VILLAGE ESCROW COMPANY, INC., a California Corporation, Plaintiff and Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY, Defendant and Respondent.
In a case of first impression in California—and as best our research can determine, in the United States—we hold an insurance company cannot deny coverage under a “claims made” policy to an insured who belatedly reports a lawsuit to the company which had been filed during the policy period but not served on the insured until after the policy had expired.
STATEMENT OF FACTS AND PROCEEDINGS BELOW
The appellant is an escrow company, Village Escrow Company, Inc. (Village). It took out an “errors and omissions” insurance policy with respondent, National Union Fire Insurance Company, for the period March 1, 1983, to March 1, 1984. The insurance contract promised:
“To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages resulting from any claim or claims first made against the insured and reported to the company during the policy period for any Wrongful Act of the Insured or of any other person for whose actions the Insured is legally responsible, but only if such wrongful act first occurs during the Policy Period and solely in the conduct of the Insured's Profession as stated in Item 6 of the Declarations.” (Italics added.)
Unbeknownst to Village, two disaffected clients—Walter and Marlene Whitaker—filed a lawsuit against it on November 8, 1983. This complaint alleged Village had negligently failed to examine and deliver a pest control report to the Whitakers on or about March 25, 1983. Thus, both the alleged negligence and the filing of the complaint took place during the policy period. However, according to the allegations of both its original and first amended complaints, Village remained unaware of the Whitaker's claim against it until served with the summons and complaint on April 18, 1985. This was more than a year after the policy had expired.
Village then wrote National, requesting the insurance company defend it against the Whitaker lawsuit. National refused in a letter dated December 5, 1985. It rested this refusal on the policy provision its coverage only extended to “claims first made against the insured and reported to the company during the policy period․”
On September 12, 1986, Village filed a complaint against National, its agent and the insurance agency for breach of contract, bad faith and related causes of action. National demurred on December 16, 1986. It contended the policy did not cover the Whitaker claim because Village had not notified National of the Whitaker claim during the term of the policy.
The trial court sustained the demurrer with leave to amend. Village filed a first amended complaint on March 16, 1987. National demurred on the same grounds as before and, once again, on April 30, 1987, the trial court sustained the demurrer, this time without leave to amend.
On May 11, 1987, National mailed and Village received a notice of ruling indicating the trial court had sustained the demurrer and dismissed the complaint. However, it is disputed whether National mailed and, if it did, whether Village received the notice of entry of judgment, which judgment was entered on May 18, 1987. The counsel for Village filed a declaration denying he had received the notice of entry of judgment. He further declares he searched the superior court file on July 23, 1987, and it contained no proof of mailing of the notice of entry of judgment. Moreover, a subsequent search by the attorney service Village's law firm ordinarily utilizes likewise revealed the superior court file failed to contain a proof of service.
Village filed its notice of appeal on July 24, 1987. On September 24, 1987, National filed a motion to dismiss appeal on grounds the notice of appeal was not timely filed. This court denied the motion. National subsequently moved to augment the record with the copy of a proof of service dated May 19 it claims was inadvertently omitted from the superior court record. We granted the motion to augment. No further motions to dismiss the appeal were filed. However, in its brief National raises the issue of timeliness anew, arguing this court is without jurisdiction to hear Village's appeal since it was not filed within 60 days of National's alleged mailing of the notice of entry of judgment.
I. THIS COURT FINDS THE NOTICE OF ENTRY OF JUDGMENT WAS NOT PROPERLY MAILED TO RESPONDENT AND THUS THE NOTICE OF APPEAL WAS TIMELY
This court is faced with conflicting evidence on the question whether the respondent mailed the notice of entry of judgment to the appellant. Although it is a close question, we conclude on the basis of the declarations and other evidence before us that the respondent has not proved by a preponderance of the evidence that it mailed the notice in a timely fashion and that the appellant was thereby apprised the judgment had been entered.
Respondent relies on a “proof of service” declaring the notice was mailed on May 19, 1987, which it belatedly supplied this court, having failed to include it in the superior court file or in the record furnished this court for purposes of this appeal. These failures impair the credibility of the “proof of service” itself especially when the appellant declares under oath the notice purportedly mailed was not received. Where there have been omissions in the performance of other ministerial tasks associated with this very “proof of service” it is quite possible the ministerial task of mailing the notice of entry of judgment likewise may not have happened. Thus the usual presumption about a letter mailed having been received does not come into play. Accordingly, we cannot find by a preponderance of the evidence that appellant actually was served notice of the entry of judgment on or about May 19, 1987.
