California High Court Sides With Policyholders on Notice-Prejudice Rule
California’s notice-prejudice rule generally allows insureds to proceed with their insurance policy claims even if they give their insurer late notice, provided the late notice does not substantially prejudice the insurer. With this backdrop, the Court considered two narrow questions from the Ninth Circuit, (1) Is California’s common law notice-prejudice rule a fundamental public policy for the purpose of choice of law analysis? (2) If so, does the notice-prejudice rule apply to the consent provision of the insurance policy in this case? The Court determined, consistent with California’s strong preference to avoid technical forfeitures of insurance policy coverage, (1) that the notice-prejudice rule is a fundamental public policy of California in the insurance context, and (2) the rule generally applies to consent provisions in the context of first party liability policy coverage and not to consent provisions in third party liability policies. The Court then returned the case to the Ninth Circuit to decide whether the consent provision at issue in this particular case contemplates first party or third party coverage.