As anyone who has ever tried to read through an insurance policy can attest, there are pages upon pages of terms, conditions, exclusions, limitations, definitions, and ... notice requirements. Most notice requirements in policies mandate that notice of a claim be provided in a prompt or timely manner. While the failure to strictly adhere to the policy's notice requirements can result in a forfeiture of coverage, late notice may not always be detrimental. In Marty Lat v. Farmers New World Life Insurance Company (10/16/18 Court of Appeal 2nd Dist.), the Court of Appeal held that an insurance company may not deny an insured's claim under an occurrence policy based on lack of timely notice or proof of claim unless the insurer can show actual prejudice from the delay.
The facts of Marty Lat are relatively straight forward. Maria Carada purchased an "occurrence" life insurance policy from Farmers New World Life Insurance Company ("Farmers") and named her sons - Marty and Mikel Lat ("Lat") - as beneficiaries. The policy established an "accumulation account" to which Carada's premium payments and interest were added and from which the monthly costs of insurance and other amounts were deducted. If the accumulation account was reduced below the amount needed to cover the next month's deductions, a 61-day grace period began within which Carada could pay the premium needed to cover the deduction. If the grace period expired before Farmers received the necessary premium payment, the policy terminated and could not be reinstated. Importantly, the policy also included a rider under which Farmers agreed to waive the cost of insurance while Carada was totally disabled if Carada provided Farmers with notice and proof of her disability.
In August 2012, Carada was diagnosed with cancer and became totally disabled. She did not, however, notify Farmers. On May 20, 2013, Farmers sent a letter to Carada advising her that the premium payments were insufficient to pay for the coverage under the policy and gave her until July 20, 2013 to make payment or the policy would lapse. On July 23, 2013 Farmers sent Carada a letter stating that the policy's grace period had expired and coverage was no longer in force. Carada died on September 23, 2013 and Lat submitted a claim which was denied by Farmers. Subsequently, a suit was filed. Farmers moved for summary judgment which was granted. The trial court held that the 61- day grace period had expired and the premium had not been paid. Consequently, the policy lapsed. An appeal was filed and the Court of Appeal reversed.