Had respondent National indeed served notice of entry of judgment on appellant Village on May 19, 1987, Village would have only had 60 days in which to file its notice of appeal. (Cal. Rules of Court, rule 2(a).) Thus, the notice filed on July 24, 1987, would have been five days late and therefore untimely. However, since we conclude National did not serve notice of entry of judgment on Village, the latter had 180 days from the actual filing of entry of judgment, May 18, 1987, in which to file its notice of appeal. (Cal. Rules of Court, rule 2(a) [“a notice of appeal shall be filed ․ within 180 days after the date of entry of the judgment”].) Village filed its notice well within that period and accordingly the notice of appeal was timely.
II. THE REPORTING REQUIREMENT OF A “CLAIMS MADE” POLICY CANNOT OPERATE TO DENY COVERAGE FOR A LAWSUIT FILED AGAINST THE INSURED DURING THE POLICY PERIOD BUT NOT KNOWN TO THE INSURED NOR SERVED ON THE INSURED UNTIL AFTER THE POLICY PERIOD
In the past, most liability insurance policies were of the “occurrence” variety. Policies of this type protect the insured against any lawsuits that might ever arise out of any event which occurs during the policy period. In an effort to reduce their exposure to an unpredictable and lengthy “tail” of lawsuits filed years after the occurrence they agreed to protect against, insurance companies have shifted more and more to another basic type of policy—the “claims made” variety. The purest version of this type of policy protects insureds for any claims made against them during the policy period no matter how many years earlier the event generating the liability may have occurred.
However, in recent years some insurance companies have shifted to an even more restrictive policy—what could be called the “occurrence and claims made” variety. Under this policy, both the liability-generating occurrence and the filing of the claim against the insured must take place within the policy period or there is no coverage. Thus, if the insured committed his negligent act before the policy period the insurance company will not defend a lawsuit filed during the period. And even if the negligent act occurred during the policy period, the insurance company will not defend the lawsuit unless the injured party also files suit within the policy period. As a practical matter this means coverage is limited to cases where the injury occurs rather early in the policy period and the injured party acts expeditiously to file his lawsuit. An occurrence even halfway through the typical policy period of one year is unlikely to generate a lawsuit before the end of the period. The restrictive nature of this requirement that both the event occur and the claim be filed during a single policy term has led the New Jersey Supreme Court to judicially convert this form of policy into an “occurrence policy”, that is, to impose coverage for events occurring before the policy period but which do not mature into claims until the policy comes into effect. (Sparks v. St. Paul Ins. Co. (1985) 100 N.J. 325, 495 A.2d 406.)
In this case, we are asked to construe and apply a still more restrictive policy—the “occurrence and claims made and claims reported” variety. Indeed this case illustrates in a unique and dramatic fashion just how restrictive this kind of coverage could be if the policy were construed strictly against the policyholder. Here the liability-generating event took place during the one-year policy period. Moreover, the injured parties moved extraordinarily swiftly and filed their lawsuit within the policy period. Thus, the “occurrence” occurred and the “claim was made”, both within the one-year policy period. Still the insurance company denies coverage because the making of the claim was not “reported” to the insurer within the policy period.
This “triple hurdle” specie of insurance policy—requiring the occurrence, the making of the claim, and the reporting of the claim all to take place within the same policy period—is a relatively recent innovation which has received only limited consideration by the appellate courts of other states.1 However, it is unnecessary to consult the law of other jurisdictions to resolve the instant case. For, the reporting requirement of this insurance contract run afoul of a well-settled doctrine which if applied to this type of policy would mean National must honor this unknown but “made” claim.
Under the specific language of the particular policy involved in this case it is apparent a “claim” is “made” when a lawsuit [or other relevant legal action] is filed, not when the injured party communicates to the insured his intent to file a lawsuit or the fact he has suffered an injury through the insured's alleged misbehavior. (Indeed the policy specifically provides if the insured reports these preliminary indications that a claim is in the offing, the insurer will cover that “claim” when it is “made”, that is, when the lawsuit is filed, even if that filing takes place after the policy expires.) Nor does the language of the policy indicate the “claim” is “made” only when the lawsuit is communicated to the insured, that is, when it is served on the insured. No, the most reasonable interpretation of this policy is that the “claim” is “made” when the lawsuit is filed. Here we have the unusual situation where the “claim” was “made” under the language of this policy well within the policy term but the insured remained unaware it had been made until well after the policy expired and thus did not report the claim until after that time.
