proof of loss requirement within the timeframe provided by the policy requires forfeiture, absent express policy language providing for such forfeiture for non-compliance with a proof of loss requirement. Where an insurer seeks to rely on such a provision to deny its obligations under the policy, the insurer must first show that the assured’s failure to comply with the proof of loss provision in a timely manner caused the insurer prejudice. Additionally, an assured would likely only be required to show that it substantially complied with the policy’s proof of loss provision. Accordingly, where an insurer had sufficient information to determine an undisputed amount of loss, Minnesota law would likely conclude that the assured was in substantial compliance with a proof of loss provision and require payment of same.

Where an insurer had sufficient information and determined an undisputed amount, but did not pay it due to an assured’s failure to strictly comply with a proof of loss provision, the insurer could increase its liability for damages arising from breach of contract, as well as additional damages provided under the Minn. Stat. Ann. § 604.18 (2008), providing civil liability arising from an insurer’s statutory bad faith.

Enforceability: In Minnesota, “the failure to submit a sworn proof of loss in a timely manner will not necessarily bar recovery on a policy, absent specific policy language stating that failure to timely submit a sworn proof of loss will be fatal to the rights of the [assured] or that the submission of a sworn proof of loss is a condition precedent to the liability of the insurer.” Nathe Bros. v. American Nat'l Fire Ins. Co., 615 N.W.2d 341, 348-49 (Minn. 2000). In Nathe Bros., the Minnesota Supreme Court explained that “[b]ecause the Minnesota Standard Fire Insurance Policy contains no such specific language, nor are such conditions necessarily implied in its terms, the Standard Fire Insurance Policy’s requirement that a proof of loss be submitted within 60 days is not a condition precedent to recovery nor does a failure to timely submit a proof of loss effect a forfeiture.” Id.; see also Leamington Co. v. Nonprofits’ Ins. Ass’n, 615 N.W.2d 349, 354 (Minn. 2000).

Requirements: Where an insurer seeks to enforce its proof of loss requirement to bar the rights of the assured, the policy must expressly state that the failure to timely submit a proof of loss serves as a forfeiture. Absent such language, an insurer must show it was prejudiced to avoid its liability under the policy. See Nathe Bros., Inc. v. Amer. Nat. Fire Ins. Co., 615 N.W.2d 341, 347 (2000). The time within which such proofs are required to be furnished is not the essence of the contract. Id. (internal citations omitted). The Minnesota Supreme Court has found that proof of loss provisions should be construed liberally and in favor of the assured “so as not to defeat without a plain necessity [the assured’s] claim for the indemnity which, in the making of the insurance contract, it was his object to secure.” Nathe Bros., 615 N.W.2d at 348-49 (internal citations omitted).

The Minnesota Legislature has further outlined the following:

Subdivision 1. Notice from insurer. After receiving written notice of a claim by an insured on a homeowner's insurance policy, the insurer may notify the insured that the insurer may deny the claim unless a completed proof of loss is received by the insurer within 60 days of the date on which the written notice under this subdivision was received by the insured. The notice given by the insurer must be sent by certified mail, return receipt requested, and must include a proof of loss form to be completed by the insured together with accompanying instructions for completing the form. The proof of loss form and the accompanying instructions must meet the readability standards of chapter 72C.

Subd. 2. Failure to complete timely proof of loss. In an action for the recovery of a claim on a homeowner's insurance policy, an insured's failure to comply with the 60-day proof of loss requirement:

(1) is a bar to recovery if the insured received the notice specified in subdivision 1, unless the insured demonstrates to the court's satisfaction that the insured had good cause for failing to comply;

(2) is not a bar to recovery if the insured did not receive the notice specified in subdivision 1, unless the insurer demonstrates to the court's satisfaction that its rights were prejudiced by the insured's failure to comply.

Minn. Stat. Ann. § 65A.296 (2015)(emphasis added).

Exposure: In Minnesota, a failure to pay an insurance claim, in itself, no matter how malicious, does not constitute a tort, and only constitutes a breach of the insurance contract. “When the insurer refuses to pay or unreasonably delays payment of an undisputed amount, it breaches the contract and is liable for the loss that naturally and proximately flows from the breach.” Saltou v. Dependable Ins. Co., Inc., 394 N.W.2d 629, 633 (Minn. App. 1986) (quoting Olson v. Rugloski, 277 N.W.2d 385, 387-88 (Minn. 1979)).

In addition, Minn. Stat. Ann. § 604.18 (2008) provides a first-party bad faith cause of action for additional damages where the assured can show, in relevant part: (1) The absence of a reasonable basis for denying the benefits of the insurance policy; (2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy. See id. § 604.18, Subd. 2. Liability (1)-(2); see also Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d 1020, 1025 (D. Minn. 2011). Under Minn. Stat. Ann. § 604.18, as predicted by the district court in the Friedberg case, knowledge or the lack of a reasonable basis may be inferred and imputed to an insurer where there is reckless indifference to facts or proofs submitted by the assured. Id.

The available damages for a violation of Minn. Stat. Ann. § 604.18, Subd. 2, is as follows:

Subd. 3. Damages and costs. (a) In addition to prejudgment and postjudgment interest and costs and disbursements allowed under law, the court may award an [assured] the following taxable costs for a violation of subdivision 2:

(1)  an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less; and

(2)  reasonable attorney fees actually incurred to establish the insurer’s violation of this section.

Attorney fees may be awarded only if the fees sought are separately accounted for by the [assured’s] attorney and are not duplicative of the fees for the [assured’s] attorney otherwise expended in pursuit of proceeds for the [assured] under the insurance policy. Attorney fees must not exceed $100,000.

… An [assured] may not also recover punitive or exemplary damages or attorney fees under section 8.31 for a violation of this section.

Id.; see also § 604.18, Subd. 4. Claim for taxable costs.

Accordingly, where the insurer has the sufficient information to determine an undisputed amount at issue, withholding such a payment is likely to give rise to a breach of contract claim and could give rise to the additional damages available under § 604.18. We also note that, under Minnesota law, where an insurer possesses the information necessary to decide an assured’s claim but fails to act on that information, the claim is constructively denied. Weber v. Travelers Home and Marine Ins. Co., 801 D. Supp.2d 819, 832 (D. Minn. 2011). Where an insurer has sufficient information to determine an undisputed amount and then fails to pay it, an assured may be successful on an “implied denial” argument, and, thus, strengthen the assured’s claim for taxable costs under § 604.18.

Finally, we note that Minnesota, like many states, has adopted an Unfair Claims Practices Act, Minn. Stat. Ann. §§ 72A.17 – 72A.32, though it does not create a private right of action. See Morris V. Amer. Family Mut. Ins. Co., 386 N.W.2d 233 (Minn. 1986).

MISSISSIPPI

Overview: Under Mississippi law, a court would enforce a policy’s proof of loss requirement. While analysis of Mississippi law did not reveal case law specifically addressing whether it was a strict compliance or a substantial compliance jurisdiction with respect to the requirements with a proof of loss, it stands to reason that if a Mississippi court would uphold a strict compliance proof of loss standard at all, it would be in the limited scenario of an assured’s complete failure to submit a proof of loss under a policy in which the proof of loss submission was an express condition precedent to recovery, and the insurer had not waived the proof of loss condition precedent.

With respect to the scenario presumed in this survey – e.g., where an insurer has determined an undisputed amount of loss but considers withholding it subject to receipt of a formal proof of loss from the assured – we would not anticipate a court to require strict compliance before the payment of an undisputed amount. First, in such a scenario, a Mississippi court would likely deem that the insurer waived a proof of loss requirement where it adjusted the claim to the extent that an undisputed amount could be determined, without first requiring a proof of loss from the assured as required by the policy. Second, where the proof of loss provision was not expressly a condition precedent in the policy, an insurer would likely be required to show prejudice due to the lack of proof of loss provided, which is unlikely where the insurer was able to determine an undisputed amount of loss.

Nevertheless, even where a court determined that an insurer waived the enforceability of a proof of loss requirement, or determined that an insurer improperly withheld or delayed an undisputed amount while awaiting strict compliance with a form proof of loss, it is unlikely that such an act, while potentially negligent, would rise to the culpability required to subject the insurer to bad faith and punitive damages exposure under Mississippi law.

Enforceability: Mississippi will enforce a policy’s proof of loss requirement. Where a proof of loss is required as a condition precedent to the recovery under an insurance policy, and there is no waiver, the Mississippi Supreme Court has held that the condition in the policy will be enforced as written. See Coahoma County Bank and Trust Company v. Feinberg, 241 Miss. 381,390-92, 128 So.2d 562, 566-67 (Miss. 1961) (finding that the assured could not recover under the policy where the assured did not prove there was a loss and also failed to show there was a proof of loss filed, as required by the policy); Pacific Ins. Co. of NY v. Lovern, 253 Miss. 804, 811, 180 So.2d 290, 293 (1965) (recognizing that the Mississippi Supreme Court “has repeatedly held that where a proof of loss is required as a condition precedent to recovery on an insurance policy, and there is no waiver, the court will enforce the condition as written.”) (internal citations omitted).

However, if during the time allowed by the terms of the policy for filing a proof of loss, the insurer commences adjustment of the claim and/or denies coverage on grounds that the policy did not cover the loss, then the necessity of filing a proof of loss could be deemed waived by the insurer. See Canal Ins. Co. v. Howell, 248 Miss. 678, 688, 160 So.2d 218, 222 (Miss. 1964). Furthermore, even where an assured fails to provide a proof of loss as required as a condition precedent to recovery, such a failure to do so may only justify delay in payment (rather than justify a failure to make payment). See e.g., Gregory v. Continental Ins. Co., 575 So.2d 534, 541-42 (Miss. 1990).

Requirements: For an insurer to deny liability under the policy due to the assured’s non-compliance with a proof of loss requirement, the policy must set forth that the proof of loss requirement is a condition precedent to coverage. See e.g., Feinberg, 241 Miss. at 390-92, 128 So.2d at 566-67. Mississippi case law addressing the narrow issue of an assured’s complete failure to submit a proof of loss where the policy’s proof of loss requirement is expressly set forth as a condition precedent to recovery indicates that a Mississippi court would adhere to strict compliance in such a narrow set of circumstances. See e.g., id.; Lovern, 253 Miss. at 811, 180 So.2d at 293.

Beyond those discreet set of facts, however, the legal standard is less definitive. For example, and in contrast, where the policy does not make an assured’s submission of a proof of loss a condition precedent to the right of recovery, failure to comply with this requirement does not cause the assured to forfeit his right to recovery. Rather, for the insurer to be relieved of liability under the policy in such an instance, the insurer must first show that it suffered prejudice by the assured’s failure to comply with the proof of loss requirement. See Hood v. Fireman’s Fund Ins. Co., 412 F. Supp. 846, 852 (S.D. Miss. 1976) (internal citations omitted).

In Mississippi, insurers that issue fire insurance policies also have a post-loss statutory obligation to tender to the assured the forms for use in filing a proof of loss within a reasonable time. See Miss. Code Ann. § 83-13-13 (2014); U. S. Fidelity & Guaranty Co. v. Whitfield, 355 So.2d 307, 310 (Miss. 1978). Miss. Code Ann. § 83-13-13 provides:

In case of destruction or damage of property by fire where the same is insured against fire, it shall be the duty of the insurance company or companies liable for such loss, within a reasonable time after receiving notice thereof, to furnish to the [assured] proper blanks upon which to make the required proof of such loss, with full directions as to what proof is required to secure the payment of the policy. If the insurance company fails to comply with this section, the failure of the [assured] to make proper proof of loss prior to the suit shall be no defense to a suit upon the policy, and in all cases the [assured] shall have a reasonable time in which to make such proof after the blanks and directions are received.

Id. Accordingly, when tendering proof of loss forms, the insurer must supply to the assured “full directions as to what proof is required to secure the payment of the policy.” Id. The assured has a reasonable time after the form and directions are received to make a proof of loss. Id.

Importantly, an insurer who fails to supply forms may not defend an action on the policy on the grounds of failure to file proof of loss, pursuant to See Miss. Code Ann. § 83-13-13. Where the insurer did not provide such forms as required by the statute, had possession of the assured’s business records, and then moved forward with negotiations and an offer of settlement, the Mississippi Supreme Court held that the insurer waived the proof of loss requirement in the policy. See U.S. Fidelity & Guaranty Co. v. Whifield, 355 So.2d 307, 309-10 (Miss. 1978).

We further note that, in cases of total loss by fire, since Mississippi’s valued property statute, Miss. Code Ann. § 83-13-5, establishes that the value of property totally destroyed by fire is the full value of the policy, and no proof of loss is required to be filed by the assured to demonstrate property value in such cases. See Foremost Ins. Co. v. Lowery, 617 F. Supp. 521, 525 (S.D. Miss. 1985).

Exposure: Under Mississippi law:

[A]n insurance company has a duty to the [assured] to make a reasonably prompt investigation of all relevant facts. It has a further duty, after an adequate investigation and a realistic evaluation of the claim, to tell the [assured], its customer, the plain truth. And, if the insurance company cannot give its [assured] a valid reason for denying the claim, it has a final duty to promptly honor it.

Bankers Life & Cas. Co. v. Crenshaw, 483 So.2d 254, 276 (Miss. 1985) aff'd, 486 U.S. 71, 108 S. Ct. 1645, 100 L.Ed.2d 62 (1988).

Mississippi common law allows first-party bad faith claims. For a first-party bad faith claim under Mississippi law, a “plaintiff must show that the insurer lacked an arguable or legitimate basis for denying the claim, or that the insurer committed a willful or malicious wrong, or acted with gross and reckless disregard for the [assured]'s rights.” Liberty Mut. Ins. Co. v. McKneely, 862 So.2d 530, 533 (Miss. 2003)(internal citations omitted). A plaintiff may recover consequential damages based on a bad faith claim, and a plaintiff may also recover punitive damages upon a showing “that the insurer acted with (1) malice, or (2) gross negligence or reckless disregard for the rights of others.” Universal Life Ins. Co. v. Veasley, 610 So.2d 290, 293 (Miss. 1992) (citing Weems v. Am. Sec. Ins. Co., 486 So.2d 1222, 1226 (Miss. 1986); Aetna Cas. & Sur. Co. v. Day, 487 So.2d 830, 832 (Miss. 1986)).

Given the state of Mississippi law, particularly where a proof of loss requirement at issue is a condition precedent for recovery, an insurer likely would be found to have a legitimate or arguable reason for the delay of an undisputed payment that should protect it from bad faith exposure (even if it was later determined that the insurer waived the proof of loss condition precedent). We also believe it would be even less likely for an insurer to be liable for punitive damages. We find the cases Gregory v. Continental Ins. Co., 575 So.2d 534, 541 (Miss. 1990), and Seay v. Southern Life and Health Ins. Co., 660 F. Supp. 1076, 1082-84 (S.D. Miss. 1986), instructive on these points.

In the Gregory case, the Mississippi Supreme Court reasoned in part that, even though the insurer ultimately waived the proof of loss condition precedent, its pre-suit failure to pay the business interruption claim at issue there did not warrant punitive damages, as the insurer was not obligated to pay any sum until written proof of loss was filed, which never occurred. See Gregory, 575 So.2d at 541.

Additionally, in Seay v. Southern Life and Health Ins. Co., 660 F. Supp. 1076, 1082-84, an insurer delayed payment determined due while awaiting additional information, as the assured did not submit a proof of loss. See generally id. The district court found that the insurer was not guilty of bad faith under Mississippi law in its handling of the claim, as it did not demonstrate the requisite degree of culpable conduct. See id., 660 F. Supp. at 1082. While the court determined the insurer had not previously waived the proof of loss requirement, it still determined that, even if there were a waiver, “the most that can be said of [the insurer’s] handling of this claim … is that it was guilty of simple negligence in not transmitting full payment earlier.” Id.

We note, however, that neither the Gregory nor Seay opinions specifically address the circumstances where there is an undisputed amount already determined by an insurer. Where the insurer was able to make a determination as to an undisputed amount, a court could view such circumstances as evidence that either the insurer waived the proof of loss provision, or even if did not waive it, the insurer was unlikely prejudiced by the assured’s failure to submit a proof of loss. Even though a court may not agree with the insurer withholding an undisputed payment due to an assured’s failure to comply with a proof of loss provision and may determine such a decision as negligent claims handling, we find it unlikely that a court would find such a delay on this ground alone evidence of bad faith and in support of a punitive damages award.

Finally, Miss. Code Ann. § 83-5-29, et seq., also regulates trade practices in the business of insurance. Id. The statutes, however, do not create a private right of action, and do not include provisions specifically addressing claims handling practices as do most states’ deceptive trade or claims handling practices act. See Miss. Code Ann. § 83-5- 45 (2014); see also Burley v. Homeowners Warranty Corp., 773 F. Supp. 844, 861 (S.D. Miss. 1990) (explaining that § 83-5-25, a statute referenced by § 83-5-45, “pertains solely to the regulatory authority of the Mississippi Insurance Commission and does not create a private cause of action”), aff'd sub nom. Burley v. Homeowners Warranty, 936 F.2d 569 (5th Cir. 1991).

MISSOURI

Overview: Missouri will enforce a proof of loss policy condition, but it generally only requires substantial compliance by the assured. Missouri law is also clear that, since it disfavors forfeitures and policy conditions barring action by the policyholder unless there is full and strict compliance with the terms of the contract, such provisions are “most strongly” construed against the insurer. In the hypothetical presumed in this survey – i.e., where the insurer is able to determine an undisputed amount but considers withholding it subject to the assured’s strict compliance with a proof of loss provision – a Missouri court is likely to view the undisputed amount as either evidence showing that the assured is in substantial compliance with the provision (due to the fact the insurer had information sufficient to determine an undisputed amount); and/or the insurer has waived literal compliance with the provision (due to adjusting the loss to the extent such that an undisputed amount can be determined). Accordingly, Missouri law is unlikely to support an insurer’s delay of an undisputed payment while awaiting the assured’s literal or strict compliance with a proof of loss provision.

While it is possible that an insurer could increase its exposure to penalties set forth in Missouri’s Vexatious Refusal to Pay statute, Mo. Rev. Stat. § 375.420, we believe such exposure is unlikely unless the period of delay or refusal of payment experienced by the assured is extensive.

Enforceability: A Missouri court will enforce a proof of loss provision. In an action on an insurance policy where a proof of loss is required, Missouri law requires that a plaintiff assured plead proof of compliance with the proof of loss condition or substitute proof of an excuse for non-performance (e.g., a denial of liability by the insurer before the time for submitting the proof of loss has expired, rendering the need to present a proof of loss on the claim moot). See Miles v. Iowa Nat. Mut. Ins. Co., 690 S.W.2d 138, 142 (Mo. Ct. App. 1984) (quoting Harding v. State Farm Mutual Automobile Ins. Co., 448 S.W.2d 5, 7 (Mo. 1969) (en banc); Basye v. Ambrose, 32 Mo. 484, 485 (1862); Propst v. Capital Mut. Ass'n, 233 Mo.App. 612, 124 S.W.2d 515, 520 (1939)).

Missouri law, however, recognizes that an insurer may easily waive its right to enforce a proof of loss condition. In the Miles case, the Missouri Court of Appeals explained that Missouri courts do not favor forfeitures, and policy conditions barring action by the policyholder unless he has fully complied with the terms of the contract “most strongly” construed against the insurer. See Miles, 690 S.W.2d at 143. “In the case of the policy provision requiring the [policyholder] to furnish the company a proof of loss, the [insurer] must walk a straight and narrow path, else it will waive the requirement.” Id. “A waiver may be inferred from the conduct and course of dealing of the insurer leading the insured to believe that proofs of loss are unnecessary.” Id. (citing Loewenstein v. Queen Ins. Co. 227 Mo. 100, 127 S.W. 72, 75-76 (1909); Burgess v. Mercantile Town Mut. Ins. Co., 114 Mo.App. 169, 89 S.W. 568, 572-73 (1905)). Even where an insurer subjects an assured to an examination under oath as to the loss, such an act may constitute a waiver. See id. Once an insurer waives the condition, it cannot withdraw the waiver and insist upon compliance with the provision without the assured’s consent. See id.(citing Ball v. Royal Ins. Co., 129 Mo.App. 34, 107 S.W. 1097, 1099 (1908); Brownfield v. Mercantile Town Mutual Ins. Co., 84 Mo.App. 134, 139 (1900)).

Requirements: Missouri law only requires that an assured substantially comply with a proof of loss condition in the policy. See Miles, 690 S.W.2d at 142. The Miles Court of Appeals referenced its holding in Pannell v. Missouri Ins. Guar. Ass'n, 595 S.W.2d 339, 351 (Mo. Ct. App. 1980)) as an example of actions taken by the assured indicative of substantial compliance with the insurance policy provisions. Miles, 690 S.W.2d at 143 (citing Pannell v. Missouri Ins. Guar. Ass'n, 595 S.W.2d 339, 351 (Mo. Ct. App. 1980)). In the Pannell case, the assured participated in a recorded telephone conversation, and in doing so, provided the insurer with all the information it needed to determine liability. Id. The Pannell court, therefore, opined that the insured had substantially complied with the policy, although he did not provide the insurer with a proof of loss. The assured, however, offered the insurer a sufficient and adequate basis to determine its liability under the policy through his participation in the recorded telephone conversation. Id.

Lastly, where the assured has supplied the insurer with a timely proof of loss, but the submission is deficient or insufficient, the insurer must advise the assured of such and allow the assured a reasonable opportunity to cure the defect. Miles, 690 S.W.2d at 143 (citing Sturgis v. American Hospital & Life Insurance Co., 174 S.W.2d 917, 919 (Mo.App. 1943); Sisk v. American Central Fire Ins. Co., 95 Mo.App. 695, 69 S.W. 687, 691 (1902)). Again, Missouri courts have advised that they “do not favor forfeitures” and the imposition of insurance policy conditions requiring full compliance as a prerequisite to recovery are “‘most strongly’ construed against the insurance company.” Miles, 690 S.W.2d at 143 (citing Greer v. Zurich Insurance Co., 441 S.W.2d 15, 31 (Mo. 1969); see Schultz v. Queen Insurance Co., 399 S.W.2d 230, 234 (Mo.App. 1965)).

Given that Missouri only requires substantial compliance with a proof of loss condition, and that an insurer could easily waive the enforcement of such a condition, Missouri law is unlikely to provide grounds to support an insurer withholding an undisputed amount subject to an assured’s strict compliance with a proof of loss policy condition. In the hypothetical presumed in this survey – i.e., where the insurer is able to determine an undisputed amount – a Missouri court is likely to either determine the assured is in substantial compliance with the provision, and/or the insurer has waived literal compliance with the provision due to adjusting the loss to the extent such that an undisputed amount can be determined.

Exposure: Missouri does not recognize a tort-based first-party bad faith claim. Rather Missouri imposes a statutory penalty where an insurer is guilty of vexatious refusal to pay claim damages. See Mo. Rev. Stat. § 375.420 (2014). § 375.420 provides:

In any action against any insurance company to recover the amount of any loss under a policy of automobile, fire, cyclone, lightning, life, health, accident, employers’ liability, burglary, theft, embezzlement, fidelity, indemnity, marine or other insurance except automobile liability insurance, if it appears from the evidence that such company has refused to pay such loss without reasonable cause or excuse, the court or jury may, in addition to the amount thereof and interest, allow the plaintiff damages not to exceed twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars and a reasonable attorney’s fee; and the court shall enter judgment for the aggregate sum found in the verdict.

Id. Section 375.420 “provides a statutory procedural remedy in favor of [assureds] for redress of abuses by insurers in disposing of first party claims under policies of property and related insurance.” Duncan v. Andrew Cnty. Mut. Ins. Co., 665 S.W.2d 13, 19-20 (Mo. Ct. App. 1983) (citing Mo. Rev. Stat. § 375.420 (2014)). “A claim of vexatious refusal to pay requires proof (1) of an insurance policy, (2) of the insurer's refusal to pay and (3) that the insurer's refusal was without reasonable cause or excuse.” D.R. Sherry Constr., Ltd. v. Am. Family Mut. Ins. Co., 316 S.W.3d 899, 907 (Mo. 2010) (en banc) (internal citations omitted); see also Thornburgh Insulation, Inc. v. J.W. Terrill, Inc., 236 S.W.3d 651 (E.D. Mo. 2007) (finding that “[there] may be no vexatious refusal where the insurer has reasonable cause to believe and does believe there is no liability under its policy and it has a meritorious defense.”) (internal citations omitted).

While it is possible that an insurer could be exposed to penalties set forth in Mo. Rev. Stat. § 375.420 for refusing or delaying an undisputed amount while awaiting strict compliance with a proof of loss provision, we believe such exposure is unlikely unless the period of delay or refusal of payment is extensive. For instance, we find Thondburgh Insulation, Inc. v. J.W. Terrill, Inc., instructive in this regard. 236 S.W.3d 651 (Mo. Ct. App. 2007). There, the assureds filed suit against the insurer, asserting a breach of contract claim to recover losses as well as a vexatious refusal to pay claim to recover statutory penalties. See generally id. When addressing the claim that the insurer unreasonably delayed payment to the assured, the Missouri Court of Appeals reasoned that, though the insurer investigated the claims and may have requested duplicative information from the assureds in the course of the investigation, the delay was less than two months. See Thornburgh Insulation, 236 S.W.3d at 657. The court, therefore, did not find such conduct to be unreasonable and evidence of conduct warranting statutory penalties. See id.

MONTANA

Overview: In Montana, a court will only require that an assured substantially comply with the conditions contained in the policy, including the submission of a required proof of loss. While substantial compliance is sufficient, a complete failure on the part of the assured to submit a proof of loss and/or documentation supporting the claim will generally invalidate coverage. Thus, where an insurer insists on a form-specific proof of loss (or literal compliance) before tendering an undisputed payment, considering that the assured is more than likely in substantial compliance as the insurer was able to establish an undisputed covered amount, the insurer may increase its potential statutory extracontractual exposure under the Montana Unfair Claims Practices Act. Montana, however, does not recognize a bad faith claims handling cause of action, and, therefore, statutory extracontractual liability is likely the limit of the insurer’s exposure, in addition to breach of contract damages.

