Northwestern Title Security Co. v. Flack

• Decision Date: 31 March 1970
• Docket Number: D,No. 15--1224,15--1224
• Citation: 85 Cal.Rptr. 693,6 Cal.App.3d 134
• Court: California Court of Appeals Court of Appeals
• Parties: NORTHWESTERN TITLE SECURITY COMPANY, a California corporation, Plaintiff and Respondent, v. Allan Boud FLACK, individually and as representative of Underwriters At Lloyds, London, subscribing to Certificateefendant and Appellant. Civ. 26082.

Page 693

85 Cal.Rptr. 693

6 Cal.App.3d 134

NORTHWESTERN TITLE SECURITY COMPANY, a California corporation, Plaintiff and Respondent, v. Allan Boud FLACK, individually and as representative of Underwriters At Lloyds, London, subscribing to Certificate No. 15--1224, Defendant and Appellant.

Civ. 26082.

Court of Appeal, First District, Division 1, California.

March 31, 1970.

Hearing Denied May 28, 1970.

Peter Hunt, John J. Bartko, Burd, Hunt & Friedman, San Francisco, for appellant.

Miller, Starr & Regalia, Oakland, for respondent.

MOLINARI, Presiding Justice.

Defendant appeals from a judgment entered in favor of plaintiff for $8,613.55 arising out of a claim on a professional errors and omissions insurance policy issued by defendant as the representative of Underwriters At Lloyds, London, to plaintiff title insurance company.

Around mid-1964 Albert and Melanie Arens, who were purchasing a parcel of land from certain parties named Goff for the purpose of subdividing it and building homes thereon, employed plaintiff to provide them with a preliminary title report. On September 23, 1964, plaintiff issued such a report reflecting the existence of an easement against the property for ingress and egress. The report failed to list certain recorded limitations upon the easement restricting its use to ingress and egress for one dwelling only.

Plaintiff first became aware of this omission in late 1964 or early 1965. From that time until February 1965 plaintiff attempted to remedy by the problem occasioned by the defective report by seeking to purchase additional easement rights through negotiations with the Goffs. These negotiations proving unsuccessful, plaintiff, with the concurrence of the Arenses, authorizes its attorney to institute a declaratory relief action upon behalf of the Arenses against the Goffs. This action did not proceed beyond the initial pleadings. The Arenses became dissatisfied and, on August 20, 1965, instituted an action against plaintiff for damages allegedly incurred as a proximate result of the erroneous title report.

On December 30, 1965, plaintiff gave defendant notice of the Arens claim. Defendant investigated the claim in March 1966 and on June 1, 1966 rejected the claim in writing on the ground that the notice given by plaintiff was sufficiently late to constitute a material breach of the conditions of the certificate of insurance. Plaintiff, following the rejection notice, proceeded to prepare the declaratory relief action for trial and to vigorously pursue settlement negotiations.

On November 8, 1966, plaintiff's counsel telephoned a Mr. Winiker, who was defendant's representative in San Francisco, and advised him that the Arens matter could be settled for a sum between $3,000 and $5,000. Although still denying liability on behalf of his principal, Winiker stated that he believed the proposed settlement to be reasonable. The case was thereafter settled for $5,500. Plaintiff sought reimbursement from defendant for the amount paid in settlement. When defendant declined payment the instant action ensued, and a judgment was entered in favor of plaintiff and against defendant for $8,613.55. This sum represents the amount paid the Arenses in settlement, together with attorney fees, costs and interest.

Defendant challenges the judgment essentially on the grounds that plaintiff's 13-months' delay in notifying defendant of the Arens claim was prejudicial as a matter of law, and therefore constituted a material breach of the indemnity contract; that plaintiff did not establish a provable loss against defendant; that in any event, even if such of loss was established, the trial court applied the wrong measure of damages.

Adverting to the first assertion of error with respect to the timeliness of notice we note, initially, that both parties rely on Campbell v. Allstate Ins. Co., 60 Cal.2d 303, 32 Cal.Rptr. 827, 384 P.2d 155. That case held that although an insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, still the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby. (P. 305, 32 Cal.Rptr. 827, 384 P.2d 155.) Campbell holds, further, that the burden of proving that the breach of the condition was prejudicial is on the insurer. (P. 306, 32 Cal.Rptr. 827, 384 P.2d 155.) (See also Billington v. Interinsurance Exch. of So. Cal., 71 A.C. 757, 766, 79 Cal.Rptr. 326, 456 P.2d 982.)

