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Allstate Insurance Company v. State Farm Mutual Insurance Company No. 43, Sept. Term, 2000 - page 14 / 26





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determining the actual prejudice that an insurer must establish under § 19-110 of the Insurance Article in

order to disclaim coverage by reason of an insured’s failure to cooperate, and (2) whether, when an insurer

establishes some amount of actual prejudice, it maydisclaim all coverage or only such coverage as is

proportionatetotheprejudiceshown. Implicitinthesecond question is whether, even if the general answer

to that question is that the disclaimer may be limited to the amount of prejudice shown,the Court of Special

Appeals made a substantive error in its resolution of this case.


As we noted, it is common for automobile insurance policies to require that an insured who is

involved in an accident cooperate with the insurer in the investigation and defense of any claim made against

the insured. It is also common for such policies to require, as well, that the insured (1) promptly report to

the insurer any accident and any claim that is made, and (2) promptly forward to the insurer any suit papers

servedontheinsured. Insurers traditionally have asserted the violation of any of those several duties—

notice, forwarding of suit papers, andcooperation in the defense of the claim — as grounds for disclaiming

liability on the policy, either to defend a claim brought against the insured or to indemnify the insured with

respect to any judgment entered on the claim.

We pointed out in Fid. & Cas. Co. v. McConnaughy, supra, 228 Md.1, 179 A.2d 117, that

two lines of authority had developed regarding the nature and effect of those clauses.One line, which we

characterized as a “formalistic, technical view,” held that policy provisions for notice, forwarding of suit

papers, and cooperation were conditions precedent to liability “and that a breach by the insured discharges

the insurer regardless of prejudice.” Id. at 12, 179 A.2d at 123. The competing view was that those

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