## Facts

- Walter H. Root, an attorney, was insured under a legal-malpractice claims-made-and-reported policy issued by American Equity Specialty Insurance Company for February 28, 1998, to February 28, 1999.
- On February 25, 1999, Root’s former client, Farideh Jalali, filed a legal-malpractice complaint against Root, but Root was not served during the policy period.
- The same day the complaint was filed, a caller identifying himself as a legal-journal reporter contacted Root seeking comment about the suit; Root had not been served and viewed the call as possibly a prank.
- The policy required that a claim be both first made and reported in writing to the insurer during the policy period, and it framed timely written notice within the policy term as a condition precedent.
- Root was not offered an extended reporting (“tail”) endorsement.
- On March 2, 1999, two days after policy expiration, Root read a legal-journal article describing the malpractice suit and then reported the claim in writing to American Equity.
- American Equity denied coverage for failure to report within the policy period.
- Root sued for breach of contract seeking reimbursement of defense costs; the trial court granted summary judgment to the insurer based on undisputed late notice.

## Issues

1. Whether a claims-made-and-reported policy’s within-the-policy-period reporting requirement, drafted as a condition precedent, may be equitably excused when the claim is made at the end of the policy term and the insured’s knowledge during the term is ambiguous.
2. Whether excusing late reporting in such circumstances impermissibly applies a notice-prejudice rule to claims-made-and-reported coverage.

## Decision

- The Court of Appeal reversed the summary judgment for the insurer and remanded.
- The court held that, on these facts, the policy’s within-term written reporting requirement could be equitably excused to avoid forfeiture.
- The court emphasized the narrow scope of its holding and declined to adopt a general notice-prejudice rule for claims-made-and-reported policies.

## Legal Principles

- In claims-made-and-reported policies, timely reporting within the policy period generally defines the scope of coverage, so the notice-prejudice rule typically does not apply.
- Separately, California contract law permits equitable relief against strict enforcement of an express condition precedent when nonoccurrence would cause forfeiture and equitable considerations justify excusal.
- Equitable excusal may be warranted where the claim is made very late in the policy period, the insured’s awareness during the period is uncertain, the insured gives notice promptly after receiving clear confirmation, and strict enforcement would produce an inequitable forfeiture (including where no extended reporting option was offered).

## Conclusion

The court held that, despite the usual strict enforcement of reporting requirements in claims-made-and-reported policies, equitable contract principles may excuse slightly late reporting in a narrow situation to prevent forfeiture when the claim arises at the policy’s end, the insured’s knowledge is ambiguous, and notice follows promptly after confirmation.


Root v. Am. Equity Specialty Ins. Co., 130 Cal. App. 4th 926, 30 Cal. Rptr. 3d 631 (Ct. App. 2005)