Filed 10/16/18

CERTIFIED FOR PUBLICATION 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

MARTY LAT et al.,

Plaintiffs and Appellants,

v.

FARMERS NEW WORLD LIFE 

INSURANCE COMPANY,

Defendant and Respondent.

 B282008

 (Los Angeles County

 Super. Ct. No. BC528211)

APPEAL from a judgment of the Superior Court of 

Los Angeles County, Stephanie M. Bowick, Judge. Reversed.

——————————

Kantor & Kantor, Glenn R. Kantor, and Alan E. Kassan for 

Plaintiffs and Appellants.

Hinshaw & Culbertson, Royal F. Oakes, and Michael A. S. 

Newman for Defendant and Respondent.

——————————
2

In 1993, Maria Carada purchased an “occurrence” 

life insurance policy from Farmers New World Life Insurance 

Company (Farmers) and named her sons Marty and Mikel Lat 

(collectively the Lats) as beneficiaries. The policy included 

a rider under which Farmers agreed to waive the cost of the 

insurance while Carada was disabled if Carada provided Farmers 

with notice and proof of her disability. Carada was diagnosed 

with cancer in September 2012 and became disabled as a result. 

She did not provide Farmers with notice of her disability and 

made no payments on the policy after June 2013. In September

2013, Carada died.

After the Lats made a claim for benefits under the policy, 

Farmers denied the claim on the ground that the policy had 

lapsed before Carada died. 

The Lats sued Farmers for breach of contract, tortious 

breach of the implied covenant of good faith and fair dealing, 

and the negligence of its agent. The trial court granted Farmers’ 

motion for summary judgment and entered judgment in its 

favor.1

 

1 The Lats’ notice of appeal was filed on April 13, 2017, 

after the court granted Farmers’ motion for summary judgment 

but before it entered judgment. Because the order granting 

summary judgment is a nonappealable order, the appeal was 

subject to dismissal. (Modica v. Merin (1991) 234 Cal.App.3d 

1072, 1073-1075.) We provided the Lats with an opportunity 

to cure this defect, and they filed a copy of a judgment entered 

on July 6, 2017. Although the judgment revealed that the notice 

of appeal was premature and, therefore, still defective, we 

deem the notice of appeal to have been filed on the date of the 

judgment. (See Mukthar v. Latin American Security Service

(2006) 139 Cal.App.4th 284, 288.)
3

For the reasons given below, we reverse the judgment.

BACKGROUND

In December 1993, Carada purchased a flexible premium 

universal life insurance policy (the policy) from Farmers. Under 

the policy, Farmers agreed to pay a death benefit to Carada’s 

beneficiaries, the Lats, if Carada died while the policy was in 

force.

The policy established an “accumulation account” to which 

Carada’s premium payments and interest were added and from 

which the monthly costs of insurance and other amounts were 

deducted. If the accumulation account was reduced below the 

amount needed to cover the next month’s deductions, a 61-day 

grace period began within which Carada could pay the premium 

needed to cover the deduction. If the grace period expired before 

Farmers received the necessary premium payment, the policy 

was terminated and could not be reinstated.

The policy included a “Waiver of Deduction Rider” (the 

Rider), which provided that if Farmers “receive[d] proof that 

[Carada was] totally disabled,” Farmers would “waive the 

monthly deductions due after the start of and during [Carada’s] 

continued total disability.” The policy defined total disability as 

including the inability to work for “a continuous period of at least 

six months.” The deduction waiver is thus based upon the 

occurrence of Carada’s total disability, as defined in the Rider.

The Rider further provided that Farmers needed to receive 

written notice of disability during the period of disability “unless 

it can be shown that notice was given as soon as reasonably 

possible.” The Rider “will end when,” among other events, “the 

policy ends.”
4

In August 2012, Carada was diagnosed with “stage 4”

colon cancer. The illness and its treatment rendered her unable 

to work and totally disabled as of August 2012.

On May 20, 2013, Farmers sent a letter to Carada advising 

her that the “premium payments received to date are insufficient 

to pay for the insurance coverage provided under the policy.” The 

letter warned Carada that the policy was “in danger of lapsing” 

and stated that if Farmers did not receive a payment by the end 

of the grace period—July 20, 2013—the policy would “lapse and 

all coverage will terminate.” Farmers sent a similarly worded 

letter to Carada on June 19, 2013.