Campbell discusses two cases strongly relied upon by defendant. These cases are Valladao v. Fireman's Fund Indemnity Company, 13 Cal.2d 322, 89 P.2d 643, and Purefoy v. Pacific Automobile Indemnity Exchange, 5 Cal.2d 81, 53 P.2d 155. Purefoy held that prejudice must be presumed from the failure of the assured therein to notify the insurer of the accident for the period of a year and three months, although the assured had learned of the accident from the injured person three and one-half months thereafter. Such conduct precluded prompt investigation of the accident. (Pp. 87--88, 53 P.2d 81.) Similarly, in Valladao, the assured wilfully misrepresented for about five months that he was not driving the truck in question at the time of the accident, during which time the insurer had taken a formal position as to the facts from which it could not recede without great disadvantage. The court held that as a matter of law prejudice must be presumed from a violation of the cooperation clause under these circumstances because prejudice naturally, inherently and necessarily existed. (13 Cal.2d pp. 333-334, 89 P.2d 643.)

In Campbell the Supreme Court did not acknowledge that either Purefoy or Valladao held that prejudice must be presumed as a matter of law from the breach of a cooperation clause. Contrawise it ruled that a judicially-created presumption of prejudice, whether conclusive or rebuttable, is unwarranted. (60 Cal.2d p. 307, 32 Cal.Rptr. 827, 384 P.2d 155.) Campbell does hold, however, that neither Purefoy nor Valladao is contrary to the views expressed in Campbell but that these cases hold that under the facts there proved prejudice was established and that therefore a showing of prejudice was not required in those cases. (P. 306, 32 Cal.Rptr. 827, 384 P.2d 155.)

In Hanover Insurance Co. v. Carroll, 241 Cal.App.2d 558, 50 Cal.Rptr. 704, we were called upon to reconcile Campbell with Purefoy insofar as delay in furnishing notice of the loss or claim is concerned. We concluded that the issue of prejudice with respect to delay is one of fact and that prejudice could not be found from the mere fact of delay. ¹ (See Abrams v. American Fidelity & Cas. Co., 32 Cal.2d 233, 238--239, 195 P.2d 797.) Accordingly, in the light of Campbell and Hanover we perceive the rule to be that, although under some factual circumstances prejudice can exist as a matter of law, such prejudice does not exist as a matter of law merely from the fact of delay alone nor can any presumption or inference of prejudice be drawn from the mere fact of delay.

In view of the foregoing we apprehend that Campbell stands for these propositions: (1) that breach by an insured of a cooperation or notice clause may not be asserted by an insurer unless the insurer was substantially prejudiced thereby; (2) that prejudice is not presumed as a matter of law from such breach; (3) that the burden of proving prejudicial breach is on the insurer; and (4) that, although the issue of prejudice is ordinarily one of fact, it may be established as a matter of law by the facts proved. (See Allstate Ins. Co. v. King, 252 Cal.App.2d 698, 706--707, 60 Cal.Rptr. 892.)

With respect to the insurer's burden of establishing substantial prejudice from the breach of a cooperation or notice clause, the holding in Campbell has been interpreted to mean that such burden is not carried by a showing of possibility of prejudice to the insurer. Rather, actual prejudice must be shown. (Billington v. Interinsurance Exch. of So. Cal., supra, 71 A.C. 757, 766, 79 Cal.Rptr. 326, 456 P.2d 982.) The insurer 'must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured's favor.' (Billington v. Interinsurance Exch. of So. Cal., supra, at pp. 766--767, 79 Cal.Rptr. at p. 331, 456 P.2d at p. 987.)

Returning to defendant's first assertion of error, we observe that the gravamen of his argument is that four factors of uncontradicted evidence establish prejudice as a matter of law, to wit: (1) That plaintiff, by filing the declaratory relief action on behalf of the Arenses against the Goffs, admitted liability for its error, thereby binding defendant; (2) prompt investigation was precluded by the delay in giving notice; (3) defendant was denied the opportunity to settle the Arens claim for a small sum early in the proceedings; and (4) defendant was denied the right of having his own counsel represent him at the early stages of the Arenses' asserted claim.

Adverting to the first factor, we observe that the record does not affirmatively show that plaintiff admitted liability to the Arenses for its mistake, but rather shows that the action was filed for the purpose of obtaining an interpretation of the easement provision in the manner in which the Arenses were asserting it should be interpreted. This action did not proceed beyond the initial pleadings and hence no declaration of rights was made. Assuming, however, that, as contended by defendant, the filing of this action constituted an admission by plaintiff that it owed an obligation to the Arenses and that it thus acknowledged an actionable wrong, this circumstance does not, under the rationale of Campbell and Hanover, compel the conclusion that defendant was thereby prejudiced as a matter of law. If the filing of the subject declaratory relief action be deemed a breach of the cooperation clause it was still incumbent upon defendant...