[1418]Opinion
LILLIE, P. J. Plaintiff Robert I. Slater (Slater), an attorney, appeals from summary judgment1 entered against him and in favor of defendant Lawyers’ Mutual Insurance Company (LMIC), Slater’s professional liability insurer, on plaintiff’s complaint alleging LMIC breached its insurance contract and the implied covenant of good faith and fair dealing in denying Slater coverage under the policy with respect to a legal malpractice action filed against Slater.
Factual and Procedural Background
In a complaint filed by Slater against LMIC in January 1989 for breach of written contract and breach of the implied covenant of good faith and fair dealing, he alleges that in April 1984, LMIC issued to him a professional liability insurance policy which policy was renewed for the period from April 15, 1985, to April 15, 1986, and then from April 15, 1986, to April 15, 1987; on February 26, 1987, Cesar Lopez filed in the superior court a complaint against Slater for legal malpractice; Slater was unaware of Lopez’s claim and the action until July 1, 1987, when he was served with the summons and complaint; on October 6, 1987, Slater requested in writing that LMIC provide him a defense to the Lopez action, which LMIC refused on December 28, 1987; LMIC’s December 28 letter advised Slater that no coverage would be afforded for the Lopez action because Slater did not make a claim during the pendency of the policy; on October 13, 1988, LMIC agreed to accept Slater’s tender of defense with a reservation of rights based on a recent court of appeal decision; on October 25, 1988, LMIC notified Slater that it was withdrawing the defense in view of the decertification of the court of appeal decision; Slater alleged that LMIC wrongfully refused to accept the tender of defense and wrongfully refused to pay benefits with respect to the Lopez action.
In answer to the complaint, LMIC alleged, inter alia, that it has no duty under the policy or otherwise to provide Slater with a defense to the Lopez action or to indemnify him with respect to any sum of money he may be obligated to pay in said action.
Thereafter, LMIC filed motion for summary judgment on the ground that it was without dispute that LMIC was not obligated to afford coverage [1419]to Slater because under the terms of the policy, no “claim” was “made” to LMIC during the policy period. Although Slater filed declarations and points and authorities in opposition to the motion, the motion was submitted on a joint statement of undisputed facts which essentially included all of the background facts alleged in the complaint, but not any of its legal conclusions. The joint statement also established that in February 1987, LMIC notified Slater that the policy would not be renewed after its April 15, 1987, expiration date; however, Slater could apply for an “Extended Reporting Period Endorsement” upon payment of an additional premium; Slater did not apply for such extended reporting period endorsement, and the policy expired on April 15, 1987.
After hearing on the motion for summary judgment, the court granted the motion; Slater filed timely notice of appeal from the summary judgment. As Slater acknowledges in his opening brief on appeal, the appeal presents one major issue: “Whether [LMIC] must provide coverage to an insured under a ‘claims-made’ professional liability policy or is the insured without coverage.”
Discussion
“Summary judgment is an appropriate vehicle to determine coverage under an insurance policy when it appears there is no material issue of fact to be tried and the sole issue before the court is one of law.” (Pepper Industries, Inc. v. Home Ins. Co. (1977) 67 Cal.App.3d 1012, 1017 [134 Cal.Rptr. 904].) “Where, as here, the trial court was asked to interpret a written contract based upon a stipulation of facts our review is de novo. The issue presented is one of law and the appellate court ‘must make its own independent determination of the meaning of the contract.’ ” (Travelers Ins. Co. v. National Union Fire Ins. Co. (1989) 207 Cal.App.3d 1390, 1397 [255 Cal.Rptr. 727].)
As “[t]he proper initial focus for a court in resolving a question of insurance coverage is on the language of the insurance policy itself, rather than on judicially created ‘general’ rules that are not necessarily responsive to the policy language or facts of the dispute” (Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 790 [270 Cal.Rptr. 678]), we set out the relevant portions of the policy.
