Introduction

All standard liability insurance policies have a provision requiring the policyholder to cooperate with the insurer in the defense of a plaintiff’s lawsuit. While language varies widely, the policyholder is generally required to appear at deposition and trial to testify truthfully. Many, but far from all, significant reported opinions developing the law applicable to the cooperation clause are collected here. There seem to be many reported opinions in which a court will state a hypothetical in dicta without any analysis – for example: “Had the policyholder engaged in XYZ conduct, that would probably have violated the cooperation clause.” The numerous cases with this sort of off-handed remark are not collected here. Some courts discussion of the cooperation clause mention collusion, that is a separate defense, examined in another post to which readers may link here.

Purpose of the Cooperation Clause in a Liability Policy

A “cooperation clauses serve an important purpose. ‘[A] condition of a policy requiring the cooperation and assistance of the assured in opposing a claim or an action lodged against him by an injured person is material to the risk and of the utmost importance in a practical sense. Without such cooperation and assistance the insurer is severely handicapped and may in some instances be absolutely precluded from advancing any defense.’ [S]uch provisions “enable the [insurer] to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to facts, material to [its] rights, to enable [it] to decide upon [its] obligations, and to protect [itself] against false claims.”’” (Truck Ins. Exch. v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 975-76 quoting Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal. 2d 322, 328-329 and quoting Wood v. Allstate Ins. Co. (7th Cir. 1994) 21 F.3d 741, 745, quoting Claflin v. Commonwealth Insurance Co. (1884) 110 U.S. 81, 94-95.)

“The insurer is entitled to know from its assured the true facts (of which he may have knowledge) underlying an accident and upon which the injured person bases his claim in order that it may determine for itself, in the light of such information, whether it should contest or attempt to settle the claim. . . . [T]he general rule [is] that under a cooperation clause the assured is required to give a fair and frank disclosure of information reasonably demanded by the insurer to enable it to determine whether there is a genuine defense. . . . ‘The company is entitled, however, to an honest statement by the insured of the pertinent circumstances surrounding the accident, as he remembers them. Lacking that, the company is deprived of the opportunity to negotiate a settlement, or to defend upon the solid ground of fact. Nothing is more dangerous than a client who deliberately falsifies the facts.’” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal. 2d 322, 329.)

“[Liability] policies expressly . . . obligate the insured to cooperate. Insured’s failure to cooperate may release the insurer. Such a policy handcuffs the insured’s ability to protect himself and creates a fiduciary agency between the two. The interests of the insurer are to delay payment or indulge in other tactical conduct to achieve frugal disposition of claims or reject them. The interest of the insured is that claims against him be finally disposed of as promptly as good faith and fair dealing requires. This conflict obligates the insurer to handle all claims with the interest of the insured uppermost.” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 582.)

Elements of the Defense of Breach of the Cooperation Clause

Breach of the cooperation clause is a defense that an insurer may assert to seek to avoid liability. The defense has two elements: (1) A breach by the policyholder of the duty to cooperate; and (2) The insurer has suffered substantial prejudice by the insured’s failure to cooperate.

“When the insurer provides a defense to its insured, the insured has no right to interfere with the insurer’s control of the defense….” (Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 787.)

“But regardless of the name given to provisions of this kind, the insurer is ordinarily released from its contract by the total and unjustifiable refusal of cooperation by the insured including unjustifiable refusal of the insured to permit the insurer to make any defense.” (O’Morrow v. Borad (1946) 27 Cal.2d 794, 800.)

“We hold, therefore, that an insurer, in order to establish it was prejudiced by the failure of the insured to cooperate in his defense, must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured’s favor. A less stringent standard would not be consonant with our holding in Campbell that the insurer has the burden of showing it was substantially prejudiced by the insured’s failure to cooperate.” (Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 737-38.)

Substantial prejudice cannot be supported upon the tenuous foundation “that there might have been advanced a valid defense which the finder of fact could reasonably have accepted.” (Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 733.)

