Known for its mercurial nature and frequent severity, Texas weather has long been the subject of wry observation, but 2016’s Texas weather has been even more intense than usual. Freshest on our minds is the terrible flooding from May and June—even the seemingly all-night thunderstorms over the Fourth of July weekend, here in Tarrant County. Before that, though, were the hailstorms. March and April both saw hailstorms that caused extensive damage across parts of Texas. Storms in late March caused upwards of $1B in property damage in North Texas, while a storm on April 11 damaged an estimated 80% of the 15,000 homes in Wylie, Texas. The next day, a storm in San Antonio caused $560MM in vehicle damages, and another $800MM in property damage. That $1.36B estimate shatters the previous record of $1.1B dubiously held by Fort Worth since the 1995 Mayfest storm.
Insurers will be busy investigating claims related to these storms for months to come—at least for those insureds who timely file a claim. Each insurance policy is different; some may specify an actual time limit for making a claim, while others simply require “prompt notice”. This prompt notice was at issue in a case that was recently before the 5th Circuit.
Hamilton Props. v. Am. Ins. Co., 2016 U.S. App. LEXIS 6818 (5th Cir. Apr. 14, 2016) was on appeal by the Plaintiffs from a ruling by the Northern District Court of Texas. The property at issue, Dallas Plaza Hotel, was damaged in a hailstorm in July 2009. Over the next month, the caretaker of the property began to notice falling ceiling tiles and dripping water. Somewhat inexplicably, Hamilton did nothing with this information until November of 2010, when it hired an inspector to look at the damage to the roof and twelfth floor. Then in February 2011, it emailed the person it believed to be its agent with AIC. Sometime after October 2011, AIC investigated the claim, and disclaimed coverage in a letter to Plaintiffs on February 16, 2012. Hamilton then brought suit.
Hamilton’s policy required that it provide prompt notice of any claim. Under Texas law, compliance with a prompt notice provision “is a condition precedent, the breach of which voids policy coverage.” Blanton v. Vesta Lloyds Ins. Co., 185 S.W. 3d 607, 611. Breach of this provision doesn’t absolve an insurer from liability, though—unless that failure to notify prejudices the insurer.
First, what does prompt notice look like? It is not always defined—indeed, it wasn’t defined in this case. Texas courts have defined prompt notice as “within a reasonable time” after the damage occurred. Ridglea Estate Condominium Ass’n v. Lexington Ins. Co., 415 F.3d 474, 479 (5th Cir. 2005). “Within a reasonable time” is about as clear as “prompt notice”—fortunately, we have other Texas cases to the rescue for an actual definition. Courts have found that six week, three month, and six month delays are unreasonable as a matter of law. Hamilton’s nineteen-month delay in reporting is therefore almost certainly unreasonable.
Second, what does prejudice to the insurer look like? Remember, even though breach of a prompt notice provision voids policy coverage, the insurer isn’t absolved from liability without also being prejudiced by the breach. Notice allows the insurer to promptly investigate the accident and in doing so, prevent fraud. Stonewall Ins. Co. v. Modern Exploration, Inc., 757 S.W.2d 432, 435. Hamilton’s failure to notify allowed nineteen months of additional wear-and-tear and intervening storms to cause further damage to its property.
Where the plaintiff’s own conduct, unmitigated by an explanation as to delay, has prejudiced the insurer, the insurer is not liable on the claim. Hamilton also brought extra-contractual claims alleging violations of the DTPA, § 541 and § 542 of the Texas Insurance Code, and the duty of good faith and fair dealing. Liability for the claim is required for a § 542 violation, and a breach of contract is required for each of the other violations, judged by a common-law bad faith standard. The only exceptions to this breach of contract are when an insurer’s act is so extreme as to “cause injury independent of the policy claim” or when the insurer fails to timely investigate a claim. Toonen v. United Servs. Auto. Ass’n, 935 S.W.2d 937, 941.
The Fifth Circuit affirmed the district court’s ruling that AIC was not liable and had not breached its contract. Hamilton also offered no evidence that AIC had acted in a way that would place it in the exception to the rule, so its extra-contractual claims all failed, as well.
 There was dispute about when AIC actually received notice, because the February 2011 email was not sent to Hamilton’s broker of record. AIC argued notice was some time later. The court, however, found that even notice as of February 2011 would not suffice.