When you suffer a property damage to your home or business, like a fire or water loss, and make an insurance claim, one of the requirements that standard insurance policies impose is that the insured submit a “proof of loss.” The proof of loss requirement can often serve as a trap by the insurance company to attempt to shift the burden to investigate the claim to the policyholder, or set up accusations of fraud. Yet, it is something that needs to be submitted in order to avoid giving the insurance company an excuse to deny your claim.
California law provides that the standard form fire insurance policy, which is the template for homeowners property policies, contain a provision that “the insured shall render . . . a proof of loss, signed and sworn to by the insured” which among other things documents “the time and origin of the loss . . . [and] the actual cash value of each item . . . and the amount of loss . . .” (California Insurance Code §2071.) This can be a daunting burden, as most policyholders are not an expert in evaluating property damage, or the cost to repair.
The first thing to understand about the proof of loss form is that the insurance company – not the policy holder — has “a nondelegable duty to timely and in good faith . . . thoroughly investigate a claim. . .” (Rattan v. United Services Automobile Ass’n(2000) 84 Cal. App. 4th 715, 720.) Insurance company’s often attempt to shift that burden and cost to investigate the policyholder through the proof of loss form. They do this by insisting that the insured provide a precise amount they are claiming, and hire an expert to submit an estimate. The insured does not have to do that. The main thing an insured needs to do is submit something describing the loss as best they can, and provide a loose estimate of damage which puts the burden on the insurance company to investigate. With respect to the cost, statements that it is “partial” or “known as of today” or “exceeds $X amount,” other language that makes clear the insured is not limiting the claim, with a notation along the lines of “insured is not an expert, and relies on insurance company to investigate and determine extent and cost to repair loss,” should suffice.
Don’t overstate the loss, or say something you do not know, because insurance company’s also often use the proof of loss form to set up a denial based on claimed misrepresentations. Under California law, any “material misrepresentation” in a claim by the policyholder is grounds to deny the entire claim, regardless of the merits of the actual loss suffered by the insured. (Cummings v. Fire Insurance Exchange(1988) 202 Cal.App.3d 1407, 1414-1416.) That is why policyholders must be careful in submitting a proof of loss not to say something they cannot back up.
The good news is that if you submit an honest proof of loss describing the loss to the best of your ability, even if your insurance company continues to pressure you to add more detail, you are probably safe. That is because an insurance company must show “substantial prejudice” from breach of a condition precedent in order to avoid paying the claim. (Campbell v. Allstate Insurance Co. (1963) 60 Cal.2d 303, 305.) This includes “failure to comply with requirements of . . . proof of loss . . . [and] the burden of showing prejudice [is] upon the insurer.” (Hanover Ins. Co. v. Carroll (1966) 241 Cal.App.2d 558, 569.)
In practice, however, the total failure to submit a proof of loss allows the insurance company more leeway to argue that they were substantially prejudiced. The lesson then, to avoid the proof of loss trap, is to submit a proof of loss, doing your best to describe the claim without overstating it, and being honest about what you do or do not know, and put the burden on the insurance company to pay for the thorough investigation to determine the precise scope, cause, and amount of loss.