On the cover page of the policy under a bold heading titled “Notice,” as well as in bold type on the next page, the first page of the policy, it is stated: “This is a ‘Claims-Made’ policy. The coverage afforded by a ‘Claims-Made’ policy is generally limited to claims arising from the performance of professional services which are first made against the attorney and reported to the [1420]Company while the policy is in force. A ‘Claims-Made’ policy does not generally provide coverage for claims first made against the attorney or reported to the Company after the expiration of the policy even if the acts or omissions on which the claim is predicated occurred, or are alleged to have occurred, while the policy was in force. Please review the policy carefully and discuss the coverage thereunder with your insurance agent or broker.”
A portion of the policy titled “Definitions,” states that “ ‘Claim’ whenever used in this policy means a demand, including service of suit or institution of arbitration proceedings, for money against the insured, [ft] A claim shall be considered ‘made’: (1) when it is first reported to the Company or (2) when the Insured, having become aware that the Insured has committed an act, error or omission which may give rise to a claim, reports to the Company: (i) Such specific act, error or omission; (ii) The injury or damage which has or may result from such act, error or omission; and (iii) the date and circumstances by which the Insured first became aware of such act, error or omission.”
Under a provision titled “The Coverage,” the policy in pertinent part provides: “The Company agrees to pay on behalf of the Insured all sums . . . which the Insured shall become legally obligated to pay as damages as a result of Claims First Made Against the Insured During the Policy Period: (a) By reason of any act, error or omission in professional legal services . . . ; (b) Because of personal injury and arising out of the professional services of the Insured as a lawyer . . . . [ft] Provided Always That such act, error or omission or such personal injury happens: (a) During the policy period or (b) Prior to the policy period provided that on the effective date of this policy, The Insured Did Not Know . . . That Such Act, Error, Omission . . . Would Be the Basis of a Claim, and only if the claim for which coverage is otherwise available hereunder is reported in compliance with the subsection of this policy entitled ‘Notice of Claim or Suit’ . . . .”
The subsection entitled “Notice of Claim or Suit” provides that “As a condition precedent to the Insured’s right to the protection afforded by this insurance, the insured shall, as soon as practicable during the policy period give to the Company, written notice directed to the Company’s Claims representative, of any claim made against the insured.”
Appellant makes three major arguments to support his contention that the policy provides coverage: (1) California’s “notice-prejudice” rule operates to bar LMIC from denying coverage on the ground that it received notice of the claim after the policy period had expired, unless LMIC shows [1421]it was substantially prejudiced by such late notice; (2) the notice-prejudice rule is a matter of public policy that should prevail over a strict enforcement of the policy’s provisions; and (3) the policy language concerning reporting and notice of the claim is ambiguous, requiring that coverage be provided.
In arguing that the policy is ambiguous and should be construed to aiford coverage for the Lopez action (which, unknown to Slater and LMIC, was filed during the policy period), appellant essentially urges us to consider the portion of the policy defining the scope of coverage in isolation and without applying the policy’s definition of when a claim is “made.” Because we must look at the provisions of the policy as a whole (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 916, fn. 7 [226 Cal.Rptr. 558, 718 P.2d 920]), we conclude that the reporting and notice provisions are not ambiguous and do not render the coverage language ambiguous. When the policy definition of when a claim is considered “made” is applied to the coverage provision, the only reasonable interpretation of the latter provision is consistent with the “Notice” portion on the face sheet of the policy: “The coverage afforded ... is generally limited to claims arising from the performance of professional services which are first made against the attorney and reported to the Company while the policy is in force.”
As it is without dispute that the Lopez action was not reported to LMIC during the policy period, there is no coverage under the terms of the policy unless public policy considerations or the “notice prejudice” rule operates to bar LMIC from denying coverage. “California’s ‘notice-prejudice’ rule operates to bar insurance companies from disavowing coverage on the basis of lack of timely notice unless the insurance company can show actual prejudice from the delay.” (Pacific Employers Ins. Co. v. Superior Court (1990) 221 Cal.App.3d 1348, 1357 [270 Cal.Rptr. 779].)
