diff --git a/utils/configobserver.go b/utils/configobserver.go
index cd5856a4..6df6dc83 100644
--- a/utils/configobserver.go
+++ b/utils/configobserver.go
@@ -16,7 +16,7 @@ type ConfigBuilder[T any] interface {
 }
 
 type ConfigDefaulter[T any] interface {
-	InitDefaults(*T)
+	InitDefaults(*T) error
 }
 
 type ConfigObserver[T any] struct {
diff --git a/utils/configobserver_test.go b/utils/configobserver_test.go
new file mode 100644
index 00000000..932411c0
--- /dev/null
+++ b/utils/configobserver_test.go
@@ -0,0 +1,60 @@
+package utils
+
+import (
+	"os"
+	"testing"
+	"time"
+
+	"github.com/stretchr/testify/require"
+)
+
+const testConfig0 = `foo: a`
+const testConfig1 = `foo: b`
+
+type TestConfig struct {
+	Foo string `yaml:"foo"`
+	Bar string `yaml:"bar"`
+}
+
+type testConfigBuilder struct{}
+
+func (testConfigBuilder) New() (*TestConfig, error) {
+	return &TestConfig{}, nil
+}
+
+func (testConfigBuilder) InitDefaults(c *TestConfig) error {
+	c.Bar = "c"
+	return nil
+}
+
+func TestConfigObserver(t *testing.T) {
+	f, err := os.CreateTemp(os.TempDir(), "lk-test-*.yaml")
+	t.Cleanup(func() {
+		_ = f.Close()
+	})
+	require.NoError(t, err)
+	_, err = f.WriteString(testConfig0)
+	require.NoError(t, err)
+
+	obs, conf, err := NewConfigObserver(f.Name(), testConfigBuilder{})
+	require.NoError(t, err)
+
+	require.Equal(t, "a", conf.Foo)
+	require.Equal(t, "c", conf.Bar)
+
+	done := make(chan struct{})
+	obs.Observe(func(c *TestConfig) {
+		require.Equal(t, "b", c.Foo)
+		require.Equal(t, "c", c.Bar)
+		close(done)
+	})
+
+	_, err = f.WriteAt([]byte(testConfig1), 0)
+	require.NoError(t, err)
+
+	select {
+	case <-done:
+	case <-time.After(100 * time.Millisecond):
+		require.FailNow(t, "timed out waiting for config update")
+	}
+}