On January 13, 2017, the Ninth Circuit certified the following two questions to the California Supreme Court:
1. Is California’s common law notice-prejudice rule a fundamental public policy for the purposes of choice-of-law analysis?
2. If the notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis, can a consent provision in a first-party claim insurance policy be interpreted as a notice provision such that the notice-prejudice rule applies?
(Pitzer College v. Indian Harbor Insurance Company (Jan. 13, 2017) 2017 WL128563 * 1.)
In Pitzer College, applying New York law, the district court granted summary judgment to Indian Harbor on the grounds that Pitzer College had conducted a remediation of contaminated property some three months before informing Indian Harbor of the remediation and seeking recovery of the costs of the remediation under a policy providing coverage for pollution-related property damage. The Indian Harbor policy contained a condition requiring notice of any condition requiring remediation and a consent provision that the insured would not incur any expense without first obtaining Indian Harbor’s consent. The consent provision contained an exception for emergencies, but required notice to Indian Harbor “immediately thereafter” if the insured incurred any emergency expense. The district court concluded that the insured had failed to comply with the notice condition and was not entitled to rely upon the exception to the consent provision because it did not give notice to Indian Harbor “immediately” after incurring the remediation expense. The insured, Pitzer College, appealed.
The issue is of considerable importance to out-of-state insurers which issue policies containing a choice-of-law provision from a state that does not apply the notice-prejudice rule. If the notice-prejudice rule is a fundamental public policy, California law will likely control the resolution of any coverage dispute, notwithstanding the choice-of-law provision in the policy.
The California Supreme has discretion to accept the questions for review. We will be monitoring the Supreme Court’s action and will provide future updates.
Cheryl A. Orr is a partner with Musick, Peeler & Garrett in its Los Angeles office. Her full bio and contact information can be found at: http://www.musickpeeler.com/professional/Cheryl_Orr/