“An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of the policy throughthe insured has breached the policy by failing to cooperate with theinsurerorbynotgivingtheinsurerrequirednotice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.”
Although the law remains plagued, to some extent, with debate over whether (1) an insured’s
conduct is suf iciently egregious to constitute a breach of the policy, and (2) such conduct, even if it does
constitute a breach, nonetheless resulted in actual prejudice to the insurer, the statute at least has wiped
away any basic distinctions with respect to whether prejudice is required. An insurer may not disclaim
coverage for either lack of notice or failure to cooperate unless it demonstrates that the deficiency has
resulted in actual prejudice to the insurer. Anything to the contrary in our pre-1964 case law is no longer
Inthetrialcourt,Allstatecontendedthat State Farm had failed to show actual prejudice because
(1) it could have done more to avoid the preclusion order,and (2) it could have done more at trial of the
underlying tort action. Those claims were rejected by the Circuit Court and are no longer before us.
Allstate now concedes that the trial court was correct in inding some measure of actual prejudice accruing
fromKirby’snon-cooperationandallowingStateFarmtodisclaimtotheextentof that prejudice. We are
concerned only with whether the court was correct in so limiting the disclaimer.
Our irst quest, at Allstate’s urging, is to devise a standard for determining when actual prejudice
has been shown, for only then can we have a basis for judging the extent of the prejudice suffered by State