CACI 2322 Affirmative Defense—Insured’s Voluntary Payment

California Civil Jury Instructions CACI

2322 Affirmative Defense—Insured’s Voluntary Payment

[Name of defendant] claims that it does not have to pay [specify, e.g., the amount of the settlement] because [name of plaintiff] made a voluntary payment. To succeed on this defense, [name of defendant] must prove the following:

1.[Select either or both of the following:]

[That [name of plaintiff] made a payment to [name of third party claimant] in [partial/full] settlement of [name of third party claimant]’s claim against [name of plaintiff]; [or]]

[That [name of plaintiff] [made a payment/ [or] assumed an obligation/ [or] incurred an expense] to [name] with regard to [name of third party claimant]’s claim against [name of plaintiff]];


2.That [name of defendant] did not give its consent or approval for the [payment/ [or] obligation/ [or] expense].

Directions for Use

The instructions in this series assume that 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. This instruction also may be modified for use as a defense to a judgment creditor’s action to recover on a liability policy. This defense is not available if the insurer refused to defend before the voluntary payment was made. (See 21st Century Ins. Co. v. Superior Court (Tapia) (2015) 240 Cal.App.4th 322, 328 [192 Cal.Rptr.3d 530].)

A voluntary-payments clause in an insurance policy typically provides that the insured may not voluntarily make a payment, assume an obligation, or incur an expense without the insurer’s consent. (See, e.g., Truck Ins. Exchange v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 976 [94 Cal.Rptr.2d 516].) In element 1, select the appropriate options depending on the acts alleged. Modify, as necessary, depending on the actual language of the policy. Use the first option if the insured has made a payment in settlement of the claim. Use the second option if the insured has made a payment, assumed an obligation, or incurred an expense for other reasons, such as to an attorney for legal services, or to a creditor of the claimant, such as a provider of medical or repair services.

Sources and Authority

“The general validity of no-voluntary-payment provisions in liability insurance policies is well established. … [S]uch clauses are common ‘to prevent collusion as well as to invest the insurer with the complete control and direction of the defense or compromise of suits or claims.’ ” (Insua v. Scottsdale Ins. Co. (2002) 104 Cal.App.4th 737, 742 [129 Cal.Rptr.2d 138], internal citations omitted.)

“California law enforces … no-voluntary-payments provisions in the absence of economic necessity, insurer breach, or other extraordinary circumstances. They are designed to ensure that responsible insurers that promptly accept a defense tendered by their insureds thereby gain control over the defense and settlement of the claim. That means insureds cannot unilaterally settle a claim before the establishment of the claim against them and the insurer’s refusal to defend in a lawsuit to establish liability … . [T]he decision to pay any remediation costs outside the civil action context raises a ‘judgment call left solely to the insurer.’ In short, the provision protects against coverage by fait accompli.” (Low v. Golden Eagle Ins. Co. (2003) 110 Cal.App.4th 1532, 1544 [2 Cal.Rptr.3d 761], internal citations omitted.)

“ ‘Typically, a breach of that provision occurs, if at all, before the insured has tendered the defense to the insurer.’ … [A voluntary-payments] provision is [also] enforceable posttender until the insurer wrongfully denies tender. ‘[I]t is only when the insured has requested and been denied a defense by the insurer that the insured may ignore the policy’s provisions forbidding the incurring of defense costs without the insurer’s prior consent and under the compulsion of that refusal undertake his own defense at the insurer’s expense.’ ” (Low, supra, 110 Cal.App.4th at pp. 1546–1547, original italics, internal citations omitted.)

“ ‘[T]he existence or absence of prejudice to [the insurer] is simply irrelevant to [its] duty to indemnify costs incurred before notice. The policy plainly provides that notice is a condition precedent to the insured’s right to be indemnified; a fortiori the right to be indemnified cannot relate back to payments made or obligations incurred before notice.’ … The prejudice requirement … applies only to the insurer’s attempt to assert lack of notice as a policy defense against payment even of losses and costs incurred after belated notice.” (Jamestown Builders, Inc. v. General Star Indemnity Co. (1999) 77 Cal.App.4th 341, 350 [91 Cal.Rptr.2d 514], original italics, internal citations omitted.)

“[W]e hold that California’s notice-prejudice rule is applicable to a consent provision in a first party policy where coverage does not depend on the existence of a third party claim or potential claim.” (Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 109 [251 Cal.Rptr.3d 701, 447 P.3d 669].)

“ ‘There may be exceptions to the prohibition on voluntary payments, as where the insured is unaware of the identity of the insurer, the payment is necessary for reasons beyond the insured’s control, or the insured faces a situation requiring an immediate response to protect its legal interests.’ In a circumstance of that nature, the insured’s payment is considered involuntary.” (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 628 [69 Cal.Rptr.3d 864], original italics, internal citation omitted.)

“If an insurer refuses to defend, the insured is free to enter into a non-collusive settlement and then maintain or assign an action against the insurer for breach of the duty to defend. In the subsequent action the amount of the settlement will be presumptive evidence of the amount of the insured’s liability.” (21st Century Ins. Co.supra, 240 Cal.App.4th at p. 328, original italics.)

Secondary Sources

2 Witkin, Summary of California Law (11th ed. 2017) Insurance, §§ 459, 464
Croskey et al., California Practice Guide: Insurance Litigation, Ch. 7A-L, Conditions ¶¶ 7:439.5–7:439.10 (The Rutter Group)
California Liability Insurance Practice: Claims and Litigation (Cont.Ed.Bar), §§ 2.7, 3.27, 8.32, 11.14, 23.38
25 California Forms of Pleading and Practice, Ch. 300, Indemnity and Contribution, § 300.73[6] (Matthew Bender)
26 California Forms of Pleading and Practice, Ch. 308, Insurance, §§ 308.500, 308.502 (Matthew Bender)