Title: Pitzer College v. Indian Harbor Insurance Co.
Citation: N/A
Docket Number: S239510
State: California
Issuer: California Supreme Court
Date: August 29, 2019

IN THE SUPREME COURT OF 
CALIFORNIA 
 
PITZER COLLEGE, 
Plaintiff and Appellant, 
v. 
INDIAN HARBOR INSURANCE COMPANY, 
Defendant and Respondent. 
 
S239510 
 
Ninth Circuit 
14-56017 
 
Central District of California 
2:13-cv-05863-GW-E 
 
__________________________________________________________ 
 
August 29, 2019 
 
Justice Chin authored the opinion of the Court, in which Chief 
Justice Cantil-Sakauye and Justices Corrigan, Liu, Cuéllar, 
Kruger, and Groban concurred. 
 
1 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
S239510 
 
Opinion of the Court by Chin, J. 
 
California’s 
notice-prejudice 
rule 
generally 
allows 
insureds to proceed with their insurance policy claims even if 
they give their insurer late notice of a claim, provided that the 
late notice does not substantially prejudice the insurer.  
(Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 307 
(Campbell).)  In this context, we consider two narrow questions 
from the United States Court of Appeals for the Ninth Circuit, 
restated as follows:  (1) Is California’s common law notice-
prejudice rule a fundamental public policy for the purpose of 
choice of law analysis?  (2) If so, does the notice-prejudice rule 
apply to the consent provision of the insurance policy in this 
case?  (Cal. Rules of Court, rule 8.548(f)(5) [Supreme Court may 
restate questions or ask the requesting court for clarification].)  
In line with California’s strong preference to avoid technical 
forfeitures of insurance policy coverage, we conclude (1) that our 
notice-prejudice rule is a fundamental public policy of our state 
in the insurance context, and (2) the rule generally applies to 
consent provisions in the context of first party liability policy 
coverage and not to consent provisions in third party liability 
policies.  We leave it for the Ninth Circuit to decide whether the 
consent provision at issue here contemplates first party or third 
party coverage. 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
2 
 
I.  FACTS AND PROCEDURAL HISTORY 
The Claremont University Consortium (CUC) is an 
umbrella entity that enters into insurance contracts on behalf of 
the Claremont Colleges, including plaintiff Pitzer College 
(Pitzer).  (Pitzer College v. Indian Harbor Ins. Co. (9th Cir. 2017) 
845 F.3d 993, 994 (Pitzer College).)  The CUC purchased an 
insurance policy (Policy) from defendant Indian Harbor 
Insurance Company (Indian Harbor) that covered Pitzer for 
legal and remediation expenses resulting from pollution 
conditions discovered during the policy period of July 23, 2010 
to July 23, 2011.  (Ibid.)  
The Policy contains three provisions pertinent to our 
review.  First, a notice provision requires Pitzer to provide oral 
or written notice of any pollution condition to Indian Harbor 
and, in the event of oral notice, to “furnish . . . a written report 
as soon as practicable.”1  Second, a consent provision requires 
Pitzer to obtain Indian Harbor’s written consent before 
incurring expenses, making payments, assuming obligations, 
and/or commencing remediation due to a pollution condition.2  
                                        
1 
The notice provision states in relevant part:  “As a 
condition precedent to the coverage hereunder, in the event . . . 
any POLLUTION CONDITION is first discovered by the 
INSURED that results in a LOSS or REMEDIATION 
EXPENSE [¶] . . . [¶] The INSURED shall provide to the 
Company, whether orally or in writing, notice of the particulars 
with respect to the time, place and circumstances thereof, along 
with the names and addresses of the injured and of available 
witnesses.  In the event of oral notice, the INSURED agrees to 
furnish to the Company a written report as soon as practicable.”  
2  
The consent provision states in relevant part:  “No costs, 
charges, or expenses shall be incurred, nor payments made, 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
3 
Pursuant to an emergency exception to this consent provision, 
however, if Pitzer incurs costs “on an emergency basis where 
any delay . . . would cause injury to persons or damage to 
property or increase significantly the cost of responding to any 
[pollution condition],” then Pitzer is not required to obtain 
Indian Harbor’s prior written consent, but it is required to notify 
Indian Harbor “immediately thereafter.”  Third, a choice of law 
provision states that New York law governs all matters arising 
under the Policy.3  
On January 10, 2011, Pitzer discovered darkened soils at 
the construction site for a new dormitory on campus.  (Pitzer 
College, supra, 845 F.3d at p. 994.)  “By January 21, 2011, Pitzer 
determined that remediation would be required.”  (Ibid.)  With 
pressure to complete the dormitory prior to the start of the 2012-
2013 academic year, Pitzer conferred with environmental 
consultants who determined that the least expensive and most 
expeditious option was to conduct lead removal onsite using a 
transportable treatment unit (TTU).  Pitzer reserved one of the 
two TTUs that were licensed for use in Southern California and 
began the treatment process.  (Ibid.)  Remediation work 
                                        
