/>iThe Western District of Texas Declines to Impose a Prejudice Requirement on a Fixed-Time Notice Provision in a Commercial Property Policy
Texas is considered a “notice-prejudice” state, meaning that as a general rule an insurer is required to demonstrate it was prejudiced by an insured’s late notice of a claim before it can deny coverage, with some notable exceptions. In this context, Texas law is well established on certain points. However, a recent case from the Western District of Texas highlights one area of uncertainty in this body of law.
By way of background, Texas courts distinguish between “claims-made” and “occurrence” policies when construing notice provisions, finding that prejudice may not be required under claims-made policies but that it is generally required under occurrence policies. Texas courts further distinguish between claims-made-and-reported policies and claims-made policies that contain no specific reporting period, finding that a showing of prejudice is not required for the former but is required for the latter. The basis for this distinction is the language of the notice provisions – even though notice provisions are considered by Texas courts to be a “condition precedent” to coverage, courts will examine the specific policy language to determine if the breach of such condition is material. Breaches of material conditions do not require a showing of prejudice while breaches of non-material conditions do require a showing of prejudice.
As to the specific language, claims-made policies generally require that notice be given “as soon as possible” or “as soon as practicable.” Claims-made-and-reported policies, on the other hand, typically include the same “as soon as possible” or “as soon as practicable” language, but additionally require that, in any event, notice must be provided by or before a specified time. The key factor in examining the language, according to the courts, is whether the notice condition is “an essential part of the bargained-for exchange,” the breach of which is a material, as opposed to a non-material, breach.
In construing notice provisions in occurrence-based policies, Texas courts and the Fifth Circuit have required that an insurer demonstrate prejudice from the insured’s failure to comply with the prompt notice “as soon as possible” and/or “as soon as practicable” requirements typically found in these types of policies.1Texas courts have therefore generally treated occurrence policies the same as claims-made policies, viewing the breach of a notice condition as a non-material breach. It therefore seems to be well established in Texas that, as a general rule, a late notice defense under an occurrence policy is subject to a prejudice requirement.
In RC Mgmt. v. Third Coast Ins. Co., the Western District of Texas considered whether a notice provision in an occurrence-based commercial property insurance policy issued to RC Management, Inc. (RC) allowed Third Coast Ins. Co. (Third Coast) to deny coverage without a showing of prejudice.2 The policy included an endorsement that amended the Prompt Notice Provision and provided that for losses “caused by or resulting from Windstorm (including hail),” such as the one at issue, the Duties in the Event of Loss or Damage section was amended as follows (the Prompt Notice Provision endorsement):
In addition to your obligation to provide us with prompt written notice of loss or damage, with respect to any claim wherein written notice of the claim is reported to us more than one year after the reported date of loss or damage, this Policy shall not provide coverage for such claim.
The Court first concluded that the policy’s Prompt Notice Provision endorsement was a “condition precedent” to coverage, and then considered whether Third Coast was required to show prejudice. Third Coast relied on two uncontested facts for its argument that summary judgment could be granted in its favor – first, the Prompt Notice Provision endorsement required the insured to provide prompt written notice of a loss or damage and further provided that the policy “shall not provide coverage” for a claim reported more than one year after the reported date of loss or damage. Second, the date of loss was May 27, 2020, and the insured failed to submit a claim for damages until April 14, 2022.
RC responded by arguing that Texas courts require a showing of prejudice to deny coverage under a Late Notice Provision.
The Court framed the relevant issue as follows:
The issue before the Court is whether, under Texas law, an insurer must show prejudice to deny coverage based on an insured’s failure to comply with a condition precedent in an insurance contract that establishes a specific time limit for the insured to give notice of a claim. This precise issue has not been decided by Fifth Circuit or the Texas Supreme Court; nonetheless, several cases are instructive.
First citing Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., the Court recognized the distinction between claims-made and occurrence policies – finding “the former required a showing of prejudice while the latter did not.”3 At issue in Matador was a 30-day notice requirement in an endorsement that provided a limited exception to the policy’s absolute pollution exclusion. The Matador court focused on the “nature of the bargain” made between the parties, finding that the endorsement “supplemented the basic agreement and constituted additional bargained for coverage” and therefore “under the plain language of the endorsement, timely reporting of the claim constituted one of the events necessary to trigger coverage.”4 The Matador court found prejudice was not required.
The RC Mgmt. court next referenced other Texas and Fifth Circuit cases where courts discussed the importance of focusing on the notice language in the policy to determine the nature of the bargain between the parties, finding that the appropriate inquiry is whether the notice provisions are “an essential part of the bargained-for exchange.”5
The Court then focused on Blanco West Properties, LLC v. Arch Specialty Ins. Co., where, in a short per curiam opinion, the Fifth Circuit rejected an insured’s prejudice argument under an endorsement in a commercial property policy requiring notice within a specific time frame and pointed out the “significant distinction” between such provisions and provisions that required “prompt” or “as soon as practicable” notice.6 The RC Mgmt. court pointed out that although the Blanco opinion is unpublished and therefore is not precedent, it is “persuasive, and, thus, applicable to the present case.”
