In a current unpublished opinion,1 the Federal Ninth Circuit Court of Appeals dominated that California upholds the late discover prejudice rule, the place an insurer doesn’t should pay if the insured stories a loss late and the insurer proves it was prejudiced by the late reporting.
Here is the holding:
If an insurer fails to object promptly and particularly to a delay within the presentation of discover, any objections primarily based on delay are waived. Cal. Ins. Code § 554. The goal of part 554 is to forestall an insurer from ‘lulling the insured into believing that notice and proof of loss are unnecessary.’…If premature discover is raised concurrently with different grounds for denial, it’s preserved as a protection….
We are glad that West American particularly objected to Stockton’s delayed discover. The Reservation of Rights letter acknowledged that West American was investigating the loss underneath a reservation of rights and alerted Stockton to the related provisions associated to the investigation, together with the Vacancy Clause and Stockton’s obligation to supply immediate discover of the loss. The denial letter additionally made clear that late discover was the explanation for denial. In brief, the hurt that part 554 is meant to keep away from—the insurer’s deceptive the insured into inaction—isn’t current right here.
… Finally, underneath California’s discover prejudice rule, an insurance coverage firm could not deny an insured’s declare underneath an incidence coverage primarily based on lack of well timed discover or proof of declare until it may possibly present precise prejudice from the delay. The burden of building prejudice is on the insurance coverage firm…and prejudice isn’t presumed by delay alone…Although the difficulty of prejudice with respect to delay is one among truth, underneath some circumstances, prejudice can exist as a matter of regulation. Nw. Title Sec. Co. v. Flack, 85 Cal. Rptr. 693, 697 (Ct. App. 1970).
Here, West American has proven that it suffered precise prejudice due to Stockton’s delay. West American’s capability to analyze was not solely impaired however rendered inconceivable. Given the delay, an investigation wouldn’t have the ability to decide whether or not an considerable loss was coated underneath the coverage. See 1231 Euclid Homeowners Ass’n v. State Farm Fire & Cas. Co., 37 Cal. Rptr. 3d 795, 804 (Ct. App. 2006) (holding that the insured’s failure to supply well timed discover prejudiced the insurer as a result of it ‘effectively denied [the insurer] any opportunity to fully investigate the loss’). In different phrases, due to the delayed discover and the circumstances of loss on this case in reference to the Vacancy Clause, ‘it virtually becomes impossible to learn what facts, favorable to defendant, could have been ascertained through prompt inquiry.’ Purefoy v. Pac. Auto. Indem. Exch., 53 P.second 155, 159 (Cal. 1935). Stockton’s late discover of its declare truly prejudiced West American as a matter of regulation.
The lesson realized and rule to be adopted is—report losses as quickly as you discover or be taught of them. Delay after studying of the loss invitations insurers to analyze how they had been prejudiced as a lot as what the worth of the loss is, which might be paid.
Thought For The Day
You can’t do a kindness too quickly, for you by no means understand how quickly it will likely be too late.
—Ralph Waldo Emerson
1 Stockton Mariposa v. West American Ins. Co., No. 22-55343, 2023 WL 3994971 (9th Cir. June 14, 2023).