obligations assumed or remediation commenced without the 
Company’s written consent which shall not be unreasonably 
withheld.  This provision does not apply to costs incurred by the 
INSURED on an emergency basis, where any delay on the part 
of the INSURED would cause injury to persons or damage to 
property or increase significantly the cost of responding to any 
POLLUTION CONDITION.  If such emergency occurs, the 
INSURED shall notify the Company immediately thereafter.”  
3 
The choice of law provision states:  “All matters arising 
hereunder including questions related to validity interpretation, 
performance and enforcement of this Policy shall be determined 
in accordance with the law and practice of the State of New York 
(notwithstanding New York’s conflicts of law rules).”  
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
4 
commenced on March 9, 2011 with the setup of the TTU and was 
successfully completed one month later at a total cost of nearly 
$2 million.  Indian Harbor’s expert later opined that the 
remediation could have been performed at a reduced cost using 
alternative methods, and that the manner of remediation 
waived subrogation rights against others who may have been 
responsible for the contaminated soil.  
Pitzer did not obtain Indian Harbor’s consent before 
commencing remediation or paying remediation costs.  (Pitzer 
College, supra, 845 F.3d at p. 995.)  In fact, “Pitzer did not inform 
Indian Harbor of the remediation until July 11, 2011, 
approximately three months after it completed remediation and 
six months after it discovered the darkened soils.”  (Ibid.)  
“On August 10, 2011, Indian Harbor acknowledged receipt 
of Pitzer’s notice of remediation.”  (Pitzer College, supra, 845 
F.3d at p. 995.)  On March 16, 2012, Indian Harbor denied 
coverage based on Pitzer’s failure to give notice as soon as 
practicable and its failure to obtain Indian Harbor’s consent 
before commencing the remediation process.  (Ibid.)  
Pitzer sued Indian Harbor in Los Angeles County Superior 
Court for declaratory relief and breach of contract.  (Pitzer 
College, supra, 845 F.3d at p. 995.)  Indian Harbor removed the 
case to federal court on the basis of diversity jurisdiction and 
moved for summary judgment, claiming that it had no obligation 
to indemnify Pitzer for remediation costs because Pitzer had 
violated the Policy’s notice and consent provisions.  The district 
court granted the motion.  (Ibid.) 
The district court held that New York law applied, because 
although a state’s fundamental policy can override a choice of 
law provision, Pitzer had “failed to establish” that California’s 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
5 
notice-prejudice rule is such a policy.  (Pitzer College, supra, 845 
F.3d at p. 995; see Indian Harbor Ins. Co. v. City of San Diego 
(S.D.N.Y. 2013) 972 F.Supp.2d 634, 648-653.)  Although section 
3420, subdivision (a)(5) of New York Insurance Law applies a 
notice-prejudice rule to insurance policies issued or delivered in 
New York, policies issued and delivered outside New York [as in 
this case] are subject to a strict no-prejudice rule under New 
York common law, which denies coverage where timely notice is 
not provided.  Applying New York law pursuant to the Policy’s 
choice of law provision, the court concluded that summary 
judgment was warranted because Pitzer did not provide timely 
notice, as required by the Policy’s notice provision.  (Pitzer 
College, supra, 845 F.3d at p. 995.)  The district court did note, 
however, that Indian Harbor would not have prevailed at 
summary judgment on this ground if it had been required to 
show prejudice.  (Ibid.) 
Additionally, the district court held that summary 
judgment was separately warranted because Pitzer did not 
comply with the Policy’s consent provision.  (Pitzer College, 
supra, 845 F.3d at p. 995.)  Here, the court rejected Pitzer’s 
argument that its remediation costs were incurred on an 
emergency basis, and therefore it had not been required to 
obtain prior written consent pursuant to the emergency 
exception to the consent provision.  (Ibid.)  Even if the 
emergency exception did apply, the court explained, Pitzer had 
failed to notify Indian Harbor “immediately” after it incurred its 
costs.  (Ibid.)  It is unclear whether the district court addressed 
Pitzer’s arguments (1) that the notice-prejudice rule should 
apply to the consent provision as well as the notice provision, 
and (2) that the State of California has “a materially greater 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
6 
interest” in the determination of the issue than the State of New 
York for choice of law purposes. 
Pitzer timely appealed, and oral arguments were heard 
before the Ninth Circuit Court of Appeals.  In issuing the 
certified questions to us, the Ninth Circuit observed:  
“Resolution of this appeal turns on whether California’s notice-
prejudice rule is a fundamental public policy for the purpose of 
choice-of-law analysis.  If the California Supreme Court 
determines that the notice-prejudice rule is fundamental, the 
appeal then turns on whether, in a first party policy like Pitzer’s, 
a consent provision operates as a notice requirement subject to 
the notice-prejudice rule.  No controlling California precedent 
answers either question.  See Cal. R. Ct. 8.548(a).  Because the 
district court determined that ‘[i]f prejudice is required, [Indian 
Harbor] would not be able to prevail at summary judgment,’ 
these questions are dispositive.”  (Pitzer College, supra, 845 F.3d 
at p. 995.)  
II.  DISCUSSION 
A.  Choice of Law Analysis 
The crux of this case lies in the choice of law provision, 
designating that New York law should govern all matters 
arising under the Policy.  California applies the principles set 
forth in section 187 of the Restatement Second of Conflict of 