Enforceability: Montana will enforce a proof of loss requirement set forth in a policy. Accordingly, the failure to comply with a policy’s proof of loss requirement in a policy is a basis for denying coverage. Riefflin v. Hartford Steam Boiler Inspection & Ins. Co., 164 Mont. 287, 293, 521 P.2d 675, 678 (1974) (where insured failed to submit notification of the accident and proofs of loss as soon as practicable, coverage was invalidated).

An insurer, however, may waive the enforceability of the proof of loss requirement. For instance, where an assured submits a proof of loss that the insurer deems insufficient or otherwise objectionable, such defects are waived by the failure of the insurer to make an objection to them within a reasonable time. See Fed. Land Bank of Spokane v. Rocky Mtn. Fire Ins. Co., 85 Mont. 405, 279 P. 239 (1929). The Montana Supreme Court explained that such waiver is “especially so where such delay operates to postpone the time of payment of the loss, or is for such a period as to render it impossible to remedy the defects within the time limit fixed by the policy.” Id., 279 P. at 241.

Requirements: However, Montana only requires substantial compliance with conditions in first-party insurance policies. See Riefflin, 164 Mont. at 293, 521 P.2d at 678 (citing Staggers v. United States Fid. & Guar. Co., 159 Mont. 254, 259-60, 496 P.2d 1161, 1164 (1972) (affirming jury verdict where “elderly” couple acted with diligence and in good faith in complying with proof of loss requirement, despite not submitting their proofs within the 60 days required by the policy)). Accordingly, if the assured provides information and otherwise attempts to comply with the proof of loss requirements, sufficient to substantiate undisputed amounts, a Montana court is likely to require payment of the undisputed amount even though the insured has not submitted a proof of loss in the form specifically set forth in the policy.

The Montana Supreme Court has noted that the justifiable expectations of parties to an insurance contract must accord a broad freedom of the insurer to evaluate claims under the policy and to reject non-meritorious claims. See Britton v. Farmers Ins. Group, 221 Mont. 67, 71-72, 721 P.2d 303, 306 (1986). This, in conjunction with Montana’s substantial compliance requirement, Staggers, 159 Mont. at 259-60, 496 P.2d at 1164, suggests that so long as the assured submitted sufficient information and evidence for the insurer to reasonably evaluate the claim, the requirement is likely met.

Exposure: Mont. Code Ann. § 33-18-201 sets forth Montana’s Unfair Claim Settlement Practices, which, in relevant, part prohibits an insurer’s:

* * *

(4)  refus[al] to pay claims without conducting a reasonable investigation based upon all available information;

(5  fail[ure] to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

* * *

(12)  delay [of the] the investigation or payment of claims by requiring an insured, claimant, or physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

(13)  fail[ure] to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage[.]

* * *

Mont. Code Ann. § 33-18-201(4)-(5), (12)-(13). Among other potential violations, where an insurer commits a violation as set forth in § 33-18-201(4)-(5), or (13) above, the assured has an independent cause of action for damages, and the assured is not required to prove that the violation(s) were of such frequency to indicate a general business practice. See id., § 33-18-242(1)-(2).^[3] The assured may also be awarded proximate damages caused by these violations enumerated above, and exemplary damages may also be assessed where there is actual fraud or actual malice. See id., §§ 33-18-242(4); 27-1-221. However, an insurer may not be held liable for contesting the claim or the amount of the claim if the insurer had a reasonable basis in law or in fact to dispute liability. Safeco Ins. Co. of Am. v. McAllister, 785 F. Supp. 119, 122 (D. Mont. 1990) aff'd, 944 F.2d 909 (9th Cir. 1991).

Pursuant to Mont. Code Ann. § 33-18-242(3), an assured who has suffered damages due to insurance claim handling may bring an action against the insurer for breach of the insurance contract, for fraud, and pursuant to this § 33-18-242(3), “but not under any other theory or cause of action. An insured may not bring an action for bad faith in connection with the handling of an insurance claim.” Id.

Given that Montana is a substantial compliance jurisdiction, declining to pay an undisputed amount on a covered claim due to the assured’s failure to strictly comply and submit a proof of loss in the form required by the insurer could be deemed unreasonable, and, therefore, increase the insurer’s likelihood of exposure to the extracontractual damages set forth Mont. Code Ann. §§ 33-18-201 or 33-18-242. Given that an assured would have to prove that such a delay of payment was unreasonable, we find it more likely that an assured in such circumstances would seek extra-contract recovery under Montana’s statute that addresses the timely payment of claims, Mont. Code Ann. § 33-18-232 (2914), under which an assured, in effect, would only have to show it substantially complied with a proof of loss requirement.

Mont. Code Ann. § 33-18-232 provides as follows:

(1)  An insurer shall pay or deny a claim within 30 days after receipt of a proof of loss unless the insurer makes a reasonable request for additional information or documents in order the evaluate the claim. If an insurer makes a reasonable request for additional information or documents, the insurer shall pay or deny the claim within 60 days of receiving the proof of loss unless the insurer has notified the insured … of the reasons for failure to pay the claim in full or unless the insurer has a reasonable belief that insurance fraud has been committed and the insurer has reported the possible insurance fraud to the commissioner. This section does not eliminate an insurer’s right to conduct a thorough investigation of all the facts necessary to determine payment of a claim.

* * *

Id. Accordingly, where an assured shows substantial compliance with a proof of loss, which is more than likely in a case when an undisputed amount exists, an insurer that fails to comply with this provision is liable for payment of the claim, in addition to an “amount equal to the amount of the claim due plus 10% annual interest calculated from the date on which the claim was due.” Id. § 33-18-232(2). For purposes of calculating interest, the claim is due 30 days after receipt of the proof or loss or 60 days after receipt of a proof of loss where the insurer requested additional information. See id.

Notably, however, a private cause of action under Mont. Code Ann. §§ 33-18-201 or 33-18-242 may not be based on the compliance or noncompliance with the requirements set forth in this section, § 33-18-232, and evidence of compliance or noncompliance is not admissible in any private action based on §§ 33-18-201 or 33-18-242. Thus, for extracontractual liability, the assured would have to elect whether it attempted to show unreasonable conduct under §§ 33-18-201 or 33-18-242 or untimely payment under § 33-18-232, as an assured could not do both.

NEBRASKA

Overview: A policy provision requiring a sworn proof of loss will generally be upheld, but the burden is placed upon the insurer to establish that it made a demand for a sworn proof of loss before coverage can be denied on this basis. Nebraska also only requires that an assured substantially comply with a proof of loss requirement, and further applies a liberal standard to determine whether the insurer has waived such a requirement altogether.

As such, we would not recommend that an insurer withhold an undisputed amount of loss until the assured strictly complies with the proof of loss policy requirement. The fact that the insurer has determined an undisputed amount is likely to be viewed by a court that either the assured is in substantial compliance with the policy’s proof of loss condition, or the insurer has waived the requirement by determining the undisputed amount without first requiring a proof of loss. It stands to reason, therefore, an insurer could subject itself to bad faith exposure where it determines an undisputed amount of liability and then seeks to withhold the amount based on an assured’s failure to strictly comply with a policy’s proof of loss requirement.

Enforceability: Nebraska holds that the furnishing of a sworn statement in proof of loss in situations in which the policy calls for one is a condition precedent to coverage. See Morris v. American & Foreign Ins. Co., 150 Neb. 765, 767-8, 35 N.W.2d 832, 834 (Neb. 1947) (“The obligation imposed upon appellees [by the proof of loss provision] is reasonable and enforceable [and it] was incumbent upon appellees to establish that this stipulation was complied with or to disclose some legal reason exempting them therefrom.”).

Nevertheless, an insurer may, by its conduct, waive the enforceability of a proof of loss provision. “If a fire insurance company, after notice of loss, investigates it and enters into negotiations with the assured looking to a settlement and the negotiations fail because of inability to agree to the amount of the los, the insurer thereby waives the right to demand formal proof of loss stipulated in the policy.” Morris, 150 Neb. at 769, 35 N.W.2d at 835. Nevada courts find that a proof of loss policy requirement can be waived by the “… ‘appearance of the adjuster, and the negotiations already had for the purpose of ascertaining such loss and proof thereafter furnished became immaterial.’” Id. (citing Herpolsheimer v. Citizens’ Ins. Co., 79 Neb. 685, 113 N.W. 152 (1907)) (other internal citations omitted).

Requirements: Nebraska courts – while not expressly adopting a substantial compliance rule – has found numerous ways in which an insurer’s proof of loss non-compliance defense may be defeated. For example, in Keene Co-op. Grain & Supply Co. v. Farmers Union Industries Mut. Ins. Co., 177 Neb. 287, 128 N.W.2d 773 (1964), the Nebraska Supreme Court explained that a proof of loss provision requires reasonable information be given to the insurer so that it can form some estimate of its rights and duties prior to its obligation to pay a loss, “and such a provision should be construed with great liberality.” See id., 177 Neb. at 291, 128 N.W.2d at 777 (internal citations omitted). There, the court further explained that where the insurer reasonably induces the assured to believe that the insurer will not require strict compliance with the proof of loss requirement, such inducement constitutes a waiver of strict compliance with the proof of loss provision. See id.; see also Brown v. Firemen's Ins. Co. of Newark, 106 Neb. 615, 184 N.W. 88 (Neb. 1921); see c.f., Bailey v. Farmers Union Co-op. Ins. Co. of Nebraska, 1 Neb. App. 408, 498 N.W.2d 591 (1992) (finding that where the proof of loss requirement was conditioned on the insurer requesting that a proof be submitted, the court reasoned that there was no coverage forfeiture due to non-compliance where the trier of fact found that the insurer never made a request for the statement.).

Exposure: Nebraska recognizes a common law tort claim for the violation of an implied duty of good faith and fair dealing in the first-party insurance context. See, e.g., Lincoln Benefit Life Co. v. Edwards, 243 F.3d 457 (8th Cir. 2000) (applying Nebraska law). A plaintiff “seeking damages for bad faith settlement of an insurance claim must prove (1) that there was no reasonable basis for denying the claim and (2) that the insurer knew of, or recklessly disregarded, the lack of a reasonable basis for denying the claim.” Bailey v. Farmers Union Coop. Ins. Co., 1 Neb. App. at 420, 498 N.W2d at 599-600; see also e.g., Radecki v. Mut. of Omaha Ins. Co. 255 Neb. 224, 229-30, 583 N.W.2d 320, 325-26. (Neb. 1998); Lincoln Benefit Life Co. v. Edwards, 45 F.Supp. 2d 722, 755 (D.Neb. 1999), aff’d Lincoln Benefit Life Co. v. Edwards, 243 F.3d 457 (8th Cir. 2001) (recognizing Nebraska court’s extension of third-party bad faith claims to first parties).

Given the liberal application that a Nebraska court would likely give a policy’s proof of loss requirement and the low threshold considered for an insurer to risk waiver of the requirement altogether, we would not recommend that an insurer withhold an undisputed amount of loss until the assured strictly complies with the proof of loss policy requirement. Where an insurer has sufficient information on which to determine an undisputed amount, a court is likely to find that the assured substantially complied with the proof of loss requirement, or that the insurer waived the requirement by determining that amount prior to requiring a proof of loss. Accordingly, there is a significant risk that a court could determine that an insurer’s non-payment of an undisputed amount until the assured strictly complies with such a provision is sufficiently unreasonable to expose the insurer to bad faith liability under Nebraska law.

An assured’s alleged economic losses and mental suffering as proximate result of an insurer’s wrongful failure to pay policy benefits are also considered proper elements of damages on a bad faith claim under Nebraska law. See Ruwe v. Farmers Mut. United Ins. Co., Inc., 238 Neb. 67, 74-75, 469 N.W.2d 129, 135 (1991) (internal citations omitted). Reasonable attorneys’ fees are also recoverable where the plaintiff obtains a judgment in excess of the amount the insurer offered prior to the lawsuit pursuant to Neb. Rev. St. § 44-359.

Though Nebraska’s Unfair Claims Settlement Practice Act, Neb. Rev. Stat. § 44-1540, does not contemplate a private right of action, we note that the Act deems the following to be unfair claims settlement practices:

(4)   Not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear;

* * *

(12)  Unreasonably delaying the investigation or payment of claims by requiring both a formal proof-of-loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof-of-loss form;

* * *

(14)  Failing to provide forms necessary to present claims with reasonable explanations regarding their use within fifteen working days of a request;

Neb. Rev. Stat. § 44-1540 (4), (12), (14).

NEVADA

Overview: Nevada courts have enforced specific policy provisions regarding the notice of claim and proof of loss. However, those courts have also consistently held that substantial compliance with these conditions is sufficient. If the policy is silent as to any specific conditions attached to the submission of a proof of loss, the courts look to whether the information provided by the assured adequately allowed the insurer to consider its rights and liabilities. Furthermore, if there is no specified time period in the policy for the submission of the proof of loss, the insurer cannot disclaim coverage for an assured’s failure to submit a proof of loss within a specified time period. Given these principles, we believe that an insurer insisting on a proof prior to payment an undisputed amount risks extracontractual liability if it already has sufficient information to determine that payment is required.

Enforceability: The Nevada Supreme Court has held that, “absent an express forfeiture provision, an [assured’s] failure to comply with a proof of loss requirement does not preclude recovery, at least where the [assured] complied substantially with the requirement.” Walker v. American Bankers Insurance Group, 108 Nev. 533, 536-37, 836 P.2d 59, 61-62 (Nev. 1992) (citing Davenport v. Republic Ins. Co., 97 Nev. 152, 154, 625 P.2d 574, 575 (1981)). In essence, Nevada law does not permit an insurer to escape its obligations under the policy for an assured’s failure to comply with a proof of loss requirement unless the policy expressly provides for such forfeiture of coverage.

Requirements: The Walker court expressly adopted the Oregon Supreme Court’s test for substantial compliance with a proof of loss requirement – namely, "whether the proof submitted by the [assured] fulfilled the purpose of the proof of loss.” Id. 108 Nev. at 537, 836 P.2d at 62. (quoting Sutton v. Fire Insurance Exchange, 265 Ore. 322, 325, 509 P.2d 418, 419 (Ore. 1973). The substantial compliance test, as articulated by the Sutton court, expresses the generally accepted view regarding the basis for a proof of loss requirement:

"[T]o afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form a [sic] intelligent estimate of its rights and liabilities before it is obliged to pay …. to furnish the insurer with the particulars of the loss and all data necessary to determine its liability and the amount thereof." (Id., citing George J. Couch, Cyclopedia of Insurance Law § 49A:3 (2d ed. rev. 1982)).

Id.

Ultimately, the Walker court held that an “unsigned and unsworn” list of damaged property satisfied a policy provision requiring a “proof of loss signed and sworn to by the assured person.” Walker, 108 Nev. at 537-38, 836 P.2d at 61-62. As the court in Walker explained, the list “was submitted just twenty-seven days after the loss, and it listed appellant's destroyed personal property and the replacement cost for each item claimed, [and this] information was sufficient to enable [the insurer] to investigate appellant's losses, estimate its rights and liabilities, and prevent fraud and unjust claims from being asserted.” Id., 108 Nev. at 537, 836 P.2d at 62.

Exposure: It stands to reason that an insurer that has been able to determine an undisputed amount of liability and an undisputed amount is unlikely to have viable grounds in Nevada to delay or deny payment of an undisputed amount until the assured is in strict compliance with a policy’s proof of loss requirement. In doing so, we believe the insurer increases its risk to subject itself to bad faith or other extracontractual liability.

Particularly, the state of Nevada recognizes both common law and statutory causes of action for improprieties in claims-handling. The former springs from the fact “every contract imposes upon the contracting parties the duty of good faith and fair dealing.” Hilton Hotels Corp, v. Butch Lewis Productions, Inc., 109 Nev. 1043, 1046, 862 P.2d 1207, 1209 (Nev. 1993.); see also Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1258, 969 P.2d 949, 956 (Nev. 1998). Nevada courts recognize, however, that a wrongful act committed during the court of a contractual relationship may give rise to both tort and contractual remedies. In essence, breach of the contract, including the breach of covenant of good faith and fair dealing, provides the basis for a tort claim of bad faith under Nevada law. Id.; see also Allstate Ins. Co. v. Miller, 125 Nev. 300, 212 P.3d 318 (2009) (Holding that “[a] violation of the covenant [of good faith and fair dealing] gives rise to a bad faith tort claim.”).

In brief, “[b]ad faith is established where the insurer acts unreasonably and with knowledge that there is no reasonable basis for its conduct.” Guaranty Nat’l Ins. Co v. Potter, 112 Nev. 199, 206, 912 P.2d 267, 272 (Nev. 1966). “Nevada’s definition of bad faith is: (1) an insurer’s denial of (or refusal to pay) an assured’s claim; (2) without any reasonable basis; and (3) the insurer’s knowledge or awareness of the lack of any reasonable basis to deny coverage, or the insurer’s reckless disregard as to the unreasonableness of the denial.” Schumacher v. State Farm Fire & Cas. Co., 467 F.Supp.2d 1090, 1095 (D.Nev. 2006).

Available bad faith damages include consequential damages, and punitive damages are available when an insurer breaches the implied covenant of good faith (as it is a basis for a tort claim). Bergerud v. Progressive Cas. Ins., 453 F. Supp.2d 1241 (D. Nev. 2006).

In addition, there is statutory liability under the state’s Unfair Insurance Practices Act (UIPA), N.R.S. § 686A.310,^[4] which defines an unfair practice as “failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the [assured]”; “failing to effectuate prompt, fair, and equitable settlements of claims in which liability of the insurer had become reasonably clear”; and “delaying the investigation or payment of claims by requiring an [assured] … to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.” N.R.S. § 686A.310 (1)(d)-(e),(k).

Pursuant to N.R.S. § 686A.310(2), “an insurer is liable to its [assured] for any damages sustained by the [assured] as a result of the commission of any act set forth … as an unfair practice. Id. Accordingly, the UIPA creates a private cause of action. See Crystal Bay General Improvement Dist. v. Aetna Cas. & Sur. Co., 713 F.Supp. 1371, 1376 (D.Nev. 1989). Unlike a cause of action for bad faith, Nevada’s unfair claims practices statute addresses the matter in which an insurer handles an assured’s claim, irrespective of whether the claim is denied. See Zurich Amer. Ins. Co. v. Coeur Rochester, Inc., 720 F. Supp.2d 1223 (D. Nev. 2010).

NEW HAMPSHIRE

Overview: While New Hampshire courts are likely to enforce a policy provision requiring an assured to submit a sworn statement in proof of loss as a condition precedent to payment, there is not a New Hampshire law to support a court requiring an assured to be in strict compliance with a proof of loss requirement. To the contrary, there are decisions that suggest, though do not specifically hold, that an assured’s substantial compliance would be permitted as long as it met the purpose intended for a proof of loss.

Accordingly, an insurer’s interests are most protected by operating under the legal presumption that where it has sufficient information on which to determine an undisputed amount of loss, New Hampshire (like most jurisdictions) is likely to find that the assured is in substantial compliance with the proof of loss requirement; or the insurer has waived such a requirement by its conduct; and, therefore, the insurer’s liability has become sufficiently clear such that the insurer has the obligation to make the undisputed payment, regardless of the strict application of a technical requirement. An insurer, therefore, may face extracontractual liability if it insists on a sworn statement and withholds payment of an undisputed amount on that basis.

Enforceability: New Hampshire’s adopted Standard Fire Policy includes the requirement that, “within 60 days after the loss, unless such time is extended in writing by this Company, the [assured] shall render to this Company a proof of loss, signed and sworn to by the [assured]…[.]” N.H. Rev. Stat. § 407.22.

A New Hampshire court will enforce a proof of loss requirement, absent an insurer’s “waiver, estoppel or for some other good reason[.]” Perley Fitch Co. v. Continental Ins. Co., 99 N.H. 1, 3, 104 A.2d 511, 512 (N.H. 1954). In Perley Fitch Co., the assured sued its insurer to recover building contents damages under a sprinkler leakage policy, a claim for which the insurer previously denied based on its investigation that the loss was caused by a windstorm. The assured waited until trial to argue its theory as to the cause of the loss – namely, that it was a covered cause of loss caused by a sprinkler leak. The court noted that the assured “never filed at any time sworn proofs of loss stating its ‘knowledge and belief’ of the ‘origin of the loss’ as required by the conditions of the policies, nor gave the defendant the slightest intimation that the damage arose from any cause covered by the policies until after the trial commenced.” Id., 99 N.H. at 4, 104 A.2d at 513. The assured continued to claim entitlement to coverage after the denial, and even wrote to the insurer requesting forms for proof of loss that, the court noted, “the defendant was under no obligation to furnish.” Id. The assured was excused from filing its proofs of loss until it became aware of the alleged cause, and the court found that the assured was not barred by the failure to file them within the 60-day limit set by the policies. “However, the filing of proofs within a reasonable time after it made this discovery was a condition precedent to recovery …. It never did so at any time and in the absence of any reasonable excuse for its failure, it cannot prevail.” Id. at 514.

Therefore, while there may be no obligation to file a sworn proof until such time as the assured is aware of the cause of the loss, the filing of the proof will generally be a condition precedent to recovery.

Requirements: New Hampshire’s limited case law does not expressly address whether New Hampshire would require strict compliance or substantial compliance with respect to an assured’s responsibility under a policy’s proof of loss requirement, absent specific policy language. We note, however, that the New Hampshire Supreme Court’s discussion in a more recent case, Balamotis v. Hyland, 159 N.H. 803, 992 A.2d 548 (2010), indicates that a New Hampshire court is likely to only require an assured to substantially comply with a policy’s proof of loss conditions. See id. There, the New Hampshire Supreme Court found that an assured must be given an opportunity to explain perceived defects or deficiencies in a proof of loss. Additionally, the court cited a Texas case for the following proposition:

The purpose of a proof of loss is to advise the insurer of facts surrounding the loss for which a claim is being made, and to afford the insurer an adequate opportunity to investigate, to prevent fraud, and to form an intelligent estimate of its rights and liabilities. Statements made in proofs of loss are not conclusive as to the claimant, provided that they were made in good faith and without an intent or attempt to defraud the insurer.

Id., 159 N.H. at 812, 992 A.2d at 555. (quoting In re: Republic Lloyds, 104 S.W.3d 354, 359 (Tex.App.Ct. 2003)). The New Hampshire Supreme Court then went on to explain that statements in a proof “are not conclusive, but are open to explanation and correction.” Id. Its reasoning strongly suggests that New Hampshire falls in line with the majority of states and is unlikely to require strict compliance in most instances with respect to a proof of loss condition.

Where, therefore, an insurer was able to determine an undisputed amount of loss, it stands to reason that the insurer was likely advised of facts “surrounding the loss” and it was afforded an “adequate opportunity to investigate, … prevent fraud, and to form an intelligent estimate of its rights and liabilities.” Accordingly, an insurer should pay undisputed amounts based on the time frame(s) below, or it could subject itself to increased exposure to a bad faith or extracontractual liability claim.

Exposure: N.H. Rev. Stat. § 407.12, addresses the adjustment and payment of loss, and provides that the insurer “shall begin the adjustment of the loss within 15 days after receipt of notice of loss. The amount of loss under a fire insurance policy shall be due and payable 60 days after receipt by the insuring company of proof of loss, and the [assured] may commence an action after the expiration of that time to recovery the same.” Id. Where the assured recovers more than the amount determined by the insurer, the assured’s judgment shall have immediate execution with interest and costs. See N.H. Rev. Stat. § 407.16.

New Hampshire statutes also set forth various unfair practices for which insurers may be held liable, and also provide a private cause of action in the event the commissioner fails to take action. See N.H. Rev. Stat. §§ 417:4, 19 (2014); Hunt v. Golden Rule Ins. Co., 638 F.3d 83, 88 (1st Cir. 2011) (“Under RSA § 417:19, a consumer is "permit[ted]" to file a private action for damages after the insurance commissioner finds a violation of the trade practices law.”). Such unfair practices include “[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements or compromises of claims in which liability has become reasonably clear.” N.H. Rev. Stat. § 417:4(xv)(a)(4).

New Hampshire courts recognize a first-party bad faith action sounding in contract, but they do not “recognize a tort claim for bad faith delay or refusal to settle a first-party insurance claim.” Bell v. Liberty Mut. Ins. Co., 776 A.2d 1260, 1264 (N.H. 2001); compare De Vries v. St. Paul Fire & Marine Ins. Co., 716 F.2d 939, 943 (1st Cir. 1983) (reasoning that “an obligation of good faith and fair dealing is implied in a first-party insurance contract ….”); see also Bell v. Liberty Mutual Ins. Co., 146 N.H. 190, 195, 776 A.2d 1260, 1264 (N.H. 2001) (New Hampshire does not “recognize a tort claim for bad faith delay or refusal to settle a first-party insurance claim.”).

Extracontractual damages are still available “[i]f … the facts constituting the breach of the contract also constitute a breach of a duty owed by the defendant to the plaintiff independent of the contract” because in that case “a separate claim for tort will lie.” Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, at 613, 392 A.2d 576, at 580 (1978); see also deVries v. St. Paul Fire & Marine Ins. Co., 716 F.2d 939, 943 (1st Cir. 1983). “Where there has been a bad-faith breach of an insurance contract … [t]he [assured] may recover specific consequential damages if he can prove that such damages were reasonably foreseeable by the insurance company and that he could not have reasonably avoided or mitigated such damages. Jarvis v. Prudential Ins. Co., 448 A.2d 407, 410 (N.H. 1982). “Recovery of damages for mental suffering and emotional distress that may accompany the economic damage is not, however, permitted in contract actions[.]” Id. (internal citations omitted).