To support his claim that the “notice prejudice” rule applies herein, appellant cites Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303 [32 Cal.Rptr. 827, 384 P.2d 155], Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134 [85 Cal.Rptr. 693], and Moe v. Transamerica Title Ins. Co. (1971) 21 Cal.App.3d 289 [98 Cal.Rptr. 547], as well as decisions of federal district courts interpreting California law with respect to the notice prejudice rule. None of the cases cited by appellant deals with the issue of coverage; none discusses the notice prejudice rule in conjunction with the policy language at issue herein, or similar policy language.2 We find to be [1422]persuasive and dispositive of this appeal the case of Pacific Employers Ins. Co. v. Superior Court, supra, 221 Cal.App.3d 1348 (hereafter Pacific Employers), which we acknowledge is distinguishable on the facts. The insured in Pacific Employers knew about the claims during the policy period but the insured’s attorney failed timely to notify the insurer. 3
As explained in Pacific Employers, “The [notice prejudice] rule was developed in the context of ‘occurrence’ policies. [Citations.] [fl] We recognize that the ‘notice prejudice’ rule has been applied to a ‘claims made’ professional errors and omissions policy. (See Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134, 140-142 . . . .) In applying the rule, however, the Flack court relied solely on Campbell finding, without discussion, that the distinction between a ‘claims made’ insurance policy and an ‘occurrence’ policy did not require a departure from the ordinary application of the notice-prejudice rule. In our opinion, the distinction is critical, [fl] Occurrence policies were developed to provide coverage for damage caused [1423]by collision, fire, war, and other identifiable events .... Notice provisions contained in such occurrence policies were ‘included to aid the insurer in investigating, settling, and defending claims,’ not as a definition of coverage. [Citation.] . . . [1|] All professional liability policies were at one time ‘occurrence’ policies. [Citation.] Underwriters soon realized, however, that ‘occurrence’ policies were unrealistic in the context of professional malpractice because the injury and the negligence that caused it were often not discoverable until years after the delictual act or omission. In an effort to reduce their exposure to an unpredictable and lengthy ‘tail’ of lawsuits filed years after the occurrence they agreed to protect against, underwriters shifted to the ‘claims made’ policy .... This type of policy differed materially from an ‘occurrence’ policy in several aspects. Most notably, it was transmittal of notice of the claim to the insurer which was the event that invoked coverage- [10 The effect of applying the ‘notice prejudice rule’ as developed in Campbell and its progeny to the facts of this case would be to convert PEIC’s claims-made policy into an occurrence policy. In the absence of actual prejudice from late reporting, which also defeats coverage under an occurrence policy, all negligence during the policy period would be covered.” (221 Cal.App.3d at pp. 1357-1358.)
The court in Pacific Employers acknowledged that its refusal to apply the notice prejudice rule resulted in coverage more restrictive than that provided by the basic types of professional liability policies, but that it was bound by the principle that “ ‘[a]n insurance company has the right to limit the coverage of a policy issued by it and when it has done so, the plain language of the limitation must be respected.’” (221 Cal.App.3d at p. 1359, citing National Ins. Underwriters v. Carter (1976) 17 Cal.3d 380, 386 [131 Cal.Rptr. 42, 551 P.2d 362].)
The court in Pacific Employers also found persuasive the following language in Gulf Ins. Co. v. Dolan, Fertig and Curtis (Fla. 1983) 433 So.2d 512, 512 [37 A.L.R.4th 374]: “ ‘If a court were to allow an extension of reporting time after the end of the policy period, such is tantamount to an extension of coverage to the insured gratis, something for which the insurer has not bargained. This extension of coverage, by the court, so very different from a mere condition of the policy, in effect rewrites the contract between the two parties. This we cannot and will not do.’” (221 Cal.App.3d at pp. 1358-1359, original italics.)
Other than the argument that California has “traditionally required an insurer to show substantial prejudice,” apparently a reference to Campbell, Flack and other cases (see, ante, fn. 2), appellant offers no authority to support his claim that the reporting provisions of the instant policy violate public policy or are unfair.
[1424]As pointed out by the court in Pacific Employers, there is no merit to the claim that the policy impermissibly restricts an insured’s freedom to contract in the situation where a claim is made near the end of the policy’s term, thus forcing the insured to renew his policy in order to make the required notification: “An insured has the option of either purchasing another ‘claims made’ policy from the initial insurer to extend the period of coverage, or purchasing a policy with retroactive coverage with another insurer. An insured is not locked into a contractual relationship with the initial insurer because nothing interferes with the freedom to pursue either alternative. Additionally, many policies offer protection such as that afforded to the named insured in the instant case. Under the terms of the PEIC policy the insured, upon the policy’s expiration, could have obtained insurance from another insurer and still protected himself against unknown claims by purchasing from PEIC an endorsement providing for an ‘extended reporting period.’” (221 Cal.App.3d at p. 1360.)