Laws (section 187) in determining the enforceability of 
contractual choice of law provisions.  (Nedlloyd Lines B.V. v. 
Superior Court (1992) 3 Cal.4th 459, 464-466 (Nedlloyd), citing 
§ 187, subd. (2).)  Under section 187, the parties’ choice of law 
generally governs unless (1) it conflicts with a state’s 
fundamental public policy, and (2) that state has a materially 
greater interest in the determination of the issue than the 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
7 
contractually chosen state.  (Nedlloyd, supra, 3 Cal.4th at pp. 
465-466.)  In Nedlloyd, we articulated California’s multi-step 
choice of law analysis:  “[T]he proper approach under 
Restatement section 187, subdivision (2) is for the court first to 
determine either:  (1) whether the chosen state has a substantial 
relationship to the parties or their transaction, or (2) whether 
there is any other reasonable basis for the parties’ choice of law.  
If neither of these tests is met, that is the end of the inquiry, and 
the court need not enforce the parties’ choice of law.  [Fn. 
omitted.]  If, however, either test is met, the court must next 
determine whether the chosen state’s law is contrary to a 
fundamental policy of California.  [Fn. omitted.]  If there is no 
such conflict, the court shall enforce the parties’ choice of law.  
If, however, there is a fundamental conflict with California law, 
the court must then determine whether California has a 
‘materially greater interest than the chosen state in the 
determination of the particular issue. . . .’  (Rest., § 187, subd. 
(2).)  If California has a materially greater interest than the 
chosen state, the choice of law shall not be enforced, for the 
obvious reason that in such circumstance we will decline to 
enforce a law contrary to this state’s fundamental policy.”  
(Nedlloyd, supra, at p. 466.)  Thus, if the party opposing the 
application of the choice of law provision—here, Pitzer—can 
establish “both that the chosen law is contrary to a fundamental 
policy of California and that California has a materially greater 
interest in the determination of the particular issue,” then the 
court will not enforce the provision.  (Washington Mutual Bank 
v. Superior Court (2001) 24 Cal.4th 906, 917.)   
Regarding the first step of Nedlloyd’s choice of law 
analysis, the parties agree with the district court’s finding that 
there is at least a “reasonable basis” for the selection of New 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
8 
York law.  (Nedlloyd, supra, 3 Cal.4th at p. 466.)  Our initial 
task, therefore, is to decide the first part of Nedlloyd’s second 
step and determine whether California’s notice-prejudice rule is 
a fundamental public policy.   
B.  California’s Notice-prejudice Rule 
California’s notice-prejudice rule requires an insurer to 
prove that the insured’s late notice of a claim has substantially 
prejudiced its ability to investigate and negotiate payment for 
the insured’s claim.  A finding of substantial prejudice will 
generally excuse the insurer from its contractual obligations 
under the insurance policy, unless the insurer had actual or 
constructive knowledge of the claim.  (See Shell Oil Co. v. 
Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 760-763 
(Shell Oil); Campbell, supra, 60 Cal.2d 303.)  As the Court of 
Appeal observed in Shell Oil, “California law is settled that a 
defense based on an insured’s failure to give timely notice 
requires the insurer to prove that it suffered substantial 
prejudice.  (Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 
[865,] 881-883; Billington v. Interinsurance Exchange (1969) 71 
Cal.2d 728, 737-738; [citations].)  Prejudice is not presumed 
from delayed notice alone.  [Citations.]  The insurer must show 
actual prejudice, not the mere possibility of prejudice.  
[Citation].”  (Shell Oil, at pp. 760-761.) 
Although no case has referred to California’s notice-
prejudice rule as a fundamental rule of public policy, we have 
called the rule “the public policy of this state,” favoring 
compensation of insureds over technical forfeiture.  (Campbell, 
supra, 60 Cal.2d at p. 307; see UNUM Life Ins. Co. of America 
v. Ward (1999) 526 U.S. 358, 372 [noting that California’s policy 
of enforcing the notice-prejudice rule was key to its decision]; see 
also UNUM, supra, 526 U.S. at p. 372 [noting that California’s 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
9 
notice-prejudice rule is “grounded in policy concerns specific to 
the insurance industry”]; Service Management Systems, Inc. v. 
Steadfast Ins. Co. (9th Cir. 2007) 216 Fed. Appx. 662, 664 
[noting the “strong public policy behind [California’s] notice-
prejudice rule”]; Insurance Co. of State of Pennsylvania v. 
Associated Int’l Ins. Co. (9th Cir. 1990) 922 F.2d 516, 524 [noting 
“California’s strong public policy against ‘technical forfeitures’ ” 
in context of notice provision]; National Semiconductor Corp. v. 
Allendale Mut. Ins. Co. (D.Conn. 1982) 549 F.Supp. 1195, 1200 
[noting “strong and abiding policy” of California’s notice-
prejudice rule].) 
As one California Court of Appeal has recognized, there 
are no “bright-line rules for determining what is and what is not 
contrary to a fundamental policy of California. Comment g to 
Restatement section 187 itself says that ‘[n]o detailed statement 
can be made of the situations where a “fundamental” policy . . . 
will be found to exist.’ ”  (Discover Bank v. Superior Court (2005) 
134 Cal.App.4th 886, 893-894.)  Likewise, although Nedlloyd 
observes that a statute, constitution, or principle of contractual 
unconscionability may establish a fundamental policy, it states 
no requirement that a fundamental policy must be established 
by any one of these vehicles.  (Nedlloyd, supra, 3 Cal.4th at p. 
471.) 
Initially, we note that the difference between a “strong” 
public policy and a “fundamental” one is essentially semantic 