Given that, per N.H. Rev. Stat. § 407.12, the amount of loss is due and payable 60 days after receipt by the insuring company of proof of loss, “and the [assured] may commence an action after the expiration of that time to recover the same[,]” id., and that New Hampshire is likely a substantial compliance jurisdiction, withholding an undisputed amount until there is strict compliance with a proof of loss provision could, at a minimum, subject the insurer to a judgment with interest and costs, where the assured recovers more than the undisputed amount. See N.H. Rev. Stat. § 407.16. Extracontractual exposure may further increase due to the delay of payment after liability became “reasonably clear.”

NEW JERSEY

Overview: While New Jersey treats fulfillment of the proof of loss provision’s requirements as a condition precedent to recovery, it is clear that an assured can substantially comply with a policy’s proof of loss provision by promptly and fully informing the insurer of all details of the loss. New Jersey will not require the strict compliance of an assured with a proof of loss requirement. Additionally, New Jersey also requires an insurer to prove it was prejudiced by a proof of loss defect or an assured’s non-compliance, establishing a heightened burden of proof for an insurer to be relieved of policy obligations due to non-compliance.

An insurer should therefore pay undisputed amounts even in the absence of a sworn statement in proof of loss, provided that it is in possession of sufficient information to determine liability and quantum. We base this recommendation on New Jersey’s liberal compliance standards for an assured with respect to a proof of loss requirement; its heightened burden of proof for the insurer to show prejudice; and the potential bad faith exposure an insurer may be subject to by withholding payment of an undisputed amount (i.e., an amount representing a portion of loss where liability is reasonably clear).

Enforceability: New Jersey will enforce a proof of loss where required by the policy as a necessary pre-condition to recovery. See, e.g., Brindley v. Firemen’s Ins. Co. of Newark, N.J., 35 N.J. Super. 1, 10, 113 A.2d 53, 58 (N.J. Super. Ct. App. Div. 1955). There, the Brindley court explained that “[w]here the giving of notice of loss or the furnishing of proofs of loss is a condition precedent of liability under an insurance contract … non-compliance is fatal to recovery in the absence of a showing of waiver or at least of substantial compliance.” Id.

Requirements: As Brindley indicates, the state is a substantial compliance jurisdiction, however. See Brindley, N.J., 35 N.J. Super. 1, 10, 113 A.2d 53, 58; Tell v. Cambridge Mut. Fire Ins. Co., 150 N.J. Super. 246, 375 A.2d 315 (N.J. Dist. Ct., 1977). In Tell, the policy at issue there required that the assured submit a signed and sworn proof of loss. The assured reported the loss to the insurer’s agent by letter and enclosed a list of all items stolen and the value of each. The court found this to be “substantial compliance with the policy requirement, as defendant [insurer] was promptly and fully informed of all details of the loss.” Id., 150 N.J. Super. at 254, 375 A.2d. at 319. The court further held that the insurer “did not show it was prejudiced by the technical breach of the policy provision and accordingly failed to carry its burden[.]” Id.

The requirement that an insurance company prove prejudice before it can deny a claim based on the late filing of a proof of loss is also found in Resolution Trust Corp. v. Moskowitz, 868 F.Supp. 634 (D.N.J. 1994) and Gladstone v. Fireman’s Fund Ins. Co., 536 F.2d 1403 (2d Cir. 1976) (applying NJ law). As the former court explained:

Since the purpose of the proof of loss provision, like the notice provision, is to enable the insurance company to investigate and pay the claim without prejudice, it only makes sense to require the insurance company to prove prejudice before denying coverage based of the late filing of a proof of loss.

Resolution Trust, 868 F. Supp. 634, 639-40; see also Gladstone at 1407 (“[I]n order for an insurer to avoid liability on the ground that the [assured] had failed to perform a condition precedent, the insurer must carrier the burden of showing a ‘likelihood of appreciable prejudice’ as a result of the failure”). This provides further support that courts applying New Jersey law may require a showing of prejudice to deny based on the lack of a sworn statement in proof of loss.

If the insurer is “promptly and fully informed of all details of the loss[,]” it is likely that the assured will be deemed to have substantially complied with the policy’s proof of loss provision. See Tell, 375 A.2d at 319 (holding that assured substantially complied with the policy’s proof of loss provision where the assured reported the loss to the insurer’s agent by letter and enclosed a list of all items stolen and the value of each). In light of the fact that New Jersey only requires substantial compliance with a proof of loss requirement, and that an insurer must also show that it was prejudiced by an assured’s non-compliance with the requirement, a New Jersey court is unlikely to agree with an insurer’s conduct of withholding an undisputed amount of payment while demanding strict compliance with a proof of loss requirement. Essentially, under such circumstances, a court is likely to determine the assured met its obligation and substantially complied and that the insurer was not prejudiced by any alleged failure as the insurer was able to determine its liability to a certain extent.

Exposure: New Jersey does not have a statutory cause of action for improper claims-handling. Like all states, it does have its own version of the unfair claims practices act, and this provides that it is such a practice to “[n]ot attempt[ ] in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” N.J. STAT. ANN. 17:29B-4(9)(f). As noted, it has been held that the act does not support private causes of action. See Retail Clerks Welfare Fund, Local No. 1049, AFL-CIO v. Continental Cas. Co., 71 N.J. Super. 221, 225, 176 A.2d 524, 526 (N.J. Super. Ct. App. Div. 1961). Significantly, however, violations of the statute can be used as evidence in a common law bad faith action against an insurer. As the court explained in Miglicio v. HCM Claim Mgmt. Corp., 288 N.J. Super. 331, 340, 672 A.2d 266, 271 (N.J. Super. Ct. 1995), “any deviation from the standards may be considered as evidence as bad faith.” Id. Withholding an undisputed amount could be evidence of an insurer’s failure to make a prompt settlement after liability has become reasonably clear, which could give rise to bad faith liability.

New Jersey courts have recognized a common law bad faith cause of action for an insurer’s failure to pay policy benefits without a reasonable basis. See Pickett v. Lloyd’s, 131 N.J. 457, 466, 621 A.2d 445, 450 (N.J. 1993). In Pickett, the court noted that “[t]o show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim [and] implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless … indifference to facts or to proofs submitted by the insured,” Pickett, 131 N.J. at 473, 621 A.2d at 453. This strongly suggests that an insurer should pay an undisputed amount even in the absence of a sworn statement in proof of loss, provided that the insured has substantially complied with the proof of loss provision.

The available damages for a bad faith claim is compensatory and consequential damages, while emotional distress or punitive damages are not recoverable “absent egregious circumstances.” Pickett, 621 A.2d at 455; Polizzi Meats, Inc. v. Aetna Life & Cas. Co., 931 F.Supp.328 (D.N.J. 1996). Attorneys’ fees are not available for first-party claims. N.J. R. 4:42-9(a)(6).

NEW MEXICO

Overview: Substantial compliance with the terms of the policy, including the proof of loss provision, is all that is required under New Mexico law. The burden is also placed on the insurer to show that it was materially prejudiced by the assured’s breach of the insurance policy before it is relieved of its duties under the policy. New Mexico’s Unfair Claim Practices Act also establishes that a violation can serve as the basis for a private cause of action against the insurer. As a result, it is our judgment that refusing to pay undisputed amounts unless and until a proof of loss is tendered may give rise to extracontractual liability where the insurer has enough information in hand to determine liability. It stands to reason that where an insurer has sufficient information to determine an undisputed amount, a New Mexico court would likely find the assured in substantial compliance and/or the insurer was not materially prejudiced by any proof insufficiency such that the insurer could disclaim liability under the policy.

Enforceability: In New Mexico, “[t]he requirement of notice and filing proofs of loss is a condition precedent to the insurer’s liability.” Zengerle v. Commonwealth Ins. Co. of New York, 63 N.M. 454, 455, 321 P.2d 636, 637 (N.M. 1958). That requirement may be waived and/or the carrier may be estopped from relying upon it, however. As the court explained in Western Farm Bureau Mut. Ins. Co. v. Lee, 63 N.M. 59, 62, 312 P.2d 1068, 1070 (N.M. 1957):

[C]onditions of an insurance policy requiring the [assured] to furnish various notices after loss, in a particular manner, are for the benefit of the insurer and may be waived by words or conduct inconsistent with an intention to demand exact compliance, from which the [assured] is led to believe such compliance is unnecessary[.]

Id.; see also Young v. Seven Bar Flying Service, Inc., 101 N.M. 545, 548, 685 P.2d 953, 956 (N.M. 1984) (waiver and estoppel are shown if “the [assured] was misled by conduct of the insurer, upon which the [assured] relied to his detriment.”); Robinson v. Palatine Ins. Co, 11 N.M. 162, 66 P. 535, 537 (N.M. Terr. 1901) (verification is waived in the absence of objection that the proof of loss was not verified). In addition, the insurer cannot disclaim liability for failure to furnish a sworn statement in proof of loss unless the policy contains an express requirement to that effect. See Homestead Investments, Inc. v. Foundation Reserve Ins. Co., 83 N.M. 242, 245, 490 P.2d 959, 962 (N.M. 1971).

Requirements: New Mexico is clearly a substantial compliance jurisdiction. As the state Supreme Court explained in Robinson, “substantial compliance with the terms and conditions of the policy as to notice and proof of loss is all that is required.” Robinson, 66 P. at 537 (N.M. Terr. 1901). See also Green v. General Acc. Ins. Co. of America, 106 N.M. 523, 524, 746 P.2d 152, 154 (N.M. 1987). In addition, the insurer must show prejudice due to the non-compliance in order to avoid liability. As the court explained in Foundation Reserve Ins. Co. v. Esquibel, 94 N.M. 132, 134, 607 P.2d 1150, 152 (N.M. 1980):

[w]e hold that an insurer must demonstrate substantial prejudice as a result of a material breach of the insurance policy by the [assured] before it will be relieved of its obligation under a policy.

Exposure: New Mexico has both common law and statutory causes of action for improper claims handling. With respect to the former, the state’s courts have recognized that carriers are under a duty of good faith. Dydek v. Dydek, 288 P.3d 872, 878 (N.M. App. Ct. 2012). Bad faith is shown if the insurer has acted with “dishonest judgment,” which is to say that the carrier “has failed to honestly and fairly balance its own interests and the interests of the [assured].” Id. (quoting Sloan v. State Farm Mut. Auto. Ins. Co., 135 N.M. 106, 85 P.3d 230 (N.M. 2004)). The assured may also be awarded attorney’s fees for pursuing a claim if an insurer acts unreasonably in failing to pay the claim. See New Mexico Statutes Annotated (N.M.S.A.) 1978, § 39–2–1 (Repl.Pamp.1991).

With respect to the latter, New Mexico’s unfair claim practices are defined in N.M.S.A. 1978, § 59A-16-20, and the prohibited practices specifically related to prompt settlement and payment of the claim include the following:

E. not attempting in good faith to effectuate prompt, fair and equitable settlements of an [assured]'s claims in which liability has become reasonably clear;

* * *

M. failing to settle an [assured]’s claims promptly where liability has become apparent under one portion of the policy coverage in order to influence settlement under other portions of the policy coverage;

N.M. Stat. Ann. § 59A-16-20 (West). As discussed above, pursuant to § 59A-16-30, any party who is covered by Article 16 who has suffered damages as a result of a violation of the statute can bring a private cause of action against the insurer and is entitled to attorney’s fees if that party prevails. The available bad faith damages include compensatory and consequential damages. Punitive damages could also be available “when the insurer's conduct was in reckless disregard for the interests of the plaintiff, or was based on a dishonest judgment, or was otherwise malicious, willful, or wanton.” Sloan, 85 P.3d 230, 232 (N.M. 2004).

NEW YORK

Overview: New York will enforce a policy’s proof of loss requirement. Where an assured, without excuse, willfully refuses to furnish a proof of loss in compliance with the policy, that assured’s later suit for recovery under the policy is barred. New York law, however, does not prescribe a specific form for proofs of loss, and only substantial compliance with the provisions for proof of loss statements is required. Additionally, before an insurer can rely on the assured’s failure to comply with a proof of loss notice to bar an assured’s recovery, the insurer, itself, must first comply with New York statutory law and provide written notice to the assured of its demand for a proof of loss and provide the assured with the required forms.

Where an insurer has determined an undisputed amount but considers withholding it subject to receiving a sworn proof of loss – regardless of whether the insurer has properly demanded a form proof of loss in compliance with the New York statutory law – it stands to reason that the insurer could have either waived the enforcement of the provision, or the assured has substantially complied with the provision. Specifically, if the insurer adjusted the loss to the extent it could determine an undisputed amount before requiring formal compliance with a proof of loss, the insurer may stand to waive the enforcement of the provision. Additionally, where the insurer had sufficient information on which to determine an undisputed amount of liability, New York law could also consider this as evidence that the assured was in substantial compliance with the proof of loss provision. As a result, the insurer is likely to find limited support to withhold an undisputed payment on this coverage defense under New York law.

While an insurer could have limited exposure to breach of contract and consequential damages in such a scenario, we believe the insurer would not have bad faith or other extracontractual exposure, absent some egregious circumstances out of the ordinary.

Enforceability: New York will uphold a proof of loss provision. In fact, the standard fire insurance policy adopted by New York law states:

within sixty days after the loss, unless such time is extended in writing by this Company, the [assured] shall render to this Company a proof of loss, signed and sworn to by the [assured], stating the knowledge and belief of the [assured] as to the following: the time and origin of the loss, the interest of the [assured] and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required, verified plans and specifications of any building, fixtures or machinery destroyed or damaged.

N.Y. Ins. Law § 3404 (McKinney 2015). Where an assured, without excuse, willfully refuses to furnish a proof of loss in compliance with the policy, an assured’s later suit for recovery under the policy is barred. See e.g., Lentini Brow. Moving & Stor. Co. v. N.Y. Prop. Ins. Underwriting Assn., 428 N.Y.S.2d 684, 76 A.D.2d 759 (N.Y. App. Div. 1980) (holding that where no compliance with policy provisions as to written proof of loss or sworn examination occurred, recovery under the policy is barred).

Generally, an insurer is deemed to have waived the right to demand proof of loss by engaging in conduct that would lead the assured to a reasonable belief that a proof is unnecessary or where the insurer denies liability under the policy within the timeframe for an assured to submit the proof. Williamsburgh Doll & Novelty Corp. v. Giuffrida, 560 F. Supp. 84, 85 (E.D.N.Y. 1982) (citations omitted). New York courts, however, have been reluctant to find that an insurer has waived the proof of loss requirement. See, e.g., id. (where insurer was an agency of the United States, it did not waive proof of loss requirement by failing to supply assured with appropriate forms after receiving notice of burglaries and by informing assured that policy had been cancelled retroactively); Anthony Marino Const., 69 N.Y.2d at 800, 505 N.E.2d at 945 (utilization of the untimely filed proofs of loss at the examination under oath does not constitute a waiver of the condition); Aryeh v. Westchester Fire Ins. Co., 138 A.D.2d 337, 338, 525 N.Y.S.2d 628, 629 (N.Y. App. Div. 1988) (insurer did not unequivocally deny liability under homeowner's policy before it demanded proofs of loss, such as would amount to waiver of defense of assured’s failure to file sworn proofs of loss within 60 days of demand).

Requirements: New York law has not adopted a form for proof of loss. See, e.g., DeSantis v. Dryden Mut. Ins. Co., 241 A.D.2d 916, 916-917, 661 N.Y.S.2d 395, 396-7 (N.Y. App. Div. 1997) (holding that, where an assured submitted an unsworn “detailed signed statement to [insurer’s] agent identifying the nature and extent of the loss[,] … that statement satisfied plaintiff’s obligation under the policy to furnish [insurer] with proof of loss, and plaintiff had no further obligation to furnish proof of loss a second time on the forms supplied by defendant.”) As a general rule, proof requirements are liberally construed in favor of the assured, and, “[a]ccordingly, substantial rather than strict compliance with the provisions for proof of loss statements is all that is required.” Yaccarino v. St. Paul Fire & Marine Ins. Co., 150 A.D.2d 771, 772, 542 N.Y.S.2d 660, 661 (N.Y. App. Div. 1989) (internal citations omitted).

Under New York law, an assured’s failure to file a formal form proof of loss as required in the policy is an absolute defense to an action on the policy, but only where the insurer, after the notice of the loss, has first provided written notice to the assured that it will require such strict compliance with a specified proof of loss form and encloses the blank forms for the assured’s completion. See N.Y. Ins. Law § 3407 (McKinney 2015).

Particularly, N.Y. Ins. Law § 3407 provides:

The failure of any person insured against loss or damage to property under any contract of insurance, issued or delivered in this state or covering property located in this state, to furnish proofs of loss to the insurer or insurers as specified in such contract shall not invalidate or diminish any claim of such person insured under such contract, unless such insurer or insurers shall, after such loss or damage, give to such [assured] a written notice that it or they desire proofs of loss to be furnished by such [assured] to such insurer or insurers on a suitable blank form or forms. If the [assured] shall furnish proofs of loss within sixty days after the receipt of such notice and such form or forms, or within any longer period of time specified in such notice, such [assured] shall be deemed to have complied with the provisions of such contract of insurance relating to the time within which proofs of loss are required. Neither the giving of such notice nor the furnishing of such blank form or forms by the insurer shall constitute a waiver of any stipulation or condition of such contract, or an admission of liability thereunder.

N.Y. Ins. Law § 3407 (emphasis added); see also Igbara Realty Corp. v. New York Prop. Ins. Underwriting Ass’n, 63 N.Y.2d 201, 209-10, 470 N.E.2d 858, 860 (N.Y. 1984) (“When an insurer gives its [assured] written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the [assured] to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy, absent waiver of the requirement by the insurer or conduct on its part estopping its assertion of the defense.”); Hunter v. Seneca Ins. Co., Inc., 114 A.D.3d 556, 557, 981 N.Y.S.2d 50 (N.Y. App. Div. 2014); Anthony Marino Constr. Corp. v. INA Underwriters Ins. Co., 69 N.Y.2d 798, 800, 379, 505 N.E.2d 944, 944, 513 NY.S.2d 379 (N.Y. 1987).

Where an insurer is in compliance with N.Y. Ins. Law § 3407, the failure of the assured to provide a sworn proof as demanded and in accordance with the forms supplied will also provide an absolute defense to the action on the policy. See Melamudov v. Colonia Ins. Co., 202 A.D.2d 557, 609 N.Y.S.2d 287 (N.Y. App. Div. 1994) (where insurer demanded assured to submit a sworn proof of loss form pursuant to standard fire insurance policy, assured’s submission of an unsigned proof of loss was a “failure to properly swear to the contents of the proof of loss statement [and] is an absolute bar to their claim on the policy.”); Alexander v. New York Cent. Mut., 96 A.D.3d 1457, 1457-58, 949 N.Y.S.2d 305 (N.Y. App. Div. 2012) (finding that where it was undisputed that the insurer demanded a sworn proof of loss and provided the necessary form in compliance with § 3407, an assured’s unsworn statement of loss and receipts for stolen items were insufficient, providing “an absolute defense to the action on the policy.”) (internal citations omitted).

However, even where the insurer complies with N.Y. Ins. Law § 3407, where the proof submitted is sworn and timely submitted within the required timeframe, a New York court is likely only to require that the assured is in substantial compliance as to the proof’s substance. See Yaccarino, 542 N.Y.S.2d at 661-62, 150 A.D.2d at 771. For instance, in Yaccarino, the insurer complied with § 3407 by providing written notice of its request for a sworn proof of loss statement, which enclosed four blank proofs of loss. Within the 60-day time period for submission, the insurer received a letter from the assured’s adjuster and a proof of loss form executed by the assured. See id. at 662, 150 A.D. at 772. The insurer rejected the submission and extended the time by which the assured could submit a second proof, though the assured’s second submission fell outside the extended timeframe allowed. In the assured’s subsequent suit against the insurer, one of the insurer’s affirmative defenses was that the assured failed to file a proof of loss statement in compliance with § 3407. The court disagreed, and found that the first submission within the first 60 days was substantial compliance by the assured. “Although that statement was rejected by the [insurer] based upon allegedly improper responses, the fact remains that it was sworn to by [the assured] and was returned in a timely manner.” Id.

Thus, the failure to submit proofs of loss is likely not a material breach of the policy unless the assured receives and ignores a written demand for the proofs of loss. See id.; see also Varda, Inc. v. Ins. Co. of N. Am., 45 F.3d 634, 636 (2d Cir. 1995) (citing N.Y. Ins. Law § 3407 (McKinney 1985)). As the Appellate Division explained in Raymond v. Allstate Ins. Co., 94 A.D.2d 301, 305, 454 N.Y.S.2d 155 (N.Y. App. Div. 1983):

Generally, the noncompliance by the [assured] with a condition amounting to a technical failure or an immaterial omission will not furnish the insurer with a valid ground to void the policy. Substantial compliance by the [assured] relative to the submission to an examination under oath or the furnishing of proofs prior to institution of suit is all that is required … .

See also Antao & Chuang v. St. Paul Fire & Mar. Ins. Co., 225 A.D.2d 316, 316, 639 N.Y.S.2d 322 (N.Y. App. Div. 1996).

The assured must only submit proof sufficient to enable the insurer to form some estimate of its rights and liabilities before the insurer will be obligated to pay. See P.S. Auctions, Inc. v. Exch. Mut. Ins. Co., 105 A.D.2d 473, 475, 480 N.Y.S.2d 610 (N.Y. App. Div. 1984); First Roumanian American Congregation v. GuideOne Mut. Ins. Co., 862 F.Supp.2d 293 (S.D.N.Y. 2012) (holding that assured met its obligations where the descriptions provided in the property inventory, together with the information regarding each item’s age and estimated replacement price was sufficient to permit insurer to begin intelligently considering its rights and liabilities regarding the personal property insurance claim).

In application of New York law to the circumstances presumed for purposes of this survey – i.e., an insurer has determined an undisputed amount but may withhold it subject to receiving a sworn proof of loss – it stands to reason that the insurer could have either waived the enforcement of the provision, or the assured has substantially complied with the provision. Specifically, where the insurer did not first provide written notice and the required forms pursuant to N.Y. Ins. Law § 3407, or adjusted the loss to the extent it could determine an undisputed amount before requiring such a proof of loss, New York law may consider that the insurer has waived the provision. Additionally, where the insurer had sufficient information on which to determine an undisputed amount of liability, New York law could also consider this as proof that the assured was in substantial compliance with the proof of loss provision. As a result, the insurer is likely to find limited support for its position under New York law.

Exposure: Though an insurer is unlikely to face extracontractual exposure for a delay or denial of an undisputed payment based on an assured’s failure to comply with a proof of loss requirement, we believe that there is a risk, under the law as explained previously, that a court could find that the insurer breached its insurance contract and is liable for consequential damages.

We note that New York has an unfair claims settlement practices act which provides, in pertinent part, that certain acts, “if … performed with such frequency as to indicate a general business practice … shall constitute unfair claims settlement practices.” N.Y. Ins. Law § 2601(a) (McKinney 2015). One of the prohibited acts is “not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear[.]” Id. § 2601(a)(4). However, we find that an insurer is under minimal exposure here with respect to the assured, as there is no private right of action for violations of the statute. See DeMarinis v. Tower Ins. Co. of N.Y., 6 A.D.3d 484, 486, 774 N.Y.S.2d 436 (N.Y. App. Div. 2004) (“It is well settled that no private cause of action exists for a violation of Insurance Law § 2601[.]”).

New York also has a statute prohibiting unfair methods of competition and unfair and deceptive acts and practices, which provides: “[n]o person shall engage in this state in any trade practice constituting a defined violation or a determined violation as defined herein.” N.Y. Ins. Law § 2403 (McKinney 2015). A “defined violation” includes the commission of an act prohibited by N.Y. Ins. Law § 2601. Id. § 2403 (McKinney 2015). Nevertheless, a private cause of action does not exist under this statute. See Specialty Ins. Agency, Inc. v. Royal Indem. Co., No. CIV.A. 00-2482, 2002 WL 32349876, at *4 (E.D. Pa. Mar. 22, 2002) (citing Pepsico, Inc. v. Continental Cas. Co., 640 F. Supp. 656, 664-65 (S.D.N.Y. 1986)).

In addition, New York does not recognize tort bad faith claims:

Punitive damages are not recoverable in an action against an insurance company based upon a claim of wrongful and bad faith refusal to pay under the terms of a policy of fire insurance. Allegations of breach of an insurance contract, even a breach committed wilfully and without justification, are insufficient to authorize such recovery … .

Parks v. Cambridge Mut. Fire Ins. Co., 105 A.D.2d 1068, 1068, 482 N.Y.S.2d 382, 382 (N.Y. App. Div. 1984). “[D]amages arising from the breach of a contract will ordinarily be limited to the contract damages necessary to redress the private wrong, but that punitive damages may be recoverable if necessary to vindicate a public right … .” New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 315, 662 N.E.2d 763, 767 (N.Y. 1995) (citation omitted). Punitive damages are available only in those limited circumstances where it is necessary to deter defendant and others like it from engaging in conduct that may be characterized as “gross” and “morally reprehensible,” and of “‘such wanton dishonesty as to imply a criminal indifference to civil obligations'” Id. (citation omitted).

However, in 2008 the New York State Court of Appeals ruled that an assured could pursue a claim for consequential damages against a first-party insurer beyond policy limits where such damages were the direct consequence of insurers claims handling that violated the insurer’s obligation of good faith and fair dealing and were foreseeable by the parties at the time the policy was issued. See Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 886 N.E.2d 127 (2008). As set forth Bi-Economy, a first-party insurer entering into a contract controlled by New York law accepts responsibility for those risks to the assured’s business foreseen or which should have been foreseen at the time the policy was negotiated and became effective. Id. Specifically, the court stated that “the very purpose of business interruption coverage would have made [the insurer] aware that it breached its obligations under the contract to investigate in good faith and pay covered claims it would have to respond to damages to [the assured] for the loss of its business as a result of the breach… .” Id. at 195, 886 N.E.2d 127.

