Modification: Lat v. Farmers New World Life Ins. Co.

MARTY LAT et al.,

Plaintiffs and Appellants,

v.

FARMERS NEW WORLD LIFE INSURANCE COMPANY,

Defendant and Respondent.

No. B282008

(Los Angeles County

Super. Ct. No. BC528211)

California Courts of Appeal

Second Appellate District

Division One

Filed November 15, 2018

ORDER MODIFYING

THE OPINION (NO CHANGE

IN THE JUDGMENT) AND

DENYING RESPONDENT'S

PETITION FOR REHEARING

THE COURT:

The opinion filed in the above-entitled matter on October 16, 2018 is modified.

1. On page 2, the entire first sentence of the opinion is deleted and replaced with the following sentence:

In 1993, Maria Carada purchased a life insurance policy from Farmers New World Life Insurance Company (Farmers) and named her sons Marty and Mikel Lat (collectively the Lats) as beneficiaries.

2. On page 8, the second sentence of the first full paragraph (that begins "There is no dispute" and ends "notice of her disability.") is deleted and replaced with the following sentence:

Farmers, in its motion for summary judgment, did not challenge the Lats' allegations that Carada was totally disabled while the policy was in force.

3. On page 14, the first full paragraph on that page is deleted and replaced with the following four paragraphs:

These cases are inapplicable to Carada's policy because the Rider is analogous to occurrence-based policies, to which the notice prejudice rule has been applied. Like occurrence policies that provide " 'coverage for any acts or omissions that arise during the policy period even though the claim is made after the policy has expired' " (Pacific Employers Ins. Co. v. Superior Court, supra, 221 Cal.App.3d at p. 1356), the Rider provides a benefit---Farmers' waiver of deductions---for an act---Carada's disability---that arises during the policy period even though the claim for the waiver of deductions is made after the Rider and the policy have expired. Applying the notice prejudice rule in this instance would not, therefore, transform a claims made and reported policy into an occurrence policy or, as in Slater, effectively rewrite the contract between the parties. (Slater, supra, 227 Cal.App.3d at p. 1423.) Rather, applying the rule here would serve its purpose of preventing an insurance company from shielding itself from its " 'contractual obligations' through 'a technical escape-hatch.' " (Carrington, supra, 289 F.3d at p. 647.)

Farmers also relies on Venoco, Inc. v. Gulf Underwriters Ins. Co. (2009) 175 Cal.App.4th 750 (Venoco). In that case, the insured oil company had a liability policy that generally excluded coverage for liability arising from pollution or contamination. (Id. at p. 757.) The oil company, however, negotiated for a "pollution buy-back provision," which provided for coverage of an accidental occurrence that " ' became known to the [oil company] within [seven] days after its commencement and was reported to [the insurance company] within 60 days thereafter.' " (Id. at pp. 756‑758, italics omitted.) Six years after the policy expired, the oil company made a claim for coverage based upon alleged contamination that occurred during the policy term. (Id. at p. 758.) The Court of Appeal rejected the oil company's argument that the notice prejudice rule applied to its late notice of claim. (Id. at pp. 760‑761.) The notice prejudice rule, the court explained, does not apply to a policy that provides "special coverage for a particular type of claim [that] is conditioned on express compliance with a reporting requirement." (Id. at p. 760.) This exception to the notice prejudice rule applied to the pollution buy-back provision because the policy provides "for expanded liability coverage that the insurer usually does not cover. The insurer makes an exception and extends special coverage conditioned on compliance with a reporting requirement and other conditions." (Ibid.)

We do not necessarily agree with the Venoco court's reasoning, which, in any case, does not apply here. Unlike the special coverage in Venoco for a particular, liability‑expanding claim that the insurance company usually does not cover, the Rider to Carada's policy appears to be a standard policy rider that the insurance company will ordinarily provide for an additional premium. (See 5 Couch on Insurance, supra, § 75:16 ["The parties to the contract of insurance may ordinarily specify in the contract that nonpayment of premiums shall be excused by the insured's sickness, incapacity, or disability" (fn. omitted)].) Venoco's narrow exception to the notice prejudice rule, therefore, does not apply here.

Farmers also contends that the Rider "is nothing more than an alternative means of satisfying premium obligations, of paying premiums" and, just as one may not revive a policy by paying a premium after the policy has lapsed, Carada's policy cannot be revived "by showing that she could have satisfied the Rider prior to the lapse." This, as well as other arguments asserted by Farmers, assumes that Carada's policy had lapsed and could not thereafter be revived by late notice of her disability or otherwise. The problem with this argument is that the policy had ostensibly lapsed because Farmers denied Carada the Rider's deduction waiver benefit; if Carada was entitled to that benefit, the policy should not have lapsed. As discussed above, whether Carada was entitled to that benefit depends in part upon whether Farmers was prejudiced by the late notice of her disability.

These modifications do not constitute a change in the judgment.

The petition for rehearing filed by respondent Farmers New World Life Insurance Company on October 31, 2018 is denied.

CERTIFIED FOR PUBLICATION.

ROTHSCHILD, P. J.

JOHNSON, J.

BENDIX, J.