The notice prejudice rule protects policyholders from undue forfeiture of benefits when they fail to report a claim within the applicable insurance policy's deadline. California's notice-prejudice rule allows a policyholder to file a claim after the reporting deadline if it can show that the late notice did not result in any prejudice to the insurance company. However, under New York law, an insurance company need not demonstrate actual prejudice to deny coverage for a late-reported claim. UP argued that where a policy issued to a California policyholder contains a choice of law provision applying less-favorable New York law, California's law should prevail. Related, a consent provision in a first-party policy should also be subject to California's notice prejudice rule. Unlike a third party claim, there is no risk of collusion between the policyholder and a third-party claimant where a settlement is reached without the insurer's consent, nor does the insurer lose the right to control the defense.
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