In the instant case, Slater was offered the opportunity to protect himself against unknown claims by purchasing an extended reporting period endorsement, which he declined. Under the facts of this case, Slater has failed to demonstrate that the terms of the policy are contrary to public policy or are manifestly unfair.
We conclude that summary judgment was properly granted as the provisions of the policy are plain and unambiguous and require that a claim be made and reported to the insurer during the policy period; the Lopez action was not reported to LMIC during the policy period; the notice prejudice rule does not apply herein; and appellant has failed to demonstrate that enforcement of the policy is contrary to public policy.
Disposition
The judgment is affirmed.
Woods (Fred), J., concurred.
Although our record on appeal does not contain a judgment, but an “Order for Entry of Summary Judgment,” which is signed by the judge, the notice of appeal and briefs of both parties characterize the order as a summary judgment. Although an order granting a motion for summary judgment is not an appealable order, we construe the order to incorporate a judgment in the interests of justice and to avoid delay. (Lindgren v. Baker Engineering Corp. (1988) 197 Cal.App.3d 1351, 1352, fn. 1 [243 Cal.Rptr. 476].)
In Campbell v. Allstate Ins. Co., supra, 60 Cal.2d 303, plaintiffs, injured in an automobile accident by defendant’s insured, obtained a default judgment against the insured who left the state and did not communicate with defendant insurer; plaintiffs brought an action to compel the insurer to pay the default judgment. The trial court denied recovery. The Supreme Court [1422]in Campbell noted the general rule that “An insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, but the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby” (60 Cal.2d at p. 305) then reversed the judgment on the ground of insufficient evidence of prejudice due to the insured’s breach of the cooperation clause. 9Id., at pp. 306-307.)
In Moe v. Transamerica Title Ins. Co., supra, 21 Cal.App.3d 289, title insurers appealed from a judgment against them, contending that “even if respondents were entitled to recover on the title insurance contract, they waived such right to recover by failing to comply with certain provisions which were contained in the policy and which required respondents to ‘promptly notify’ appellants of their loss and to give written notice within 60 days after the loss or damage was determined.” (21 Cal.App.3d at p. 301.) The court in Moe found the contention to be without merit as appellants did not make a showing of substantial prejudice. (Id., at p. 302.)
The issue in Northwestern Title Security Co. v. Flack, supra, 6 Cal.App.3d 134, involving a professional errors and omissions policy issued to a title insurance company, similarly was whether “plaintiff’s 13 months’ delay in notifying defendant of the Arens claim was prejudicial as a matter of law, and therefore constituted a material breach of the indemnity contract.” (6 Cal.App.3d at p. 140.) The insurer in Flack also made a policy argument that the notice prejudice rule should only apply to “occurrence-type” policies, such as automobile insurance policies, but not to “claims-type” policies insuring against claims for errors and omissions. The court in Flack concluded that “there is no indication in Campbell or the other cases cited above that a different rule can apply in ‘claims-type’ policies. The cases make it clear that the subject rule applies to all cases in which the insurer asserts a defense based upon a breach by the insured of a cooperation or notice clause.” (6 Cal.App.3d at pp. 143-144.)
Appellant urges us not to apply Pacific Employers and to adopt the approach of several other states which allegedly have applied the notice prejudice rule to errors and omissions policies; he also urges us to follow Mt. Hawley Ins. v. Federal Sav. & Loan Ins. Corp. (C.D.Cal. 1987) 695 F.Supp. 469, which, without any discussion or analysis, applied Campbell to a claims made and reported policy, then went on to find that there was no coverage because the claim fell within one of the policy exclusions. (695 F.Supp. at pp. 481, 484-485.)
We decline to follow Mt. Hawley, as did another federal court applying California law. (See Burns v. International Ins. Co. (N.D.Cal. 1989) 709 F.Supp. 187, 190-191.) We find more persuasive the analysis in both Burns and Pacific Employers.