Simon Glairy is a recognized expert in the fields of insurance and Insurtech, with a specialized focus on risk management and AI-driven risk assessment. With decades of experience navigating the complexities of policy litigation, he has become a leading voice on how the precision of contractual language dictates the outcome of multimillion-dollar claims. Today, he joins us to discuss a landmark ruling from the Court of Appeals of Iowa that highlights how three specific words can shift the entire burden of proof from a policyholder to an insurance carrier. We explore the consequences of the “prejudicial to us” clause, the importance of proactive communication during the claims process, and what this means for the future of risk assessment.
How does the inclusion of the phrase “prejudicial to us” within an insurance policy fundamentally change the legal obligations for a carrier when a policyholder fails to meet certain conditions?
The inclusion of that specific phrase fundamentally strips the insurer of its usual procedural shortcuts. Typically, in many jurisdictions, a carrier can lean on a “presumed prejudice” rule, where if a policyholder ignores a request for an exam or a statement, the court assumes the insurer was harmed. However, because Grinnell Select wrote the requirement of prejudice directly into Part E of their auto policy, the court held them to their own standard. This means the trigger for a denial is no longer just the act of noncompliance, but the actual, proven harm caused by that noncompliance. It forces the carrier to do the heavy lifting in court, proving exactly how the lack of a physical exam or a document waiver stymied their ability to evaluate the $1.25 million in potential coverage.
Given the substantial limits at stake in this $1.25 million claim, what does the 22-page settlement demand tell us about the complexity of the injuries and the mounting pressure on the insurer?
That 22-page “settlement opportunity letter” sent in March 2024 was a massive evidentiary anchor that changed the tempo of the case. It wasn’t just a simple request for funds; it was a dense packet containing medical records and very specific financial projections, including a $500,000 estimate for future medical costs and a $300,000 estimate for wage loss. When a policyholder presents that level of detail regarding an early retirement and life-altering injuries from a November 2022 crash, the insurer is put on notice that this is a high-exposure event. The sheer volume of information provided by the couple’s lawyer likely made the insurer’s later claims of being “prejudiced” by a lack of information feel less convincing to the appellate court. It’s hard to argue you’re in the dark when you’re holding a 22-page roadmap of the claim’s value.
Looking at the back-and-forth between the lawyers, how did the insurer’s failure to warn about the consequences of silence ultimately compromise their position in the summary judgment phase?
The insurer’s silence in response to the policyholder’s silence was a critical tactical error that modern risk management systems are designed to avoid. After Grinnell’s counsel asked for a physical exam and an examination under oath, the couple’s lawyer essentially ignored the request and stated that a lawsuit was coming. Instead of following up with a formal warning that this lack of cooperation would breach the contract or jeopardize coverage, Grinnell stayed quiet. In the eyes of the court, this passivity made it difficult for the insurer to later claim that the lack of an exam was a fatal blow to their investigation. If the information were truly vital to the $1.25 million evaluation, one would expect a carrier to be much more aggressive in pursuing it before the litigation reached a boiling point.
What are the broader implications for insurance claims teams who have historically relied on the rule of “presumed prejudice” when dealing with noncompliant policyholders?
This ruling serves as a stark reminder that the specific language of a policy will always trump general common law rules. Claims teams can no longer take for granted that a policyholder’s failure to appear for a sworn statement will automatically result in a dismissed claim. If the policy says you have no duty to provide coverage if the failure is prejudicial, you have to be prepared to demonstrate that prejudice with concrete facts. This will likely lead to a shift in how claims are handled, with more focus on documenting exactly how a missing piece of evidence or a skipped interview prevented a fair assessment of the risk. We are seeing a move away from technical “gotcha” moments toward a requirement for transparency and proven impact on the carrier’s bottom line.
What is your forecast for how this decision will influence policy drafting and risk assessment in the coming years?
I anticipate a significant move toward “scrubbing” policy language to remove any phrases that inadvertently shift the burden of proof back onto the carrier. Many companies will likely reconsider using the phrase “prejudicial to us” in their standard forms to regain the benefit of presumed prejudice in cases of noncompliance. Simultaneously, we will see Insurtech tools being leveraged to automate the “warning” process, ensuring that if a policyholder misses a deadline for a physical exam, a series of automated, legally-vetted alerts are sent to establish a record of the carrier’s proactive efforts. The goal will be to create a digital paper trail that proves prejudice in real-time, rather than trying to argue it years later in a courtroom. Carriers will have to be far more intentional about the words they choose, because as this case shows, three small words can lead to a very expensive day in court.