In light of Bi-Economy, where an insurer has determined a covered portion of an assured’s claim (i.e., an undisputed amount), and failed to pay it timely to the assured based on the assured’s failure to submit a proof of loss, the insurer could be exposed to consequential damages sustained by the assured beyond the policy limits where a court determined the decision violated the insurer’s obligation of good faith and fair dealing. In an instance where an insurer more than likely waived its right to a proof of loss due to its conduct, or where the information on which the undisputed amount was based solely on information provided by the assured, we believe the insurer would be more likely at risk for consequential damages.

NORTH CAROLINA

Overview: Generally speaking, North Carolina law requires an assured to comply with a policy’s proof of loss provision, and would likely require strict compliance where the provision is specific as to requirements and form. On the other hand, and in most other circumstances – where the proof of loss condition is general in nature, and/or where the assured can establish “good cause” for failing to be in strict compliance with such a requirement in a situation that does not prejudice the insurer – a court is well within the bounds of North Carolina law to require only that the assured substantially require with the provision.

In the instance presumed here, where an insurer has determined an undisputed amount without first having a proof of loss it deems as in strict compliance with the policy, we believe the most prevalent concern is that the insurer has waived the requirement or is estopped from requiring technical compliance with it. As a result of potential waiver, coupled with the fact that there is no “reasonable dispute” with respect to liability regarding an undisputed amount, an insurer may be subjected to liability under a North Carolina common law bad faith claim and/or potentially North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), N.C. Gen. Stat. § 75-1.1, for an alleged failure to settle a claim no longer reasonably in dispute.

Enforceability: North Carolina courts will enforce a policy’s proof of loss requirement. Even where it is uncontroverted that the assured filed proofs of loss, the North Carolina Supreme Court has required that the assured file a “proof of loss as required by the insurance contract,” holding that “[c]ompliance with the requirements for filing proof of loss is a prerequisite to recovery under the policy.” Brandon v. Nationwide Mut. Fire Ins. Co., 301 N.C. 366, 369, 271 S.E.2d 380, 382 (N.C. 1980) (while the assured submitted proofs of loss, they were not sworn statements as required by the policy and thus did not comply with the terms of the policy.)

If, however, an assured failed to comply with proof of loss requirements for good cause, which did not prejudice the insurer, the insurer is not relieved from its indemnity obligation under the policy. See Smith v. N. Carolina Farm Bureau Mut. Ins. Co., 84 N.C. App. 120, 122-23, 351 S.E.2d 774, 776 (1987). The assured’s proof of good faith is a prerequisite to an insurer’s burden of showing prejudice, and good faith must be measured subjectively and determined through a two part inquiry: (1) whether the assured was aware that the events which took place could lead to a claim under the policy, and (2) whether the assured knowingly or purposely failed to provide the required information. See id. at 126, 351 S.E.2d at 777-78. (internal citations omitted).

In addition, the provision requiring that the assured file a proof of loss is for the benefit of the insurer and may be “waived by any conduct on the part of the insurer or the authorized agent inconsistent with an intention to enforce a strict compliance with the insurance contract in that regard.” Brandon, 301 N.C. at 370-71, 271 S.E.2d at 383 (citations omitted). Under North Carolina law, an insurer would likely be estopped from insisting upon the technical compliance with a proof of loss provision where, after it received prompt notice, its adjuster investigated and reported on the loss, and discussed the loss with the policyholder on numerous occasions without furnishing the policyholder proofs of loss, or even suggesting that the assured submit a proof of loss. See Northern Assur. Co of Amer. v. Spencer, 246 F. Supp. 730, 735-36 (W.D.N.C. 1965) (citing Zibelin v. Pawtucket Mut. Fire Ins. Co., 229 N.C. 567, 50 S.E.2d 290, at 292 (1948)).

Requirements: Based on the case law in the previous section, in the limited circumstances where the policy language is specific and expressly requires a particular proof of loss form, or requires that it be a sworn proof of loss, a North Carolina court could require strict compliance as demonstrated in Brandon v. Nationwide Mut. Fire Ins. Co., 301 N.C. 366, 369, 271 S.E.2d 380, 382 (N.C. 1980). This is likely the exception, not the rule, however. In most other instances, a court is likely to consider an assured’s substantial compliance with a general proof of loss provision as sufficient.

Particularly, where the assured demonstrated good cause for its failure to strictly comply with the proof of loss provision, and there was no prejudice to the insurer, a North Carolina court is unlikely to require strict compliance. In addition, where the policy is ambiguous as to the proof of loss required, a court would likely view the requirements of the provision in the light most favorable to the assured, giving him or her additional leeway in the submission.

Exposure: North Carolina recognizes a common law cause of action for bad faith. To establish a claim against an insurer for bad faith refusal to pay under North Carolina law, the assured must show that there was “(1) ‘a refusal to pay after recognition of a valid claim; (2) bad faith; and (3) aggravating or outrageous conduct.’” See Topsail Reef Homeowners Ass’n v. Zurich Specialties London, Ltd., 11 Fed. Appx. 225, 237 (4th Cir. 2001) (applying North Carolina law) (quoting Lovell v. Nationwide Mut. Ins. Co., 108 N.C. App. 416, 424 S.E.2d 181, 184 (1993)).

With respect to the last two elements to establish an insurer’s bad faith refusal to pay under North Carolina law, bad faith means “not based on honest disagreement or innocent mistake.” Topsail Reef, 11 Fed. Appx. at 239 (quoting Dailey v. Integon Gen. Ins. Corp., 75 N.C. App. 387, 331 S.E.2d 148, 155 (N.C. App. 1985)). Aggravated conduct includes “fraud, malice, gross negligence, insult … willfully, or under circumstances of rudeness or oppression, or in a manner which evinces reckless and wanton disregard of the [assured’s] rights.” Id. Where, however, a claim is reasonably in dispute, an assured’s allegations “fail as a matter of law to establish bad faith or aggravating conduct.” Id.

Here, where an insurer refuses to make an undisputed payment due to the assured’s failure to provide a proof of loss in compliance with an express and specific proof of loss requirement in the policy, the fact that the insurer had sufficient information on which to determine an undisputed amount before insisting on a proof of loss is indicative of either substantial compliance by the assured, potential waiver or estoppel with respect to the requirement, or perhaps both. Accordingly, since the undisputed amount is not reasonably in dispute, a North Carolina court could consider the insurer’s withholding such an amount as bad faith and evidence of aggravated conduct, depending on the specific circumstances at issue.

Even in the instance where there is no waiver by the insurer with respect to the enforcement of this provision, we believe that an insurer’s exposure under North Carolina’s common law bad faith claim would potentially increase where the assured showed good cause for its alleged failure to be in strict compliance with a proof of loss requirement, particularly in light of the fact that the existence of an undisputed amount would tend to show the insurer was not prejudiced.

As in most every other American jurisdiction, the state has its own version of the unfair claims settlement practices act. This recites that any of the following are unfair claims practices.

e.  Failing to firm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

f.  Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonable clear;

* * *

l.  Delaying the investigation or payment of claims by requiring an insured claimant, or the physician, or either; to submit a preliminary claim report and then requiring the subsequent submissions of formal proof-of-loss forms, both of which submissions contain substantially the same information.

m.  Failing to promptly settle claims where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

N.C. Gen. Stat. Ann. § 58-63-15(11) (West 2014). However, there is no private right of action, as “[t]he plain language of N.C.G.S. § 58–63–15(11) provides that the Commissioner of Insurance has the authority to enforce the provisions of that subsection.” Gray v. N. Carolina Ins. Underwriting Ass'n, 352 N.C. 61, 69, 529 S.E.2d 676, 682 (2000). Thus, an insurer would not generally face exposure under North Carolina’s fair claims settlement practices act in this instant set of circumstances presumed for this survey.

In addition, North Carolina has its version of the Unfair and Deceptive Trade Practices Act (UDTPA), N.C. Gen. Stat. § 75-1.1, whereby an assured must show an unfair deceptive act or practice, in or affecting commerce, and which proximately caused injury to the plaintiff assured. See Topsail Reef, 11 Fed. Appx. at 231. Unfairness is a question of law and includes the concept of deception. See id. at 231-32 (citing Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 323 N.C. 559, 374 S.E.2d 385 (1988)). A North Carolina court may look to N.C. Gen. Stat. Ann. § 58-63-15(11) for examples of conduct to support a finding of unfair or deceptive acts or practices. Gray v. N. Carolina Ins. Underwriting Ass’n, 352 N.C. 61, 71, 529 S.E.2d 676, 683 (2000) (finding that “[a]n insurance company that engages in the act or practice of ‘[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements in which liability has become reasonably clear,’ N.C.G.S. § 58-63-15(11)(f), also engages in conduct that embodies the broader standards of N.C.G.S. § 75-1.1.”).

As a result, where an insurer failed to, in good faith, effectuate “prompt, fair and equitable settlements in which liability has become reasonably clear” – e.g., where there is an undisputed loss payment amount – based on the North Carolina’s holding in the Gray case, a court could determine that “such conduct … violates [N.C.G.S. § 58-63-15(11)(f)] [and] constitutes a violation of N.C.G.S. § 75-1.1, as a matter of law, without the necessity of an additional showing of frequency indicating a ‘general business practice.’” Gray, 352 N.C. at 71, 529 S.E.2d at 683.

We note that a “negligent misrepresentation as to a policy term is sufficient to establish an UDTPA claim, and good faith or ignorance of falsity is not a defense to an action under the § 75-1.1.” See Topsail Reef, 11 Fed. Appx. at 232-33 (citing Forbes v. Par Ten Group, Inc., 99 N.C. App. 587, 601, 394 S.E.2d 643, 651 (1990)). Nevertheless, a reasonable and non-negligent misunderstanding regarding a policy term is insufficient to ground a UDTPA claim. Id. at 233 (internal citations omitted).

NORTH DAKOTA

Overview: North Dakota courts will typically enforce a policy provision requiring submission of a sworn statement in proof of loss as a condition to payment. Where an insurer fails to outline the specific requirements for technical and strict compliance with the policy provision and enclose a blank form for the assured’s use, a North Dakota court is likely to find an assured’s substantial compliance with the provision sufficient. Where an insurer has sufficient information to determine liability and an undisputed amount, liability is likely reasonably clear such that further requiring a proof in a specific form prior to making the undisputed payment could well increase the insurer’s bad faith exposure or extracontractual liability under North Dakota law.

Enforceability: North Dakota courts generally enforce policy provisions requiring an assured to submit a sworn proof of loss as a condition to payment. See, e.g., Reineke v. Commonwealth Ins. Co., 52 N.D. 324, 202 N.W. 657 (N.D. 1924). However, in certain circumstances, it is sufficient for someone other than the assured to sign and verify the proof of loss. See id. 52 N.D. at 330–31 (an agent may submit proof of loss if the principal is unavailable). Also, an insurer’s failure to supply a blank form or to specify why a proof of loss is rejected effectively waives any proof of loss requirements under the policy. See N.D. Cent. Code § 26.1-32-07, 08, 09.

Requirements: Though there is not a North Dakota decision that specifically addresses the particular elements required to show adequate proof of loss when a policy requires only a general proof of loss, we find the Reineke case instructive here. Based on the North Dakota Supreme Court’s opinion in Reineke, where an insurer seeks to require strict compliance to a proof of loss provision, North Dakota law will hold the insurer to a heightened standard – namely, “[t]he rule is well settled that the [insurer] must indicate the particulars in which it claims the requirements of the policy have not been complied with, and that mere notice that the conditions of the policy must be strictly performed … is not sufficient.” See Reineke, 52 N.D. at 330, 202 N.W. at 658-59. (internal citations omitted). Accordingly, where the insurer does not specifically outline for the assured the way in which the proof of loss condition shall be met and further fails to supply the blank required form, a North Dakota court is likely to find substantial compliance sufficient (particularly where the insurer was able to determine an undisputed amount, like in the hypothetical presumed for purposes of this survey).

Exposure: An insurer can be subjected to bad faith and extracontractual exposure for violating North Dakota’s Prohibited Practices in Insurance Business Act. See Ingalls v. Paul Revere Life Ins. Grp., 561 N.W.2d 273, 282, 1997 ND 43 (N.D. 1997). Specifically, an insurer’s improper insistence on a sworn proof of loss when the underlying amount is undisputed may constitute a bad faith violation of the state’s statutory requirement of prompt settlement of claims in which liability has become reasonably clear. See N.D. Cent. Code § 26.1-04-03(9)(d). An insurer can also be liable for requiring submission of redundant proof of loss forms or failing to affirm/deny coverage within a reasonable time after proof of loss is received. See N.D. Cent. Code § 26.1-04-03(9)(i), (j).

The unfair claim settlement practices act discussed herein requires a “frequency indicating a general business practice to constitute an unfair claim settlement practice,” Volk v. Wisconsin Mortgage Assur. Co., 474 N.W.2d 40, 45 (N.D. 1991), and it does not establish a private right of action. However, North Dakota courts have found that a common law bad faith cause of action does exist. Corwin Chrysler-Plymouth, Inc. v. Westchester Fire Ins. Co., 279 N.W.2d 638 (N.D. 1979). The test for bad faith is “whether the insurer has acted unreasonably in handling an [assured’s] claim by failing to compensate the [assured], without proper cause, for a loss covered by the policy.” Seifert v. Farmers Union Mut. Inc. Co., 497 N.W.2d 694, 698 (N.D. 1993). As a result, withholding payment for an undisputed loss could well subject an insurer with sufficient information to determine its liability to extracontractual claims.

OHIO

Overview: Ohio, like most other jurisdictions, makes the submission of a proof of loss a pre-condition to recovery where the policy so provides. The state follows a substantial compliance rule, and where an insurer has sufficient information to determine liability and an undisputed payment amount, the insurer could be at risk of potential extracontractual and bad faith liability were it to condition payment of an undisputed amount on receipt of a sworn statement in proof of loss.

Enforceability: The submission of a proof of loss is a pre-condition to recovery where required by the policy of insurance. As the court explained in Kovalchik v. Grange Mut. Cas. Co., Case No. CA-660, 1982 WL 5413 at *2 (Oh. Ct. App., March 11, 1982):

Generally speaking, the burden is on the plaintiff to prove performance of all conditions precedent to his right of recovery on an insurance policy, or a legal excuse for nonperformance. Thus, the burden of proving a compliance with the policy by proper and sufficient notice and proofs of loss within the time limited in the policy, or an excuse for failure to do so, is upon the plaintiff[.]

Id.; see also National Ins. Co. v. Strong, 15 Ohio C.D.101, 25 Ohio C.C. 101 (1901) (holding “[t]he furnishing of proof of loss in accordance with the terms and requirements of the policy is a condition precedent to the right to sue, whether the loss be partial or total).

Requirements: Ohio is a substantial compliance jurisdiction. See National Ins. Co. v. Strong, 15 Ohio C.D.101, 25 Ohio C.C. 101 (1901); Andjeski v. Metro. Life Ins. Co., 17 Ohio Supp. 128, 33 O.O. 126 (C.P. Cuyahoga Cty., 1946) (finding “[s]o far as notice and proof of loss is concerned … the notice given by counsel was substantial compliance even though not in the regular form which the policy seems to prescribe.”); Hub Building & Loan Co. v. Stone, 28 Ohio Law Abs. 82, 85, 1938 WL 6742 (Ohio App. Ct. 1938). If the policy does not provide that proofs must be filed within a specified time or that there will be a forfeiture if they are not submitted in a timely manner, then all that failure to submit a proof does is to delay the assured’s right to file suit until such time as he or she does submit such a document. See Gene Moses v. Celina Mut. Ins. Co., et al., No. 75 C.A. 66, 1976 WL 188540 (Ohio App. Ct. March 3, 1976). In addition, an insurer may waive the proof of loss requirement by engaging in conduct that shows an intention on its part to relinquish its right to enforce such a provision. See Amer. Nat’l Ins. Co. v. Euce, 25 Ohio C.D. 169, 35 Ohio C.C. 169 (Ohio App. Ct. 1913); see also Madison v. Caledonian-Amer. Ins. Co. of N.Y., 43 N.E.2d 245, 252 (Ohio App. Ct. 1940) (finding “[w]aiver of conditions as to immediate written notice of an accident, furnishing proofs of loss, and similar notices, may be effectively accomplished through the words, acts, or conduct of an authorized agent of the insurer[.]”); Mechanics’ & Traders’ Ins. Co. v. Himmelstein, 24 Ohio App. 29, 35, 155 N.E. 806, 809 (Ohio App. Ct. 1926).

Finally, the state’s Supreme Court has held that if defective proofs are submitted, “good faith requires the insurer to give notice of any objection within a reasonable time.” Lind v. State Auto. Mut. Ins. Ass’n., 128 Ohio St. 1, 10, 190 N.E. 138, 141 (Ohio 1934). If it fails to do so, any objections to defects are deemed to be waived. See id.

Exposure: Ohio recognizes a common law tort of first-party insurance bad faith. “An insurer has a duty to exercise good faith in the processing and payment of valid claims of its insured.” Gillette v. Estate of Gillette, 163 Ohio App. 3d 426, 431, 837 N.E.2d 1283, 1286 (Ohio App. Ct. 2005). An assured may assert a claim for bad faith if “[a]n insurer fails to exercise good faith in the processing of a claim of its [assured] where its refusal to pay the claim is not predicated upon circumstances that furnish reasonable justification therefor.” Zoppo v. Homestead Ins. Co., 71 Ohio St. 3d 552, 552, 644 N.E.2d 397, 398 (Ohio 1934). The assured “has the burden of proving that the insurer’s refusal to pay a claim was arbitrary and capricious.” Asmaro v. Jefferson Ins. Co. of N.Y., 62 Ohio App. 3d 110, 118, 574 N.E.2d 1118, 1123 (1989). “An insurer owes to the [assured] an implied-in-law duty of good faith and fair dealing that it will do nothing to deprive the [assured] of the benefits of the policy.” Battista v. Lebanon Trotting Ass’n., 538 F.2d 111, 118 (6th Cir. 1976) (quoting Fletcher v. Western Nat’l Life Ins. Co., 10 Cal. App. 3d 376, 89 Cal.Rptr. 78 (Cal. App. Ct. 1970)).

The tort of bad faith is not a breach of contract claim, as a breach of contract claim only allows a recovery of the amount due under the insurance contract. Recovery for a bad faith claim, however, “encompass such things as interest on the amount of money wrongfully withheld under the contract and damages resulting from the [assured]’s inability to pay for needed repairs.” Punitive damages are also available upon a showing of actual malice. See Asmaro, 62 Ohio App. 3d 110, 118, 574 N.E.2d 1118, 1123 (1989).

We note that Ohio’s Administrative Code, Ohio Admin. Code 3901-1-07, prohibits certain additional unfair trade practices, which include: (1) requiring an assured “to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information”; (2) failing to furnish notification of required items and forms to an assured within 15 days of receiving notice of claim; and (3) failing to offer, after liability has become reasonably clear, “amounts which are fair and reasonable as shown by the insurer’s investigation of the claim[.]” Id., 3901-1-07 (C)(5)-(6). Nevertheless, this regulation, as well as Ohio’s statutory unfair trade practices act, Ohio Rev. Code Ann. § 3901.20 et seq., do not create a private cause of action in favor of assureds. See Strack v. Westfield Companies, 33 Ohio App. 3d 336, 515 N.E.2d 1005 (1986).

As a result, under Ohio law, an insurer would only be subject to extracontractual bad faith damages where a court deemed it unreasonable for the insurer to withhold an undisputed payment amount until the assured strictly complied with a proof of loss requirement. Where there is a general and less specific proof of loss requirement, and/or the insurer has likely waived the proof of loss requirement, the insurer could increase its likelihood to subject itself to extracontractual damages, though we believe punitive damages would still be unlikely.

OKLAHOMA

Overview: Generally speaking, Oklahoma enforces policy language that requires executed proofs of loss prior to requiring payment, although there is no specific statutory provision addressing the precise issue of whether a proof of loss is required as a condition for payment of an undisputed amount nor does this issue appear to have ever been addressed by Oklahoma courts. As Oklahoma is a substantial compliance jurisdiction, however, it is our judgment that an assured who did not provide a sworn proof of loss but provided sufficient information to allow an insurer to conclude that a payment was due might succeed on a substantial compliance argument, or even a waiver argument (especially if the insurer does not reiterate its need for a properly executed proof of loss). Accordingly, an insurer in possession of sufficient information to show liability for an undisputed amount could be subject to bad faith and statutory violation claims if it insisted on the strict compliance with a proof of loss requirement before making payment of an undisputed amount.

Enforceability: Absent facts indicating a waiver, Oklahoma would likely enforce policy and statutory language requiring proofs of loss as a prerequisite to requiring payment by insurers. Section 36-12.50.7 of the Oklahoma Statutes provides, in part:

A.  Within forty-five (45) days after receipt by a property and casualty insurer of properly executed proofs of loss, the first party claimant shall be advised of the acceptance or denial of the claim by the insurer, or if further investigation is necessary.

Okla. Stat. Ann. tit. 36, § 1250.7 (West 2014). Thus, the time for paying a claim does not begin to run until receipt of proofs of loss.

In Continental Insurance Co. of New York v. Portwood, 1938 OK 567, 84 P.2d 435, the Oklahoma Supreme Court held that an assured has no cause of action against its insurer until such time as it has provided the required proofs of loss as required by the policy. See id. “It is well settled that the provision requiring proof of loss to be furnished to the company is a condition precedent to a right of action thereof.” Id., 84 P.2d at 437 (internal citations omitted); see also Alfalfa Elec. Coop., Inc. v. Travelers Indem. Co., 376 F. Supp. 901 (W.D. Okla. 1973). Nevertheless, Oklahoma law recognizes that “‘the failure to make proof of loss within the [time period] provided by the policy does not render the policy void or defeat a recovery [however] the right of action on an insurance policy does not mature until the provision requiring the proof of loss has been complied with [and] the proof must be made before the action can be maintained.’” Dixson Produce, LLC v. Nat’l Fire Ins. Co. of Hartford, 2004 OK CIV APP 79, ¶ 20, 99 P.3d 725, 729 (quoting Niagara Fire Ins. Co. of New York v. Nichols, 1923 OK 998, 220 P. 920, 922).

The insurer, however, can waive the proof of loss policy condition “[w]here the acts of the insurer show an intention to relinquish the right of forfeiture for failure to give the proof of loss,” or it can be estopped from claiming forfeiture of the policy where it appears that the acts or conduct of the insurer mislead the assured to the assured’s detriment. See Alfalfa, 376 F. Supp. at 910 (internal citations omitted); see also Portwood, 1938 OK 567, 84 P.2d 435. Although not a property or casualty loss, the court in John Hancock Mutual Life Insurance Co. v. Highley, 1968 OK 117, 445 P.2d 241, held that requiring an assured’s strict compliance with a policy’s proof of loss requirement can be waived. In Highley, the beneficiary provided medical records that contained enough information to establish that the beneficiary had died but did not provide a formal proof of loss. The Oklahoma Supreme Court held that the beneficiary had provided enough information especially where the insurer did not ever call to the beneficiary’s attention the need for a more formal proof of loss nor request additional information. The court held that, where an assured provides information from which the insurer “… may intelligently arrive at a decision of its rights and liabilities and … decide whether it shall pay, that is sufficient compliance.” Id., 445 P.2d at 248.

Based upon the above cited law, it is our opinion that an Oklahoma court would not strictly require a formal proof of loss if sufficient information about the loss has been provided and from that information an insurer was able to determine the quantum of the loss.

Requirements: In Highley, cited above, the Oklahoma Supreme Court set forth the requirements for the enforcement of a policy’s proof of loss condition:

We believe the policy requirements for the furnishing of proof … should be liberally construed in favor of the [assured] consistent, however, with the purposes of such a provision which are to provide the insurance company with information from which it may intelligently arrive at a decision of its rights and liabilities and to enable it to decide whether it shall pay the amount of the policy to the one claiming it. We do not think such a provision should be accorded a technical interpretation such as to require the submission of documentary material which it subsequently appears was the basis for an expert medical witness to conclude that the [assured]’s death was within the policy requirements.

Id., 445 P.2d at 248; see also Dixson Produce, 2004 OK CIV APP 79, 99 P.3d 725. As the Dixson Produce court explained, “substantial compliance in furnishing the required proof of support of a claim is all that is required [so long as] it serves the ‘ultimate purpose of affording the insurer knowledge that could be acted upon.’” Id., 99 P.3d at 729 (quoting Fox v. Nat’l Sav. Ins. Co., 1967 OK 27, 424 P.2d 19, 25).

Accordingly, there is no litmus test for determining whether a proof of loss submitted by an assured satisfies the requirement of a proof of loss, as each claim and the evidence and/or proof submitted must be determined on a case-by-case basis. In the instance where an insurer has determined and/or agreed to an undisputed loss amount, such facts could lend themselves to support a court’s finding that the assured, in fact, afforded the insurer the required knowledge on which it could act. See, e.g., Dixson Produce,2004 OK CIV APP 79, 99 P.3d at 729. Such facts could also support a finding that, where the insurer determined an undisputed amount without first requiring a proof of loss or without objecting to the submitted proof of loss as insufficient, the insurer waived its reliance on the condition.

Exposure: Oklahoma affords the policyholder both a common law and a statutory right to assert bad faith claims. The former springs from bad faith in the claims handling process. As in most states, it is common law bad faith if the insurer had no reasonable basis for delaying payment; the claim was covered; that the insurer did not deal in good faith with its assured; or the actions of the insurer caused the assured damage. See Ball v. Wilshire Ins. Co., 2009 OK 38, ¶ 21, 221 P.3d 717, 724; see also Beers v. Hillory, 2010 OK CIV APP 99, ¶ 22, 241 P.3d 285, 292.