It is well settled an insured's violation of a contract term requiring claims to be reported within a certain time frame will not justify denial of coverage for that claim unless the insurance company can prove it suffered actual prejudice in defending the claim as a result of the failure to comply with the notification requirement. In the landmark case of Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 32 Cal.Rptr. 827, 384 P.2d 155, Chief Justice Gibson endorsed still earlier cases establishing this principle and then proceeded to disapprove earlier lower court decisions which had ruled prejudice could be assumed.
“[I]t has been held that prejudice must be shown with respect to breach of a notice clause. (Abrams v. American Fidelity & Cas. Co, [ (1948) ] 32 Cal.2d 233, 237, 239 [195 P.2d 797] ․; Reed v. Pacific Indemnity Co., [ (1950) ] 101 Cal.App.2d 151, 161 [225 P.2d 255] ․; Gibson v. Colonial Ins. Co., [ (1949) ] 92 Cal.App.2d 33, 35–36 [206 P.2d 387] ․; ․ We are satisfied that the requirement of prejudice set forth in these decisions is proper.
“In reaching its decision, the trial court properly determined that it was bound by Margellini v. Pacific Automobile Ins. Co., 33 Cal.App.2d 93, 99–100 [91 P.2d 136] ․, where it was reasoned that prejudice ‘must be presumed’ as a matter of law․ We have concluded, however, that this reasoning is unsound and that Margellini should be disapproved․ Although it may be difficult for an insurer to prove prejudice in some situations, it ordinarily would be at least as difficult for the injured person to prove a lack of prejudice, which involves proof of a negative. The presumption would not be in keeping with the public policy of this state to provide compensation for those negligently injured ․ through no fault of their own.” (Campbell v. Allstate Ins. Co., supra, 60 Cal.2d 303, 306–307 [32 Cal.Rptr. 827, 384 P.2d 155]. See also, e.g., Billington v. Interinsurance Exchange (1969) 71 Cal.2d 728 [79 Cal.Rptr. 326, 456 P.2d 982], and cases cited therein; Moe v. Transamerica Title Ins. Co. (1971) 21 Cal.App.3d 289 [98 Cal.Rptr. 547]; Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134 [85 Cal.Rptr. 693].))
Here National neither contends nor has had the opportunity to establish any prejudice from Village's failure to report the Whitaker claim within the policy period. Instead National argues this so-called “notice-prejudice” rule only applies to “occurrence” policies and not “claims made” policies. However, the only California court we have found which addressed the issue ruled otherwise, observing in unequivocal language:
“[D]efendant [insurance company] argues that in a ‘claims-type’ policy the possibility of prejudice resulting from late notice is greater than in ‘occurrence-type’ policies. In considering this argument we observe that, notwithstanding the generic differences between the two types of policies, there is no indication in Campbell or the other cases cited above that a different rule can apply in ‘claims-type’ policies. The cases make it clear that the [notice-prejudice] rule applies to all cases in which the insurer asserts a defense based upon a breach of a ․ notice clause․ [T]he crucial question in each instance is not the possibility of prejudice but rather whether there was actual prejudice to the insurer.” (Northwestern Title Security Co. v. Flack, supra, 6 Cal.App.3d 134, 143–144, 85 Cal.Rptr. 693, italics added.)
It would elevate form over substance to hold a reporting requirement was subject to the “notice-prejudice” rule if located in a separate clause of the insurance contract, but immune from that rule if placed in the same clause with other conditions defining the insurance company's liability under the policy. National makes much of this particular paragraph as being the “insuring agreement” clause of the policy. According to this argument, somehow moving the reporting requirement to the “insuring agreement” clause makes it different in kind from a reporting requirement set forth in its own paragraph or along with other conditions in another paragraph located elsewhere in the contract. But there is no magic about the “insuring agreement” clause. Coverage is defined and the insurance company's liability determined by all the paragraphs and clauses of the policy, not just the “insuring agreement” clause. What is given in the insuring clause can be and often is taken away by a later exclusion or condition or requirement. There are numerous examples of this phenomenon in the instant policy. Conversely, what is taken away in the “insuring agreement” clause can be restored by another paragraph of the policy. Indeed paragraph 4 of the “Special Provisions” section of this policy actually creates coverage for certain claims which the so-called “insuring agreement” section of the policy does not cover. These are claims “made” after the policy expires but which arise out of “errors and omissions” occurring during the term of the policy which the insured knew about and notified the insurer of during that policy period.