“[A]n insurer may assert defenses based upon a breach by the insured of the cooperation clause. But such a breach cannot be a valid defense unless the insurer was substantially prejudiced thereby, and the burden of proving that such a breach resulted in prejudice is on the insurer. [A]n insurer, in order to establish it was prejudiced by the failure of the insured to cooperate in his defense, must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured’s favor.” (Hall v. Travelers Ins. Co (1971) 15 Cal.App.3d 304, 308 (citations, quotation marks, and ellipses omitted).)

“In view of the foregoing we apprehend that Campbell stands for these propositions: (1) that breach by an insured of a cooperation or notice clause may not be asserted by an insurer unless the insurer was substantially prejudiced thereby; (2) that prejudice is not presumed as a matter of law from such breach; (3) that the burden of proving prejudicial breach is on the insurer; and (4) that, although the issue of prejudice is ordinarily one of fact, it may be established as a matter of law by the facts proved.” (Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134, 141.)

“An insurer may assert the breach by the insured of a cooperation clause upon which the policy was conditioned in defense of its obligation thereunder, providing the insurer exercised reasonable diligence to procure the cooperation of the insured, and providing the insurer is substantially prejudiced by the failure of the insured to cooperate. ¶ To prove substantial prejudice by the failure of the insured to cooperate in the defense of the action against him the insurer “must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured’s favor.” ¶ The burden of proving the insurer was substantially prejudiced by the failure of the insured to cooperate is upon the former.” (State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837, 840 (citations ellipses omitted).)

“A standard cooperation clause provides that the insured will cooperate with the insurer in the investigation, settlement, or defense of a claim or suit.” (Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 627.)

“Similarly, cooperation clauses serve an important purpose. [A] condition of a policy requiring the cooperation and assistance of the assured in opposing a claim or an action lodged against him by an injured person is material to the risk and of the utmost importance in a practical sense. Without such cooperation and assistance the insurer is severely handicapped and may in some instances be absolutely precluded from advancing any defense. [S]uch provisions enable the [insurer] to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to facts, material to [its] rights, to enable [it] to decide upon [its] obligations, and to protect [itself] against false claims. Where an insured violates a cooperation clause, the insurer’s performance is excused if its ability to provide a defense has been substantially prejudiced.” (Truck Ins. Exch. v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, __ (citations and quotation marks omitted).)

“An insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, but the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby.” (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 305.)

“We see no escape from the conclusion that the violation of the co-operation clause by the assured was a valid defense against the injured party’s action. We say this with the knowledge that in some cases it may work a hardship on such party, who is ordinarily in no position to force the assured to co-operate. . . . [However,] the violation of the condition by the assured cannot be a valid defense against the injured party unless in the particular case it appears that the insurance company was substantially prejudiced thereby.” (Hynding v. Home Acc. Ins. Co. (1932) 214 Cal. 743, 751-752.)

“We hold, therefore, that an insurer, in order to establish it was prejudiced by the failure of the insured to cooperate in his defense, must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured’s favor.” (Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 737.)

“The finding by the court in the case at bench that the presence and testimony of Jacovides at the trial of the action brought by Miller was material and necessary in the defense thereof is not equivalent to a finding there was a substantial likelihood the trier of fact in that action would have found in his favor if he had been present and testified. To determine whether there was a substantial likelihood the trier of fact would have found in favor of an insured not present at the trial of the action against him, the fact of his absence must be considered in light of the evidence in support of the case in his favor, including the testimony he might give, and the evidence in support of the case against him. A mere showing of absence is not sufficient.” (State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837, 843.)

Scope of the Defense of Breach of the Cooperation Clause

No Presumption of Prejudice

“The presumption would not be in keeping with the public policy of this state . . . and we are of the view that a judicially created presumption of prejudice, whether conclusive or rebuttable, is unwarranted.” (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 307.)

“[T]his reasoning is unsound and that Margellini [Margellini v. Pacific Auto. Ins. Co. (1939) 33 Cal.App.2d 93] should be disapproved.” (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 307.)