Oklahoma also recognizes statutory claims for unfair claim settlement practices under its Unfair Claims Settlement Practices Act, one of which is the insurer’s failure to attempt in good faith to reach a prompt settlement of claims for which liability has become reasonably clear. Okla. Stat. Ann. tit. 36, § 1250.5 (West 2014). Another prohibited act is for an insurer to make “statements, written or otherwise, which require a claimant to give written notice of loss or proof of loss within a specified time limit and which seek to relieve the company of its obligations if the time limit is not complied with unless the failure to comply with the time limit prejudices the rights of the insurer.” Id. This particular act, however, is not prohibited where there is such a time limit specified in the policy, however, and the written communications are based on specific policy requirements. See id. We note, however, that a violation of this Unfair Claims Settlement Practices Act by an insurer does not necessarily establish bad faith. While an insurer may carelessly fail to perform some duty required by the statute with such frequency to warrant administrative sanction, it does not establish more than negligent conduct in an individual case. See Beers, 2010 OK CIV APP 99, 241 P.3d 285.

The Oklahoma Consumer Protection Act, codified at Okla. Stat. Ann. tit. 15, § 751 et seq., also provides a private right of action for violations of the Act. Okla. Stat. Ann. tit. 15, § 761.1. The elements of a claim under the Act are 1) that the defendant engaged in an unlawful practice as defined in Okla. Stat. Ann. tit. 15, § 753; 2) that the challenged practice occurred in the course of the defendant’s business; 3) that the plaintiff, as a consumer, suffered an injury in fact; and 4) that the challenged practice caused the plaintiff’s injury. Patterson v. Beall, 2000 OK 92, ¶ 30, 19 P.3d 839, 846.

Punitive damages are also allowed, if there is some “aggravating circumstance” to warrant them. Punitive damages that exceed the amount of actual damages require “clear and convincing evidence of the requisite ‘evil intent’…” Cooper v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pennsylvania, 1996 OK CIV APP 52, 921 P.2d 1297, 1299.

Where there is evidence that the assured substantially complied with a policy’s proof of loss requirement and/or the insurer may have waived, or is otherwise estopped from asserting, a coverage defense based the assured’s non-compliance with a proof of loss condition, an insurer’s likelihood of bad faith or extracontractual exposure increases. The fact that an insurer has sufficient information from which to determine the undisputed amount of the loss may suffice as evidence of either substantial compliance of the assured or the waiver or estoppel of the insurer.

OREGON

Overview: Oregon courts will enforce a policy provision requiring submission of a sworn statement in proof of loss as a condition to payment of covered amounts. Substantial, as distinguished from strict, compliance of the proof of loss requirements is all that is required, however, so long as the documents submitted accomplish the purpose of a proof of loss. Oregon law favors the assured on the enforcement of a proof of loss requirement. An insurer could, therefore, be subject to civil penalties and payment of attorney fees where the insurer had sufficient information on which to determine an undisputed amount but still demanded a formal proof before paying an undisputed amount (despite being in possession of information sufficient to show liability).

Enforceability: Based on Oregon case law, Oregon courts will recognize a policy’s proof of loss requirement (even where the provision includes a timeframe in which to submit such proof), but enforcement of this requirement is liberal and favors the assured. See, e.g., Dakin v. Queen City Fire Ins. Co. of Sioux Falls, S.D., 59 Or. 269, 117 P. 419 (1911). Essentially, and unless the policy expressly provides otherwise through a express forfeiture clause, a failure to furnish a proof of loss within the specified time set forth in the policy merely postpones the time of payment until after the assured submits the proof and does not act as a forfeiture of coverage under the policy. Id., 59 Ore. at 278, 117 P. at 422; cf. Stinchcombe v. New York Life Ins. Co., 46 Ore. 316, 324, 80 P. 213, 216 (1905) (finding noncompliance with a policy provision for beneficiary to furnish proof of death within one year after assured’s death, to which no penalty is attached for noncompliance, does not forfeit the policy; furnishing proof during the time within which an action may be maintained on the policy is a condition precedent to the right of action).

Oregon law views a proof of loss requirement as intended to trigger the insurer’s duty to investigate. Even if a submission is insufficient to allow the insurer to estimate its obligations, it will be deemed sufficient if the insurer could accomplish that purpose through a reasonable investigation. See ZRZ Realty Co. v. Beneficial Fire and Cas. Ins. Co., 222 Ore. App. 453, 493, 194 P.3d 167, 190 (2008) (citing Mosley v. Allstate Ins. Co., 165 Ore. App. 304, 312, 996 P.2d 513 (2000); Dockins v. State Farm Ins. Co., 329 Ore. 20, 33, 985 P.2d 796 (1999)) (other internal citations omitted).

Requirements: In Oregon, substantial, as distinguished from strict, compliance of the proof of loss requirements is all that is required from an assured. See Zimmerman v. Allstate Prop. & Cas. Ins. Co., 354 Ore. 271, 281, 311 P.3d 497, 503 (2013); Sutton v. Fire Ins. Exchange, 265 Ore. 322, 325, 509 P.2d 418, 419 (1973) (citing 14 Couch, Cyclopedia of Insurance Law (2d ed) § 49:390). Oregon courts excuse deviations from the strict requirements regarding the form of the proof of loss so long as the proof submitted accomplishes the purpose of the proof of loss. Id.; see also Parks v. Farmers Ins. Co. of Oregon, 347 Ore. 374, 380, 227 P.3d 1127 (2009) (“[P]roof of loss’ has a functional meaning – that is, it pertains to any ‘event or submission’ that accomplishes the purpose of a proof of loss.”) (emphasis in original). As the Oregon Supreme Court has explained, “[t]hat purpose 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 obliged to pay.’” Dockins, 329 Ore. at 28, 985 P.2d at 800.

The insurer operates under a duty of inquiry and, “‘even if a submission is insufficient to allow the insurer to estimate its obligations, it will be deemed sufficient if the insurer could accomplish that purpose through reasonable investigation.’” Parks, 347 Ore. at 381, 227 P.3d at 1130 (quoting Dockins, 329 Ore. at 28, 985 P.2d at 800). In short, any event or submission that would permit an insurer to estimate its obligations qualifies as a proof of loss. Id. (quoting Dockins, 329 Ore. at 29, 985 P.2d at 801).

Thus, in Sutton, an assured brought an action to recover for a burglary loss. 265 Ore. at 323, 509 P.2d at 418. The policy required the assured to, within 60 days after the loss, furnish to the insurer a proof of loss, signed and sworn by the assured. Id. at 324, 509 P.2d at 419 n. 1. (emphasis added). Following the loss, the assured dictated to the insurance adjuster a list of items taken, their estimated value, and the circumstances of the losses, which the adjuster compiled into a form. Id. at 323, 509 P.2d at 418. The assured was not asked to sign the form. Id. The assured and adjuster agreed upon the value of all except one item. Id. The Oregon Supreme Court applied a functional definition of proof of loss and determined that, although the assured did not affix his signature under oath to the information furnished as expressly required by the policy, he nevertheless substantially complied with the proof of loss provision by furnishing all information that the policy required. Id. at 325-26, 509 P.2d at 420.

Likewise in Parks, the Oregon Supreme Court applied a functional definition of proof of loss and, factoring in the insurer’s duty to investigate and clarify uncertain claims, found that oral recitation to the insurance agent was sufficient to permit the insurer to ascertain its obligations regarding the loss and so qualified as proof of loss for purposes of the claim. 347 Ore. at 388, 227 P.3d at 1134.

Thus, in Oregon, an insurer’s proof of loss policy condition is liberally construed in favor of the assured and, in effect, may act more as a trigger of the insurer’s duty to investigate the claim than it does as a condition precedent to the assured. As a result, an insurer is likely to subject itself to additional liability where it withholds an undisputed amount while awaiting strict compliance with a proof of loss condition (irrespective of the level of specificity of the proof of loss requirement). Where the insurer had sufficient information on which to determine an undisputed payment amount, an Oregon court is likely to determine that the assured has met its policy obligations in this regard.

Exposure: Oregon courts have held that “the duty of good faith is a contractual term that is implied by law into every contract.” McKenzie v. Pac. Health & Life Ins. Co., 118 Ore. App. 377, 381, 847 P.2d 879, 881 (1993) (emphasis in original). Thus, “if an insurer engages in egregious conduct, that conduct can give rise to a tort action and punitive damages.” Employers’ Fire Ins. Co. v. Love It Ice Cream Co., 64 Ore. App. 784, 791, 670 P.2d 160, 165 (1983). While an insurer’s bad faith refusal to pay policy benefits to its assured sounds in contract and is not actionable in tort in Oregon, case law leaves open the door for an assured to bring a tort action against its insurer for wrongful interference with business relationships in such a situation. See Employers’ Fire Ins. Co. v. Love It Ice Cream Co., 64 Ore. App. 784, 791, 670 P.2d 160, 165 (1983); cf. Farris v. U.S. Fid. & Guar. Co., 284 Ore. 453, 587 P.2d 1015 (1978) (explaining that even if cause of action for failure to settle within policy limits is one in tort, rationale for tort action did not apply to action by assureds to recover for emotional distress allegedly caused by liability insurer's failure to defend action by third party, even though insurer was aware that there was coverage under policy, in that insurer, by refusing to represent assureds, was not acting in fiduciary relationship as it is when negotiating settlement. Thus, action for emotional distress was not one in tort). As a result, tort claims can be asserted in situations in which the insurer wrongfully refuses to tender an undisputed amount under such circumstances.

Section 746.230 of Oregon’s Insurance Code enumerates unfair trade practices by insurance companies. The statute provides in pertinent part, that:

(1)  No insurer or other person shall commit or perform any of the following claim settlement practices:

* * *

(e)  Failing to affirm or deny coverage of claims within a reasonable time after completed proof of loss statements have been submitted;

(f)  Not attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear.

Ore. Rev. Stat § 746.230 (2014). Because provisions of the Insurance Code provide for civil penalties payable to the state of Oregon for code violations, however, the Oregon Supreme Court has determined that the legislature did not intend a private cause of action under the statute. See Bob Godfrey Pontiac, Inc. v. Roloff, 291 Ore. 318, 328, 630 P.2d 840, 846 (1981) (citing Farris, 284 Ore. 453, 587 P.2d 1015 (1978)).

Finally, Ore. Rev. Stat § 742.061 (2014) provides for reasonable attorney fees if settlement is not made within six months from the date the proof of loss is filed with an insurer and an action is brought in any court of Oregon upon any policy of insurance, of any kind or nature, and the plaintiff’s recovery exceeds the amount of any tender made by defendant in such action. Punitive damages are available, as long as they do not exceed four times the compensatory damages. See Goddard v. Farmers Ins. Co. of Oregon, 344 Or. 232, 260, 179 P.3d 645, 662 (2008).

Thus, an insurer could have significant exposure in Oregon where it was able to determine an undisputed amount owed, but still delayed the undisputed payment amounts based on an assured’s non-compliance with a proof of loss policy condition. In light of Oregon law’s lenient enforcement of the proof of loss condition in favor of the assured, along with the significant avenues of extracontractual exposure under Oregon’s tort and statutory law, an insurer is unlikely to be successful on such grounds.

PENNSYLVANIA

Overview: Pennsylvania courts have long recognized that the submission of a proof of loss is a condition precedent to recovery under a first-party policy. The courts have also recognized, however, that strict compliance with proof of loss provisions is not essential and have allowed assureds to recover where they can show substantial compliance with the policy requirements. In addition, an insurer cannot insist on a sworn statement if the policy does not require it. As a result, an insurer could face statutory claims of bad faith if it required a sworn statement in proof of loss and withheld payment of an undisputed amount even though it was already in possession of sufficient information to determine liability.

Enforceability: In Inland Insurance & Deposit Co. v. Stauffer, 33 Pa. 397 (1859), the Pennsylvania Supreme Court stated that “proof of notice of the loss, if not waived, was a condition precedent, and essential to the plaintiff’s right to recover.” Id. at 397. While dealing with notice in general, subsequent cases have specifically stated provision of a proof of loss is a condition precedent to recovery. For example, in Calhoon v. Girard Fire & Marine Insurance Co., 64 Pa. Super. 82 (1916), the policy at issue required the assured to submit a sworn statement in proof of loss within 60 days of the loss. The assured failed to do so. The Superior Court noted that “[i]t was a condition precedent to recovery that the plaintiffs should comply with the terms of the policy.” Id. at 84. Further, the court stated that “[w]ithout furnishing this statement the plaintiffs could not recover, unless it had been expressly or impliedly waived by the company.” Id. Having said that, however, the court did note that “[i]f this was the case of a building or a single chattel, notice of the fire and of the total destruction of the property might be sufficient[.]” Id.

Requirements: In Pennsylvania, substantial compliance with a proof of loss provision will suffice. In Fishel v. Yorktowne Mutual Insurance Co., 254 Pa. Super. 136, 385 A.2d 562 (1978), the assured’s house sustained fire damage. The assured filed a timely proof of loss as to the personal property that substantially conformed with the policy requirements, but he failed to file a timely proof of loss with respect to the damage to the real estate and the loss of its use. The assured also failed to prove the actual cash value of the personal property damaged by the fire. The trial court found in favor of the insurance company and, in particular, that the assured had failed to prove that any estimates of the amount of damage were ever provided to the insurer. In reversing the lower court’s finding in favor of the insurer, the Superior Court noted that “[s]ubstantial compliance as opposed to strict and literal compliance with such provisions [regarding proof of loss] is all that is required for an effective proof of loss.” Id. at 139, 385 A.2d at 564. Further, the court explained that, in interpreting such a provision:

… the policy shall be construed most strongly against the insurer who has prepared it, resolving all doubts or ambiguities in favor of the [assured]. … However, an [assured] is bound to furnish such proof as is sufficient under the terms and conditions of the policy … and if the [assured] acts in good faith and discloses such information as the insurer requests, the provisions of a policy relative to proof of loss should be literally construed in aid of the indemnity contemplated by the parties. … The purpose of a provision for notice and proofs of loss is to allow the insurer to form an intelligent estimate of its rights and liabilities, to afford it an opportunity for investigation, and to prevent fraud and imposition upon it.

Id. at 139-40, 385 A.2d at 564. In sum, the court stated that “[i]f, by preliminary notice of the loss and an adjuster’s viewing of the premises, the insurer gains the substantial information which the statement of loss would have furnished, the necessity of complying with the conditions of the policy in that respect may be dispensed with on the principle that the law does not require the performance of vain or useless things.” Id. at 140-41, 385 A.2d at 565 (quoting Forester v. Tentania Fire Ins. Co., 60 Pa. Super. 151 (1915)).

The Fishel decision was cited with approval by the Eastern District of Pennsylvania in Conrad v. Omaha Property & Casualty Insurance Co., No. CIV. A. 94-4087, 1995 WL 350418, at *3 (E.D. Pa. June 7, 1995). In the Conrad case, the insurer denied coverage prior to the expiration of the time within which the assured was required to submit a sworn proof of loss. Upon the assured’s suit for flood insurance coverage, the insurer argued as part of its defense that the assured’s suit was barred due to the failure to file a proof of loss within 60 days of the loss as required by the policy. See id. It was uncontroverted that the assured never filed a sworn proof of loss. Id. at *1.

With guidance in part from Fishel, the Conrad court reasoned that, though the assured never filed a proof of loss, the insurer had substantially all of the information that would have been contained in a proof of loss when it denied the claim, based on its adjustment of the loss, and the fact that it obtained information from the assured and her adjuster. Id. at *4. The court concluded that the assured “complied substantially with the policy’s proof of loss requirement and that her failure to comply strictly with the policy’s proof of loss requirement does not bar her claim.” Id.; see also Hartford Fire Ins. Co. v. Spall, No. 3:04CV938, 2006 WL 538938, at *4 n.4 (M.D. Pa. Mar. 3, 2006) (citing Fishel and stating that the insurer “should have conducted its own full investigation as to the total amount of loss rather than relying solely on the proof of loss”).

An insurer who fails to timely object to the proof of loss may waive the right to contest its adequacy. In Czerwinski v. National Ben Franklin Fire Insurance Co. of Pittsburgh, 138 Pa. Super. 84, 10 A.2d 40 (1939), the court stated that once the assured has submitted the required proof of loss, it becomes the duty of the insurer:

to notify plaintiff promptly advising him wherein the proof did not comply with the conditions of the policy and give the assured an opportunity to rectify his mistake. Silence on the part of the [insurer] for any considerable length of time, after the receipt of such proof of loss, constituted a waiver of the necessity for any further proof, and such proof furnished by the assured constituted a compliance with the conditions of the policy.

Id. at 42, 10 A.2d at 90 (citations omitted); see also Francois v. Auto. Ins. Co. of Hartford, Conn., 349 Pa. 360, 364, 37 A.2d 525, 527 (1944) (once the assured had submitted a defective proof, “it was the insurer’s duty to inform the [assured] in which way the proofs of loss were defective and give her an opportunity to correct them, otherwise its silence will be held as a waiver of such defects in the proofs.”)

Finally, an insurer who intends to argue that the failure of the assured to strictly comply with a proof of loss requirement will most likely be required to show it was prejudiced by that failure. See ACF Produce, Inc. v. Chubb/Pacific Indem. Group, 451 F. Supp. 1095, 1098-99 (E.D. Pa. 1978) (predicting Pennsylvania law). Accordingly, strict compliance with the policy’s proof of loss provision is not required, likely even where the condition is specific and also requires that it be sworn. Instead, the insurer bears the burden of proving that it was prejudiced by any perceived defects in the assured’s submission.

Exposure: Under Pennsylvania law, there is no common law bad faith action in the first party context. See D’Ambrosio v. Pa. Nat’l. Mut. Cas. Ins. Co., 494 Pa. 501, 431 A.2d 966 (1981). However, a private cause of action does exist pursuant to Pennsylvania’s bad faith statute, 42 Pa. Cons. Stat. Ann. § 8371 (West 2014). This provides as follows:

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the [assured], the court may take all of the following actions:

(1)  Award interest on the amount of the claim from the date the claim was made by the [assured] in an amount equal to the prime rate of interest plus 3%.

(2)  Award punitive damages against the insurer.

(3)  Assess court costs and attorney fees against the insurer.

Bad faith has been defined as any frivolous or unfounded refusal to pay proceeds of a policy. See Terletsky v. Prudential Prop. & Cas. Ins. Co., 437 Pa. Super. 108, 125, 649 A.2d 680, 688 (1994). Courts apply a two-part test to determine if bad faith exists, and both prongs of the test must be supported with clear and convincing evidence: (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis. Id. Thus, an insurer could be found liable for bad faith if a court determined that it improperly insisted on a sworn proof of loss and withheld payment of an undisputed amount on that basis when it was already in possession of sufficient information to determine both liability and quantum.

There is no private right of action under Pennsylvania’s Unfair Insurance Practices Act (UIPA), See 40 Pa. Cons. Stat. Ann. § 1171.1, et seq.; Atiyeh v. Nat’l Fire Ins. Co. of Hartford, No. 07-cv-04798, 2008 WL 4443253, at *7 (E.D. Pa. 2008) (citing Sabo v. Metro. Life Ins. Co., 137 F.3d 185, 192 (3d Cir. 1998)). We nonetheless note the following relevant insurance practices prohibited by 40 Pa. Cons. Stat. Ann. § 1171.5(a)(10) (West 2014), which provides, in pertinent part:

(10)  Any of the following acts is committed or performed with such frequency as to indicate business practice shall constitute unfair settlement of compromise practices.

* * *

(v)  Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed and communicated to the company or its representative.

(vi)  Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear.

* * *

(xiii)  Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage or under other policies of insurance.

Id.

RHODE ISLAND

Overview: Rhode Island requires only substantial and reasonable compliance with a policy’s proof of loss requirement before payment must be made, making it, in effect, a substantial compliance state. Where an insurer has determined an undisputed amount and the assured has substantially complied with the proof of loss requirements by furnishing enough information to allow the carrier to determine its liability, it is our judgment that insisting on a proof prior to making payment could well expose the insurer to extracontractual and bad faith claims.

Enforceability: Generally speaking, Rhode Island courts enforce the policy requirement that no loss payment is due and owing unless and until a sworn statement in proof of loss has been submitted if the contract of insurance contains such a requirement. See Daniel v. Pawtucket Mut. Ins. Co., 506 A.2d 1032 (R.I. 1986). In Daniel, the proof of loss policy provision required the assured to file a sworn proof of loss within 60 days with a description of the destroyed articles, including the time and place of purchase, the cost of the articles, and the amount of depreciation. Id. at 1032. The trial court reviewed the language of the policy, which was statutory in nature (see R.I. GEN. LAWS § 27-5-3 (West 2014)), and held that the assured’s proof of loss was not valid because it was not sworn to and did not contain complete information. See Daniel, 506 A.2d at 1033. On appeal, the Rhode Island Supreme Court affirmed the trial court’s decision granting the insurer’s motion for a directed verdict based on the assured’s failure to comply with the proof of loss requirement set forth in the policy, citing the assured’s failure to fill out the proof of loss form completely: leaving blank the lines for method of payment for each item, depreciation, if any, and the value of the item at the time of the fire, as well as the assured’s vague descriptions regarding where she purchased many of the items. Id. at 1034.

Requirements: While Rhode Island enforces a proof of loss requirement, Rhode Island only requires substantial and reasonable compliance with a proof of loss provision. See Daniel at 1033 (citing Ninth Fed. Sav. & Loan Ass’n of New York City v. New York Prop. Ins. Underwriting Ass’n., 99 A.D.2d 456, 471 N.Y.S.2d 284 (1984) (holding that leaving one question blank in proof of loss statement was a minor omission and that assured should therefore be given another opportunity to amend its statement); 13A Couch on Insurance 2d, § 49A:128 at 618 (rev. ed. 1982)). If the assured fails to substantially and reasonably comply with the proof of loss requirements, then the insurer is not obligated to pay the claim.

Based on Daniel, whether an assured has met the proof of loss requirements under a particular policy will likely depend on the specific language of the policy at issue and the facts regarding the documentation and information provided by the assured concerning the loss. Therefore, if a policy does not require an assured to submit a signed and notarized form proof of loss, it is unlikely that a Rhode Island court will hold that a signed and notarized form is necessary for the assured to satisfy the proof of loss requirements, provided that the assured has otherwise substantially complied with the proof of loss requirements set forth in the policy.

In addition, an insurer cannot escape liability for non-compliance with a proof of loss provision unless it can show prejudice. See Siravo v. Great Am. Ins. Co., 122 R.I. 538, 546, 410 A.2d 116, 121 (1980).

Exposure: The state has no statutory cause of action for bad faith claims handling. Rhode Island has an Unfair Claims Settlement Practices Act that is set forth at R.I. Gen. Laws Ann. § 27-9.1 (West 2014). Unfair claims practices themselves are defined in § 27-9.1-4, which provides, in pertinent part, as follows:

[a]ny of the following acts by the insurer, if committed in violation of § 27-9.1-3 constitutes an unfair claims practice:

* * *

(4) not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear;

* * *

(7) Failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to the claim or claims; and

* * *

(11) Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss and subsequent verification that would result in duplication of information and verification appearing in the form proof of loss form[.]

While § 27-9.1-1 of the unfair claims practices statute provides that “[n]othing in this chapter shall be construed to create or imply a private cause of action for violation of this chapter,” evidence of breaches of the act has been held to be “admissible in a civil action alleging bad faith.” Skaling v. Aetna Ins. Co., 799 A.2d 997, 1012, n. 8 (R.I. 2002).

Rhode Island formerly had a bad faith insurance statute that provided, in relevant part, as follows:

[A]n [assured] under any insurance policy as set out in the general laws or otherwise may bring an action against the insurer issuing the policy when it is alleged that the insurer wrongfully and in bad faith refused to pay or settle a claim made pursuant to the provisions of the policy, or otherwise acted wrongfully and in bad faith and refused to timely perform its obligations under the contract of insurance. In action brought pursuant to this section, an [assured] may also make claim for compensatory damages, punitive damages, and reasonable attorney fees.

R.I. Gen. Laws Ann. § 9-1-33 (West 2014). In Morris v. Highmark Life Insurance Co., 255 F. Supp. 2d 16 (D.R.I. 2003), however, the federal court held that the statute was preempted by the Employee Retirement Income Security Act (ERISA). See also Desrosiers v. Hartford Life & Accident Ins. Co., 354 F. Supp. 2d 119, 127-28 (D.R.I. 2005), aff’d 525 F.3d 87 (3rd Cir. 2008). Despite that, courts in the state have continued to recognize the tort of a bad faith when “the proof demonstrates that the insurer denied coverage or refused payment without a reasonable basis in fact or law for the denial.” Imperial Cas. & Indem. Co. v. Bellini, 947 A.2d 886, 893 (R.I. 2008).

Accordingly, where the assured provided sufficient information on which the insurer may determine an undisputed loss amount, a Rhode Island court is likely to determine that the assured has substantially complied with a policy’s proof of loss requirements and the undisputed amount is due and should be paid. In addition, since the insurer must also show that it was prejudiced by an assured’s failure to comply with the proof of loss requirement before denying coverage on that basis, an insurer could increase its bad faith exposure where it delays or fails to make a payment for an undisputed amount only because it is awaiting the assured’s strict compliance with the proof of loss requirement in the policy.

While the statute allowing for punitive damages has been repealed, courts as late as 2011 have cited to the statute and allowed punitive damages. See DeMarco v. Travelers Ins. Co., 26 A.3d 585, 606 n.36 (R.I. 2011).

SOUTH CAROLINA

Overview: In South Carolina, an assured has complied with a policy’s proof of loss requirements where his or her submission provides “the occurrence, character and extent of the loss” giving rise to the claim. As a result, the state effectively follows a substantial compliance rule. It is our judgment that an insurer would be at risk for breach of contract and possibly bad faith and extracontractual exposure where it withheld a payment for an undisputed amount while awaiting a sworn proof of loss from the assured where it has enough information on a claim to agree to a certain amount.

