The “notice-prejudice rule,” often applied in the context of occurrence-type policies, requires an insurer to prove that the insured’s late notice of a claim has substantially prejudiced its ability to investigate the insured’s claim. This principle has been applied in the context of both first-party policies. Pitzer College v. Indian Harbor Ins. Co., 8 Cal. 5th 93 (2019), applying the notice-prejudice rule to a consent provision in a first-party policy) and third-party policies written on an “occurrence” basis. See, e.g., Campbell v. Allstate Ins. Co., 60 Cal. 2d 303 (1963). A key question is whether this rule applies in the context of a claims made policy where the insured reports the claim within the policy period but outside a special reporting period that requires the insured to report the claim within a specified time period after the insured has knowledge of the claim.

While the notice-prejudice rule is frequently applied where the pertinent policy is written on an occurrence basis, there are some exceptions to the application of that rule. For example, where the policy provides for a special or expanded form of coverage (such as a pollution buy-back), some courts have held that the notice-prejudice rule will excuse an insured’s late notice in the context of a special reporting period associated with such special or extended form of coverage. See, e.g, Venoco, Inc. v. Gulf Underwriters Ins. Co., 175 Cal. App. 4th 750 (2009) (“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”); but see Petrosantander (USA), Inc. v. Hdi Global Ins. Co., 16-CV-01320-EFM-GLR (D. Kan. 2018) (applying Texas law and concluding that “the Texas Supreme Court would require Defendant to demonstrate prejudice resulting from plaintiff’s alleged failure to timely notify defendant of the [claim] prior to denying coverage based on a failure to timely to provide such timely notice”).

Originally published in The Daily Journal - February 11, 2021.