Finally, the Court cited a few additional cases that it believed to be instructive:
- In Housing & Cmty Servs., Inc. v. Texas Windstorm Ins. Ass’n, the court determined that TWIA was not required to show prejudice under a wind and hailstorm policy because of the insured’s failure to comply with a statutory one-year deadline as opposed to a time period requirement in the policy.
- In 444 Utopia Lane, LLC v. Peleus Ins. Co., the court rejected an argument that an insurer could rely on a 365-day notice requirement in a commercial property policy without showing prejudice.8
The Court contrasted the notice provision in Utopia, which was contained in the policy form, with the notice provision in Blanco, which was in an endorsement, concluding that because the parties in Utopia did not negotiate and agree to an endorsement that amended the original notice provision, there was no “bargained-for exchange” with respect to the 365-day notice provision.
The Court turned to the language of the notice provision in the policy at issue and, based on these authorities, stated, “[a]lthough Blanco may suggest that the specificity of a notice provision in an insurance policy is perhaps relevant, Blanco and Fifth Circuit precedent convey that the more significant question is whether the notice provision constitutes an essential component of the bargained-for-exchange.” The Court concluded that “[t]he unambiguous language of the Endorsement amends the Prompt Notice Provision in the Policy … [and] establishes a specific deadline for notice.” The Court therefore declined to impose a prejudice requirement, noting that, in line with the decisions in Matador and Blanco, it “will honor the plain language of the one-year notice provision, a condition for coverage that the Plaintiff specifically agreed to accept."9
In framing “the issue before the Court” at the outset of its opinion, the Court referenced only time-specified notice provisions, with no mention of whether the notice provision was endorsed. However, the opinion reveals that two key factors were critical to the Court’s decision: (1) the fixed time in the notice provision and (2) that the notice provision was amended by endorsement.
By citing to prior cases dispensing with prejudice requirements where fixed-time notice requirements appeared in endorsements and by citing to Utopia, where this same court previously required prejudice under a fixed-time notice provision that appeared in the original policy form, the Western District appears to have concluded that an endorsement to a policy represents an agreed-upon bargained-for exchange between the parties, while a provision in the policy form does not. But, as a practical matter, one could question whether endorsements are always more “bargained-for” than the terms in the original policy, and thus, whether this distinction is warranted. While endorsements may change a policy, the decision not to change a policy and go by its terms seems like it would be an ”equally” bargained-for arrangement between the parties to the insurance contract.
While it could, and likely will, be argued that this decision opens the door for additional arguments regarding prejudice for certain specific notice provisions in occurrence policies, and whether endorsements should be given greater meaning in the scope of an insurance contract, Texas courts may be inclined to limit RC Mgmt. to its facts.
1 See, e.g., Hamilton Props. v. Am. Inc. Co., 643 Fed. Appx. 437 (5th Cir. 2016) (addressing “prompt notice” language); Alaniz v. Sirius Int’l Ins. Corp., 626 F.App’x 73 (5th Cir. 2015) (addressing policy with “prompt notice” and “as soon as possible” language).
2 2025 U.S. Dist. LEXIS 111871 (W.D. Tex. 2025).
3 Id. at 10; citing Matador, 174 F.3d 653, 658-659 (5th Cir. 1999) (“[c]ourts have not permitted insurance companies to deny coverage on the basis of untimely notice under an ‘occurrence’ policy unless the company shows actual prejudice from the delay … [but] an insurance company may deny coverage under a ‘claims-made’ policy without a showing of prejudice”).
4 Id; citing Matador, 174 F.3d at 660.
5 See Starr Indem. & Liab. Co. v. SGS Petroleum Serv. Corp., 719 F.3d 700 (5th Cir. 2000); PAJ Inc. v. The Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008)]; Prodigy Communs. Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. 2009)]; Advanced Seismic Tech., Inc. v. M/V Fortitude, 326 F.Supp.3d, 336 n.7 (S.D. Tex. 2018).
6 773 Fed. App’x 795 (5th Cir. 2019).
7 515 S.W.3d 906 (Tex. Ct. App.—Corpus Christi-Edinburg 2017, no pet.).
8 515 S.W.3d 906 (Tex. Ct. App.—Corpus Christi-Edinburg 2017, no pet.).
9 In its final ruling, the Court summarily rejected the insured’s argument that Third Coast’s notice defense is barred by §2301.010 (c) of the Texas Insurance Code, which provides that a party must be allowed to file a claim after the first anniversary of the date of the loss where good cause is shown by the party filing the claim, and §2301.010(d), which provides that a provision in the policy to the contrary is void. The Court found that the policy at issue is a domestic surplus lines insurance policy, which is not governed by chapter 2301 of the Texas Insurance Code.
