C bought a life insurance policy from Farmers. It provided that premiums were excused during any period in which C was totally disabled so long as C provided Farmers with notice and proof of her disability. C became disabled but gave Farmers no notice of that fact. Farmers kept charging C a premium and, before C’s death, canceled the policy for non-payment of the premium. Beneficiaries sued Farmers after it denied their claim for benefits under the policy. Held, California’s notice-prejudice rule applies. The insurer can deny coverage based on the insured’s failure to provide notice (of disability in this case) only if the insurer can show it was actually prejudiced by the lack of notice. Farmers failed to present any evidence of prejudice. So its summary judgment motion should have been denied. Though Farmers acted innocently in continuing to charge premiums during C’s (unnoticed) disability and in canceling her policy, once it found out that C had been disabled during that period, Farmers should have revived the policy and paid the death benefits it provided.
California Court of Appeal, Second District, Division 1 (Rothschild, P.J.); October 16, 2018 (modified upon denial of rehearing, November 15, 2018, 2018 Cal. App. LEXIS 1036); 28 Cal. App. 5th 212