when our goal is to protect those with inferior bargaining power 
in the insurance context.  A policy such as the notice-prejudice 
rule may be considered fundamental because it is connected to 
concerns of fundamental fairness in the negotiation process.  
(See Campbell, supra, 60 Cal.2d at p. 307.)    
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
10 
We can look to other courts for guidance on how to 
determine whether a policy is fundamental in the absence of 
legislative mandate.  (See Prince George’s County. v. Local Gov’t 
Ins. Trust (2005) 388 Md. 162, 183, fn. 9 [879 A.2d 81].)  Courts 
in these jurisdictions have cited three essential reasons for 
adopting the notice-prejudice rule:  “1) ‘the adhesive nature of 
insurance contracts’; 2) ‘the public policy objective of 
compensating tort victims’; and 3) ‘the inequity of the insurer 
receiving a windfall due to a technicality.’ ”  (Century Sur. Co. v. 
Jim Hipner, LLC (Wyo. 2016) 377 P.3d 784, 789.)  These reasons 
are largely in accord with the justifications courts have set forth 
in determining that other rules constitute fundamental public 
policies.  Namely, rules have been found to be fundamental 
public policies when (1) they cannot be contractually waived; (2) 
they protect against otherwise inequitable results; and (3) they 
promote the public interest. 
The first reason for establishing the notice-prejudice rule 
as a fundamental policy of our state is that the notice-prejudice 
rule cannot be contractually waived and, thus, restricts freedom 
of contract.  When it applies, the rule prevents enforcement of a 
contractual term.  It overrides the parties’ express intentions for 
a defined notice term, preventing a technical forfeiture of 
insurance benefits unless the insurer can show it was prejudiced 
by the insured’s late notice.   
Such restriction on parties’ freedom of contract has led to 
the adoption of fundamental policies in other contexts, including 
the constitutional right to a jury trial (Rincon EV Realty LLC v. 
CP III Rincon Towers, Inc. (2017) 8 Cal.App.5th 1, 11-13); the 
statutory requirement that contractual attorney fees provisions 
be reciprocal (ABF Capital Corp. v. Grove Properties Co. (2005) 
126 Cal.App.4th 204, 117); and the statutory ban on collecting a 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
11 
postforeclosure balance from a borrower (Guardian Savings & 
Loan Assn. v. MD Associates (1998) 64 Cal.App.4th 309, 321).  
To this end, we have already pointed out that the notice-
prejudice rule is designed to restrict freedom of contract because 
it is intended to prevent inequitable technical forfeitures that 
may otherwise result from the contract’s terms.  (See Cisneros 
v. UNUM Life Ins. Co. of America (9th Cir. 1998) 134 F.3d 939, 
946.)  As Nedlloyd observes, courts may consider application of 
a public policy that is designed to “restrict freedom of contract.”  
(Nedlloyd, supra, 3 Cal.4th at p. 468.)   
Second, the notice-prejudice rule protects insureds against 
inequitable results that are generated by insurers’ superior 
bargaining power.  We have consistently recognized that 
insurance contracts typically are “inherently unbalanced” and 
“adhesive,” which “places the insurer in a superior bargaining 
position.”  (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 
809, 820; see Kransco v. American Empire Surplus Lines Ins. Co. 
(2000) 23 Cal.4th 390, 404 [“A fundamental disparity exists 
between the insured, which performs its basic duty of paying the 
policy premium at the outset, and the insurer, which, depending 
on a number of factors, may or may not have to perform its basic 
duties of defense and indemnification under the policy”].) 
Comment g to section 187 at page 568, also finds that 
policies “designed to protect a person against the oppressive use 
of superior bargaining power” may be considered fundamental 
and unwaivable.  (See, e.g., In re DirecTV Early Cancellation 
Litigation 
(C.D.Cal. 
2010) 
738 
F.Supp.2d 
1062, 
1087 
[“California Civil Code § 1671(d) . . . reflects California’s 
fundamental policy to protect consumers against the oppressive 
use of liquidated damages clauses by parties with superior 
bargaining power”].)   
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
12 
The third criterion for establishing a fundamental policy 
is also satisfied in this case:  The notice-prejudice rule promotes 
objectives that are in the general public’s interest because it 
protects the public from bearing the costs of harm that an 
insurance policy purports to cover.  (Campbell, supra, 60 Cal.2d 
at p. 306.)  Where California has an important interest at stake, 
there is no reason why that interest is any less valid or worthy 
of consideration because it was developed in court decisions and 
not by legislative action.  
Indian Harbor’s contrary argument that the notice-
prejudice rule is not a fundamental policy is unpersuasive.  
Initially, it relies on Gantt for its contention that our declaration 
of a fundamental public policy must be “delineated in 
constitutional 
or 
statutory 
provisions” 
or 
a 
rule 
of 
unconscionability.  (Gantt v. Sentry Insurance (1992) 1 Cal.4th 
1083, 1095.)  In Gantt, the plaintiff sued his former employer, 
alleging he had been constructively discharged in retaliation for 
testifying truthfully about a coworker’s sexual harassment 
claim.  (Id. at pp. 1087-1089.)  Gantt held that the employer 
violated a fundamental public policy that was grounded in 
Government Code section 12975, which prohibits obstruction of 
a Department of Fair Employment and Housing investigation.  
(Gantt, supra, 1 Cal.4th at pp. 1096-1097.)   
Although Gantt emphasized that while “[t]he employer is 
bound, at a minimum, to know the fundamental public policies 
of the state and nation as expressed in their constitutions and 
statutes” (Gantt, supra, 1 Cal.4th at p. 1095), we distinguish it 
