Across the United States, most states hold that an insurer can’t deny coverage to a policyholder because of a trivial failure to comply with the policy’s “notice” provisions after a claim. See, e.g., Arrowood Indemnity Co v King, 304 Conn 179, 203; 39 A3d 712 (2012) (joining the “overwhelming majority” of jurisdictions that require insurers to establish prejudice); PAJ, Inc v Hanover Ins Co, 243 SW3d 630, 633-634 (Tex. 2008) (noting that most jurisdictions presented with the issue have adopted a “notice-prejudice rule” in some form, consistently with the modern trend); Prince George’s Co v Local Gov’t Ins Trust, 388 Md 162, 182-183; 879 A2d 81 (2005) (vast majority of states have adopted a prejudice requirement and noting that 38 states have adopted a “prejudice rule” whereas only 6 states have maintained a traditional “no prejudice rule”); Brakeman v. Potomac Ins. Co., 371 A.2d 193, 198 (Pa. 1977)(Under Pennsylvania law, “where an insurance company seeks to be relieved of its obligations under a liability insurance policy on the ground of late notice, the insurance company will be required to prove that the notice provision was in fact breached and that the breach resulted in prejudice to its position.”); Cooper v. Gov’t Employees Ins. Co., 237 A.2d 870, 874 (N.J. 1968)(Under New Jersey law, insurer must prove a breach of the notice provision and a likelihood of appreciable prejudice).

The rule makes sense. If you pay, and pay, and pay, for insurance coverage, and then report your incident, say, 60 days after it happened as compared to the 30 days required by the policy, then the insurer can’t just take your money and run like a thief unless it can show the delay somehow prejudiced them. Maybe critical evidence was lost. Who knows — the key issue is that the insurance company has to show some reason why that delay really caused a problem. Otherwise, it’s no harm, no foul.

William DeFrain was minding his own business as a pedestrian on May 31, 2008, when a hit-and-run driver ran him over, causing severe head injuries. Severe enough that they sent him to the hospital, where he was diagnosed with serious and permanent brain injuries, from which he died five months later. His mother was dealing with her son, the brain surgery he received soon after the accident, and his crippling disability, and so she didn’t end up notifying State Farm, with which she had an uninsured driver insurance policy, until August 25, 2008, a whole 56 days later than the 30 days required by the policy.

That, of course, didn’t prejudice State Farm. There’s nothing else they needed to know. There’s no evidence that was lost. Nobody knew who the driver was, not even the police, and the delay didn’t do anything to change that. William’s condition was documented from the moment he was found, and all those documents were available to State Farm. But some soulless bloodsuckers at State Farm saw a way to keep the company’s reserves up and their “policy losses” down, so, like a good neighbor who ransacks your house for jewelry after a hurricane*, State Farm saw the chance to make a quick buck by denying a faithful policyholder their due and went for it. 

That was illegal in Michigan under Koski v. Allstate Ins Co., 456 Mich 439; 572 NW2d 636 (1998)(“it is a well-established principle that an insurer who seeks to cut off responsibility on the ground that its insured did not comply with a contract provision requiring notice immediately or within a reasonable time must establish actual prejudice to its position”), but, hey, what’s a little stare decisis to get in the way of Justice Brian K. Zahra, a Federalist Society member who was recently appointed by Governor Rick Snyder?

Justice Brian Zahra (who is up for election, those of you in Michigan should know), and his conservative brethren on the Michigan Supreme Court, Robert P. Young, Jr., Stephen J. Markman, and Mary Beth Kelly, had no trouble ignoring their own case law, ignoring the majority rule across the United States — while falsely claiming to follow it, see footnote 60 — and holding that soulless bloodsuckers rule the world:

Not only is Koski distinguishable from the instant case, but imposing a prejudice requirement here would be inconsistent with this Court’s ruling in Rory. Under Rory, “an unambiguous contractual provision . . . is to be enforced as written,” and “[a] mere judicial assessment of ‘reasonableness’ is an invalid basis upon which to refuse to enforce contractual provisions.”

Unsurprisingly, this reasoning doesn’t stand up to a moment’s scrutiny of the reality of insurance contracts (which are entirely drafted by the companies) and how insurance companies work (which is to evade payment whenever possible), much less Michigan law, which is quite clear that only a willful noncompliance represents a breach justifying the policyholder be completely denied their rights. See Thomson v. State Farm Ins. Co., 592 NW 2d 82 (1998).

Another day, another civil injustice. As the DeFrain’s lawyer said,

“It’s really an outrageous, outrageous decision,” Bob Drazin said during a Friday phone interview, in which he also provided more details of the case. “State Farm is the most onerous of all the insurance companies in terms of these kinds of things. If they have a way out, they’re going to take it.”

Indeed. The voters of Michigan will have their say about Justice Zahra this fall, but we can all vote with our dollars against State Farm. Just remember to replace that phony line about neighbors they use in their commercials with, “Like the neighborhood burglar, State Farm is there.”

* This is, of course, the same State Farm that went to the mat against its own policyholders on the Gulf Coast after Hurricane Katrina, baseless denying thousands of claims. State Farm settled most of the claims — nearly a year and a half after the storm, after it had kept making money on the stock market with its policyholders’ money while the policyholders lived in FEMA trailers.