The Texas Supreme Court recently blasted the Agricultural Excess & Surplus Insurance Company for arbitrarily denying a claim because the insured failed to provide it with timely notice. The Court said that insurance companies must show that they’ve been prejudiced in some way before denying claims that don’t adhere to policy language.

Bad faith insurance practices

Insurance companies are notorious for denying claims for any reason. In many cases, they’ll deny claims simply because policy language says they can – even if the facts and circumstances don’t warrant it. That’s what happened to the Prodigy Communications Corporation. According to court records, Prodigy received a securities class action lawsuit. Its insurer, Agricultural Excess & Surplus Insurance Company (AESIC), required that Prodigy provide it with notice of the lawsuit within a certain amount of time or “as soon as practical.” Prodigy did not and AESIC denied its claim.

The case made its way to the Texas Supreme Court which ruled that AESIC could not deny the claim unless it could show that it was prejudiced in some way by not receiving “timely” notice – which the insurer couldn’t show. In its ruling, the Court said:

Even assuming that [Prodigy] did not give notice 'as soon as practicable,' [AESIC] was not denied the benefit of the claims-made nature of its policy as it could not 'close its books' on the policy until ninety days after the discovery period expired. Accordingly, we conclude that [Prodigy’s] obligation to provide [AESIC] with notice of a claim 'as soon as practicable' was not a material part of the bargained-for exchange under this claims-made policy.

How the ruling applies to you

Although this case involves a securities class action lawsuit, the Court’s ruling applies to all insurance policy contracts. Most insurance companies will find any reason to deny a claim and will oftentimes literally construe policy language – to their benefit. However, as this Court pointed out, they cannot do so arbitrarily. If your insurance company has denied your valid benefits, don’t accept that denial without contacting an experienced bad faith insurance attorney to discuss your situation first. You may have more options than you think…