from the case at hand because implicit in Gantt is the 
recognition that it would be unreasonable to expect employers 
to anticipate what fundamental public policies that courts might 
identify, on pain of liability in tort (ibid.).  The fundamental 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
13 
public policy we identify in the insurance context brings with it 
no potential for tort liability; on the contrary, it prevents a 
windfall redounding to the benefit of the insurer, the party with 
superior bargaining power.  Additionally, courts already decline 
to enforce contractual provisions that they consider to be 
contrary to state public interests.  (See Sheppard, Mullin, 
Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 
6 Cal.5th 59, 73 [concluding that a contract or transaction may 
be found contrary to public policy despite Legislature’s silence 
on the issue].)  
Amicus curiae in support of Pitzer, United Policyholders, 
notes that comment g to section 187 makes the same point.  
Comment g observes that for a policy to be considered 
fundamental, it must be “substantial” and “may be embodied in 
a statute which makes one or more kinds of contracts illegal or 
which is designed to protect a person against the oppressive use 
of superior bargaining power.”  (§ 187, com. g, p. 568, italics 
added.)   
Application of the notice-prejudice rule as a fundamental 
public policy is also consistent with Nedlloyd’s holding that the 
implied covenant of good faith and fair dealing is not a 
fundamental policy of California.  (Nedlloyd, supra, 3 Cal.4th at 
p. 468.)  The implied covenant of good faith and fair dealing in 
employment contracts operates differently from the notice-
prejudice rule in an insurance contract.  The implied covenant 
supplements, rather than overrides, an agreement with a 
promise to act in good faith in order to “carry out the presumed 
intentions of contracting parties.”  (Ibid.)  The notice-prejudice 
rule, by contrast, overrides a contractual term, and is expressly 
“designed to restrict freedom of contract.”  (Ibid.)   
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
14 
Based on the foregoing reasoning, we conclude that 
California’s notice-prejudice rule is a fundamental public policy 
of California.  The rule is based on the rationale that the 
essential part of the contract is insurance coverage, not the 
procedure for determining liability, 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 Services v. Reliance Standard Life Ins. Co. (9th Cir. 
2002) 289 F.3d 644, 647.)  Prejudice is a question of fact on which 
the insurer has the burden of proof.  (Campbell, supra, 60 Cal.2d 
at p. 306.)  The insured’s delay does not itself satisfy the burden 
of proof.  (See Shell Oil, supra, 12 Cal.App.4th at p. 761.)  The 
insurer establishes actual and substantial prejudice by proving 
more than delayed or late notice.  It must show “ ‘a substantial 
likelihood that, with timely notice, and notwithstanding a denial 
of coverage or reservation of rights, it would have settled the 
claim for less or taken steps that would have reduced or 
eliminated the insured’s liability.’ ”  (Safeco Ins. Co. of America 
v. Parks (2009) 170 Cal.App.4th 992, 1004.)  In the context of 
third party coverage, for example, the insurer must show that 
timely notice would have enabled it to achieve a better result in 
the underlying third party action.  (Ibid.)   
Because our review is limited to answering the Ninth 
Circuit’s first question in the affirmative, we leave it to that 
court to decide the remaining issues concerning whether 
California has a materially greater interest than New York in 
determining the coverage issue, such that the contract’s choice 
of law would be unenforceable because it is contrary to our 
fundamental public policy.  (Washington Mutual Bank v. 
Superior Court, supra, 24 Cal.4th at p. 917.)  We now turn to the 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
15 
Ninth Circuit’s second question, as modified: whether 
California’s notice-prejudice rule applies to the Policy’s consent 
provision. 
C.  Consent Provision and the Notice-prejudice 
Rule 
We begin by reviewing the Policy’s requirements.  As 
discussed above, the consent provision here provides that, in the 
absence of an emergency, “[n]o costs, charges, or expenses shall 
be incurred without the Company’s written consent, which shall 
not be unreasonably withheld.”  There is no dispute that Pitzer 
failed to obtain Indian Harbor’s prior written consent and that 
Pitzer notified Indian Harbor after it had remediated the 
pollution damage. 
As we explain below, such a consent requirement serves a 
role beyond the requirement to give prompt notice of a coverage 
event.  But both promises are, nevertheless, ancillary to the 
insured’s “basic duty of paying the policy premium” in exchange 
for the insurer’s basic duties of defense, indemnification, or 
coverage for loss or remediation expenses.  (Kransco, supra, 23 
Cal.4th at p. 404.)  As one court explained, “the purpose of a 
notice provision is to protect the interests of the insurer” in the 
performance of its basic duties — “for example, by affording the 
insurer the opportunity to acquire full information about the 
circumstances of the case, assess its rights and liabilities, and 
take early control of the proceedings.”  (Prince George’s County 
v. Local Government Ins. Trust (Md. 2005) 879 A.2d 81, 95.)  And 
so, “[i]f the insured violates the notice provision without 
harming the interests of the insurer — i.e. without prejudice — 
then there is no reason to deny coverage.”  (Ibid.; see also Weaver 
Bros., Inc. v. Chappel (Alaska 1984) 684 P.2d 123, 125 [“[T]he 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
16 
notice requirement is designed to protect the insurer from 
prejudice.  In the absence of prejudice, regardless of the reasons 