Enforceability: A South Carolina court is unlikely to enforce a policy provision requiring submission of a sworn or other formal statement in proof of loss where the assured provides written notice and information for the claim on the date of the loss that fully covers “the occurrence, character and extent of the loss[.]” See Williams v. South Carolina Farm Bureau Mut. Ins. Co., 253 S.C. 53, 58, 168 S.E.2d 794, 797 (1969). This rule of law is largely based on S.C. Ann. § 38-59-10 (2014):

When an insurer under an insurance policy requires a written proof of loss after the notice of the loss has been given … the insurer … shall furnish a blank to be used for that purpose. If the forms are not furnished within twenty days after the receipt of the notice, the claimant is considered to have complied with the requirements of the policy as to proof of loss upon submitting within the time fixed in the policy for filing proof of loss written proof coverage the occurrence, character, and extent of the loss for which claim is made. The twenty day period after notice of loss to furnish forms applies to all types of insurance unless a lesser time period is specifically provided by law.

Id. The South Carolina Supreme Court, in describing a prior version of S.C. Ann. § 38-59-10, explained that the purpose of the statute was not to prevent a waiver or an estoppel by the insurer, but rather to provide a method by which the assured could file a proof of loss when the insurer's form was unavailable. See Amer. Mut. Fire Ins. Co. v. Green, 233 S.C. 588, 598, 106 S.E.2d 265, 271 (1958) (citing former Code 1962 § 37-166).

In Williams, the South Carolina Supreme Court found that the assured’s initial written notice was in compliance with the statute, as it covered the occurrence, character and extent of the loss, and the insurer failed to furnish forms on which to submit written proof of loss as requirement by the policy. See Williams, 253 S.C. 53, 168 S.E.2d 794. Accordingly, the loss was payable 60 days after the proof of loss. The Williams court then concluded:

In the instant case, there was from the inception no question as to the amount of the loss and the statutory equivalent of a proof of loss having been filed with the insurer on the date of the fire, it follows that the trial judge correctly held that the [assureds] were entitled to interest from sixty days after the date of the fire.

Id. at 59, 106 S.E.2d at 797 (internal citations omitted).

Requirements: Where an insurer seeks to enforce its policy’s proof of loss requirement, it must first comply with S.C. Ann. § 38-59-10 and supply its proof of loss forms to the assured within 20 days after the receipt of the notice of the loss. Id. Otherwise, the assured is considered to have complied with the policy’s proof of loss requirements when it submits a written proof within the policy’s timeframe to submit a proof of loss, which covers the occurrence, character, and extent of the loss for which the claim is made.  See id.

Even where the insurer has provided such forms in the 20-day time period, where the insurer had sufficient information to determine an undisputed amount, a South Carolina court is likely to reason that the insurer had the information that typically comes within a proof of loss even if it did not come in that form. Accordingly, a South Carolina court is likely to find that the undisputed amount is due irrespective of whether the assured has strictly complied with a policy’s proof of loss formal requirement.

Exposure: Based on the analysis herein, an insurer could open itself to bad faith exposure under South Carolina law where it withholds an undisputed payment amount while awaiting a sworn proof of loss from the assured, where the insurer had information on the occurrence, character and extent of the loss for which the claim is made.

In South Carolina, bad faith is defined as “a knowing failure on the part of the insurer to exercise an honest and informed judgment in processing a bad claim,” and “an insurer acts in bad faith where there is no reasonable basis to support its decision.” American Fire & Cas. Co. v. Johnson, 332 S.C. Ct. App. 307, 311, 504 S.E.2d 356, 358 (1998). South Carolina law also provides that, where an assured can show bad faith or unreasonable refusal by an insurer to pay first-party benefits, the assured can recover compensatory damages not limited to the amount on the face of the insurance contract. See Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983).

South Carolina also has the Improper Claims Practices Act, S.C. Code Ann. §§ 38-59-20, et seq., which precludes “practice[s] which constitutes an unreasonable delay in paying or an unreasonable failure to pay or settle in full claims …” S.C. Code Ann. § 38-59-20(8). This, however, is an administrative relief for a third-party victim of an improper claims practice, and it does not create a private right of action for the assured. Id.

SOUTH DAKOTA

Overview: While there is very little law on the proof of loss requirement in South Dakota, the state’s courts generally enforce policy provisions requiring submission of a sworn statement in proof of loss as a condition to payment. The state has not specifically addressed what constitutes an adequate proof of loss when a policy requires only a general proof of loss, however. As a result, where an undisputed amount exists, it is our judgment that the insurer should render payment promptly because failure to make such a payment could give rise to bad faith exposure and/or extracontractual liability.

Enforceability: A South Dakota court will generally enforce a policy requirement for an assured to submit a sworn proof of loss as a condition to payment of claims unless the insurer has waived the requirement. See, e.g., Auto-Owners Ins. Co. v. Hansen Hous., Inc., 2000 S.D. 13, 604 N.W.2d 504; Alderman v. New York Underwriters’ Ins. Co. of New York, 61 S.D. 284, 248 N.W. 261 (1933). In Auto-Owners, however, the South Dakota Supreme Court only required the assured to substantially comply with the proof of loss requirement, expressly finding that the assured’s “failure to strictly comply with the policy provision [for proof of loss] will not bar recovery.” Auto-Owners, 2000 S.D. at ¶ 30, 604 N.W.2d at 512. The Auto-Owners court’s reasoning also indicated that it included the proof of loss requirement as one of policy’s notice requirements and that the insurer must show prejudice before it can deny coverage for an assured’s failure to comply with the policy requirement. See id. at ¶ 31, 604 N.W.2d at 513 (“If delayed notification has not prejudiced the insurer’s ability to defend a claim then there is no reason to strictly enforce the notice requirement.”)

Requirements: As explained more fully in the previous section, for an insurer to deny coverage based on the enforcement of a proof of loss requirement in the policy, the insurer must show that the assured failed to substantially comply with the proof of loss requirement, and the assured’s failure to do so caused the insurer to suffer prejudice. See, e.g., Auto-Owners, 2000 S.D. 13, 604 N.W.2d 504.

Exposure: South Dakota courts recognize “the premise that a duty to act or deal in good faith is found in all insurance contracts.” Helmbolt v. LeMars Mut. Ins. Co., 404 N.W.2d 55, 57 (S.D. 1987). As a result, the state’s courts recognize a common law tort of bad faith claims handling, which is shown when there is an “absence of a reasonable basis for denial of policy benefits.” Dakota, Minnesota & E. R.R. Corp. v. Acuity, 2009 S.D. 69, ¶ 17, 771 N.W.2d 623, 629 (citations omitted); see also Carroll v. Gulf Ins. Co., 886 F.2d 1071, 1073 (8th Cir. 1989). An insurer can also be subject to statutory bad faith and extracontractual exposure for improperly insisting on a proof of loss when the underlying amount is undisputed under the state’s unfair claims handling statute. This recites that it is an unfair and deceptive act to fail to promptly settle claims where liability has become reasonably clear under one portion of the policy in order to influence settlements under other sections of the contract of insurance. See S.D. Codified Laws §§ 58-12-34(4); 58-3367(4) (2014). An insurer can also be liable for requiring submission of redundant proof of loss forms or failing to affirm or deny coverage within a reasonable time after proof of loss is received. See id. at § 58-12-34(7), (11).

Thus, an insurer that has sufficient information on which to determine an undisputed amount and withholds such payment while awaiting a sworn or other formal form proof of loss from the assured may subject itself to bad faith liability. First, the fact that the insurer has such sufficient information is indicative that the assured has likely substantially complied under South Dakota law. Second, even where the assured has not substantially complied, the net effect remains the same, as the insurer is unlikely to be able to show that it was prejudiced by the assured’s failure to do so. In essence, the insurer had the information sufficient to determine an undisputed amount. To then withhold, may give rise to the insurer’s risk at a bad faith claim.

TENNESSEE

Overview: Under Tennessee law, an assured’s failure to comply with a sworn proof of loss policy condition is generally fatal to the claim, absent a waiver by the insurer. The state has not addressed whether strict or substantial compliance is required, however. Instead, courts focus on whether the insurer has fully notified its policyholder of any defects or deficiencies in its proof submissions. Where the assured’s submission of its proof of claim is insufficient, and the insurer does not notify the assured of its objections to give the assured an opportunity to correct the defects, the insurer is unlikely to avoid its indemnity obligation under Tennessee law. Accordingly, where the insurer has potentially waived the requirement for a proof of loss, or there are defects in the proof of loss to which the insurer never objected, the potential for bad faith exposure increases should the insurer delay the payment of an undisputed amount solely on the ground of the assured’s failure to provide a sworn proof of loss.

Enforceability: An assured’s “failure to produce a sworn proof of loss within the time period required in the policy is fatal to the claim unless the conditions are waived by the insurer.” Cox v. Tennessee Farmers Mut. Ins. Co., 297 S.W.3d 237, 246 (Tenn. Ct. App. 2009) (citing Central Nat’l Ins. Co. of Omaha v. Mfr’s Acceptance Corp., 544 S.W.2d 362, 364 (Tenn. 1976)). In the Central National case, the Tennessee Supreme Court found that the breach of the policy condition requiring the submission of a sworn proof of loss prevents a recovery upon the insurance contract unless those conditions were waived by the insurer. Id., 544 S.W.2d at 364. “The filing of the requisite Proof of loss may obviate the necessity for giving notice of loss, but the giving of notice of loss does not satisfy the requirement that Proof of loss be filed.” Id. Where the policy requires a sworn proof of loss but does not impose a forfeiture for failure to furnish it within the time prescribed, an assured may commence an action upon the policy provided the assured submits a proof before the action commences. See Georgia Home Ins. Co. v. Jones, 23 Tenn. App. 582, 135 S.W.2d 947 (1939). Nevertheless, where an action is brought and the sworn statement was not provided within the time frame required by the policy, this fact is still likely to invalidate the claim of indemnity under the policy.

An insurer has been held to waive requirements of a proof of loss where its agents accepted schedules of property destroyed and made no complaint regarding their sufficiency in proving up the loss. See Johnson v. Scottish Union, etc., Ins. Co. 160 Tenn. 152, 22 S.W.2d 362 (1929). Good faith requires an insurer to point out details to the assured and place the assured on notice that the insurer finds the proof of loss insufficient, and the assured should have the opportunity to correct the defects. Id.

Requirements: With respect to whether the policy requires a sworn proof of loss or a mere proof of loss, a review of Tennessee case law indicates that it is not so much a question of whether there has been substantial compliance with the proof of loss policy condition, but whether the insurer provided notice to the assured that there were defects in the assured’s proof of loss submission.

In essence, if an insurer intends to require that the assured comply with the proof of loss policy condition, the insurer should make that known to the assured. Where an insurer receives a sworn proof of loss, an unsworn statement of claim, or another form of supporting information for the claim, and does not object or provide notice that the submission is insufficient, the insurer risks waiver of the proof of loss requirement.

Thus, in Tennessee, the insurer’s acceptance or rejection of the supporting claim documentation is a significant driving factor with respect to whether the submission constitutes an adequate proof of loss. Where the insurer does not timely object to the submission and makes only belated claims that it did not receive a sworn proof of loss, a court could determine that the initial submission by the policyholder was, in fact, substantial compliance. See Johnson, 160 Tenn. 152, 22 S.W.2d 362.

Exposure: Where an insurer unequivocally requires a sworn proof of loss prior to making a loss payment and has not waived such a requirement, it is unlikely that standing by such a requirement for even an undisputed amount, in and of itself, would expose the insurer to bad faith under Tennessee law. Again, Tennessee law supports that a breach of the proof of loss conditions, unless waived by the insurer, prevents a recovery under the insurance contract. See Central Nat’l, 544 S.W.2d 362.

Where, however, the insurer has potentially waived the requirement for a proof of loss, or there are defects in the proof of loss that the insurer never objected, the potential for bad faith exposure increases should the insurer delay the payment of an undisputed amount solely on the ground of the assured’s failure to provide a sworn proof of loss.

Tennessee’s bad faith statute, Tenn. Code Ann. § 56-7-105 (West 2014), charges the insurer a 25 percent penalty where it refuses to pay a claim in bad faith. The policyholder must first make a formal demand under Tenn. Code Ann. § 56-7-105, as well as allow the insurer 60 days to pay the claim after making the formal demand. A policyholder could not make a bad faith claim without taking these initial steps. See Walker v. Tennessee Farmers Mut. Ins. Co., 568 S.W.2d 103, 106 (Tenn. Ct. App. 1977). In Walker, the court acknowledged that the assured initially completed all the forms required by the insurer and cooperated fully in answering questions regarding the claim. “This, however, does not meet the requirements of the statute, which is penal in nature and must be strictly constructed.” Id. A formal demand does not have to be in writing, however, and an assured’s repeated demands for payment – even without an explicit reference to litigation — have been held to satisfy the demand requirement. See Heil Co. v. Evanston Ins. Co., 690 F.3d 722, 728 (6th Cir. 2012) (applying Tennessee Law).

Any other prohibited insurance claims are covered by the Unfair Trade Practices and Unfair Claims Settlement Act of 2009, see Tenn. Code Ann. § 56-8-104, et seq. (West 2014), which does not create a private right of action. Tennessee law also does not allow for common law claims if they are covered by the applicable statutes. See, e.g., Leverette v. Tennessee Farmers Mut. Ins. Co., No. M2011-00264-COA-R3CV, 2013 WL 817230 (Tenn. Ct. App. Mar. 4, 2013). Pursuant to Tenn. Code Ann. § 56-8-105, an unfair claims practice includes:

(7)  Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

* * *

(11)  Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form. Nothing contained in this subdivision (11) shall be construed as obligating any insurer to make a decision upon any claim without sufficient investigation and information to determine if the claim, or any part of the claim, is false, fraudulent, or for an excessive amount.

Finally, we note that punitive damages are allowed in bad faith cases when insurers act either “(1) intentionally, (2) fraudulently, (3) maliciously, or (4) recklessly.” Stooksbury v. Am. Nat. Prop. & Cas. Co., 126 S.W.3d 505, 521 (Tenn. Ct. App. 2003).

TEXAS

Overview: In Texas, courts have generally deemed the failure to file a proof of loss to be an absolute defense to liability unless the requirement has been waived. The state is a substantial compliance jurisdiction, however, and even unsworn proofs have been deemed to be in compliance with policy requirements when they furnish the insurer with all of the information that it needs. As a result, it is our judgment that an insurer may well be subjecting itself to bad faith and extracontractual liability if it insists on receiving a proof of loss form before paying an undisputed amount in cases in which the assured has already furnished enough information sufficient to make the insurer’s liability for that sum clear.

Enforceability: In Texas, “[n]o doubt exists in the law that a stipulation in an insurance contract requiring notice and proof of loss within a reasonable time, and on reasonable terms, is valid.” Great Cent. Ins. Co. v. Cook, 422 S.W.2d 801, 806 (Tex. Civ. App. 1967); see also Fid.-Phenix Fire Ins. Co. v. Sadau, 167 S.W. 334, 336 (Tex. Civ. App., 1914) (finding that a policy mandating a “statement which is required to be signed and sworn to by the [assured] … is a reasonable requirement to be complied with by the [assured].”)

The purpose of such an instrument “is to advise the insurer of the facts surrounding the loss for which a claim is being made, and to afford the insurer an adequate opportunity to investigate, to prevent fraud, and to form an intelligent estimate of its rights and liabilities.” In re Republic Lloyds, 104 S.W.3d 354, 359 (Tex. App. 2003); see also Hanover Ins. Co. of New York v. Hagler, 532 S.W.2d 136, 137-38 (Tex. Civ. App. 1975) (“The purpose of requiring written notice and proof of loss within 91 days is to enable the insurer to properly investigate the circumstances of the loss while the occurrence is fresh in the minds of witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its right and liabilities … .”); Great Cent., 422 S.W.2d at 806.

Where the insurer insists upon compliance, however, then failure to provide a proof of loss is generally deemed an absolute defense to liability in cases in which the policy mandates such a submission. See Dairyland Cnty. Mut. Ins. Co. v. Keys, 568 S.W.2d 457, 459 (Tex. Civ. App., 1978) (“Where an insurance policy makes the furnishing of a proof of loss a condition precedent to the enforcement of the policy, and a proof of loss is not furnished or waived, the [assured] will not be permitted to recover.”); Wills v. R.G. Beneke & Co., 570 S.W.2d 79, 80 (Tex. Civ. App. 1978) (“If timely proof of loss is a condition precedent to recovery under the policy, failure to comply with that condition is a complete defense to liability on the part of the insurer.”); Viles v. Sec. Nat. Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990) (“[T]he failure to file a proof of loss, if not waived by the insurer, bars a breach of contract claim … .”); Hanover, 532 S.W.2d at 137.

As the foregoing cases suggest, the insurer may waive the requirement that a proof be submitted. “It is well settled that provisions of an insurance policy regarding notice and proof of loss are for the benefit of the insurer and may be waived by it.” Walters v. Century Lloyds Ins. Co., 154 Tex. 30, 34, 273 S.W.2d 66, 69 (1954); see also Hanover, 532 S.W.2d at 138 (“Waiver of the proof of loss requirement … is all that is ordinarily required of an [assured] to avoid the consequences of failure to strictly comply with the policy provision.”). The burden of demonstrating that the insurer has waived this provision is on the shoulders of the policyholder. See Hanover, 532 S.W.2d at 138. The policyholder may show waiver by “conduct of the insurer which is inconsistent with an intention to rely on failure to timely file the proof of loss as a defense [because such] conduct by the insurer lulls the [assured] into believing that the filing of the proof of loss will not be required.” Id.

Requirements: Texas is a substantial compliance jurisdiction. “It is … well settled that substantial compliance with the provision that proof of loss be made is all that is ordinarily required of an [assured].” Great Cent., 422 S.W.2d at 806. As with waiver, the burden of showing substantial compliance is borne by the assured. Hanover, 532 S.W.2d at 138. Case law demonstrates that this is a relatively low threshold, however. See, e.g., Dairyland Cnty., 568 S.W.2d at 459 (“[A]ll that the insurance company is entitled to receive by way of a proof of loss is to be apprised of the facts.”). In addition, the absence of a statement sworn to by the policyholder is of no moment. See id. (“[A]n unverified proof of loss, containing the required information, constitutes substantial compliance with the policy provision.”). Thus, in First National Bank of Bowie v. Fidelity & Casualty Co. of New York, 634 F.2d 1000 (5th Cir. 1981), the 5th Circuit found that, under Texas law, the assured bank that submitted information on the claim but never filed a proof of loss document “duly sworn to” as required by the contract of insurance nevertheless demonstrated substantial compliance with that policy requirement. Id.

If the insurer furnishes none of its proof of loss forms to the policyholder, then the assured is “free to use any form of proof of loss” that he or she elects. Proctor v. Southland Life Ins. Co., 522 S.W.2d 261, 264 (Tex. Civ. App. 1975). In addition, even failure to furnish documents specifically demanded by the insurer does not automatically mean that the assured’s proof of loss is deficient in nature. See Colonial Cnty. Mut. Ins. Co. v. Valdez, 30 S.W.3d 514, 522-23 (Tex. App. 2000) (jury verdict in favor of the policyholder affirmed and defense rejected where the carrier “presented no evidence and … offered no argument explaining why it required these materials.”).

Finally, an assured is generally afforded ample opportunity to cure any deficiencies in the proof of loss submitted. “Where an insurance company takes the position that the proof of loss furnished by the [assured] is defective, the company must, within reasonable time, object to the proof and point out the defects so that the [assured], if he desires, may correct the same.” Dairyland Cnty. Mut., 568 S.W.2d at 459. Absent such an objection, “the company waives its right to complain of the proof of loss furnished.” Id. Policyholders are also afforded “considerable latitude to explain, modify, or even flatly contradict” statements appearing in their proof of loss material in Texas. Great Central, 422 S.W.2d at 807.

Exposure: As exhibited in the summary analysis in the previous section, not only is Texas a substantial compliance jurisdiction, it is also one of the more liberal substantial compliance jurisdictions. Though an insurer would be well within its rights to demand a proof of loss in compliance with the policy’s condition prior to making an undisputed payment, Texas law is indicative of the notion that a court may determine that the assured has complied with a proof of loss condition where an insurer had sufficient information on which to determine an undisputed amount owed. To state it another way, where the insurer has sufficient information to determine the undisputed amount of its liability, it stands to reason that the insurer has likely received a sufficient proof of loss under Texas law and needs nothing more by way of a proof of loss to pay the undisputed amount.

Texas bad faith and extracontractual exposure can be significant, and, therefore, we’ve summarized the primary relevant aspects of Texas law under which to consider potential exposure.

Texas Common Law Bad Faith Claim

Texas recognizes a bad faith tort in the context of first-party claims. See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 52 (Tex. 1997). “An insurer breaches its common law duty of good faith and fair dealing by denying a claim when the insurer’s liability has become reasonably clear.” Coats v. Ruiz, 198 S.W.3d 863, 880 (Tex. App. 2006) (citing State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998)) (other internal citations omitted). “The threshold of bad faith is reached when a breach of contract is accompanied by an independent tort.” Southland Lloyds Ins. Co. v. Cantu, 399 S.W.3d 558, 568 (Tex. App. 2011). A cause of action for breach of the duty of good faith and fair dealing can arise when there is no reasonable basis for the denial of a claim or delay in payment. See id. (quoting Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)).

Whether there is a reasonable basis for a denial or delay of payment is judged by the facts before the insurer at the time the claim was denied or payment was delayed. See, e.g., Viles, 788 S.W.2d at 567. For instance, in Viles, the insurer denied the claim at issue there prior to the expiration of the time in which the assured had to file a proof of loss under the policy provision. Id. Though the failure to comply with the policy’s proof of loss requirement may very well constitute a reasonable basis for denial of the claim, there – since the denial occurred prior to the expiration of the timeframe in which to file a proof of loss – the failure to timely file a proof of loss could not be a good faith basis for the denial Id. at 568.

Under common law, a plaintiff can recover actual damages in addition to extracontractual damages, most common of which are punitive and mental anguish damages. A plaintiff, however, cannot recover punitive or mental anguish damages for bad faith alone. See Universe Life Ins., 950 S.W.2d at 54. Punitive damages are only recoverable where the insurer’s acts were accompanied by “malicious, intentional, fraudulent, or grossly negligent conduct.” Id. Similarly, to recover for mental anguish in the context of a bad faith action, an assured must show that “the denial or delay in payment of a claim has seriously disrupted the [assured’s] life.” Id.

Texas Insurance Code

The “Unfair Methods of Competition and Unfair or Deceptive Acts or Practices,” Texas Insurance Code, Tex. Ins. Code Ann. § 541.001, et seq.

An insurer’s breach of the common law duty of good faith and fair dealing also gives rise to a private right of action for violation of the Texas Insurance Code, Tex. Ins. Code Ann. § 541.001, et seq. (West 2013),^[5] titled “Unfair Methods of Competition and Unfair or Deceptive Acts or Practices.” Under § 541.060(a), an “unfair or deceptive act or practice in the business of insurance” includes “unfair settlement practices with respect to a claim by an [assured],” which then includes:

(2)  failing to attempt in good faith to effectuate a prompt, fair and equitable settlement of:

(A)  a claim with respect to which the insurer’s liability has become reasonably clear; or …

(B)  a claim under one portion of a policy with respect to which the insurer’s liability has become reasonably clear to influence the claimant to settle another claim under another portion of the coverage unless payment under one portion of the coverage constitutes evidence of liability under another portion;

(3)  failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer’s denial of a claim or offer of a compromise of a claim.

Id. § 541.060(a).

A plaintiff may obtain the amount of actual damages, in addition to court costs and reasonable and necessary attorney’s fees, an order enjoining the act of failure to act that gave rise to the claim, and any other relief the court determines proper. In addition, where the insurer knowingly committed the violation(s) at issue, the assured may receive “an amount not to exceed three times the amount of actual damages.” Id. § 541.152; see also Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129 (Tex. 1988).

The Texas Deceptive Trade Practices Act

A violation of this Chapter 541, Insurance Code, also gives rise to a private right of action under the Texas Deceptive Trade Practices Act (DTPA), codified at Tex. Bus. & Com. Code § 17.01, et seq. (West 2013). See id. § 17.50(a)(4); Progressive Cnty Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 922-23 (Tex. 2005); Arnold v. N’tl Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex. 1987). In essence, Section 17.50(a)(4) of the DTPA incorporates the violations set forth in the Insurance Code, Chapter 541. See Vail, 754 S.W.2d 129. Where the assured proves a violation of Chapter 541 of the Texas Insurance Code, therefore, it may prove that the insurer has also committed an unlisted deceptive trade practice under the DTPA. See id. at 136.

Where the assured prevails on a DTPA claim, the assured may obtain the amount of economic damages determined by the trier of fact. Where an insurer committed the violation(s) “knowingly,” the assured may also recover damages for mental anguish and may also be awarded treble damages. Tex. Bus. & Com. Code § 17.50(b)(1). The assured would also be awarded court costs and reasonable and necessary attorneys’ fees. See id. § 17.50(d).

As both the DTPA and the Insurance Code provide that their respective statutory remedies are cumulative of other remedies, the damages remedies under either statutes can be awarded in addition to a breach of contract award of damages. See Vail, 754 S.W.2d at 136 (internal citations omitted).

The Texas Prompt Payment of Claims Statute, Tex. Ins. Code § 542.051 et seq.

The Prompt Payment of Claims Statute, Tex. Ins. Code Ann. § 542.051 et seq. (West 2013),^[6] provides certain deadlines for an insurer to acknowledge, investigate, and accept or reject a claim. The statute is intended to secure payment of valid insurance claims and to set out a framework for ensuring that this intent is accomplished in a timely manner. See Terry v. Safeco Ins. Co. of Am., 972 F. Supp. 2d 965, 968 (S.D. Tex. 2013).

An insurer that violates the statute is liable for attorney’s fees and an additional 18 percent per annum in addition to the amount of the claim. Tex. Ins. Code Ann. § 542.060. The statute recites that it “shall be liberally construed to promote the prompt payment of insurance claims.” Id. § 542.054. These remedies are also not exclusive and may be in addition to any other remedy or procedure provided to the assured by law or at common law. See id. § 542.061.