Placing a limitation on coverage in the “insuring agreement” clause makes it no more immune from the equitable constraints of insurance law than if those limitations were in a paragraph labelled “exclusion,” “condition,” “policy requirement,” or anything else. All of these are conditions precedent to the insurer's liability to the insured under the contract. Moving them in or out of the “insuring agreement” clause makes no practical—or even theoretical—difference in their logical or legal effect.2
Indeed if placing a policy limitation in the “insuring agreement” clause rendered it immune from equitable constraints like the “notice-prejudice” rule, one could expect a rash of one-paragraph insurance contracts—long, long, long paragraphs, we hasten to add—in which were packed all the exclusions, conditions, requirements, and the like which now are spread over the many paragraphs of the typical insurance contract.
We see no reason to treat the reporting requirement incorporated in paragraph 1 of the “insuring agreement” section of the instant insurance contract any differently than if it were located elsewhere in the contract. “[T]he [notice-prejudice] rule is applicable, even though compliance with the notice provisions is made a condition of the policy or specified as a condition precedent to the liability of the insurer. [Citations omitted.]” (Hanover Insurance Co. v. Carroll (1966) 241 Cal.App.2d 558, 565, 50 Cal.Rptr. 704.) Moreover, like the court in Northwestern Title Security Co. v. Flack, supra, 6 Cal.App.3d 134, 85 Cal.Rptr. 693, we see no reason to treat it any differently than if this requirement were in an “occurrence” policy.3
In any event, we see no grounds in reason or policy to exempt the reporting requirement in this particular insurance policy from the “notice-prejudice” rule. The purpose of this rule is to prevent insureds from losing coverage for claims made against them where the insurance company has not been prejudiced in its defense of the claim by the insured's failure to comply with the reporting requirement. Where the claim was actually made, that is, the lawsuit filed, within the policy period the insurance company is no more prejudiced by a delayed reporting of the claim under a “claims made” policy than if the claim were belatedly filed under an “occurrence” policy. Indeed the “tail” of filed but belatedly reported claims is apt to be quite narrow and very short. After all, the claim still must have been made within the policy term. The claimant ordinarily has good reason to inform the insured as soon as possible after filing the lawsuit. And, the insured, in turn, has every incentive to report any lawsuit to the insurance company as soon as he knows of it.
The facts of the instant case present a compelling case for applying California's “notice-prejudice” rule.4 Here the delay in reporting the claim is not attributable to any laxity on the part of the insured in notifying the insurer about a claim the insured knew about. Instead, if the allegations of the complaint are proved to be true, the delay was the product of the insured's ignorance about the existence of the claim. The “notice-prejudice” rule absolves insureds even when they are negligent or lazy. A fortiori, it absolves them when they are diligent but unaware of a secret claim. Thus, it is not surprising to find that “[i]t is settled law that delay or failure to give notice is excused if the insured had no knowledge of the accident and could not have acquired such knowledge by the exercise of reasonable diligence.” (Wasson v. Atlantic National Ins. Co. (1962) 207 Cal.App.2d 464, 468, 24 Cal.Rptr. 665; disapproved on other grounds Campbell v. Allstate Ins. Co. (1983) 60 Cal.2d 303, 32 Cal.Rptr. 827, 384 P.2d 155.)
Respondent's counsel began his oral argument to this court by asserting: “This case is of great interest to the insurance industry.” It follows this appeal is of equally great interest to insurance consumers. Appellant's counsel, in turn, began his argument by pointing out this cases raises an issue of first impression in California. Our own research suggests it is in fact an issue of first impression in the entire United States. Thus the members of this court were somewhat surprised when only two working days after oral argument we received a letter from the parties announcing they had settled the case. It was not the fact of settlement that surprised us, however, so much as its terms. In the stipulation enclosed with the letter, respondent agrees to pay appellant $90,000 contingent on this court not filing an opinion in this case.5
This court is not opposed to settlements between the parties in appellate cases. Indeed this division, along with the other divisions in the Second Appellate District, operates a voluntary settlement program designed to facilitate such agreements. However, the court's program is aimed at producing early settlements—before the parties have invested substantial private resources, and especially before the court has invested substantial public resources, in the appeal. Once these investments have started, the appeal is no longer of sole interest to the parties.