for the delayed notice, there is no justification for excusing the 
insurer from its obligations under the policy.”].)     
Courts have widely recognized that strict enforcement of 
a notice provision permits the insurer “to reap the benefits 
flowing from the forfeiture of the insurance policy” despite a lack 
of prejudice.  (Alcazar v. Hayes (Tenn. 1998) 982 S.W.2d 845, 
852.)  In addition to this unfair windfall, the inequitable 
forfeiture has consequences that fall not only on the insured but 
also on the general public.  Indeed, we have recognized that 
“[t]he field of insurance so greatly affects the public interest that 
the industry is viewed as a ‘quasi-public’ business, in which the 
special relationship between the insurers and policyholders 
requires special considerations.”  (Egan, supra, 24 Cal.3d at p. 
820; see also Glickman v. New York Life Ins. Co. (1940) 16 Cal.2d 
626, 635 [“The object and purpose of insurance is to indemnify 
the policyholder in case of loss, and ordinarily such indemnity 
should be effectuated rather than defeated.  To that end the law 
makes every rational intendment in order to give full protection 
to the interests of the policyholder.”].)  Where an insured fulfills 
its primary duty under the parties’ bargain, failure to give 
timely notice will not excuse the insurer’s reciprocal obligations 
unless the insurer demonstrates prejudice from the failure.  
(See, e.g., Campbell, supra, 60 Cal.2d at pp. 305-307.)   
Much the same rationale applies to first party policy 
provisions 
requiring 
the 
insurer’s 
consent 
before 
the 
policyholder incurs costs.  Indian Harbor itself has suggested 
that a consent provision guards against the insured making 
unnecessary expenditures, allows the insurer to approve and 
control costs, and protects the insurer’s subrogation rights.  In 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
17 
the case of a pollution remediation policy, a consent requirement 
also avoids the potential destruction of evidence, through the 
insured’s unilateral remediation efforts, that could permit the 
insurer to make more fully informed decisions about whether to 
approve certain expenses.  Yet at core, these purposes are much 
the same as those pertaining to notice provisions.  They all 
facilitate the insurer’s primary duties under the contract and 
speak to minimizing prejudice in performing those duties.  For 
these reasons, the notice-prejudice rule makes good sense for 
consent provisions in first party policies just as it does for notice 
provisions. 
We have no reason to believe imposing this rule on first 
party insurers will prove so unmanageable for those suffering 
actual prejudice to justify a contrary conclusion.  (See Campbell, 
supra, 60 Cal.2d at p. 307.)  Requiring the first party insurers to 
show prejudice because the insured’s actions meaningfully 
increased remediation costs or significantly hampered insurers’ 
abilities to seek subrogation against responsible parties 
adequately protects their interests while furthering the broader 
public policy considerations we have already discussed. 
Whereas first party coverage obligates the insurer to pay 
damages claimed by the insured itself, third party coverage 
obligates the insurer to defend, settle, and pay damages claimed 
by a third party against the insured.  “[A] first party insurance 
policy provides coverage for loss or damage sustained directly by 
the insured (e.g., life, disability, health, fire, theft and casualty 
insurance).  A third party liability policy, by contrast, provides 
coverage for liability of the insured to a third party who has been 
injured because of the insured’s negligence.  Examples of such 
coverage are typically found in (but not limited to) commercial 
general liability policies, a homeowner’s liability policy, a 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
18 
directors and officers liability policy, or an errors and omissions 
policy.  In the usual first party policy context, the insurer 
promises to pay money to the insured upon the happening of an 
event (also known as an occurrence), the risk of which has been 
insured against.  In the typical third party liability policy 
context, the carrier assumes a contractual duty to pay 
judgments the insured becomes legally obligated to pay as 
damages because of bodily injury or property damage caused by 
the insured.”  (Montrose Chemical Corp. v. Admiral Ins. Co. 
(1995) 10 Cal.4th 645, 663 (Montrose).)  Thus, in the first party 
context, the insured looks to the insurer to cover an insured 
event or occurrence.  (Id. at p. 664.)  The insured must not ignore 
the damage once it is discovered, or otherwise prejudice the 
insurer’s ability to investigate and cover the loss.  In the third 
party liability context, “the insurer is invested with the complete 
control and direction of the defense.”  (Truck Ins. Exchange v. 
Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 981.)  In third party 
cases, “the decision to pay any remediation costs outside the civil 
action context raises a judgment call left solely to the insurer.”  
(Jamestown Builders Inc. v. General Star Indemnity Co. (1999) 
77 Cal.App.4th 341, 346 (Jamestown Builders).)   
In third-party insurance policies, then, consent provisions, 
sometimes called “no voluntary payment” provisions, “are 
designed to ensure that responsible insurers that promptly 
accept a defense tendered by their insureds thereby gain control 
over the defense and settlement of the claim.”  (Jamestown 
Builders, supra, 77 Cal.App.4th at p. 346.)  Jamestown Builders 
explained that these consent clauses mean that “insureds 
cannot unilaterally settle a claim before the establishment of the 
claim against them and the insurer’s refusal to defend in a 
lawsuit to establish liability. . . .  In short, the provision protects 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
