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California Supreme Court Ruling Clarifies That the Notice-Prejudice Rule Is a Fundamental Public Policy That May Override Choice of Law Provisions

September 9, 2019 Blog

In Pitzer College v. Indian Harbor Insurance Company, the California Supreme Court resolved two previously open questions in insurance law: (1) it concluded that the notice-prejudice rule[1] is a fundamental public policy of California, and (2) it concluded that the notice-prejudice rule applies to consent provisions, but only in first-party policies.

This decision provides three primary lessons to insureds. First, when a first-party insurer cites a strict notice provision as a complete bar to coverage, a California policyholder should respond by citing the notice-prejudice rule, even if the policy selects the law of a state that does not follow the notice-prejudice rule. Second, the insured should do the same if a first-party insurer cites a consent provision as a basis to limit coverage for otherwise-covered expenses. In both cases, the notice-prejudice rule may override the choice of law provision and preserve coverage unless the insurer was actually and substantially prejudiced by the delayed notice/consent. Third, in the case of third-party policies, the insured should continue to promptly notify the insurer in the event of a claim and should seek consent before incurring otherwise-covered expenses. The insured should not rely on the notice-prejudice rule to potentially save coverage where it delays notice or fails to seek consent for expenses under a third-party policy.

Read the full post: California Supreme Court Ruling Clarifies That the Notice-Prejudice Rule Is a Fundamental Public Policy That May Override Choice of Law Provisions

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