California Law: The Effect of an Insured's Failure to Comply with Policy Conditions

Most insurance policies, whether third-party liability policies or first-party policies, include a wide range of conditions. While different policies contain different conditions, fairly common conditions include provisions that:

• The insured promptly notify the insurance carrier of any claim or suit;
• The insured not voluntarily make a payment or incur any expense without the carrier's consent;
• The insured transfer any rights to recover all or part of a payment that the carrier has made to the carrier and do nothing after a loss to impair those rights;
• The insured cooperate with the carrier in the investigation, settlement, or defense of a loss, claim, or suit; and
• The insured authorize a carrier to obtain records and other information and provide the carrier with copies of demands, notices, summonses, and legal papers received in connection with a claim or suit.

In many instances, an insured does not comply with the terms of every condition stated in a policy. Sometimes this is because the insured is not aware of the particular requirements of the policy, sometimes it is because a carrier has not required (or has waived) compliance, and sometimes it is because it is simply not practical, or possible, to comply with all of the requirements of the conditions. In many of these circumstances, insurance carriers reserve a right to deny coverage, or deny coverage on the ground that an insured has failed to comply with one or more conditions in the policy. However, whether or not an insured has complied with all of the particulars of a condition in a policy does not determine whether the insured actually forfeits coverage under the policy.