Since the published opinions of appellate courts establish precedents which may guide the conduct of scores or hundreds or thousands of other people, the public interest also is implicated in the cases we hear. It is this public interest as much as the private interest in ultimately resolving a particular dispute between two particular parties that justifies the substantial public investment the Courts of Appeal make, especially in their published opinions. Accordingly, the California Rules of Court provide that once the record is filed in the Court of Appeal the appellate court has discretion whether to honor a settlement which requests or depends upon a dismissal of an appeal. (Cal.Rules of Ct., rule 19(b).) 6 “An appellant may not dismiss his appeal as a matter of right; whether he will be permitted to do so is within the discretion of the court.” (DeGarmo v. Goldman (1942) 19 Cal.2d 755, 768, 123 P.2d 1; D.I. Chadbourne, Inc. v. Superior Court (1964) 60 Cal.2d 723, 36 Cal.Rptr. 468, 388 P.2d 700; Liberty Mut. Ins. Co. v. Fales (1973) 8 Cal.3d 712, 106 Cal.Rptr. 21, 505 P.2d 213; Garfinkle v. Wells Fargo Bank (1982) 135 Cal.App.3d 514, 185 Cal.Rptr. 401, Okuda v. Superior Court (1983) 144 Cal.App.3d 135, 192 Cal.Rptr. 388; see also Motown Record Corp. v. Brockert (1984) 160 Cal.App.3d 123, 207 Cal.Rptr. 574, which likewise involved a last minute stipulation to dismiss the appeal. See 9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, §§ 505–506, discussing earlier contrary authority and commending later decisions supporting what the author characterizes as “the better view” that “the reviewing court has the power to refuse, [to dismiss an appeal], and should exercise it, in the interests of justice,․” (Id. at § 505.) ]
Even where the stipulation to dismiss is filed before oral argument, courts have exercised their discretion to hear and decide the case. In one such case, the parties stipulated to dismiss a writ petition three days after receiving notice the oral argument had been scheduled. In explaining its rationale for nevertheless deciding the case and filing an opinion the court observed: “ ‘If an action involves a matter of continuing public interest and the issue is likely to recur, a court may exercise an inherent discretion to resolve that issue, even though an event occurring during its pendency would normally render the matter moot.’ (Liberty Mut. Ins. Co. v. Fales (1973) 8 Cal.3d 712, 715–716, 106 Cal.Rptr. 21, 505 P.2d 213 ․ [other citations omitted.]․ It is evident that the question at bar involves a matter of continuing public interest․ Furthermore, appellate review may continue to be thwarted by the settlement of the underlying dispute, as occurred here. Therefore, considering all the circumstances, we conclude that a resolution of the issue would be proper.” (Okuda v. Superior Court, supra, 144 Cal.App.3d 135, 137 fn 1, 192 Cal.Rptr. 388.)
All the reasons the Okuda court cited for refusing to dismiss the appeal and instead filing an opinion in that case apply equally here. The respondent insurance company itself argued the instant case was of great importance and appellant pointed out it was a case of first impression. We agree with both sides and find there is no doubt the issue involved is of “continuing public interest.” Moreover, here as in Okuda there is a danger appellate review of this issue will continue to be thwarted by settlements reached near the time appellate courts are about to render their decisions.
In the instant case, however, there are even stronger reasons to file the opinion. Here the request to dismiss was not made until after oral argument. Moreover, it was accompanied by the offer of a substantial sum of money to what the offering party correctly anticipated would be the prevailing party on this appeal. And the monetary offer, in turn, was coupled with an express threat that the prevailing party would lose the promised money if this court filed an opinion.
To bow to this pressure and refrain from filing our opinion would do disservice not only to the public interest implicated in this case but to the proper functioning of the appellate courts in future cases. For, it would send a message to other appellants and respondents that they can wait until oral argument and, if they sense the probability or possibility the appellate court will rule against them, buy their way out of an unfavorable precedent often at the relatively cheap price asked by the single opponent they face in that appeal. This would tend to inhibit appellate judges from asking the tough questions at oral argument which might suggest the direction of their thinking. It would result in the squandering of public resources on the research, analysis and writing of opinions which never get filed even though they resolve issues of great public import. And it could even distort the law by allowing parties who possess ample means to prevent the filing of adverse precedents while those without means are unable to do so.
