In Vanderhoff v. Harleysville Ins. Co., 2013 Pa. LEXIS 2581 (Pa. Oct. 30, 2013), the Pennsylvania Supreme Court was called upon to consider what constitutes a showing of prejudice for purposes of an insured denying an uninsured motorist claim involving a phantom vehicle under the Motor Vehicle Financial Responsibility LAW (“MVFRL”). The case, which was on appeal for a second time following an earlier decision by the same court holding that the notice-prejudice requirement articulated in Brakeman v. Potomac Insurance Company, 472 Pa. 66, 371 A.2d 193 (Pa. 1977), applied to uninsured motorist claims involving a phantom vehicle, involved an insured who had failed to provide his insurer with timely notice of a phantom vehicle under 75 Pa.C.S. § 1702. The insured argued that the insurer had to demonstrate “actual prejudice” before it could deny the claim based on the insured’s untimely notice, while the insurer contended that impairment of its ability to conduct an investigation was sufficient. (AUTHOR’S NOTE: The court expressly rejected the insured’s use of the term “actual prejudice,” finding that the term has no basis in Pennsylvania caselaw. Instead, the court framed its analysis in terms of what constitutes “prejudice” to the insurer.). The Pennsylvania Supreme Court agreed with the insurer, holding that the insurer was not required to prove that the results of its investigation would have been different had timely notice been provided.
In resolving this issue in favor the insurer, the court noted other Pennsylvania cases in which Pennsylvania courts have construed the notice-prejudice requirement outside of the context of the MVFRL. In addition, the court recognized that the “primary” purpose of the notice requirement under the MVFRL is to minimize fraudulent claims by timely involving law enforcement and insurers and ensuring the preservation of evidence. This purpose, coupled with well-established caselaw holding that an insurer may prove prejudice if its investigation of the claim has been impaired, led the court to conclude that “showing such prejudice does not require proof of what the insurer would have found had timely notice been provided.” Rather, it is sufficient for the court to “balance[ ] the extent and success of the insurer’s investigation with the insured’s reasons for the delay.” In so concluding, however, the court was careful to state that “the determination of prejudice is highly ‘circumstance dependent,’” and, as a result, it cannot be said that “every case will be affected by notice delay in the same manner or that delay cannot be excused based on the facts of the case.” Justice Baer filed a separate concurring opinion that agreed with the majority’s resolution of the issue, but delineated specific considerations that would weigh for or against a finding of prejudice, particularly in light of the insurer’s ability to conduct its investigation and the reason for the untimely notice.