CACI 2320 Affirmative Defense—Failure to Provide Timely Notice

California Civil Jury Instructions CACI

2320 Affirmative Defense—Failure to Provide Timely Notice

[Name of defendant] claims that it does not have to pay the [judgment against/settlement by] [name of plaintiff] because it did not receive timely notice of the [lawsuit/[insert other]]. To succeed, [name of defendant] must prove both of the following:

1.That [name of plaintiff] did not give [name of defendant] notice [or that [name of defendant] did not receive notice by some other means] [within the time specified in the policy/within a reasonable time] of the [lawsuit/[insert other]]; and

2.That [name of defendant] was prejudiced by [name of plaintiff]’s failure to give timely notice.

To establish prejudice, [name of defendant] must show a substantial likelihood that, with timely notice, it would have [taken steps that would have substantially reduced or eliminated [name of plaintiff]’s liability] [or] [settled for a substantially smaller amount].

Directions for Use

The instructions in this series assume the plaintiff is the insured and the defendant is the insurer. The party designations may be changed if appropriate to the facts of the case.

This instruction is intended for use by an insurer as a defense to a breach of contract action based on a third party liability policy. The defense does not apply to “claims made” policies (see Pacific Employers Insurance Co. v. Superior Court (1990) 221 Cal.App.3d 1348, 1357–1360 [270 Cal.Rptr. 779]). This instruction also may be modified for use as a defense to a judgment creditor’s action to recover on a liability policy.

Sources and Authority

“The right of an injured party to sue an insurer on the policy after obtaining judgment against the insured is established by statute. An insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, but the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby. Similarly, it has been held that prejudice must be shown with respect to breach of a notice clause.” (Campbell v. Allstate Insurance Co. (1963) 60 Cal.2d 303, 305–306 [32 Cal.Rptr. 827, 384 P.2d 155], internal citations omitted.)

“The burden of establishing prejudice is on the insurance company, and prejudice is not presumed by delay alone. To establish prejudice, the ‘ “insurer must show it lost something that would have changed the handling of the underlying claim.” ’ ” (Lat v. Farmers New World Life Ins. Co. (2018) 29 Cal.App.5th 191, 196–197 [239 Cal.Rptr.3d 796], internal citations omitted.)

“[P]rejudice is not shown simply by displaying end results; the probability that such result could or would have been avoided absent the claimed default or error must also be explored.” (Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 883, fn. 12 [151 Cal.Rptr. 285, 587 P.2d 1098].)

“Prejudice is a question of fact on which the insurer has the burden of proof. The insured’s delay does not itself satisfy the burden of proof. The insurer establishes actual and substantial prejudice by proving more than delayed or late notice. It must show ‘ “a substantial likelihood that, with timely notice, and notwithstanding a denial of coverage or reservation of rights, it would have settled the claim for less or taken steps that would have reduced or eliminated the insured’s liability.” ’ ” (Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 105 [251 Cal.Rptr.3d 701, 447 P.3d 669].)

“If the insurer asserts that the underlying claim is not a covered occurrence or is excluded from basic coverage, then earlier notice would only result in earlier denial of coverage. To establish actual prejudice, the insurer must show a substantial likelihood that, with timely notice, and notwithstanding a denial of coverage or reservation of rights, it would have settled the claim for less or taken steps that would have reduced or eliminated the insured’s liability.” (Safeco Ins. Co. of America v. Parks (2009) 170 Cal.App.4th 992, 1004 [88 Cal.Rptr.3d 730].)

“Under the notice prejudice rule, an insurance company may not deny an insured’s claim under an occurrence policy based on lack of timely notice or proof of claim unless it can show actual prejudice from the delay. The rule is based on the rationale that ‘ “[t]he primary and essential part of the contract [is] insurance coverage, not the procedure for determining liability …” [citations], and that “the notice requirement serves to protect insurers from prejudice, … not … to shield them from their contractual obligations” through “a technical escape-hatch”.’ ” (Lat, supra, 29 Cal.App.5th at p. 196, internal citations omitted.)

“[The notice-prejudice rule] does not apply to every time limit on any insurance policy. [¶] Where the policy provides that special coverage for a particular type of claim is conditioned on express compliance with a reporting requirement, the time limit is enforceable without proof of prejudice. Such reporting time limits often are found in provisions for expanded liability coverage that the insurer usually does not cover. The insurer makes an exception and extends special coverage conditioned on compliance with a reporting requirement and other conditions. The reporting requirement becomes ‘the written notice necessary to trigger the expanded coverage afforded’ by the special policy provision.” (Venoco, Inc. v. Gulf Underwriters Ins. Co. (2009) 175 Cal.App.4th 750, 760 [96 Cal.Rptr.3d 409], internal citations omitted.)

“With respect to notice provisions, one Court of Appeal has explained: ‘[A]n “occurrence” policy provides coverage for any acts or omissions that arise during the policy period even though the claim is made after the policy has expired.’ … [¶] … [¶] Occurrence policies were developed to provide coverage for damage caused by collision, fire, war, and other identifiable events. … Because the occurrence of these events was relatively easy to ascertain, the insurer was able to ‘conduct a prompt investigation of the incident … .’ … Notice provisions contained in such occurrence policies were ‘included to aid the insurer in investigating, settling, and defending claims[.]’ … If an insured breaches a notice provision, resulting in substantial prejudice to the defense, the insurer is relieved of liability.” (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 626 [69 Cal.Rptr.3d 864], internal citation omitted.)

“The ‘general rule’ is that an insurer is not bound by a judgment unless it had notice of the pendency of the action. … However, if an insurer denies coverage to the insured, the insured’s contractual obligation to notify the insurer ceases.” (Samson v. Transamerica Insurance Co. (1981) 30 Cal.3d 220, 238 [178 Cal.Rptr. 343, 636 P.2d 32], internal citations omitted.)

Secondary Sources

Croskey et al., California Practice Guide: Insurance Litigation, Ch.15-I, Trial ¶¶ 15:917–15:920 (The Rutter Group)
1 California Liability Insurance Practice: Claims & Litigation (Cont.Ed.Bar) Identifying Sources of Coverage, §§ 8.24–8.26
4 California Insurance Law & Practice, Ch. 41, Liability Insurance in General, § 41.65[1]–[9] (Matthew Bender)
26 California Forms of Pleading and Practice, Ch. 308, Insurance, § 308.500 (Matthew Bender)