Public Policy Considerations

“It may not be denied that . . . the cooperation and assistance of the assured in opposing a claim or an action lodged against him by an injured person is material to the risk and of the utmost importance in a practical sense. Without such cooperation and assistance the insurer is severely handicapped and may in some instances be absolutely precluded from advancing any defense.” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 328-29.)

“Equally without merit is the contention the noncooperation clause in plaintiff’s policy of insurance is contrary to public policy.” (State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837, 843; see, also Billington, supra, 71 Cal. 2d at 741; Hynding v. Home Acc. Ins. Co. (1932) 214 Cal. 743, 746.)

Cooperation Is a Question of Fact

“It is generally established, and we shall not pause to refer to the authorities, that what constitutes cooperation (or the lack of it) on the part of the assured, within the meaning and effect of a cooperation clause, is ordinarily a question of fact.” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 330.)

“[I]t is clear that the burden is on the insurer to prove that it suffered substantial prejudice as the result of the insured’s breach [of the notice or cooperation clause]; such prejudice may be established as a matter of law. Campbell v. Allstate Insurance Co., 60 Cal.2d 303 (1963); Northwestern Title Security Co. v. Flack, 6 Cal.App.3d 134 (hearing denied, 1970). Finally, in Billington v. Interinsurance Exchange of So. Cal., 71 Cal.2d 728 (1969), involving a breach of a cooperation clause, the court held substantial prejudice to require proof of a substantial likelihood that the trier of fact would reach a decision favorable to the insurer.” (Colonial Gas Energy System v. Unigard Mut. Ins. Co. (D.C.Cal. 1977) 441 F.Supp. 765, 768-69.)

The Cooperation Defense Applies Equally to Policyholders and Plaintiffs

“Preliminary to a discussion of the issues here involved, it is well to point out that it is now definitely settled here, and in a majority of the states, that in an action of this character the injured person stands in no better position than the assured and that a violation by the latter of a cooperation clause which would serve to preclude the assured from indemnity under his policy will likewise bar the injured person from recovering against the insurer should the judgment in his favor and against the assured remain unsatisfied.” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 328.) “That the violation of the cooperation clause of such an insurance policy by the assured, where the insurer is substantially prejudiced thereby, is a valid defense, is well settled. (Hynding v. Home Accident Ins. Co., 214 Cal. 743.) This rule, however, must be interpreted to assume that the insurer, diligently and in good faith, has complied with the terms and conditions of the policy. (Pigg v. International Indemnity Co., 86 Cal.App. 671.)” Jensen v. Eureka Casualty Co. (1935) 10 Cal.App.2d 706, 708.

The Cooperation Defense Applies to All Types of Policies

The “rule applies to all cases in which the insurer asserts a defense based upon a breach by the insured of a cooperation . . . clause. . . . In would seem, moreover, that an insurer would more likely be able to produce evidence of prejudice because of delay in a “claims-type” case than he would in an “occurrence-type” case, since in the former the span of time between the commission of the tort and the notice of claim to the insured is longer.” (Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134, 144.)

Collusion Violates the Cooperation Clause

“Collusive assistance in the procurement of a judgment . . . constitutes a breach of the cooperation clause.” (Span, Inc. v. Associated Internat. Ins. Co. (1991) 227 Cal. App. 3d 463, 483.)

The Cooperation Defense Does Not Operate to Waive the Attorney-Client Privilege

“The primary issue before us is whether the standard cooperation clause included in every third party liability insurance policy operates as a contractual waiver of the insured’s attorney-client privilege in the event of coverage litigation between the insured and its insurer. For the reasons explained below, our answer is a resounding no.” (Rockwell Internat. Corp. v. Superior Court (1994) 26 Cal.App.4th 1255, 1259.)

“[T]he suggestion that the cooperation clause abrogates the insured’s expectation of confidentiality and thus destroys the attorney-client privilege ignores California’s legislative declaration that where, as here, a conflict exists because an insurer has reserved its rights, the insured is entitled to independent counsel and to a relationship with that counsel free from the fear of disclosure of privileged communications.” (Rockwell Internat. Corp. v. Superior Court (1994) 26 Cal.App.4th 1255, 1263.)

