Where Insured Not Provided Notice of Nonrenewal, Policy Term Automatically Extended By Operation Of Law
Norcal Mutual Insurance Company v. Certain Underwriters at Lloyd’s of London, et al, No. B213122 (February 22), is an unpublished case from Division Four of the Second Appellate District founded on a statutory interpretation of Insurance Code Section 678.1. The defendants reinsured Norcal for its liability under a managed health care professional liability insurance policy. They subsequently denied a claim submitted by Norcal arising after its 1999/2000 policy term. Norcal argued that such policy term was extended by operation of law because its insured was not provided with a statutory notice of nonrenewal as required by Insurance Code Section 678.1. The Court of Appeal, reversing in part the trial court, agreed with Norcal. The absence of notice did extend the policy term, and therefore the defendants’ reinsurance was invoked. However, because it was Norcal’s own obligation to give such notice, the Court went on, summary adjudication in defendants’ favor of Norcal’s cause of action alleging that it was defendants who had negligently failed to provide the notice was also appropriate.
Defendants argued that Section 678.1 does not always require notice to be given. And subdivision (f) (3) does indicate notice is not required when the named insured has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage. The defendants argued that the underlying insured had agreed to obtain replacement coverage by virtue of its directions with respect to renewal of the policy. The Court of Appeal disagreed. It found that a “replacement” policy within the meaning of subsection (f) (3) is not the “renewal” of an existing policy. Subsection (f) (6) contains a different exception to the notice requirement when an insurer offers to renew a policy under changed terms or conditions. The Court found that it was obliged therefore to interpret the two different terms — “replacement” and “renew” – separately, giving independent meanings to each. The subdivision (f) (6) exception depends on a timely offer to renew, but, under defendants’ interpretation, that timeliness requirement would be excused under the language of subdivision (f) (3). The Court found it was obligated to interpret the statutory terminology so as to avoid such an incongruity.
February 22, 2010
Posted in: Blog