Reinsurance Focus

In an unpublished disposition, a California appellate court reversed a summary judgment order as to a reinsured’s claims for breach of contract and insurance bad faith where the policy period was extended by statute (California Insurance Code section 678.1) because the underlying insured was not provided with the requisite notice of nonrenewal, but affirmed the summary judgment order as to the reinsured’s negligence claim. The defendants reinsured plaintiff Norcal Mutual Insurance Company for any liability Norcal might incur under a managed health care professional liability policy for the initial policy period of August 1999 through August 2000. Although the claim by Norcal’s insured that created Norcal’s liability fell outside the period of the 1999/2000 policy, Norcal contended the policy period was extended until June 2001 because its insured was not provided with notice of nonrenewal of the 1999/2000 policy, as required by section 678.1.

On appeal, the court held that notice of nonrenewal was not excused by a statutory provision that notice is not required where the insured “has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.” Norcal’s insured agreed in writing to obtain replacement coverage, but section 678.1 “taken as a whole” compelled the conclusion that a “replacement” policy “is not synonymous with renewal of existing coverage.” The court found that “replacement” coverage referred to in one subsection of the statute means insurance obtained from a different insurer, while renewal of coverage referred to elsewhere in the same statute means coverage obtained from the same insurer for a subsequent policy period. The court, however, rejected Norcal’s negligence claim because section 678.1 “clearly” places the duty to provide notice of nonrenewal on the insurer, not a reinsurer. Norcal Mutual Insurance Co. v. Certain Underwriters at Lloyd’s of London, No. B213122 (Cal. Ct. App. Feb. 22, 2010).

This post written by Brian Perryman.