On July 23, 2013, Farmers sent Carada a letter stating 

that the policy’s “grace period has expired” and that the coverage 

under the policy was “no longer in force.”

In August 2013 Carada contacted the insurance agent 

who had sold her the policy. She advised the agent of her 

illness and disability and asked if the policy could be reinstated. 

The agent informed a Farmers representative that Carada was 

dying of cancer and asked if the policy could be reinstated. The 

representative told the agent that the policy had lapsed and could 

not be reinstated. The agent relayed this information to Carada.

Carada died on September 23, 2013.

The Lats thereafter contacted Farmers to claim the policy’s 

death benefits. Farmers advised them that they were not 

entitled to receive the death benefit because the policy had 

lapsed.

In November 2013, the Lats sued Farmers and its agent. 

In February 2016, the Lats filed the operative second amended 

complaint, alleging causes of action against Farmers for breach 

of contract, breach of the implied covenant of good faith and fair 
5

dealing, and vicarious liability for the alleged negligence of its 

agent.

Farmers moved for summary judgment, which the trial 

court granted in March 2017. The court explained that “the 

policy provides that it will lapse upon the expiration of [a] 61-day 

grace period following a delinquency in premium payments. 

The Rider provides that it ends when the policy ends. In this 

case, it is undisputed that [Carada] did not make her premium 

payments within the 61-day grace period, and that she did not 

make a disability claim or offer proof of her disability until after 

the grace period elapsed. Consequently, the policy lapsed, and so 

too did the Rider.”

DISCUSSION

I. Standard of Review

A “motion for summary judgment shall be granted if all 

the papers submitted show that there is no triable issue as to any 

material fact and that the moving party is entitled to a judgment 

as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) “We 

apply a de novo standard of review to an order granting summary 

judgment, when on undisputed facts, the order is based on the 

interpretation of the terms of the insurance policy.” (Morris v. 

Employers Reinsurance Corp. (2000) 84 Cal.App.4th 1026, 1029.)

“Interpretation of an insurance policy is a question of 

law and follows the general rules of contract interpretation.”

(MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647.) 

Courts are mindful, however, of the “disparate bargaining status 

of the parties” in the insurance context (Gray v. Zurich Insurance

Co. (1966) 65 Cal.2d 263, 270), and, accordingly, “ ‘coverage 

clauses are interpreted broadly so as to afford the greatest 
6

possible protection to the insured [while] exclusionary clauses are 

interpreted narrowly against the insurer.’ ” (Reserve Insurance 

Co. v. Pisciotta (1982) 30 Cal.3d 800, 807-808.)

II. Analysis

Farmers contends that Carada’s policy terminated in 

July 2013 when her accumulation account fell to a level that 

was insufficient to pay for coverage and she failed to make a 

premium payment within the 61-day grace period. “Once the 

[p]olicy ended,” Farmers argues, “the Rider ended” and could 

not be invoked by Carada or the Lats. (Boldface and underlining 

omitted.)

The Lats assert that Carada was totally disabled within 

the meaning of the Rider and that the deductions that caused 

Farmers to declare a policy lapse were therefore waived. 

Although Carada had not given to Farmers the notice of her 

disability that the Rider required, that requirement was excused 

by California’s notice prejudice rule. 

We agree with the Lats.

A. The Notice Prejudice Rule Applies to 

the Rider

Under the notice prejudice rule, an insurance company

may not deny an insured’s claim under an occurrence policy 

based on lack of timely notice or proof of claim unless it can show 

actual prejudice from the delay.2 (Campbell v. Allstate Ins. Co.

 

2 “ ‘[A]n “occurrence” policy provides coverage for any acts 

or omissions that arise during the policy period even though the 

claim is made after the policy has expired.’ ” (Pacific Employers 

Ins. Co. v. Superior Court (1990) 221 Cal.App.3d 1348, 1356.) It 

is distinguished from a claims made policy in which “ ‘the carrier 
7

(1963) 60 Cal.2d 303, 305-306; Joyce v. United Ins. Co. (1962) 

202 Cal.App.2d 654, 662; Cisneros v. UNUM Life Ins. Co. of 

America (9th Cir. 1998) 134 F.3d 939, 944; see Root v. American 

Equity Specialty Ins. Co. (2005) 130 Cal.App.4th 926, 930 [notice 

prejudice rule does not apply to claims made and reported policy];

see generally 13 Couch on Insurance (3d ed. 2018) § 193:66.) 