For all these reasons we exercise our discretion to deny the stipulated motion to dismiss this appeal. Instead we file this opinion which rules in Village's favor by reversing the judgment and the underlying order sustaining the demurrer to Village's complaint.
The judgment of dismissal based on the order sustaining a demurrer to appellant's complaint is reversed and the cause remanded for further proceedings consistent with this opinion. Appellant to receive its costs on appeal.
1. Some jurisdictions have upheld the requirement a claim be reported as well as made during the period specified in the policy. (Gulf Ins. Co v. Dolan, Fertig and Curtis (Fla.1983) 433 So.2d 512 [upholding the denial of coverage for a claim filed against the insured relatively late in the policy term but not reported until after the term.] See also Graman v. Continental Casualty Co. (1980) 87 Ill.App.3d 896, 42 Ill.Dec. 772, 409 N.E.2d 387.) Other jurisdictions have taken the opposite position holding insurance companies have to honor late-reported claims even though the policy expressly only insures claims reported to the company during the policy period or in a timely fashion. (Sherlock v. Perry (E.D.Mich.1985) 605 F.Supp. 1001 [imposing coverage for a claim filed several months after the policy expired despite a clause requiring both the “occurrence” and the “reporting of the occurrence” to the insurance company to take place during the policy period]. See also American Home Assurance Co. v. Ingeneri (Me.1984) 479 A.2d 897; Johnson Controls v. Bowes (1980) 409 N.E.2d 185; Reliance Ins. Co. v. St. Paul's Ins. Cos. (1976) 307 Minn. 338, 239 N.W.2d 922.) However, none of these cases have dealt with the special circumstance of the instant case—a claim “made” against an insured during the policy period but which remained unknown to the insured until after the policy expired.
2. Analyzing the internal logic of insurance contracts we find they consist of a series of “if-then” statements each and all of which must be satisfied before the insurance company will be liable to defend or indemnify the insured. If A and B and C and D and E and F etc. [where A, B, etc., represent the conditions which must exist or be satisfied] then and only then X [where X represents the insurance company's liability under the policy]. The policy involved in the instant case might be translated in part as follows: IF [the insured commits an error or omission related to the escrow business] AND [this error or omission occurs during the policy period] AND [ (a lawsuit is filed arising from this error or omission during the policy period) OR (the insured apprises the insurer of its error or omission during the policy period and a lawsuit is filed after the policy period) ] AND [the insured reports the lawsuit to the insurer during the policy period] AND [the insured reports the lawsuit to the insurer as soon as practicable after the lawsuit is filed] AND [the claim does not arise out of: (bodily injury) OR (disease) OR (death) ] AND [the claim does not seek non-pecuniary relief] AND [the error or omission occurred in the United States or Canada] AND [the lawsuit was filed in the United States or Canada] AND [the remaining lengthy list of “if” statements are satisfied] THEN AND ONLY THEN [the insurance company is obligated to defend the insured and to indemnify him for any losses up to the maximum provided in the policy].This type of presentation highlights what the array of clauses, condition, exclusions, requirements, etc. found in this insurance contract really amount to—the true substance of the policy. It is irrelevant whether a given “if” statement is found in a so-called “insuring clause” or in a so-called “exclusion” or in the form of a “requirement” or anywhere else in the contract. As long as it represents something that must exist or be satisfied before the insurance company is responsible to defend or indemnify an “if” statement in one part of a policy has equal status as a matter of logic with any other “if” clause in the policy. Thus, shifting an “if” statement from one part of the contract to another does not change the substantive logic of the total policy. Nor does this moving around of clauses justify relaxation of any equitable conditions the law may impose on certain of these conditions precedent.
3. Respondent also argues the “notice-prejudice” rule should not apply to this policy since the insured was given the option of purchasing—for an additional 35 per cent—an extended period of coverage. This policy option has the effect of offering the possibility of coverage for claims “made” during the subsequent year for “occurrences” that take place during the original policy term. National has not been able to cite nor has our own research uncovered any California cases holding the “notice-prejudice” rule is rendered inoperative if the insurer offers the insured an option of more time to report his claims in return for a larger premium. Nor is this surprising. Under well-settled California law, unless the insurer can demonstrate it was actually prejudiced by a late reporting of a claim it is not entitled to deny coverage of that claim irrespective of what the policy provides about how soon claims must be filed. The insured's rights under the “notice-prejudice” rule are not something he or she is required to bargain for. If insureds pay an additional premium for the “opportunity” to report claims later than the policy ordinarily allows, they are paying for something the law already gives them except where late reporting actually prejudices the insurer. Thus, except in the situation of actual prejudice, they are paying for nothing. Surely the failure to pay for a legal right one already possesses cannot supply grounds for taking that right away.
