California Civil Jury Instructions (CACI) (2017)

2320. Affirmative Defense - Failure to Provide Timely Notice

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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].
New September 2003
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.)
• “[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
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0028
Cal.3d 865, 883, fn. 12 [151 Cal.Rptr. 285, 587 P.2d 1098].)
• “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].)
• “California’s ‘notice-prejudice’ rule operates to bar insurance companies from
disavowing coverage on the basis of lack of timely notice unless the insurance
company can show actual prejudice from the delay. The rule was developed in
the context of ‘occurrence’ policies.” (Pacific Employers Insurance Co., supra,
221 Cal.App.3d at p. 1357.)
• “[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.)
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Secondary Sources
Croskey et al., California Practice Guide: Insurance Litigation (The Rutter Group)
¶¶ 15:917–15:920
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)
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