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Vol. 5, Iss. 9
September 7, 2016

Supreme Court: Insurer Cannot Contract-Around “Notice-Prejudice” Rule


The Supreme Court of Wyoming recently adopted the “notice-prejudice” rule for purposes of late notice. In other words, the court in Century Surety Co. v. Hipner, No. S-15-0294 (Wyo. Aug. 17, 2016) held that, for an insurer to disclaim coverage on the basis of late notice, it must prove that it was prejudiced by the delay. In reaching its decision, the court examined late notice law nationally, the various rationales for adopting the notice-prejudice rule, and hopped on board to join the majority of states that have done so.

Hipner is a significant decision for Wyoming’s coverage landscape. However, given how very well-developed late notice case law is nationally, the decision won’t have much significance outside the Equality State.

However, there is one aspect of Hipner that is an exception to its otherwise future anonymity outside Wisconsin. After adopting the notice-prejudice rule, the court turned to the insurer’s “so what” argument. The insurer maintained that, even if the notice-prejudice rule is adopted, its policy specifically excluded coverage unless the insured notified the insurer “as soon as practicable . . . whether [the insurer] [is] prejudiced or not.”

But the court rejected the insurer’s ability to rely on this policy language. Essentially, as the court saw it, since the notice-prejudice rule was based on a public policy rationale, any policy language that attempted to circumvent it was void as against public policy.

In reaching its decision, the Hipner court looked at the only two decisions nationally to have addressed the issue. A New York appellate court and the Ninth Circuit, both applying California law, held that an insurer could not enforce a policy provision that waived the prejudice requirement for purposes of late notice.

Hipner is an unusual take on an otherwise tried and true issue. On one hand, decisions from the Supreme Court of Wyoming, the New York Appellate Division and the Ninth Circuit do not a national rule make. But Hipner is likely to carry some sway with other courts, looking at whether an insurer can contract-around the notice prejudice rule.

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