Tex. Ins. Code Ann. § 542.056 provides, in relevant part:

(a)  … [A]n insurer shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 15^th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss.

* * *

(d)  If the insurer is unable to accept or reject the claim within the period specified by Subsection (a) …, the insurer, within that same period, shall notify the claimant of the reasons that the insurer needs additional time. The insurer shall accept or reject the claim not later than the 45^th day after the date the insurer notifies a claimant.

Id. The Act requires payment within five business days after the insurer notifies a policyholder that it “will pay a claim or part of a claim.” Id. § 542.057. “If payment of the claim or part of the claim is conditioned on the performance of an act by the claimant, the insurer shall pay the claim not later than the fifth business day after the date the act is performed.” Id. § 542.057 (b). For an eligible surplus lines insurer, however, the claim must be paid no later than the 20^th business day after the notice or the date the act is performed, as applicable. Id. § 542.057 (c).

Where an insurer is liable for a claim under an insurance policy and does not comply with the Prompt Payment of Claims Act, “the insurer is liable to pay the holder of the policy … in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney’s fees.” Id. § 542.060.

The agreement on the undisputed portion of a claim may well be deemed to constitute agreement that that sum will be paid and that the assured provided sufficient information (or proof of loss) for that undisputed portion of the claim. This Prompt Payment statute, however, also provides that payment of “the claim or part of the claim” may be delayed where it is “conditioned on the performance of an act by the claimant.” Id. § 542.057. As discussed herein, the submission of a proof is clearly such an act, where required by the policy of insurance. Regardless, the possible extracontractual exposure could still arise where the assured argues it has performed the proof of loss condition through substantial compliance, with which the insurer disagrees and claims non-performance because the assured never submitted the formal sworn form proof of loss (which is not required in Texas).

Given the ease with which Texas jurisprudence allows policyholders to show compliance with the proof of loss requirement, insistence on execution of a sworn statement prior to dispersing agreed-upon and undisputed amounts provide viable circumstances that a Texas court could find constitute both a breach of the duty of good faith and fair dealing for purposes of an assured’s common law bad faith claim; violation of the Texas Insurance Code, Chapter 541, and/or the Texas DTPA; as well as an unauthorized delay in payment for purposes of the Texas Prompt Payment of Claims Act. As a result, where the insurer has sufficient information on which to determine an undisputed amount, we would recommend prompt payment of such amount in compliance with the timeframes set forth under the Prompt Payment of Claims Act.

UTAH

Overview: Utah only requires that an assured substantially comply with a policy’s proof of loss requirement. In addition, a Utah court will likely only enforce a policy’s proof of loss requirement where an assured has not substantially complied with the requirement and where the insurer can show it suffered prejudice from the assured’s failure to do so. Accordingly, where an insurer is able to determine and perhaps agree to a undisputed amount of loss, the insurer is less likely to convince a court that it was prejudiced by an assured’s non-compliance with a proof of loss requirement. In such circumstances, we, therefore, recommend that an insurer promptly make undisputed payments and not await the assured’s strict compliance with a proof of loss provision in the policy. Doing otherwise could subject an insurer to a bad faith claim in Utah.

Enforceability: A policy’s proof of loss requirement is enforceable in Utah, though Utah Code Ann. § 31A-21-312 (West 2014) provides significant statutory leniency with its enforcement. In essence, § 31A-21-312(1)(b) requires that every insurance policy with such a requirement expressly state that an assured’s untimely submission of a proof of loss does not invalidate the claim if the assured can show that it was not reasonably possible to file the proof within the required time and that the proof was filed “as soon as reasonably possible.” Id. Additionally, failure to file the proof of loss does not bar recovery under the policy if the insurer fails to show it was prejudiced by the failure. See Utah Code Ann. § 31A-21-312(2). As the Utah Supreme Court has explained:

The actual prejudice requirement … is consistent with the legislative scheme. Utah law prevents an insurance company from relying on certain technical policy breaches as a basis for denying coverage.

State Farm Mut. Auto. Ins. Co. v. Green, 2003 UT 48, ¶ 32, 89 P.3d 97, 104.

By the same token, “failure to file a proof of loss statement would not necessarily defeat recovery on the policy if waiver or estoppel is present.” Mascaro v. Fireman’s Fund Ins. Co., 611 F.2d 338, 342 (10th Cir. 1979) (applying Utah law). However, when the assured is able to comply with the proof of loss requirement, and the insurer is prejudiced from the failure to provide one, the court will enforce a provision requiring a proof of loss. See, e.g., Hunter v. Fireman's Fund Ins. Co., 448 F.2d 805, 810 (10th Cir. 1971) (applying Utah law).

Requirements: State statute defines proof of loss as “reasonable documentation by the [assured] in accordance with policy provisions and insurer practices as to the facts of the loss and the amount of the claim.” Id. Utah Admin. Code r. 590-190 (West 2015). As a result, strict compliance with proof of loss requirements is not required; substantial compliance will fulfill the assured’s policy obligations. See Canyon Country Store v. Bracey, 781 P.2d 414, 418 (Utah 1989). A Utah court is also likely to require an insurer to show that it was prejudiced by an assured’s untimely or allegedly insufficient proof of loss, or an assured’s alleged failure to submit a proof of loss. See, e.g., id.

In Canyon Country, the Utah Supreme Court explained that:

Proof-of-loss provisions are included in insurance policies “to give the insurer an adequate opportunity to investigate, to prevent fraud, and to form an estimate of its rights and liabilities before it is required to pay.” Zions First Nat’l Bank v. National Am. Title Ins. Co., 749 P.2d 651, 656 (Utah 1988) (citations omitted). Strict compliance with proof-of-loss provisions is not required; substantial compliance will fulfill the [assured]’s policy obligations.

Id. at 418.

The Canyon County case arose out of a tractor-trailer accident. The insurer claimed it had no obligation to make a payment under the policy because the policyholder failed to submit a properly completed proof of loss for the trailer and never submitted any proof of loss for the tractor. The policy required that the assured submit the proof of loss within 60 days of the accident. Id. The court looked to the fact that, soon after the accident, the insurer had details concerning the damaged vehicles and that the insurer sent an appraiser to appraise the vehicle damage. Additional correspondence between the insurer and other parties was further evidence that the insurer had the necessary information. The insurer then denied the claim. The court, therefore, reasoned:

In light of the fact that [the insurer] had sufficient information on which to base a denial of payment, it is reasonable to conclude that the proof-of-loss provision was substantially complied with. Although the proof-of-loss forms may not have been submitted within sixty days of the accident, the insurers were not prejudiced in their evaluation of the claims.

Id. at 418.

Exposure: In the first-party context, Utah law does not recognize a bad faith claim sounding in tort; rather, Utah law recognizes a breach of the duty of good faith that gives rise to a claim stated in contract. See Beck v. Farmers Ins. Exch., 701 P.2d 795, 800 (Utah 1985). The Beck court concluded that “the implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim.” Id. at 801 (internal citations omitted). For an insurer to act reasonably in its denial or delay of payment, the assured’s claim must be fairly debatable, e.g., “evidence must establish that there is an arguable or debatable basis underlying the insurer’s nonpayment or delayed payment of a claim.” Prince v. Bear River Mut. Ins. Co., 2002 UT 68, ¶ 44, 56 P.3d 524, 537 (Utah 2002).

In the instance considered in this survey – where an insurer has determined and possibly agreed to an undisputed amount of damage – a Utah court would likely find that the insurer had sufficient information to make a determination on the claim, evidencing an assured’s substantial compliance with policy’s proof of loss requirement. Even where there is an argument that an assured did not substantially comply with the proof of loss requirement, a Utah court is also likely to consider whether the insurer suffered prejudice. Again, where the insurer has determined an undisputed amount owed, a court is less likely to find prejudice to the insurer.

Accordingly, where an insurer has determined an undisputed amount of loss, a Utah court would likely determine that this amount is not fairly debatable. A court, therefore, is likely to determine that the delay of a payment (that is not debatable) is unreasonable, and, therefore, a breach of an insurer’s implied covenant of good faith and fair dealing under Utah law. See Canyon Country Store, 781 P.2d at 418; Prince, 56 P.3d at 537. The damages available for the breach of implied covenant of good faith and fair dealing include general and consequential damages, including reasonable attorney’s fees. See Billings v. Union Bankers Ins. Co., 918 P.2d 461, 468 (Utah 1996) (discussing Beck, 701 P.2d at 801-02 (Utah 1985) (other internal citations omitted)). Since, however, “[a]llegations of a breach of the implied covenant of good faith and fair dealing owed first-party insurers and their [assured] sound in contract, not in tort,” punitive damages are not available. See Canyon Country Store, 781 P.2d at 423.

Though there is no private right of action under Utah’s Unfair Claim Settlement Practices Act, Utah Code Ann. § 31A-26-303 (West 2014), the Act’s prohibited practices include the delay of payments by requiring an assured to submit a “preliminary claim report and then requiring the subsequent submission of formal proof of loss forms which contain substantially the same information”; as well as “not attempting in good faith to effectuate a prompt, fair and equitable settlement of claims in which liability is reasonably clear.” Id. at § 31A-26-303 (3)(g)-(h).

VERMONT

Overview: While courts in Vermont will enforce a proof of loss as a condition precedent to payment, Vermont requires the insurer to meet a heightened burden before the insurer is able to rely on the provision. Essentially, an insurer must first furnish proof of loss forms within a reasonable time after notice of the loss; notify the assured that the forms are required for payment; and, if there is a defect in the proof when submitted, the insurer must advise of the specific defect(s) and will not be able to avoid payment if it fails to do so. Further, Vermont only requires substantial compliance with policy requirements.

As a result, under Vermont law, the fact that an insurer that has sufficient information from which to determine and perhaps even agree to an undisputed amount of loss prior to receipt of a formal proof of loss may be supporting evidence that: 1) the assured provided sufficient information in substantial compliance with a proof of loss requirement; or 2) the insurer waived the requirement in determining and agreeing to an undisputed amount without first requiring the initial or additional compliance with the policy’s proof of loss condition. In either scenario, the delay of an undisputed payment amount until the receipt of a formal proof of loss form could be deemed unreasonable, and, thus, increase the likelihood that the insurer may be subject to bad faith exposure.

Enforceability: A Vermont court will allow an insurer to rely upon a policy’s proof of loss requirement. See City of Burlington v. Hartford Steam Boiler Inspection & Ins. Co., 190 F. Supp. 2d 663, 682 (D. Vt. 2002), aff’d 346 F.3d 70 (2d Cir. 2013) (internal citations omitted); cf. Springfield Co-op. Freeze Locker Plant v. Wiggins, 115 Vt. 445, 449-50, 63 A.2d 182, 186 (1949) (finding “[w]here, by the terms of an insurance contract, a specified notice, given by or on behalf of the [assured] to the insurer, is made a condition precedent to liability on the part of the latter, the failure to do so will release the insurer from the obligations imposed by the contract.”). Id.

An insurer, however, may expressly or implicitly waive the enforcement of the policy’s proof of loss condition. By way of example, the Vermont Supreme Court found that an insurer’s conduct may imply waiver when its conduct is such as to cause delay, “or to render the production or correction of the proof [of loss] useless or unavailing, by a distinct denial of liability and refusal to pay upon a specific substantive ground, unconnected with the proof of loss, before the time had expired within which the [assured] was bound by the terms of the policy to present formal proofs[.]” Frost v. N. British Mercantile Ins. Co., 77 Vt. 407, 60 A. 803, 806 (1905); see also Shields v. Vermont Mut. Fire Ins. Co., 102 Vt. 224, 147 A. 352, 357 (1929) (finding that an insurer’s unconditional denial for the loss prior to the assured’s submission of sworn proof of loss waives proof of loss requirement).

Requirements: Though Vermont technically enforces a proof of loss requirement in a policy, it places a heightened burden on the insurer before the insurer can require an assured to comply with the proof of loss provision in the policy. First, an insurer must furnish proof of loss forms within a reasonable time after notice of loss is received, and the failure to do so “shall be deemed a waiver of any requirement that proof of loss shall be filed with the insurer on said forms as a condition precedent to the recovery of losses or claims.” Vt. Stat. Ann. tit. 8, § 3664 (West 2014).

Second, the insurer must also request from the assured a proof of loss as a condition of payment and to point out any defects of any submissions, giving the assured ample time to submit a corrected statement. In particular, the law provides as follows:

A fire insurance policy shall not be void by reason of failure to make and deliver a proof of loss to the insurer, until the insurer notifies the [assured] in writing to make and deliver proof of loss in accordance with the terms of the policy and the [assured] fails to make and deliver such proof of loss within 30 days from the time of receiving such notice. An omission or defect in such proof of loss shall not render the policy void or constitute a defense to an action thereon, unless the insurer notifies the [assured] thereof in writing within 10 days after receiving such proof of loss, particularly specifying in such notice all the omissions and defects in such proof of loss and the [assured] neglects for 30 days after receiving such notice to make and deliver a new proof of loss wherein such omissions and defects are corrected.

Vt. Stat. Ann. tit. 8, § 3867 (West 2014). After receipt of a satisfactory proof, the amount of the loss under a fire insurance policy is due and payable in 60 days. See id. § 3868.

Further, Vermont courts accept substantial compliance with a proof of loss provision, and, therefore, are likely to not enforce a requirement that the proof be sworn, possibly even if the policy requires it. In Stonewall Insurance Co. v. Moorby, 130 Vt. 562, 566-67, 298 A.2d 826, 829 (1972), the Vermont Supreme Court noted that “‘generally speaking, provisions for the giving of notice of loss or the furnishing of proofs of loss to an insurer will be liberally construed in favor of the [assured], and a substantial compliance there with, as distinguished from a strict compliance, will suffice.’” Id. (internal citations omitted).

The Vermont Supreme Court stated in Jervis v. Burlington Mutual Fire Insurance Co., 113 Vt. 518, 524, 37 A.2d 374, 377 (1944), “[t]he object of a proof of loss is to furnish the insurer with the particulars of the loss and all data necessary to determine its liability and the amount thereof.” In that case, the insurer objected to the assured’s proof of loss, claiming that the amount of the loss was overstated, and it requested that the assured submit a new statement. Id. at 523, 37 A.2d at 377. The assured did not do so. Id. The court found that the mere statement that the loss was “overstated” was too general and the insurer should have specified the particular item or items that it claimed to have been overstated in the original proof of loss. Id. at 524, 37 A.2d at 377. It, therefore, placed the burden on the insurer to specify the defects in the proof, giving the assured both the benefit of the doubt and an opportunity to cure defects. Id.; see also Reynolds v. John Hancock Life Ins. Co., 117 Vt. 541, 548, 97 A.2d 121, 126 (1953) (“When a bona fide attempt to comply with the requirements of the policies has been made, simple fairness requires that the company should point out any defects in the proof of loss or claim therein if it would rely on them.”).

Based on this case law and the statutory language, in Vermont, an assured who substantially complies with the proof of loss requirement in the policy will be entitled to recovery. Accordingly, where the insurer has sufficient information on which to determine an undisputed amount of loss, a court is likely to reason that either the assured substantially complied with the proof of loss requirement or the insurer waived the provision’s enforcement as it determined an undisputed amount prior to requiring the assured to substantially comply with the proof of loss requirement.

Even if the assured has not substantially complied with a proof of loss provision, the insurer could not rely on the provision where the insurer did not provide the required forms and then notify the assured that the assured must comply with the proof of loss requirement.

Exposure: Vermont recognizes a first-party claim for tortious bad faith for an insurer’s unreasonable denial, and it also recognizes a contractual bad faith claim based on a violation of the covenant of good faith and fair dealing. Peerless Ins. Co. v. Frederick, 177 Vt. 441, 446, 869 A.2d 112, 116 (2004). To recover on a bad faith claim, an assured must show that “(1) the insurance company had no reasonable basis to deny benefits of the policy, and (2) the company knew or recklessly disregarded the fact that no reasonable basis existed for denying the claim.” Bushey v. Allstate Ins. Co., 164 Vt. 399, 402, 670 A.2d 807, 809 (Vt. 1995). Vermont’s bad faith rule, however, “limits recovery to instances in which an insurer not only errs in denying coverage but does so unreasonably.” City of Burlington, 190 F. Supp. 2d at 692 (quoting Bushey, 164 Vt. at 402, 670 A.2d at 809).

To receive punitive damages in a bad faith action, a plaintiff must demonstrate that the insurer acted with actual malice, or “conduct manifesting personal ill will, evidencing insult or oppression, or showing a reckless or wanton disregard of plaintiff's rights.” See Monahan v. GMAC Mortg. Corp., 179 Vt. 167, 187, 893 A.2d 298, 304 (Vt. 2005). Emotional distress damages may also be available. See Buote v. Verizon New England, 249 F. Supp. 2d 422, 433 (D. Vt. 2003).

Vt. Stat. Ann. tit. 8, § 3665 (West 2014) also sets forth potential damages available to an assured due to untimely payment of a loss. Where uncontested, an insurer must pay the claim “within 30 days after [the receipt of] … a properly executed proof of loss[.]” Id. at § 3665 (c)(1)(A). Where an insurer causes an improper delay, the insurer is “responsible for payment of any consequential damages caused by improper delay[.]” Id. at § 3665 (a). An insurer must also pay interest on the amount of the claim beginning 30 days after receipt of a “properly executed proof of loss” if the insurer fails to pay a claim timely, as well as “any and all penalties or costs imposed on [the assured] as a consequence of such failure.” Id. at § 3665 (d)-(e).

Accordingly, in the instance presumed in this survey – where an insurer has sufficient information on which to determine an undisputed amount – this amount would likely be considered an “uncontested” amount, under Vt. Stat. Ann. tit. 8, § 3665 (c)(1)(A), and due within 30 days of receipt of the proof of loss. While an insurer could argue that this statute requires a properly executed proof of loss, and it has the right to require such before making the undisputed amount, an insurer must consider that Vermont only requires substantial compliance with a proof of loss requirement. Where the insurer nevertheless intends to stand by the requirement for a properly executed proof of loss set forth in the statute (rather than in the policy), the insurer still would likely first be required to have provided to the assured such required form(s) upon notice of the loss, notified the assured in writing that compliance with such forms were required for recovery under the policy, and, where the assured submitted insufficient forms, timely and specifically objected to and placed the assured on notice of the defects. Otherwise, the insurer’s failure to timely pay an undisputed amount could be deemed unreasonable, making it subject to potential bad faith liability.

With respect to unfair claims settlement practices, we further note Vermont’s Insurance Trade Practices Act provides, in relevant part as follows:

(9)  Unfair claim settlement practices. Committing or performing with such frequency as to indicate a business practice any of the following:

* * *

(D)  refusing to pay claims without conducting a reasonable investigation based upon all available information;

(E)  failing to affirm or deny coverage of claims within a reasonable period of time after proof of loss statements have been completed;

(F)  not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear …

* * *

(L)  failing to promptly settle claims where liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;

Vt. Stat. Ann. tit. 8, § 4724 (9)(D),(E),(F), and (L). This statute only provides for administrative sanctions, however, and does not create a private cause of action. See City of Burlington, 190 F. Supp. 2d at 684.

VIRGINIA

Overview: In Virginia, where an insurance policy makes the furnishing of a proof of loss a condition precedent to an action upon it, performance (or waiver of it) must be shown before a recovery can be had. In the instance of fire policies, however, Virginia law typically requires only that an assured prove reasonable and substantial compliance. As a result, it is our judgment that an insurer may risk bad faith exposure should it withhold payment of an undisputed amount until the assured has submitted a proof in situations in which the policyholder has provided enough information to make liability clear.

Enforceability: The Virginia Supreme Court has explained that “[i]t has long been settled … if an insurance policy makes the furnishing of a proof of loss a condition precedent to an action upon it, performance or waiver of it must be shown before a recovery can be had.” Aetna Cas. & Sur. Co. v. Harris, 218 Va. 571, 578, 239 S.E.2d 84, 88 (1977) (internal citations omitted). The burden is on the assured to prove compliance or waiver or his action must fail. Id.

Requirements: With respect to fire policies, and in the absence of bad faith, “the law requires of an [assured] only a reasonable and substantial compliance with the clauses, conditions and warranties of the policy.” Id. (internal citations omitted); see also N. British & Mercantile Ins. Co. v. Edmundson, 104 Va. 486, 52 S.E. 350 (1905). Virginia law also will not read into a policy’s requirements more than is stated therein. If the contract only requires a sworn statement, leaving open the question as to what the statement is required to set forth, a Virginia court is likely to resolve any issue of doubt in favor of the assured. See Allstate Ins. Co. v. Charity, 255 Va. 55, 60, 496 S.E.2d 430, 432 (1998).

It is the assured’s burden of proof to establish that it substantially complied with the policy conditions, however. Id. at 58, 496 S.E.2d at 431. Where the submitted proof of loss is sufficient to enable the insurer to investigate the assured’s losses, to estimate its rights and liabilities, and to prevent assertion of a fraudulent or unjust claim, an assured most likely will be held to have met his or her burden of substantial compliance. Id. at 59, 496 S.E.2d at 431-32. If there is doubt as to the requirements, a Virginia court would likely resolve the doubt in favor of the assured. See Charity, 255 Va. at 60, 496 S.E.2d at 432.

Where the assured requests forms for proof of loss, the insurer must furnish such forms within 15 days after the assured’s written request. The refusal or failure to do so is deemed a waiver of requiring a proof of loss. See Va. Code Ann. § 38.2-320 (West 2014).

Exposure: In common law, Virginia only recognizes a contractual bad faith claim through which an assured may also recover attorney’s fees. Bettius & Sanderson, P.C. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 839 F.2d 1009, 1016-17 (4th Cir. 1988) (applying Virginia law). Specifically, under Va. Code Ann. § 38.2-209, an assured can recover attorney’s fees and costs if “the insurer, not acting in good faith, … either denied coverage or failed or refused to make payment to the [assured] under the policy.” Id. The statute, however, does not create a private right of action for the assured; it only serves as a function of damages. See Saint John’s African Methodist Episcopal Church v. GuideOne Specialty Mut. Ins. Co., 902 F. Supp. 2d 783, 786 (E.D. Va. 2012). In evaluating the conduct of an insurer for purposes of determining whether to award attorney’s fees for the insurer’s bad faith conduct, Virginia uses the reasonableness standard. See Cuna Mut. Ins. Soc. v. Norman, 237 Va. 33, 38, 375 S.E.2d 724, 726-27 (Va. 1989). Virginia, however, “does not allow punitive damages when an insurer, in bad faith, delays or fails to satisfy a claim” against its assured. See Bettius, 839 F.2d at 1016.

In Virginia, an insurer could increase its risk of bad faith exposure where it withholds a payment of an undisputed amount while awaiting a formal proof of loss, as Virginia law only requires substantial compliance with the proof of loss provision in a fire policy. As a result, a court may be persuaded to assess attorneys’ fees against an insurer where the assured was able to prove that he or she substantially complied with the policy’s proof of loss requirement.

While it does not create a private right of action, we further note that Va. Code Ann. § 38.2-510 sets forth unfair claim settlement practices, including failing to affirm or deny claims within a reasonable time after proof of loss statements are completed; delaying the investigation or payment of claims by requiring an assured to submit an initial claim report and then requiring subsequent submission of formal proofs of loss when both contain substantially the same information; and failing to promptly pay claims where liability is reasonably clear. See id. § 38.2-510 (A)(5), (12)-(13).

WASHINGTON

Overview: Washington law has long recognized the validity of the insurance policy requirement that the assured submit a proof of loss as a condition to receiving first-party benefits following a covered loss. The proof of loss requirement is, therefore, enforceable in Washington, except where the failure to submit a proof is due to misleading statements or conduct by the agents or officers of the insurer. An assured will not necessarily be held to strict or literal compliance with each term of the proof of loss requirement, however, because substantial compliance is sufficient to allow recovery. Washington courts have not specifically addressed the issue of enforcement of a policy provision requiring submission of a proof of loss as a condition of payment of undisputed amounts, but policyholders generally are given much leeway in meeting policy requirements. In addition, the insurer may not deny for non-compliance of a proof of loss requirement unless the insurer can show actual prejudice. In our judgment, therefore, an insurer that conditioned payment of an undisputed amount upon submission of a sworn statement in proof of loss could well be at risk of bad faith or extracontractual liability if it is already in possession of enough information to demonstrate liability.

Enforceability: Washington courts have held repeatedly that the submission of a proof of loss is a valid condition precedent to payment of a first-party loss:

The rule is well settled in this state that the making of proof of loss as required by the policy is a condition precedent to the maintenance of an action, unless failure to present proofs is due to a misleading of the [assured] by the officers or agents of the insurance company.

Kuck v. Citizens’ Ins. Co. of Missouri, 90 Wash. 35, 37, 155 P. 406, 407 (1916) (citations omitted); see also Walton v. Am. Cent. Ins. Co. of St. Louis, 115 Wash. 103, 104-05, 196 P. 588, 588 (1921); Buchanan v. Switzerland Gen. Ins. Co., 76 Wash. 2d 100, 106, 455 P.2d 344, 348 (1969) (citations omitted).

In Kuck, the policy required submission of a proof of loss within 60 days after the loss, but the assured never submitted a proof. The insurer denied payment of the fire loss, and the court rejected the assured’s argument that the insurer’s adjuster had waived the proof of loss requirement by inspecting the loss site without the assured present. Finding no evidence of waiver or estoppel, the court upheld the denial. See Kuck, 90 Wash. at 37, 155 P. at 407.

On the other hand, in Walton, the court found sufficient evidence of estoppel to send the question to the jury. See Walton, 115 Wash. at 105, 196 P. at 589. There, the assured submitted a proof of loss that clearly did not comply with the detailed requirements of the policy. The assured stated that when he presented the proof to the adjuster, he was told that there was nothing more he needed to do. The court held that this representation, if proven, is misleading. See id. at 105, 196 P. at 588.