4. Since we decide this appeal on the basis of the “notice-prejudice” rule, we do not reach an alternative ground for requiring respondent National to cover this claim. That is the question whether denying coverage for this “made but unknown” claim disappoints the insured's “reasonable expectations” under this policy. Mass-marketed insurance policies such as this one are considered to be adhesion contracts—or at least subject to the same rules as adhesion contracts. (Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 718–720, 193 Cal.Rptr. 632.) As such, all ambiguities are to be construed against the insurance company. Moreover, any term which has the effect of reducing coverage must be “conspicuous, plain, and clear.” (Ponder v. Blue Cross, supra, 145 Cal.App.3d at pp. 720–724, 193 Cal.Rptr. 632, and cases cited therein.) And, if there is any ambiguity or the limiting language is not conspicuous, plain, and clear the policy must be construed to fulfill the “reasonable expectations” of the insured. (Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d 862, 27 Cal.Rptr. 172, 377 P.2d 284; Young v. Metropolitan Life Ins. Co. (1969) 272 Cal.App.2d 453, 77 Cal.Rptr. 382, 78 Cal.Rptr. 568.)This policy is undeniably misleading and ambiguous. In bold face on the cover page, and elsewhere, it advertises itself as a “claims made” policy, not a “claims made and reported” policy. Yet National's attorney stressed again and again at oral argument that this was not a “claims made” policy but something different, a “claims made and reported” policy. Only a careful reading of paragraph 1 of the first section of the policy would lead one to even suspect that the occurrence had to occur, the claim be made (i.e., the lawsuit filed) and the claim reported to the insurance company (i.e., the filing of the lawsuit reported), all within the one-year term of the policy. That provision is hardly conspicuous especially considering its inconsistency with the bold face cover page and with other references to the contract as a “claims made” policy. Nonetheless, since we decide this case on other grounds we need not determine whether it would disappoint Village's “reasonable expectations” in what advertises itself as a “claims made” policy to learn the contract does not cover lawsuits actually filed against Village during the policy period but not served on it until after that period.
5. In a letter dated June 6, 1988, and filed with this court on June 7, 1988, respondent National's counsel wrote to appellant Village's counsel as follows:“This will confirm the settlement agreement you and I reached on behalf of our respective clients this afternoon by telephone․“1. Payment by National Union of $90,000.00 to Village Escrow Company, Inc.;“2. Dismissal of the appeal in Appeal No. 2nd Civl B 029042 so that the judgment of dismissal by the trial court becomes the final judgment in this case;“3. Approval by the Court of Appeal of the dismissal of the appeal as set forth above; and“4. A release by your client in favor of National Union as to all contract, tort, and statutory claims․“I must emphasize the deal is conditioned expressly upon the Court of Appeal not reaching a decision on the appeal and agreeing to dismiss the appeal․” (Letter from R. Gaylord Smith to Terence C. McGaughey, dated June 6, 1988, italics in the original.)This letter was agreed to and signed by counsel for Village on June 7, 1988. The cover letter to this court signed by counsel for Village reemphasized the last paragraph quoted above: “You will note from the enclosed letter that the entire settlement agreement is contingent upon the Court of Appeal dismissing the currently pending appeal․” (Letter from Terence C. McGaughey to Mr. Victor Salas, Deputy Clerk, dated June 7, 1988.)
6. Rule 19(b) reads as follows:“After the filing of the record in the reviewing court an appeal may be dismissed by that court on written request of the appellant or stipulation of the parties filed with the clerk of the reviewing court.” (Cal.Rules of Ct., rule 19(b), italics added.)This provision contrasts with Rule 19(a) which applies to abandonments or stipulated abandonments lodged prior to the filing of the record:“․ The filing of either document shall operate to dismiss the appeal․” (Cal.Rules of Ct., rule 19(a), italics added.)
JOHNSON, Associate Justice.
LILLIE, P.J., and REESE, J.**