The rule is based on the rationale that “ ‘[t]he primary and 

essential part of the contract [is] insurance coverage, not the 

procedure for determining liability[]’ [citations], and that ‘the 

notice requirement serves to protect insurers from prejudice, . . . 

not . . . to shield them from their contractual obligations’ through 

‘a technical escape-hatch.’ ” (Carrington Estate Planning v. 

Reliance Standard (9th Cir. 2002) 289 F.3d 644, 647

(Carrington).)

The burden of establishing prejudice is on the insurance 

company (Campbell v. Allstate Ins. Co., supra, 60 Cal.2d 

at p. 306), and prejudice is not presumed by delay alone (Shell 

Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 

715, 761). To establish prejudice, the “ ‘insurer must show it 

lost something that would have changed the handling of the 

underlying claim.’ ” (Belz v. Clarendon America Ins. Co. (2007) 

158 Cal.App.4th 615, 632; see Croskey et al., Cal. Practice Guide:

Insurance Litigation (The Rutter Group 2018) ¶ 6:37, p. 6A-6 

[“insurer would presumably have to show that the delayed notice 

 

agrees to assume liability for any errors, including those made 

prior to the inception of the policy as long as a claim is made 

during the policy period.’ ” (Id. at pp. 1356-1357.) A “ ‘claims 

made and reported’ ” policy is further distinguished by a 

requirement that the claim be reported to the insurer within the 

reporting period. (Helfand v. National Union Fire Ins. Co. (1992) 

10 Cal.App.4th 869, 888.)
8

and proof of loss impaired its ability to investigate and settle the 

claim”].)

Under the Rider in this case, there could be no deduction 

from Carada’s accumulation account while she was totally 

disabled, provided she gave Farmers timely notice and proof 

of her disability. There is no dispute that Carada was totally 

disabled while the policy was in force and that she would have 

been entitled to the deduction waiver benefit under the Rider 

if she had given Farmers timely notice of her disability. Under 

a straightforward application of the notice prejudice rule, 

Farmers could not deny Carada the benefit of the deduction 

waiver unless Farmers suffered actual prejudice from the delayed

notice. Farmers has made no such showing and, therefore, 

Carada was entitled to the deduction waiver benefit. If Farmers 

had provided that benefit, Carada’s policy would have been in 

force at the time of her death. Indeed, the only reason Farmers 

terminated Carada’s policy was that it applied the deductions it 

had promised Carada it would waive. 

The fact that Farmers was unaware of Carada’s disability 

when it declared the policy had lapsed explains why it declared 

the policy lapsed—indeed, Farmers appears to have been entirely 

innocent in making that determination—but once it learned 

of Carada’s disability and, therefore, her entitlement to the 

deduction waiver, Farmers’ continued refusal to honor its 

contractual obligations to Carada and her beneficiaries precludes 

summary judgment in its favor. When, as here, the insurance 

company discovers facts showing that its declaration of lapse 

should not have been made, the declaration of lapse is ineffective 

and the policy’s terms may be enforced. (See Doe v. Life Ins. 

Co. of North America (LINA) (N.D.Cal. 2010) 737 F.Supp.2d 
9

1033, 1042-1043 (Doe) [notice of disability given after insurance 

company cancelled policy was not prejudicial, and insured was 

entitled to coverage under the policy].)

The notice prejudice rule has been applied with similar 

results in analogous cases. In Carrington, supra, 289 F.3d 644,

the insured, Zipoy, was covered under his employer’s group life 

insurance policy, which included a premium waiver provision 

analogous to the Rider in the instant case. (See id. at p. 646, 

fn. 2.) Zipoy left his employer due to a disability and failed 

to notify the insurance company of the disability, as required 

to continue coverage. (Id. at p. 646.) After Zipoy died, the 

insurance company denied the death beneficiary’s claim based 

in part on Zipoy’s failure to notify the insurance company of 

his disability. (Ibid.) The district court granted the insurance 

company’s motion for summary judgment on the ground that 

the notice prejudice rule did not apply to the notice of disability 

requirement. (Id. at p. 645.) The Ninth Circuit reversed and, 

applying the notice prejudice rule, stated: “If late notice of 

Zipoy’s disability did not prejudice [the insurance company] in 

its ability to investigate the basis of [the beneficiary’s] claim that 

the substantive requirements of the disability waiver were met, 

the reason behind the notice provision is lacking and it follows 

neither logic nor fairness to relieve [the insurance company] of 

its obligations under the policy.” (Id. at p. 648.)3

 

