Industrial Indemnity v. Superior Court

Opinion

WORK, J.

Insurer Industrial Indemnity (Industrial) seeks extraordinary relief after the court denied its motion for summary judgment in this action brought by insured Gary Kaku (Kaku). Relying on

Northwestern Title Security Co.

v.

Flack

(1970) 6 Cal.App.3d 134 [85 Cal.Rptr. 693], the court ruled Industrial must show substantial prejudice from Kaku’s late notice of a claim made against him. We distinguish this case from the circumstances

[830]

reviewed in

Northwestern Title Security Co.

v.

Flack, supra,

and grant the petition because under the unambiguous terms of the policy, coverage existed for claims made after Kaku permitted the policy to lapse only if reported to the insurer within one year after lapse.

Factual

1

and Procedural Background

Kaku, a life insurance salesman, purchased a claims-made professional errors and omissions policy from Industrial Indemnity which he permitted to lapse on March 4, 1987. The policy provided for a one-year extended period after lapse within which the company would cover claims made against Kaku during the extension and reported by him within that period. On November 9, 1987, although Kaku was named as a defendant in an action entitled McNamara v. Henry, he did not notify his insurer of this claim. This case was dismissed without prejudice on December 30. When in June 1988, Kaku was renamed as a defendant by McNamara, he tendered his claim for defense and indemnification to Industrial on June 20. Industrial rejected it as untimely. Kaku sued.

2

Industrial moved for summary judgment claiming it had no duty to defend or indemnify because Kaku failed to comply with the notice requirements of the policy. Specifically, Industrial argued Kaku was required to notify it of the McNamara claim before the “extended reporting period” expired, as a condition precedent to coverage. The court denied the motion, finding late notice was governed by the notice-prejudice rule announced in