In a recent decision, the United States District Court for the Northern District of California excused the insured’s non-compliance with a notice provision contained in a “claims-made-and-reported” insurance policy on equitable grounds, calling into question whether an insurer can obtain summary judgment even where the court finds that there has been a breach of a policy condition.
Oakland-Alameda County Coliseum, Inc. (OACC) commenced an action for breach of contract, breach of the implied covenant of good faith and fair dealing, and for a judgment declaring that its primary insurer, National Union Fire Insurance Company of Pittsburgh, PA (National Union) and eight different excess insurers (collectively the Insurers), must provide it with insurance coverage for the claims asserted against it by the Oakland Raiders, a National Football League franchise. The Insurers filed motions for summary judgment which argued, inter alia, that OACC’s failure to provide notice of claim within the policy period relieved them of their insurance obligations to OACC.
National Union issued a D&O Insurance and Company Reimbursement Policy, which provided coverage only for claims made against the OACC and reported to the National Union during the policy period, which expired on July 31, 1997 at 12:01 A.M. The policy explicitly stated that “written notice to the Insurer as soon as practicable during the Policy Period” is a “condition precedent to the obligations of the Insurer” under the policy. OACC also purchased excess policies from the eight excess carriers. Each policy provides that the policy period is the same as that of the primary policy.
On July 31, 1997, counsel for OACC sent a letter by Federal Express to National Union. The letter informed National Union that the Raiders’ accused OACC of making fraudulent misrepresentations which induced the Raiders to move from Los Angeles, California to Oakland, California. OACC’s counsel faxed a copy of the notice to OACC’s insurance broker, Cooper & Cook, directing that it be sent that day to OACC’s carriers. Cooper & Cook forwarded the notice to National Union and Tri-City, the wholesaler who brokered the placement of OACC’s primary and excess insurance policies. The notice arrived at National Union at 5:09 p.m. on July 31, 1997. OACC, National Union, Cooper & Cook and Tri-City all failed to provide notice to the excess carriers.
On September 29, 1997, OACC and others filed a complaint against the Raiders in the California Superior Court seeking declaratory relief. On July 7, 1998, the Raiders filed a cross-complaint against OACC and one of its directors, Edwin DeSilva, alleging both negligent and intentional misrepresentation. On August 27, 2003, a jury found in favor of the Raiders on its negligent misrepresentation claim in the amount of $34,303,135. The trial court denied OACC’s motion for judgment notwithstanding the verdict (JNOV) on the negligent misrepresentation. The California Court of Appeal reversed that denial and entered judgment in favor of OACC. Oakland Raiders v. Oakland-Alameda County Coliseum, Inc., 144 Cal. App. 4th 1175 (2006).
On October 21, 1997, National Union informed OACC’s counsel that they would not accept the July 31, 1997 Notice because it lacked sufficient detail. National Union then rejected OACC’s tender of the cross-complaint and disclaimed coverage to OACC on the basis that 1) the policy excluded coverage for claims arising out of a breach of contract and 2) OACC could not receive insurance coverage under California law because the allegations involved OACC’s willful misconduct. National Union never raised a defense based on a breach of the notice provision.
On April 14, 1999, National Union agreed to provide DeSilva with a defense. Counsel for DeSilva then notified each of the excess carriers of the Raiders lawsuit by letter dated April 29, 1999. Each excess carrier subsequently denied coverage based on the fact that the claim had not been made and reported during the respective policy periods, all of which were identical to the National Union policy period.
National Union’s Motion for Summary Judgment
In its motion for summary judgment, National Union argued that OACC was required to report the claim during the policy period in order to secure coverage and that OACC is not entitled to coverage since OACC’s notice of the Raiders’ claim was made after 12:01 a.m. on July 31, 1997. Alternatively, the insurers asserted that even if the notice was timely, the July 31, 1997, no “claim” was made against OACC until the Raiders actually filed the cross-complaint, after the expiration of the policy period.
In opposition, OACC first argued that the policy’s notice provision was ambiguous and asserted that because mailing is typically measured by date, rather than time, the provision should be interpreted as meaning that any notice mailed on July 31, 1997 is deemed given within the policy period. Second OACC also argued that National Union has waived or is estopped from asserting late notice since it did not raise that defense until nine years after it received the July 31, 1997 letter. Third, OACC contended that the Raiders had a viable claim against it during the policy period. Finally, OACC asserted that even if its notice is deemed late, the de minimus violation of the National Union policy reporting requirement should be equitably excused by the court.
The court found that the National Union policy time requirement was unambiguous. It specifically required that any claim for coverage must be made prior to 12:01 a.m. on July 31, 1997. The uncontraverted evidence established that National Union did not receive the letter until 5:09 p.m. on July 31, 1997. Accordingly, the court found that OACC violated a condition precedent for coverage under the National Union Policy by providing notice of claim after the expiration of the policy.