3 Carrington’s application of the notice prejudice rule was 

based on Rhode Island and Arizona law. (Carrington, supra, 

289 F.3d at pp. 646-647.) The notice prejudice rule in those 

states is indistinguishable from the California rule. (Compare 

id. at p. 646 [“[u]nder Rhode Island and Arizona law, an insurer 

may not ‘rely on any of the so-called “notice” provisions of its 
10

In Ward v. Management Analysis Co. (9th Cir. 1998) 

135 F.3d 1276, 1280 (Ward), affirmed in part and reversed in part

on other grounds sub nom. UNUM Life Ins. Co. of America v. 

Ward (1999) 526 U.S. 358, an insurance company denied benefits 

under a disability policy because the insured failed to file a 

timely claim. (Ward, supra, 135 F.3d at p. 1279.) After the 

insured sued, the trial court granted the insurance company’s 

motion for summary judgment. (Id. at p. 1278.) On appeal, the 

Ninth Circuit observed that the insurance policy “logically and 

unambiguously establish[ed] that . . . timely submission of proof 

[of claim] is a condition precedent to payment of benefits.” (Id. at 

p. 1280.) The court nevertheless reversed because the condition 

was subject to California’s notice prejudice rule and triable issues

of fact remained as to whether the insurance company suffered 

actual prejudice as a result of the late claim. (Ibid.) 

In Doe, supra, 737 F.Supp.2d 1033, Doe was insured under 

an employer-provided life insurance policy that provided for a 

waiver of premiums and continued coverage if the employee 

becomes disabled and gives the insurance company proof of his 

or her disability within a certain time. (Id. at pp. 1039-1040.) 

Doe became disabled and did not pay the policy premiums. After 

the insurance company informed him that his policy had lapsed, 

Doe sued and filed a motion for summary judgment seeking a 

judicial determination that he was covered by the policy and not 

 

policy unless it . . . demonstrate[s] that it ha[s] been prejudiced 

by the lack of notice’ ”] with Shell Oil Co. v. Winterthur Swiss 

Ins. Co., supra, 12 Cal.App.4th at p. 760 [under California 

law, insurance company must prove that it suffered actual, 

substantial prejudice by the insured’s failure to give timely notice 

of claim].)
11

required to pay premiums because of his disability. Although 

there was some evidence that the insurance company received 

notice of the insured’s disability, the court explained that even 

if it had not, the insurance company had “not shown prejudice

under the notice-prejudice rule.” (Id. at p. 1043.) In particular, 

the court rejected the insurance company’s argument that 

providing coverage under a policy that had lapsed nine years 

earlier was itself prejudicial. (Id. at pp. 1042-1043.) There was 

“nothing,” the court explained, that suggested that the insurance 

company’s “ability to investigate [the insured’s] disability was 

compromised by late notice.” (Id. at p. 1043.) 

Farmers does not meaningfully distinguish these cases. 

Ward, Farmers states, “simply applied the ‘notice prejudice’ rule 

where it belongs—i.e., to a notice provision of a policy,” (boldface 

and italics omitted) and Carrington is “simply a garden variety 

‘notice prejudice’ case,” and “an ordinary and unremarkable 

application of the ‘notice prejudice’ rule to a notice provision of a 

policy.” (Italics omitted.) As in Ward and Carrington, however, 

we also apply the notice prejudice rule in an unremarkable 

manner, and where it belongs: to the notice provision in the 

Rider. Farmers’ attempt to distinguish Doe begins with a plea to 

ignore it because it is a federal trial court ruling, and follows with 

a discussion of factual differences between Doe and the instant 

case, none of which are legally relevant. 

Because Farmers does not assert that it was prejudiced by 

the delayed notice of Carada’s disability and there is no dispute 

that Carada was totally disabled within the meaning of the 

Rider, Carada was entitled to the benefit promised under the 

Rider: to have the deductions charged to her account waived. 

Because the deductions should have been waived and Farmers’ 
12

denial of coverage was based solely on those deductions, Farmers

has not established that, as a matter of law, Carada’s policy had 

lapsed or that it was justified in denying her beneficiaries’ claim

under the policy.

