Coverage Analysis
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An insurer seeking to defeat coverage on the basis of late notice must show that it has been actually prejudiced by the insured's delay. Sinton v. Hartford Acc. & Indemnity Co., 261 Cal. Rptr. 163 (Cal App. 1989). See also Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 151 Cal. Rptr., 285, 587 P.2d 1098 (1978)(rejecting presumption of prejudice).

However, the Court of Appeal ruled in that Providence Washington Ins. Co. v. Container Freight, Inc., 58 Cal. App. 4th 1138 (2d Dist. 1997) that the rule for excess carriers would be whether the insured's notice was reasonable under all the circumstances, of which prejudice would be only one consideration.  

Prejudice will be deemed to exist as a matter of law where the insured fails to give notice until a judgment has already entered against it.  In such circumstances, a federal district court has ruled that the insurer does not have the burden of proving that it could have done better had it been given a chance to defend.  Earle v. State Farm Fire & Cas. Co., 935 F.Supp. 1076, 1082 (N.D. Cal. 1996).

Under Section 554 of the California Insurance Code, an insurer that receives untimely notice of a matter will waive any such coverage defense unless it promptly and specifically objects on that ground.  National American Ins. Co. of California v. Certain Underwriters at Lloyd's, 1996 WL 459864 (9th Cir. August 15, 1996).

Further, an insured's breach may be waived if it was occasioned by the insurer's own conduct. Xebec Development Partners, Inc. v. National Union Fire Ins. Co., 12 Cal. App.4th 501, 15 Cal. Rptr.2d 726, 749-50 (1993). 

The state Court of Appeals has ruled that an insurer is not obligated to pay defense costs that are incurred before the defense of the action is tendered to it.  Apart from the absence of tender, the court ruled in Truck Insurance Exchange v. Unigard Insurance Company, B127813 (Cal. App. April 10, 2000) that such costs were incurred in breach of the policy’s “voluntary payment” prohibition.  Further, the court ruled that the insurer did not need to prove prejudice in order to preclude coverage based on breach of the voluntary payment prohibition.

A breach of the cooperation clause will only defeat coverage if it results in prejudice to the insurer.  In Campbell v. Allstate Ins. Co., 384 P.2d 155 (Cal. 1963), the California Supreme Court rejected a per se rule that the insured’s failure to appear at trial, even if wilful and even if the insurer has done what it reasonably could do to produce the insured, suffices on its own to establish, or to create a presumption of, prejudice.

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