Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

The Fourth Circuit Court Of Appeals Finds That Late Notice Must Deprive The Insurance Company Of Its Ability To Exercise Its Meaningful Contractual Rights In Order To Establish Prejudice

The United States Fourth Circuit Court of Appeals, interpreting Maryland law, recently clarified the meaning and scope of "prejudice" under Maryland law. St. Paul Mercury Ins. Co. v. American Bank Holdings, Inc., 819 F.3d 728 (4th Cir. 2016). In this case, the corporate insured failed to notify the insurer of a lawsuit until a default judgment had been entered more than 18 months after the service of process. The corporate insured was required to notify the insurer of the claim "as soon as practicable." After being served with the summons and complaint, various corporate screw ups prevented the papers from being forwarded to the insured's legal department from its statutory agent. The insurance company alleged that it was prejudiced by the late notice. The Fourth Circuit found that while prejudice is an element of any late notice defense under Maryland law, prejudice is established when the insured's late notice precludes the insurer from exercising "meaningful contractual rights" under its policy which would be necessary in order to prove actual prejudice. Under the facts presented an 18-month delay after default had been entered denied the insurance company of the opportunity to participate in the selection of counsel, to speak with counsel, and to discuss credible defense strategies.

Previously, the Maryland Court of Appeals had resisted a "one size fits all" standard in defining what actual prejudice was. See Allstate Ins. Co. v. State Farm Mutual Auto. Ins. Co., 363 Md. 106, 767 A.2d 831, 841 (2001). The Maryland Court of Appeals had also previously noted that judicial attempts to formulate any type of workable definition of prejudice in the context of late notice disputes tended to be illusive to the courts. See, Id.

Steven Plitt is an accomplished author and expert witness, and has been a licensed attorney for 33 years. During his career, he has reviewed and analyzed more than 6,000 claim files from 100 different insurance companies. Based in Phoenix, Arizona, he serves as counselor and expert for insurance coverage and bad faith claims nationwide. For more information or to set up an appointment, please visit his website at insuranceexpertplitt.com. 

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