19 
against coverage by fait accompli.”  (Ibid.)  The insurer’s duties 
to defend and settle a lawsuit are crucial to its coverage 
obligations.  (Helfand v. National Union Fire Ins. Co. (1992) 10 
Cal.App.4th 869, 888; see Pacific Employers Ins. Co. v. Superior 
Court [insurer left without control of its insured’s defense or 
settlement under a claims-made policy has been inherently 
prejudiced by the lack of timely notice].)  Because the insurer’s 
right to control the defense and settlement of claims is 
paramount in the third-party context, California appellate 
courts have generally refused to find the notice-prejudice rule 
applicable to consent provisions in third-party policies.  (See 
Insua v. Scottsdale Inc. Co. (2002) 104 Cal.App.4th 737, 745; 
Jamestown Builders, at p. 346 [notice-prejudice rule does not 
apply to consent provisions].) 
No California court has addressed whether the notice-
prejudice rule should be extended to a consent provision in the 
context of first party coverage.  In a true first party context, 
there is no claim of liability for the insurer to defend and hence 
no logical need for it to retain unimpaired control over the claims 
handling.  Thus, the reasons courts have refused to apply the 
notice-prejudice rule to consent provisions in third party policies 
generally do not apply to first party coverage.  Primarily, in a 
first party policy, the insurer’s duty to defend and settle 
potential claims is not crucial to its coverage obligations.  
Compared with third party coverage, the insurer simply does 
not exercise the same contractual control over the potential loss 
or occurrence, which can happen long after the policy period has 
expired.  (Montrose, supra, 10 Cal.4th at p. 663.)    
For these reasons, failure to obtain consent in the first 
party context is not inherently prejudicial, and the usual logic of 
the notice-prejudice rule should control, in the absence of a 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
20 
coverage requirement for a third party claim or potential claim.  
Where the insurer owes no duty to defend against third party 
claims, the insured’s failure to seek the insurer’s consent to 
remediate a loss implicates risks that, while perhaps different 
in degree, are not so dissimilar to those in failing to provide 
notice of a loss to warrant departure from a case-by-case 
analysis of prejudice.  For these reasons, we hold that 
California’s notice-prejudice rule is applicable to a consent 
provision in a first party policy where coverage does not depend 
on the existence of a third party claim or potential claim.   
Yet ultimately this case is not one where we can offer a 
definitive ruling on whether the notice-prejudice rule applies to 
the Policy’s consent provision because the parties vigorously 
dispute whether Indian Harbor’s policy provides first party or 
third party coverage.  The Policy’s insuring provisions are 
written in two parts:  Section I.B. of the Policy describes the 
Insuring Agreement with respect to remediation liability, reads 
as follows:  “The Company will pay on behalf of the INSURED 
for REMEDIATION EXPENSE and related LEGAL EXPENSE 
resulting from any POLLUTION CONDITION on, at, under or 
migrating from any COVERED LOCATION: 
“1.  for a CLAIM first made against the INSURED during 
the POLICY PERIOD which the insured has or will 
become legally obligated to pay; or 
“2.  that is first discovered during the POLICY PERIOD, 
provided that the INSURED reports such CLAIM or 
POLLUTION CONDITION to the Company, in writing, 
during the POLICY PERIOD or, where applicable, the 
EXTENDED REPORTING PERIOD.”  (Italics added.) 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
21 
Pitzer argues that section 1.B.2 provides first party 
liability coverage.  Pitzer points out that the insurer in part 
1.B.2 is arguably promising to pay money to the insured upon 
the happening of an event that the insured itself discovers—and 
the typical claims-made third party policy does not have a 
“discovery requirement as a prerequisite of triggering coverage.”  
(Montrose, supra, 10 Cal.4th at p. 664.)  Indian Harbor asserts, 
to the contrary, that sections 1.B.1 and 1.B.2 do not provide 
coverage for true first party remediation, in part because the 
policy defines “Remediation Expense” as an expense incurred to 
abate a pollution condition “to the extent required by” federal, 
state, or local laws or by “a legally executed state voluntary 
program” for cleaning up a pollution condition. 
Resolving the question whether the Policy’s coverage 
should be considered first party or third party for purposes of 
the notice-prejudice rule is beyond the scope of the Ninth 
Circuit’s question to us.  (As originally framed, the federal 
court’s question was only whether “a consent provision in a first-
party claim insurance policy [can] be interpreted as a notice 
provision such that the notice-prejudice rule applies.”)  Without 
additional evidence regarding the intent of the parties in 
forming the Policy, we leave it to the Ninth Circuit to determine 
what type of policy is at issue, and the ultimate question of 
whether the notice-prejudice rule applies to the consent 
provision here.   
III.  CONCLUSION 
Based on the foregoing reasoning, we conclude that the 
notice-prejudice rule is a fundamental public policy of our state 
and that it applies to consent provisions in first party insurance 
policies.  Because the parties dispute the type of policy at issue 
PITZER COLLEGE v. INDIAN HARBOR INSURANCE COMPANY 
Opinion of the Court by Chin, J. 
22 
here, we leave construction of the insurance contract to the 
Ninth Circuit.  That construction will determine whether the 
notice-prejudice rule applies to the Policy’s consent provision.  
CHIN, J. 
We Concur: 
CANTIL-SAKAUYE, C. J. 
CORRIGAN, J. 
LIU, J. 
CUÉLLAR, J. 
KRUGER, J. 
GROBAN, J. 
 