Similarly, in Buchanan, the adjuster authorized initial repairs to damaged property and later told the assured it was not necessary to submit a proof of loss. In addition, the policy required a proof of loss submission as a condition of payment. The court held that the assured presented sufficient evidence of estoppel and that the insurer could not rely of the policy requirement in that circumstance. See Buchanan, 76 Wash. 2d at 109, 455 P.2d at 350.

These cases illustrate a strong tendency of Washington courts to extend leniency to assureds who fail to strictly comply with proof of loss requirements whenever the facts of the claim allow the assured an opening, through alleged promises or conduct by the insurer’s representative, to argue that he or she was misled. Furthermore, case law further indicates that a Washington court may also apply an actual prejudice rule to a denial of payment based on an alleged breach of a policy condition or requirement. See, e.g., Thompson v. Grange Ins. Ass’n, 34 Wash. App. 151, 163, 660 P.2d 307, 314 (1983); see also Pub. Util. Dist. No. 1 of Klickitat Cnty. v. Int’l Ins. Co., 124 Wash. 2d 789, 803-04, 881 P.2d 1020, 1029 (1994). As the Court of Appeals has observed, “[a]n insurance company can deny coverage for noncompliance with the requirements of an insurance policy only if the noncompliance results in actual prejudice,” and actual prejudice connotes “a showing of ‘some concrete detriment resulting from the delay which harms the insurer’s preparation or presentation of defenses to coverage or liability.’” Key Tronic Corp. v. St. Paul Fire and Marine Ins. Co., 134 Wash. App. 303, 307, 139 P.3d 383, 385 (2006) (quoting Canron, Inc. v. Fed. Ins. Co., 82 Wash. App. 480, 486, 918 P.2d 937 (1996)). A Washington court will, therefore, not likely relieve an insurer of its responsibilities due to a technical violation of a proof of loss condition.

Requirements: Washington only requires that an assured substantially comply with a policy’s proof of loss requirement. In Burbank v. Pioneer Mutual Insurance Ass’n, the fire insurance policy at issue contained no proof of loss requirement on its face, but it did set out a 60-day proof of loss provision printed on its back. 60 Wash. 253, 254, 110 P. 1005, 1005 (1910) The insurer denied payment for the assured’s fire loss because the assured never submitted a proof of loss. Id. The court held that the endorsement on the back of the policy, absent any mention of it on the face of the policy, was invalid. Id. at 256-57, 110 P. at 1006. The court also noted that the assured, although not providing a proof of loss as required by the endorsement, did produce evidence sufficient to establish the fact of the fire, the total destruction of the insured property, and the value of the property insured. Id. at 258, 110 P. at 1006. This amounted to substantial compliance, as it provided the insurer with all information necessary to adjust the loss, and it justified payment under the policy. Id.

As the District Court of Washington has explained, the purpose of the proof of loss and that substantial compliance was all that was necessary to meet the policy requirement:

The notice of loss informs the company that the contingency insured against has occurred, while proof of loss supplies evidence of the particulars of the occurrence, and information necessary to enable the insurer to determine its liability, and the amount thereof.

The giving of notice of loss does not dispense with the requirement that proof of loss be submitted. Even as to private insurance corporations, in the absence of waiver or estoppel, there must be at least substantial compliance with a requirement that written proof of loss be furnished to the [assured].

Roberts v. Fed. Crop Ins. Corp., 158 F.Supp. 688, 693-94, (E.D. Wash. 1958), aff’d sub nom. Roberts v. Fed. Crop Ins. Corp., 260 F.2d 958 (9th Cir. 1958).

Therefore, in Washington an assured need not necessarily comply with each particular requirement of the proof of loss provision with absolute exactness. Substantial compliance will suffice.

Exposure: Washington has both common law and statutory causes of action for improprieties by the insurer. With respect to the former, the Washington legislature has declared that the business of insurance affects the public interest, and requires good faith, abstinence from deception, and honesty and equity in all insurance matters. See Wash. Rev. Code Ann. § 48.01.030 (West 2015). An insurer fails to meet this standard of good faith when its actions are “unreasonable, frivolous, or unfounded,” which also may give rise to a tort action for bad faith. See Hell Yeah Cycles v. Ohio Sec. Ins. Co., 16 F. Supp. 3d 1224, 1234-35 (E.D. Wash. 2014) (quoting Smith v. Safeco Ins. Co., 150 Wash. 2d 478, 484, 78 P.3d 1274 (2003) (internal citations omitted)) (other internal citations omitted). To prove bad faith, an assured must prove the insurer acted unreasonably. See id.; see also St. Paul Fire and Marine Ins. Co. v. Onvia, Inc., 165 Wash. 2d 122, 132, 196 P.3d 664, 669 (2008); Kirk v. Mt. Airy Ins. Co., 134 Wash. 2d 558, 560, 951 P.2d 1126 (1998) (citing Wolf v. League Gen. Ins. Co., 85 Wash. App. 113, 122, 931 P.2d 184 (1997)).

In Coventry Associates v. American States Insurance Co., 136 Wash. 2d 269, 961 P.2d 933 (1998), the court considered whether a policyholder under a first-party policy could maintain an action against its insurer for bad faith in the investigation of a claim even though the policy in question did not provide coverage for the loss. The court found that a policyholder may maintain a cause of action for bad faith in investigating a claim even if the insurer’s determination of no coverage proves correct. Id. at 279, 961 P.2d at 937. At the same time, the court declined to presume harm to the policyholder under a first-party policy, holding instead that the policyholder must prove that it was harmed by the insurer’s bad faith. Id. at 281-83, 961 P.2d at 938-39. Finally, the court held that the policyholder under a first-party policy was not entitled to coverage by estoppel but could only recover those losses it had incurred as a result of the insurer’s bad faith, such as the cost of conducting its own investigation. Id. at 283-85, 961 P.2d at 939-40. This shows the potential breadth of bad faith exposure for first-party property insurers.

Further exposure arises from the Insurance Fair Conduct Act (IFCA), which became effective in Washington in 2007. By Washington statute, the state insurance commissioner is authorized to define methods of competition and acts and practices in the conduct of the business of insurance that are unfair or deceptive and that would constitute unfair claims settlement practices. See Wash. Rev. Code Ann. § 48.30.010 (West 2015). The commissioner’s regulations are found in the Washington Administrative Code. Wash. Admin. Code §§ 284-30-330 through 284-30-390. The regulations are based on the model Fair Claims Settlement Practice Act, which has been adopted in 39 jurisdictions in the United States. Regulations particularly relevant to an assured’s proof of loss obligations are:

284-30-330. Specific unfair claims settlement practices defined

The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices of the insurer in the business of insurance, specifically applicable to the settlement of claims:

* * *

(3)  Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies.

(4)  Refusing to pay claims without conducting a reasonable investigation.

(5)  Failing to affirm or deny coverage of claims within a reasonable time after fully completed proof of loss documentation has been submitted.

Wash. Admin. Code § 284-30-330 (West 2015).

Though the regulations do not by themselves provide a private cause of action against an insurer, they are used as a standard to determine liability under other statutory law – namely, the Consumer Protection Act, Wash. Rev. Code Ann. §§ 19.86.01, et seq. (West 2015); and the Insurance Fair Conduct Act, or IFCA, Wash. Rev. Code Ann. § 48.30.015 (West 2015). The latter prohibits an insurer from unreasonably denying “a claim for coverage or payment of benefits to any first party claimant,” and provides liability for an insurer’s proven violation of several identified Washington Administrative Code claims handling provisions, including those set forth above. Wash. Rev. Code Ann. § 48.30.015

Accordingly, the IFCA thereby creates a statutory cause of action for unreasonable denial of claims and failure to pay benefits, and it expands on existing remedies available to policyholders. Under IFCA, if the plaintiff can prove the unreasonable denial, he or she is entitled to an award of actual damages, attorney fees, and litigation costs including expert fees. In addition, the court may award treble damages, with no limitation as to amount. Liability under IFCA, including the penalty of treble damages, depends on a determination of unreasonable conduct by the insurer. This is a rather low threshold, however, and Washington courts historically have not hesitated to find conduct unreasonable.

Given that Washington is a substantial compliance jurisdiction, we believe a Washington court could likely determine that, where an insurer has sufficient information on which to determine an undisputed amount of loss, the assured has either substantially complied with the proof of loss provision, or the insurer has otherwise waived, or is estopped from reliance on, the proof of loss requirement. This reasoning could further provide a basis for a court to determine that, where an insurer determined an undisputed amount and withheld it for technical and formal compliance with a proof of loss, the insurer acted unreasonably, subjecting the insurer to bad faith and extracontractual exposure.

WEST VIRGINIA

Overview: West Virginia courts would likely not require a formal sworn statement in proof of loss as long as the assured has substantially complied with the proof of loss provision by providing enough information for the insurer to adequately investigate the claim and estimate its liabilities. As the state is a substantial compliance jurisdiction, where there is an undisputed amount of loss, a court is likely to reason that the assured has substantially complied with the proof of loss provision. Accordingly, and generally speaking, it is our judgment that the insurer should pay an undisputed amounts within 15 days in order to avoid potential bad faith and extracontractual exposure, for the reasons more fully set forth herein.

Enforceability: “[T]he furnishing of a proof of claim when required as a condition in an insurance policy, is a condition precedent to recovery.” Petrice v. Fed. Kemper Ins. Co., 163 W. Va. 737, 739, 260 S.E.2d 276, 278 (1979). This condition, however, may be waived by the insurer, either expressly or impliedly; or, the insurer, by its conduct, may be estopped from asserting the assured’s failure to supply the sworn statement to effect a forfeiture. See id. at 740, 260 S.E.2d at 278. In addition, where the need for the proof of loss is rendered moot by the insurer’s actions, the failure of the assured to furnish such a proof may be excused. See id.; see also Willey v. Travelers Indem. Co., 156 W. Va. 398, 193 S.E.2d 555 (1972). “A substantial compliance with the provision requiring a sworn proof of loss, resulting in the insurer being able to adequately investigate the claim and estimate its liabilities, is all that is required.” Petrice, 163 W. Va. at 740, 260 S.E.2d at 278; see also Colonial Ins. Co. v. Barrett, 208 W. Va. 706, 711, 542 S.E.2d 869, 874 (2000) (internal citations omitted).

Requirements: West Virginia’s highest court has held that the proof of loss provision in a policy “is to be liberally construed in favor of the [assured].” Barrett, 208 W. Va. at 711, 542 S.E.2d at 874 (internal citations omitted). The Barrett court referred to the proof of loss provision interchangeably with the notice provision, and it stated that the provision “is not to be read as a series of technical hurdles[.]” Id. Instead “substantial compliance ... resulting in the insurer being able to adequately investigate the claim and estimate its liabilities, is all that is required.” Id. (internal quotations omitted). Further, the Petrice court explained that “[t]he purpose of a sworn proof of loss statement is to allow the insurer to adequately investigate the claim and to formulate an estimate of its liabilities.” Petrice, 163 W. Va. at 739, 260 S.E.2d at 278. The court explained that while furnishing a proof of loss may be a condition precedent to recovery, “this condition may be waived by the insurer expressly or impliedly or, the insurer, by its conduct, may be estopped from asserting the failure to supply the sworn statement to effect a forfeiture.” Id. at 740, 260 S.E.2d at 278.

Finally, the failure to furnish a proof within the time provided for cannot effect a forfeiture of the assured’s rights unless the policy expressly provides for that; otherwise it merely postpones the assured’s right of action until such time as a proof is submitted. Peninsular Land Transp. & Mfg. Co. v. Franklin Ins. Co., 35 W. Va. 666, 14 S.E. 237 (1891).

Exposure: West Virginia recognizes both statutory and common law causes of action for improper claims handling. With respect to the former, the state’s statutes provide that the following activities, if “commit[ted] or perform[ed] with such frequency as to constitute a general business practice,” are unfair claims settlement practices:

(e)  Failing to affirm or deny coverage for claims within a reasonable time after proof of loss statements have been completed;

(f)  Not attempting in good faith to effectuate prompt, fair and equitable liability has become reasonably clear;

* * *

(m)  Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;

W. Va. Code Ann. § 33-11-4(9)(e)(f) and (m) (West 2015). In addition, the state’s highest court has held that the statute provides a private cause of action upon a showing “that there has been a violation or that there have been multiple violations of the West Virginia Unfair Settlement Practices Act … in the management of the plaintiff’s claim and that the violation or violations entailed ‘a general business practice’ on the part of the insurer.” McCormick v. Allstate Ins. Co., 197 W. Va. 415, 422-23, 475 S.E.2d 507, 514-15 (1996); see also Morton v. Amos-Lee Sec., Inc., 195 W. Va. 691, 695-96, 466 S.E.2d 542, 546-47 (1995) (“[A] private cause of action under W. Va. Code 33-11-4(9) may be brought against an insurance company for failing to attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.”).

As noted previously, West Virginia also recognizes a common law cause of action against carriers for first-party bad faith. See Noland v. Virginia Ins. Reciprocal, 224 W. Va. 372, 382, 686 S.E.2d 23, 33 n. 26 (2009); Hayseeds, Inc. v. State Farm Fire & Cas., 177 W. Va. 323, 352 S.E.2d 73 (1986), modified Miller v. Fluharty, 201 W. Va. 685, 500 S.E.2d 310 (1997).

Given that West Virginia is a substantial compliance jurisdiction, we believe a West Virginia court could determine that, where an insurer has sufficient information on which to determine an undisputed amount of loss, the assured has either substantially complied with the proof of loss provision, or the insurer has otherwise waived, or is estopped from reliance on, the proof of loss requirement. This reasoning could further provide a basis for a court to reason that, where an insurer determined an undisputed amount and withheld it for technical and formal compliance with a proof of loss, the insurer acted unreasonably, subjecting the insurer to bad faith and extracontractual exposure.

WISCONSIN

Overview: Wisconsin courts have not addressed whether they will enforce a policy provision requiring submission of a sworn statement in proof of loss as a condition to payment, but state law regarding insurance policy interpretation generally indicates that Wisconsin would enforce such a provision; in Wisconsin, where an insurance policy’s language is unambiguous, courts enforce the contract as written. Wisconsin courts have also upheld a policy’s sworn proof of loss requirement as to disputed amounts and have upheld policy provisions requiring a sworn proof of loss as a condition precedent to commencement of an action. The state applies a liberal rule as to the furnishing of proofs of loss, however, and it is effectively a substantial compliance jurisdiction. As a result, it is our judgment that insisting on a proof before paying an undisputed amount in cases in which the carrier has been furnished with sufficient information to demonstrate liability, could be deemed a failure to properly comply with Wisconsin law regarding proofs and subject the insurer to bad faith exposure and interest fees under Wisconsin’s Timely Payment of Claims Statute.

Enforceability: Wisconsin courts have upheld an insurance policy’s sworn proof of loss requirement. For example, in Binsfeld v. Home Mutual Insurance Co., 245 Wis. 552, 15 N.W.2d 828 (1944), the assured and the insurer disputed recovery under a tornado insurance policy. The policy required the assured to submit a signed and sworn proof of loss within 60 days after the loss and stated that no suit or action on the policy was sustainable unless the assured had complied with the policy requirements. Id. at 556-57, 15 N.W.2d at 830. Prior to suit, the assured filed two demonstrably deficient proofs of loss, both of which were objected to by the insurer as insufficient under the terms of the policy. Id. at 557, 15 N.W.2d at 830. The court cited to Blakely v. Phoenix Insurance Co., 20 Wis. 205 (1866), for the proposition that, by the terms of the policy, compliance with its provisions as to the contents of the proof of loss was made a condition precedent to commencement of an action. Binsfield, 245 Wis. at 557, 15 N.W.2d at 830. Accordingly, the court dismissed the action, albeit with leave to timely recommence another action upon furnishing proofs of loss in conformity with the terms of the policy. Id. at 558, 15 N.W.2d at 830.

Note that the proof of loss requirement may be waived by the insurer under appropriate circumstances, including those circumstances more fully set forth herein. See Gleisner v. U. S. Fid. and Guar. Co., 25 Wis. 2d 33, 39-40, 130 N.W.2d 286, 289-90 (1964).

Requirements: As stated in the previous section, Wisconsin courts uphold policy provisions requiring sworn proofs of loss where a deficient proof of loss is objected to by the insurer. Binsfeld, 245 Wis. at 558, 15 N.W.2d at 830. Still, Wisconsin courts apply a liberal rule as to the furnishing of proofs of loss. Badger v. Phoenix Ins. Co. of Brooklyn, 49 Wis. 396, 5 N.W. 848, 852 (1880). They have repeatedly held that if imperfect proofs are furnished and retained, without notice from the insurer that they are defective and that further proofs are required, it will be presumed that the insurer waived all defects in such proofs, and all necessity for further proofs. Id. If a proof of loss is furnished to the insurer as soon as reasonably possible and within one year after the time it was required by the policy, failure to furnish such notice or proof within the time required by the policy does not invalidate or reduce a claim unless the insurer is harmed as a result and it was reasonably possible to meet the time limit. See Wis. Stat. Ann. § 631.81(1) (West 2014).

Exposure: In Wisconsin, “the knowing failure to exercise an honest and informed judgment constitutes the tort of bad faith.” Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 692, 271 N.W.2d 368, 377 (1978). The state recognizes a common law duty of good faith and fair dealing, and an assured may sue if that duty is breached. Danner v. Auto-Owners Ins., 2001 WI 90, ¶ 3, 245 Wis. 2d 49, 53, 245 N.W.2d 159, 162. When an insurer acts in bad faith by denying benefits, it is liable to the assured in tort for any damages that are the proximate result of that conduct, including damages that were otherwise recoverable in a breach of an insurance contract claim. Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41, ¶ 32, 334 Wis. 2d 23, 39, 798 N.W.2d 467, 475-6. To successfully defend against such a claim, the insurer must show that the issue of coverage was fairly debatable. Mowry v. Bodger State Mut. Cas. Co., 129 Wis. 2d 496, 516, 385 N.W.2d 171, 180 (1986).

To demonstrate that an insurer has committed a tortious bad faith refusal to honor a claim of an assured, a plaintiff must show (1) the absence of a reasonable basis for denying benefits of the policy, and (2) the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Anderson, 85 Wis. 2d at 691, 271 N.W.2d at 376. Id. at 691. As noted above, an insurer lacks a reasonable basis for denying a claim when the claim is not fairly debatable. Id. The fairly debatable test is an objective test that focuses on whether a reasonable insurer under the circumstances would have denied or delayed payment of the claim under the facts and circumstances at bar. Id. at 692, 271 N.W.2d at 377.

Conversely, the second element is subjective. Trinity Evangelical Lutheran Church & Sch.-Freistadt v. Tower Ins. Co., 2003 WI 46, ¶ 88, 261 Wis. 2d 333, 370, 661 N.W.2d 789, 807. “[T]he knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless disregard of a lack of a reasonable basis for denial or a reckless indifference to the facts or to proofs, submitted by the [assured]." Brown v. Labor & Indus. Review Comm'n, 2003 WI 142, ¶ 26, 267 Wis. 2d 31, 50, 671 N.W.2d 279, 288 (citations omitted).

Wisconsin’s Insurance Claim Settlement Practices Act, Wis. Admin. Code Ins. § 6.11 (2015), was enacted to promote the fair and equitable treatment of policyholders, claimants and insurers by defining certain claim adjustment practices that are considered to be unfair methods and practices in the business of insurance. The Act provides standards by which an insurer’s conduct can be measured for reasonableness. Id. The Act provides, inter alia, that the following shall be unfair claims practices:

4.  Failure to attempt in good faith to effectuate fair and equitable settlement of claims submitted in which liability has become reasonably clear.

* * *

7.  Failure to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed.

8.  Failure to settle a claim under one portion of the policy coverage in order to influence a settlement under another portion of the policy coverage.

Id. § 6.11 (4), (7) and (8). Commission of any of the acts listed in Wis. Admin. Code Ins. § 6.11(3)(a) subjects an insurer to revocation of the license to transact insurance in Wisconsin. Id. § 6.11(5).

Wisconsin’s Unfair Claim Settlement Practices Act is augmented by Wisconsin’s Timely Payment of Claims Statute, which provides for the prompt payment of insurance claims. See Wis. Stat. Ann. § 628.46 (West 2014). The statute constitutes an “additional provision of the insurance contract incorporated into it by operation of law.” Kontowicz v. Am. Standard Ins. Co. of Wisconsin, 2006 WI 48, ¶ 31, 290 Wis. 2d 302, 320, 714 N.W.2d 105, 114. However, any obligation to pay insurance benefits arising under Wis. Stat. Ann. § 628.46 must first arise as a result of the specific policy language contained in the insurance policy. Under Wis. Stat. Ann. § 628.46(1):

A claim shall be overdue if not paid within 30 days after the insurer is furnished written notice of the fact of a covered loss and of the amount of the loss. If such written notice is not furnished to the insurer as to the entire claim, any partial amount supported by written notice is overdue if not paid within 30 days after such written notice is furnished to the insurer. Any part or all of the remainder of the claim that is subsequently supported by written notice is overdue if not paid within 30 days after written notice is furnished to the insurer. Any payment shall not be deemed overdue when the insurer has reasonable proof to establish that the insurer is not responsible for the payment, notwithstanding that written notice has been furnished to the insurer. For the purpose of calculating the extent to which any claim is overdue, payment shall be treated as being made on the date a draft or other valid instrument which is equivalent to payment was placed in the U.S. mail in a properly addressed, postpaid envelope, or, if not so posted, on the date of delivery. All overdue payments shall bear simple interest at the rate of 12% per year.

Given that Wisconsin is a substantial compliance jurisdiction, we believe a Wisconsin court could determine that, where an insurer has sufficient information on which to determine an undisputed amount of loss, the assured has either substantially complied with the proof of loss provision, or the insurer has otherwise waived, or is estopped from reliance on, the proof of loss requirement. This reasoning could further provide a basis for a court to reason that, where an insurer determined an undisputed amount and withheld it for technical and formal compliance with a proof of loss, the insurer acted unreasonably, subjecting the insurer to bad faith and extracontractual exposure.

WYOMING

Overview: In Wyoming, courts typically would not enforce a policy’s proof of loss requirements where the insurer has the necessary information to make a determination as to its liability. Thus, it is unlikely that an insurer could require a sworn proof of loss when the underlying amount is undisputed. Rather, when an undisputed amount exists, an insurer should render payment regardless of whether or not the assured has complied with a technical sworn proof of loss provision, and failure to do so could give rise to bad faith exposure or extracontractual liability.

Enforceability: “As a general rule, a proof of loss requirement is valid and may be considered as a condition precedent to recovery” under a property policy in Wyoming. Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1, 6 (10th Cir. 1966) (applying Wyoming law). However, Wyoming courts typically will not enforce a policy’s proof of loss requirements if the insurer already has the necessary information to make a coverage determination — which, if the amount is undisputed, could presumably be the case. See Hawkeye-Sec. Ins. Co. v. Apodaca, 524 P.2d 874, 877-78 (Wyo. 1974). (“A formal proof of loss would not have revealed any information not already known to the insurance company.”) This stems from a general hesitancy to absolve coverage because of technical inadequacies in the policyholder’s claim. See Kahn v. Traders’ Ins. Co., 4 Wyo. 419, 34 P. 1059, 1070 (1893). Thus, an insurer must show that the assured’s failure to file a formal proof of loss somehow prejudiced its ability to investigate the loss, which is inherently difficult assuming an underlying amount is undisputed. See Apodaca, 524 P.2d at 877 (holding that an insurer must show that the failure to comply with sworn proof of loss has somehow “thwarted or hindered” its investigation).

Requirements: Wyoming courts allow for substantial compliance by the policyholder with respect to proof of loss provisions. Specifically, adequate proof of loss requires enough information to enable the insurer “to investigate a loss so that it can determine its rights and liabilities and prevent fraud and unjust claims from being asserted.” Apodaca, 524 P.2d at 877.

Exposure: Wyoming has a common law cause of action for first-party bad faith. As explained in Gainsco Insurance Co. v. Amoco Production Co., 2002 WY 122, ¶ 32, 53 P.3d 1051, 1062 (Wyo. 2002):

[F]irst-party bad faith occurs when an insurer, in bad faith, refuses to pay an [assured]’s direct claim for policy benefits. First-party bad faith is the knowing or reckless denial of a claim without a reasonable basis for such denial. Under an objective standard, the question is whether the validity of the claim is fairly debatable. Such validity is fairly debatable if a reasonable insurer would have denied or delayed payment of benefits under the existing circumstances.

See also First Wyoming Bank, N.A., Jackson Hole v. Cont’l Ins. Co., 860 P.2d 1094, 1101 (Wyo. 1993). In our judgment, it would be difficult for an insurer to contend that the fact the policyholder had yet to strictly comply with a proof of loss provision (what Wyoming courts would likely regard as a technical requirement) made the validity of an undisputed loss amount fairly debatable.

Instead, we believe a Wyoming court could determine that, where an insurer has sufficient information on which to determine an undisputed amount of loss, the assured has either substantially complied with the proof of loss provision, or the insurer has otherwise waived, or is estopped from reliance on, the proof of loss requirement. This reasoning could further provide a basis for a court to reason that, where an insurer determined an undisputed amount and withheld it for technical and formal compliance with a proof of loss, the insurer acted unreasonably, subjecting the insurer to bad faith and extracontractual exposure.

Wyoming also has an Unfair Trade Practices Act, Wyo. Stat. Ann. §§ 26-13-101, et seq. (West 2014), which makes it an unfair claims settlement practice to not “attempt[] in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” Wyo. Stat. Ann. § 26-13-124(a)(vi) (West 2014). However, the state Supreme Court has held that the Wyoming Legislature did not intend for this provision of the state’s Insurance Code to be enforced by private action. See Herrig v. Herrig, 844 P.2d 487, 494 (Wyo. 1992); see also Julian v. New Hampshire Ins. Co., 694 F. Supp. 1530, 1532 (D. Wyo. 1988).