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By: Zach Moura
California’s Second District Court of Appeal said October 16th (Marty Lat v. Farmers New World Life Insurance Co., No. B282008, Calif. App., 2nd Dist., Div. 1, 2018 Cal. App. LEXIS 932) that under the notice prejudice rule, an insurance company may not deny an insured’s claim under an occurrence policy for lack of timely notice or proof of claim, unless it can show actual prejudice from the delay. The court further held that the insurer has the burden of establishing that it was prejudiced.
The insured, Maria Carada, had purchased an occurrence life insurance policy from Farmers New World Life Insurance Co. and named her sons as beneficiaries. The policy included a rider under which Farmers agreed to waive the cost of the insurance while the insured was disabled if Carada provided Farmers with notice and proof of her disability.
Carada was diagnosed with cancer and became disabled as a result, after which she stopped making payments on the policy. Two months after ceasing payments, Carada contacted the insurance agent who had sold her the policy, told the agent of her illness and disability, and asked if the policy could be reinstated. Farmers refused to reinstate the policy. Carada died the following month.
After the beneficiaries made a claim for benefits under the policy, Farmers denied the claim on the ground that the policy had lapsed before Carada died. Carada’s beneficiaries filed suit.
The Court reversed the trial court’s ruling granting an MSJ in favor of Farmers, determining that California’s “notice prejudice rule” applied to the Farmers’ policy rider regarding notice of a disability.
Finding that there was “no dispute” that Carada was totally disabled while the policy was in force and that she would have been entitled to the deduction waiver benefit if she had given Farmers timely notice of her disability, the Court held “Farmers could not deny Carada the benefit of the deduction waiver unless Farmers suffered actual prejudice from the delayed notice.” Because the Court determined that Farmers made no such showing, it held Carada was entitled to the deduction waiver benefit.
For any questions about this decision, or coverage questions generally, please contact Zach Moura at [email protected].