9th Circuit Certifies Questions Regarding California’s Notice-Prejudice Rule

In its recent decision in Pizter College v. Indian Harbor Ins. Co., 2017 U.S. App. LEXIS 668 (9th Cir. Jan. 13, 2017), the United States Court of Appeals for the Ninth Circuit had occasion to consider the applicability of a New York choice of law provision in the context of late notice disclaimer of coverage.

Indian Harbor insured Pitzer College under a pollution liability policy containing a choice of law provision stating that “all matters … related to the validity, interpretation, performance and enforcement of this Policy shall be determined in accordance with the law and practice of the State of New York … .”  At issue was Pitzer’s right to coverage for a pollution condition it discovered and remediated several months before giving first notice to Indian Harbor.  The Indian Harbor policy contained a condition stating that except for actions undertaken on an emergency basis, Indian Harbor’s prior consent was required before Pitzer could undertake any remedial efforts.  Indian Harbor subsequently denied coverage to Pitzer on the basis that it failed to give timely notice of the pollution condition and also that it failed to obtain consent prior to undertaking remedial efforts.

On motion for summary judgment, the United States District Court for the Central District of California held in Indian Harbor’s favor, concluding that as a result of the policy’s choice of law provision, New York law governed the coverage dispute and that under New York law, Pitzer’s untimely notice and its failure to have obtained Indian Harbor’s consent before undertaking remedial efforts vitiated its right to coverage under the policy.  Central to the court’s ruling was that California did not have a fundamental public policy interest in applying its own notice-prejudice law to the coverage dispute that would require the court to reject the policy’s New York choice of law provision.

On appeal, the Ninth Circuit observed that under California law, a contractual choice of law provision should be enforced unless it conflicts with a fundamental public policy of the state.  Thus, reasoned the court, application of the New York choice of law provision in the Indian Harbor provision should be enforced unless California’s notice-prejudice rule qualifies as a fundamental public policy.  The court acknowledged that this was a crucial question to the underlying dispute, since under California law, Indian Harbor likely would not be able to establish that it was prejudiced as a result of Pitzer’s late notice.

Given the uncertainty as to whether California’s notice-prejudice rule constitutes a fundamental public policy, the Ninth Circuit certified the following questions to the California Supreme Court:

  1. Is California’s common law notice-prejudice rule a fundamental public policy for the purpose of choice-of-law analysis? May common law rules other than unconscionability not enshrined in statute, regulation, or the constitution, be fundamental public policies for the purpose of choice-of-law analysis?
  1. If the notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis, can a consent provision in a first-party claim insurance policy be interpreted as a notice provision such that the notice-prejudice rule applies?

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