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 judgme nt of the Superior Court of
Los Angeles County, Stephanie M. Bowick, Judge. Reversed

.

—————————— K antor & Kantor, Glenn R. Kantor, and Alan E. Kassan for Plaintiffs and Appellants.
Hinsh aw & Culbertson, Royal F. Oakes, and Michael A. S. Newman for Defendant and Respondent.

——————————2 In 1993, Mar i a Carada purchased a n “occurrence”
life insurance policy from Farmers New World Life Insurance Company (Farmers ) and named her sons Marty and Mikel Lat (collectively the Lats) as benefi ciaries. The policy included

a rider under wh ich Farmers agreed to waive the cost of the
insurance while Carada was disabled if Carada provide d F armers 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 wi th notice of her disability and made no payments on the policy after June 2013. I n September
2013
, Carada died

. After the La ts 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 dismissa l. ( 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, w e reverse the judgment.

BACKGROUND In December 1993, Carada purchased a flexible premium
universal life insurance policy (the p olicy) from Farmers

. Under the policy, Farmers agreed to pay a death benefit to Carada’s beneficiaries, the Lats

, if Carada died while the p olicy 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 withi n which Carada could pay the premium
needed to cover the deduction. If the grace period expired before
Farmers receive d the necessary premium payment, the policy

was terminated and could not be reinstated.
The p olicy included a “Waiver of Deduction Rider” (the
R ider), 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 dur ing [Carada’s]
continued total disability.” The p olicy 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 R ider further provided that Farmers needed to receive

w r itten notice of disability during the period of disability “unless it can be shown that notice was given as soon as reasonably possible.” The R ider “will end when,” among ot her 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 lett er t o Carada advising
her that the “ premium payments received to date are insufficient to pay for the insu rance coverag e provided under the p olicy.” The
letter warned Carada that the p olicy 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
tha t the policy’s “grace period has expired” and that the coverage
under the p olicy was “ no longer in for ce.” In August 2 013 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 i f the policy could be reinstated. T he 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.
T he Lats thereafter contacte d Farmers to claim th e policy’s
death benefits. Farmers advised the m that they were not
entitled to receive the death benefit because the p olicy had lapsed. In November 2013, the Lats su ed Farmers and its agent. In February 2016, the Lats filed the operative s econd a mended

c omplaint, alleging causes of action against Farmers for bre ach
of contract
, breach of the implied covenant of good faith and fair5

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 “ t he policy provides that it will lapse upon the expiration of [a] 61

- day grace period following a delinq uency in premium payments.
The R ider provides that it ends when the policy ends. In this

case, it is undisputed that [Carada] did not make her premium payments within t h e 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

t oo did the Rider.”

D ISCUSSION

I. Standard of R eview A “motion for summary judgm ent 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 summar y 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 insura nce 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 Ins urance Co. (1966) 65 Cal.2d 263, 270 ), and, accordingly, “ ‘ coverage clauses are interpreted broadly so as to afford the greatest6

possible protection to the insured [ while ] exclusionary clauses are interpreted na rrowly against the insurer. ’ ” ( Reserve Insurance
Co. v. Pisciotta (1982) 30 Cal.3d 800, 807

- 808 .)

I I

. 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 a nd 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 an d 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 require d , 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 compan y
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 th e 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 carrier7

(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 Equi ty 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

esse ntial part of the contract [is] insur ance coverage, not the procedure for determining liability[] ’ [citations], and that ‘ the notice requirement serves to p rotect 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 cla im .’ ” ( 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 wa s totally disabled, provided she gave Farmers timely notice an d 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 wa iver benefit under the Rider
if she had given Farmers timely notice of her disability . Under

a straig htforward application of the notice prejudice rule,
Farmers could not deny Carada the benefit of the deduction
waiver unless Farmers suffered actual prejudice from the delay ed
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 i t would waive. The fact that Farmers was unaware of Carada’s disability when it declared the policy had lapsed explain s why it declared the policy lapsed

— indeed, Farmer s 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 ’ continue d refus al to honor its
contractual obligations to Carada and her beneficiaries precludes summary judgment in its favor

. W hen, as here, the insurance

c ompany discovers facts show ing 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.2d9

1033, 1 042

- 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 analog ous to the Rider in the instant case. (See i d. at p. 646, fn. 2.) Zipoy left his employer d ue 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 th e insurance company of
his disability. ( Ibid. ) The district c ourt granted the insurance company’s motion for summary j udgment on the ground that
the notice prejudice rule did not apply to the notice of disability requirement. ( Id. at p. 645.) The Ninth Circu it reversed and, applying the notice prejudice rule , stat ed : “ 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 r equirements 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 appli cation of the notice prejudice rule was based on Rhode Island and Arizo na law . ( Carrington

, supra , 289 F.3d at pp. 646

- 647.) The notice prejudice rule in those states is indistinguishable from the California rule. (Compare i d. at p. 646 [“[u] nder Rhode Island and Arizona law, an insurer may not ‘ rely on any of the so

- calle d “ notice ” provisions of its10 In Ward v. Management Ana lysis Co. (9th Cir. 1998)
135 F.3d 1276, 1280 ( Ward )

, affirm ed 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, t he
Ninth Circuit observed that the insuran ce policy “logically and unambiguously establish[ed] that . . . timely subm ission 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 no tice prejudice rule and triable issue s of f act 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 p p

. 1 039

- 1040 .)
Doe became disabled and did not pay the policy premiums. After
the insur ance 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 a nd not

p olicy unless it

. . . demonstrate[s] that it ha[s] been p rejudiced 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 p p

. 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 cas es. 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 unrem arkable application of the ‘not ice prejudice’ rule to a notice provision of a policy.” (Italics omitted.) As in Ward and Carrington , however,

w e also apply the notice prejudice rule in an unremarkabl e

manner, and where it belongs: to the notice provisio n 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

. Bec ause Farmer s does not a ssert 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 A re Unavailing

Farmers presents a fund amentally different view of
the case. It contends that Car ada’s failure to pay the policy
deductions in 2013 resulted i n a lapse of the policy in July 2013 ; that the lapse of the p olicy terminated the Rid er; and that the termination of the Rider precluded Carada (or her beneficiaries) from receiving the deduction waiver benefit

. The argument is circular: I ts 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 . I f

, of course, Carada was entitled to that benefit, she wa s excused from paying the deductions
while she was disabled and the policy w ould not have lapsed

. If Farmers’ view was accepted, the courts in Carrington
and Doe could not have arrived at th eir results. In each case,
the insured not only failed to give t imely 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 disabil ity , 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 propose s here: Because the policy had lapsed, the insureds could not invoke the disability

- based13

benefit and their claims were properly denied. In each case, however, the court considered the poli cy 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 p p

. 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 re jected Slater’s reliance on
the notice prejudice rule because that rule applies to notice requirements in policies that provid e coverage based on the
occurrence of an identifiable event , or “ occurrence” policies , no t policies that define coverage based on the making and reporting
of a claim to the insurance company , or claims made and reported policies

. ( I

d. at p p

. 1421

- 1424 .) A pplying the no tice prejudice
rule to a claims made and reported policy such as Slater’s,
the court explained, would effecti vely convert the policy into

an occurrence policy, thereby extending coverage beyond the parties’ agreement. ( Id. at p. 1423 ; see Ro ot 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

a nd reported ’ policy ”] .) T he 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

ru le 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 i t s purpose of preventing an insurance

company from shielding it self 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 t o 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.