B. Farmers’ Arguments Are Unavailing

Farmers presents a fundamentally different view of 

the case. It contends that Carada’s failure to pay the policy 

deductions in 2013 resulted in a lapse of the policy in 

July 2013; that the lapse of the policy terminated the Rider; 

and that the termination of the Rider precluded Carada (or her 

beneficiaries) from receiving the deduction waiver benefit. The 

argument is circular: Its premise that the policy lapsed because 

Carada failed to pay the deduction assumes Farmers’ conclusion 

that Carada was not entitled to the deduction waiver benefit 

because the policy had lapsed. If, of course, Carada was entitled 

to that benefit, she was excused from paying the deductions 

while she was disabled and the policy would not have lapsed. 

If Farmers’ view was accepted, the courts in Carrington

and Doe could not have arrived at their results. In each case, 

the insured not only failed to give timely notice of his disability 

as required under the terms of the policy, but failed to give 

the notice until after the insurance company determined that 

the policy had lapsed. (Carrington, supra, 289 F.3d at p. 646 

[in the absence of notice of disability, policy lapsed when 

insured discontinued employment]; Doe, supra, 737 F.Supp.2d 

at pp. 1036-1037 [same].) If, as Farmers contends, the ostensible 

lapsing of the policy precludes an insured’s subsequent invocation 

of a disability-based waiver, the analysis in those cases would 

simply have been as Farmers proposes here: Because the policy 

had lapsed, the insureds could not invoke the disability-based 
13

benefit and their claims were properly denied. In each case, 

however, the court considered the policy lapse immaterial; if the 

notice prejudice rule was applied in the insured’s favor, he was 

entitled to the policy’s benefits regardless of whether the insured 

had declared it to have lapsed.

Farmers’ reliance on Slater v. Lawyers’ Mutual Ins. Co. 

(1991) 227 Cal.App.3d 1415 (Slater) is misplaced. In that case, 

a lawyer (Slater), had a professional liability policy that covered 

him for claims made and reported to the insurance company

within the policy period. (Id. at pp. 1419-1420.) After the 

expiration of the policy period, Slater tendered to his insurance 

company a complaint against him for legal malpractice. (Id.

at p. 1418.) The Court of Appeal rejected Slater’s reliance on

the notice prejudice rule because that rule applies to notice 

requirements in policies that provide coverage based on the 

occurrence of an identifiable event, or “occurrence” policies, not 

policies that define coverage based on the making and reporting 

of a claim to the insurance company, or claims made and reported

policies. (Id. at pp. 1421-1424.) Applying the notice prejudice 

rule to a claims made and reported policy such as Slater’s, 

the court explained, would effectively convert the policy into 

an occurrence policy, thereby extending coverage beyond the 

parties’ agreement. (Id. at p. 1423; see Root v. American Equity 

Specialty Ins. Co., supra, 130 Cal.App.4th at p. 947 [applying 

notice prejudice rule to claims made and reported policies would 

“effectively obliterate[] the ‘and reported’ part of the ‘claims made

and reported’ policy”].) The court therefore rejected Slater’s 

claim. Similar reasoning and results are found in other cases 

Farmers relies upon. (See, e.g., Pacific Employers Ins. Co. v. 
14

Superior Court, supra, 221 Cal.App.3d at p. 1357; Industrial 

Indemnity v. Superior Court (1990) 224 Cal.App.3d 828, 830.) 

These cases are inapplicable to Carada’s policy because 

her policy is an occurrence policy as to coverage for her disability 

as well as coverage for her death. Applying the notice prejudice 

rule in this instance would not, therefore, transform a claims

made and reported policy into an occurrence policy or, as in 

Slater, effectively rewrite the contract between the parties. 

(Slater, supra, 227 Cal.App.3d at p. 1423.) Rather, applying 

the rule here would serve its purpose of preventing an insurance 

company from shielding itself from its “ ‘contractual obligations’

through ‘a technical escape-hatch.’ ” (Carrington, supra, 289 F.3d 

at p. 647.)

For the foregoing reasons, Farmers was not entitled to 

judgment as a matter of law, and the court erred in granting its 

motion for summary judgment.
15

DISPOSITION

The judgment is reversed. The Lats are awarded their 

costs on appeal.

CERTIFIED FOR PUBLICATION.

ROTHSCHILD, P. J.

We concur:

JOHNSON, J.

BENDIX, J.