Pitzer Coll. v. Indian Harbor Ins. Co.

• Decision Date: 29 August 2019
• Docket Number: S239510
• Citation: 447 P.3d 669,8 Cal.5th 93,251 Cal.Rptr.3d 701
• Court: California Supreme Court
• Parties: PITZER COLLEGE, Plaintiff and Appellant, v. INDIAN HARBOR INSURANCE COMPANY, Defendant and Respondent.

8 Cal.5th 93

447 P.3d 669

251 Cal.Rptr.3d 701

PITZER COLLEGE, Plaintiff and Appellant,

v.INDIAN HARBOR INSURANCE COMPANY, Defendant and Respondent.

S239510

Supreme Court of California.

August 29, 2019

Murtaugh Meyer Nelson & Treglia, Murtaugh Treglia Stern & Deily, Michael J. Murtaugh, Lawrence J. DiPinto, Irvine, and Thomas N. Fay for Plaintiff and Appellant.

Polsinelli, Richard C. Giller, Los Angeles, and Michelle Buckley for United Policyholders as Amicus Curiae on behalf of Plaintiff and Appellant.

Duane Morris, Max H. Stern, Jessica E. La Londe, San Francisco, and Katherine Nichols for Defendant and Respondent.

Crowell & Moring, Laura A. Foggan and Michael Lee Huggins, San Francisco, for Complex Insurance Claims Litigation Association and American Insurance Association as Amici Curiae on behalf of Defendant and Respondent.

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, 32 Cal.Rptr. 827, 384 P.2d 155 ( 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.

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 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 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 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 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, 11 Cal.Rptr.2d 330, 834 P.2d 1148 ( 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 contractually chosen state. ( Nedlloyd, supra, 3 Cal.4th at pp. 465-466, 11 Cal.Rptr.2d 330, 834 P.2d 1148.) In Nedlloyd , we articulated California’s multi-step choice...