 
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Pitzer College v. Indian Harbor Insurance Company 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding XXX on request pursuant to rule 8.548, Cal. Rules of Court 
Review Granted 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S239510 
Date Filed: August 29, 2019 
__________________________________________________________________________________ 
 
Court: 
County: 
Judge: 
 
__________________________________________________________________________________ 
 
Counsel: 
 
Murtaugh Meyer Nelson & Treglia, Murtaugh Treglia Stern & Deily, Michael J. Murtaugh, Lawrence J. 
DiPinto and Thomas N. Fay for Plaintiff and Appellant. 
 
Polsinelli, Richard C. Giller and Michelle Buckley for United Policyholders as Amicus Curiae on behalf of 
Plaintiff and Appellant. 
 
Duane Morris, Max H. Stern, Jessica E. La Londe and Katherine Nichols for Defendant and Respondent. 
 
Crowell & Moring, Laura A. Foggan and Michael Lee Huggins for Complex Insurance Claims Litigation 
Association and American Insurance Association as Amici Curiae on behalf of Defendant and Respondent. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Thomas N. Fay 
Murtaugh Treglia Stern & Deily 
2603 Main Street, Penthouse 
Irvine, CA  92614-6232 
(949) 794-4000 
 
Max H. Stern 
Duane Morris 
Spear Tower 
One Market Plaza, Suite 2200 
San Francisco, CA  94105-1127 
(415) 957-3000