The court rejected OACC’s argument that National Union waived its timeliness defense despite the fact that National Union first asserted that defense nine years later. The court held that “Delay alone is insufficient to constitute waiver absent some element of misconduct by the insurer or detrimental reliance by the insured.” See Intel Corp. v. Hartford Accident & Indemn. Co., 952 F.2d 1551, 1559 (9th Cir. 1991). The court also rejected OACC’s estoppel argument, noting that estoppel requires proof of both the insurer’s misconduct and the insured’s reliance, whereas waiver only requires one of these factors. Spray, Gould & Bowers v. Associated Int’l Ins. Co., 71 Cal. App. 4th 1260, 1268, 84 Cal. Rptr. 2d 552 (1999). The court reasoned that there was no evidence that National Union was aware that OACC’s counsel and insurance broker negligently failed to provide it with timely notice. Also, the court reasoned that since National Union had denied coverage to OACC on other grounds, OACC could not establish that it relied on insurance coverage from National Union in the first place.
Nonetheless, the court found that an issue of fact existed as to whether OACC was equitably excused from complying with the notice requirement. The court stated that “[A] trial court may equitably excuse the satisfaction of conditions in insurance contracts in order to avoid a forfeiture of coverage.” See Root v. American Equity Specialty Ins. Co., 130 Cal. App. 4th 926, 947-948, 30 Cal. Rptr. 3d 631 (2005). Such excusal is appropriate in certain circumstances where the reporting requirement functions as a condition rather than as “an element of the fundamental risk insured.” Id. at 943. The court went on to hold that “Because this is defendants’ motion for summary judgment, the court need not decide at this stage whether OACC is entitled to equitable relief of this kind. However, in light of OACC’s de minimis noncompliance with the notice provision, OACC has raised sufficient factual questions regarding the possibility of equitable excusal to withstand summary judgment in favor of National Union.”
The court then held that the Raiders’ allegations against OACC made during the policy period constituted a “claim” since the Raiders’ initial demand, made within the policy period, contained an ultimatum that OACC make them whole for its claimed losses. Accordingly, the court denied National Union’s motion for summary judgment.
The Excess Insurers’ Motions for Summary Judgment
The excess insurers raised some additional arguments. Most notably, they claimed since each excess insurer first received notice of the Raiders lawsuit on April 29, 1999, OACC violated a condition precedent for coverage. OACC argued that additional discovery was necessary in order to determine whether Cooper & Cook (OACC’s insurance broker) and Tri-City (OACC’s wholesale broker) were actual agents of the excess carriers.
The court noted that “An insurance agent is ‘a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life insurance’ (citing Cal. Ins. Code § 31). An insurance broker is “a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer” (citing Cal. Ins. Code § 33). However, a broker may act as an agent of an insurer under the ostensible authority theory. Ostensible authority is “established through the acts or declarations of the principal.” Gulf Ins. Co. v. TIG Ins. Co., 86 Cal. App. 4th 422, 103 Cal. Rptr. 2d 305 (2001). In order to establish ostensible authority in an agent, it must be shown that the principal, intentionally or by want of ordinary care, has caused or allowed a third person to believe the agent possesses such authority. Accordingly, the court held that if OACC can provide evidence that the excess insurers caused or allowed OACC to believe that Cooper & Cook and Tri-City acted as their agents, OACC’s notice to Cooper & Cook and Tri-City were adequate to provide the excess insurers with notice.
Although the excess insurers submitted insurance applications which indicated that Cooper & Cook was acting as OACC’s insurance broker and also submitted letters by Cooper & Cook which stated that Tri-City was the wholesaler broker, the court found there to be an issue of fact as to whether the ostensible agency theory applied. The court stated that there is some support for a finding of ostensible agency since OACC’s counsel believed that providing notice to Cooper & Cook was effective, and since Cooper & Cook believed forwarding the notice to Tri-City was also effective to give notice to the excess insurers. The court held that additional discovery may reveal whether the excess carriers’ conduct contributed to this belief and ruled that OACC could pursue further discovery.
The court’s denial of National Union’s motion for summary judgment based solely on the equitable excuse doctrine and the court’s denial of the excess carrier’s motion based on the ostensible agency theory, without evidence of apparent authority, indicates that insurers may face increased difficulty in obtaining summary judgment in cases where the insured has violated a policy condition for coverage. However, this difficulty conforms with California’s common law rule that conditions can be excused if equity requires as such. See Root v. American Equity Specialty Ins. Co., supra.
Matthew Kraus is an associate of Havkins Rosenfeld Ritzert & Varriale, LLP. He specializes in insurance coverage analysis and litigation.
