The Ninth Circuit Court of Appeals affirmed that an insured's noncompliance with the notice provision of their policy meant the insurer was not obligated to provide coverage. The case is Heritage Bank of Commerce v. Zurich Am. Ins. Co., 2024 U.S. App. LEXIS 4524 (9th Cir. 2024). Please note that this case is unpublished and therefore has limited precedential value.
Heritage purchased a claims-made-and-reported policy from Zurich. The notice provision in that policy required Heritage to notify Zurich's claims department of a claim or potential claim in writing sent to a specific address. During the policy period, Heritage became aware of a potential claim; however, Heritage notified Zurich's underwriting department of the potential claim over email. Later, Zurich refused to provide coverage for that claim based on Heritage's noncompliance with the notice provision.
Heritage sued Zurich for coverage, and Zurich filed a motion to dismiss the complaint for failure to state a claim. The District Court granted Zurich's motion, stating that Heritage had not substantially complied with the policy's notice provision. Heritage appealed.
On appeal, Heritage did not protest the District Court's use of the substantial compliance standard, but they claimed it had been applied incorrectly. The judges of the Ninth Circuit were not persuaded. They pointed to an earlier California case, Chase v. National Indem. Co., 278 P.2d 68 (Cal. App. 1954), where a California appellate court found that strict compliance was required for any part of an insurance policy that showed a party intended to take or refrain from taking a specific action that would have a material impact on the insured risk.
The question became whether California law required strict compliance with notice provisions specifically for a claims-made-and-reported policy. The California Supreme Court had not issued a decision on the issue, so the Ninth Circuit had to make an educated guess on how the justices would answer the question. Earlier appellate cases from California had found that the notice requirements in claims-made-and-reported policies have a material impact on the insured risk, as contemplated in Chase, because they reduced the insurer's risk of monitoring payments, which was the point of claims-made-and-reported policies, and because they operated as forfeiture clauses. Other federal circuits that had faced the issue of strict compliance with notice provisions in claims-made-and-reported policies had held that strict compliance was a necessary element of an insured's claim. Given these facts, the judges of the Ninth Circuit decided the Supreme Court of California would also require strict compliance with the notice provisions of a claims-made-and-reported policy. Noncompliance with the notice provisions, therefore, meant an insured's claim would not be covered.
The dismissal of Heritage's claim against Zurich was affirmed.
Editor's Note: The issue in this case wasn't whether Heritage had sent notice to Zurich, period; it was whether Heritage had sent the notice correctly. The policy with Zurich required a written notice be sent to a specific address for the claims department. Heritage emailed notice of the potential claim to Zurich's underwriting division. This noncompliance with the notice requirement cost Heritage coverage for their claim.
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