Most first party and third party occurrence form policies require that claims are reported with “prompt notice” or “as soon as practicable.” This is for pragmatic reasons:

• There is no way to verify damage and its cause after passage of much time, and damage can deteriorate further.
• Investigation may be affected by lack of fresh memories or loss of documents.
• Carriers have more experience and sophistication in investigating claims and negotiating settlements than insureds do.
• Carrier’s desire to “close the books” on a policy year in a reasonable time frame.
  
  

Prompt notice is not defined and has been the subject of debate in courts for decades. One type of policy gives specific time frame requirements for notice of claims – claims made form. This policy covers only claims made and reported during the policy period, plus some reporting period, typically 60 or 90 days. An extended reporting period can be purchased. So, it seems that the door is shut on claims reported after that time.

Or is it? Using something called the notice-prejudice rule, courts have decided many times that if the insurer was not prejudiced by the late notice, coverage cannot be disclaimed, even for claims made policies.

Courts have found these decisions to be in the general public’s interest. It is thought to protect the public from bearing the costs of harm that an insurance policy purports to cover, and avoids technical forfeitures of coverage.

Some states have codified this stance, requiring an insurer to prove that late notice of a claim has substantially prejudiced its ability to investigate and settle, before disclaiming coverage. Caselaw in other states requires no proof, holding closely to the idea that prompt notice is part of the insurance contract and cannot be amended after the fact.

The answer is: it depends. Rather than hoping the insured has a defense against late notice prejudice, the best rule of thumb is to always provide timely notice to the insurer.