“But where the carrier questions the availability of coverage and provides a defense in the third party action subject to a reservation of rights, a conflict exists – because the insured’s goal is coverage, which flies in the face of the insurer’s desire to avoid its duty to indemnify. Since it is unavoidable that, in the course of investigating and preparing the insured’s defense in the third party action, the insured’s attorney will come upon information relevant to a coverage issue, it is impossible for the carrier’s attorney to represent the insured (unless, of course, the insured consents) and the insured is entitled to independent counsel.” (Rockwell Internat. Corp. v. Superior Court (1994) 26 Cal.App.4th 1255, 1263-64 (citations omitted).)

Assignment Is Not a Violation of the Cooperation Clause 

“By executing the assignment, [the policyholder] attempts only to shield himself from the danger to which the company has exposed him. He is doubtless less friendly to his insurer than he might otherwise have been. The absence of cordiality is attributable not to the assignment, but to his fear that the insurer has callously exposed him to extensive personal liability. The insurer’s breach so narrows the policyholder’s duty of cooperation that the self-protective assignment does not violate it.” (Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 801-02.)

Prejudice from Lack of Cooperation Must Be Proved After Liability Suit

“Logically, the required showing of prejudice cannot be made while the main tort action is still pending, its outcome uncertain, and therefore declaratory relief against the injured persons at this stage is inappropriate.” (United Services Auto. Ass’n v. Martin (1981) 120 Cal.App.3d 963, 966.)

The Insurer May Not Assert a Sham Defense

“[A] cooperation clause may not be expanded to require the assured ‘to combine with the insurer to present a sham defense.’” (Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 329.)

Burden of Proof

“The burden of proving that a breach of the cooperation clause resulted in substantial prejudice is on the insurer.” (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 307; Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 882; Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 737.)

“[W]e are of the view that a judicially created presumption of prejudice, whether conclusive or rebuttable, is unwarranted.” (Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 307; Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 882.)

“[T]he burden of proving that such a breach resulted in prejudice is on the insurer.” (Hall v. Travelers Ins. Co (1971) 15 Cal.App.3d 304, 308.)

Defenses to Claims of Lack of Cooperation

Insurer Must Comply With Terms of Policy

“That the violation of the cooperation clause of such an insurance policy by the assured, where the insurer is substantially prejudiced thereby, is a valid defense, is well settled. (Hynding v. Home Accident Ins. Co., 214 Cal. 743.) This rule, however, must be interpreted to assume that the insurer, diligently and in good faith, has complied with the terms and conditions of the policy. (Pigg v. International Indemnity Co., 86 Cal.App. 671.)” (Jensen v. Eureka Casualty Co. (1935) 10 Cal.App.2d 706, 708.)

Estoppel May Bar Lack of Cooperation Defense

“An insurer may be estopped to claim breach of a cooperation clause which has been induced by its own action.” (Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 801.)

Insurer May Not Invite Violation

If the trier of facts finds that the insurer encouraged “its insured not to cooperate . . . or finds that the insurer failed to diligently seek its insured’s presence [at trial] a finding that he breached the cooperation clause would not be justified.” (Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 744.)

Cases Finding No Violation of Cooperation Clause – Summary

State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837. Held: Failure to appear at trial did not support violation of cooperation clause.

State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837, 843. “The finding by the court in the case at bench that the presence and testimony of Jacovides at the trial of the action brought by Miller was material and necessary in the defense thereof is not equivalent to a finding there was a substantial likelihood the trier of fact in that action would have found in his favor if he had been present and testified. To determine whether there was a substantial likelihood the trier of fact would have found in favor of an insured not present at the trial of the action against him, the fact of his absence must be considered in light of the evidence in support of the case in his favor, including the testimony he might give, and the evidence in support of the case against him. A mere showing of absence is not sufficient.”

Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788. Held: Assignment to plaintiff following insurer’s refusal to settle does not violate cooperation clause.

O’Morrow v. Borad (1946) 27 Cal.2d 794, 798. Held: Policyholder’s refusal to allow the insurer to conduct defense because “the rule that counsel cannot serve two masters” did not violate the cooperation clause.

Jensen v. Eureka Casualty Co. (1935) 10 Cal.App.2d 706, 709. Held: Policyholder who was a traveling salesman who notified and cooperated with the insurer, giving his then address but could not be reached at the time of trial had not “wilfully failed to lend further cooperation”

Cases Finding a Violation of Cooperation Clause – Summary

Pre Campbell Cases

Hynding v. Home Acc. Ins. Co. (1932) 214 Cal. 743. Held: Failure to appear at trial may support violation of cooperation clause.

McDanels v. General Ins. Co. (1934) 1 Cal.App.2d 454. Held: Failure to appear at trial may support violation of cooperation clause.

Purefoy v. Pacific Auto Indem. Exch. (1935) 5 Cal.2d 81, 88 “We are impelled to the conclusion that prejudice must be presumed in such situations.” Prejudice established by late notice depriving insurer of opportunity to investigate.

Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322, 333 “The evidence narrated above warrants but one conclusion, viz., that the assured breached the cooperation clause of his policy by knowingly, wilfully and repeatedly misrepresenting the identity of the person driving the truck at the time of the accident — a fact unquestionably material to the insurer in its investigation and subsequent determination whether to settle or contest any claim arising out of such accident.”

Wright v. Farmers Auto. Inter-Ins. Exch. (1940) 39 Cal.App.2d 70, 73. “In this testimony the insured materially changed his version of the facts in connection with the accident . . . in direct conflict with [a prior sworn statement] and it effectually destroyed any hope of a judgment in favor of Sellers in that action. ¶ If [the policyholder’s] testimony on the witness stand was not the truth, he was certainly not cooperating. If it was the truth he violated the cooperation clause of the policy by concealing the real facts from the insurer up to the very moment he testified, thus causing the insurer to go to trial under an absolute misapprehension of what the facts were. This could not be other than prejudicial.”

Post Campbell Cases

Allstate Ins. Co. v. King (1967) 252 Cal.App.2d 698. Held: Failure to appear at trial may support violation of cooperation clause.

Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728, 737. Held: Violation of cooperation clause proven by default judgment entered because of policyholder’s failure to appear for deposition, but prejudice not proved.

Hall v. Travelers Ins. Co (1971) 15 Cal.App.3d 304, 308-09 (ellipses omitted). Held: Cooperation requires more than to appear at trial. “[P]ossible prejudice from lack of cooperation is not limited to failure to appear at the trial; prejudice may occur before the trial by reason of the failure of the assured to cooperate. The cooperation clause of the policy specifically provides that the assured ‘shall assist in effecting settlements, securing and giving evidence and in the conduct of suits.’ Each of these duties requires affirmative action by the assured when requested; violation of any of them may result in prejudice to the insurer. It has been held that prejudice may result from action or inaction on the part of the assured prior to the actual trial of the action.”

Table of Cases

Allstate Ins. Co. v. King (1967) 252 Cal.App.2d 698

Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615

Billington v. Interinsurance Exchange (1969) 71 Cal. 2d 728

Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303

Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865

Colonial Gas Energy System v. Unigard Mut. Ins. Co. (D.C.Cal. 1977) 441 F.Supp. 765

Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788

Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566

Hall v. Travelers Ins. Co. (1971) 15 Cal.App.3d 304

Hynding v. Home Acc. Ins. Co. (1932) 214 Cal. 743

Jensen v. Eureka Casualty Co. (1935) 10 Cal.App.2d 706

McDanels v. General Ins. Co. (1934) 1 Cal.App.2d 454

Margellini v. Pacific Auto. Ins. Co. (1939) 33 Cal.App.2d 93

Northwestern Title Security Co. v. Flack (1970) 6 Cal.App.3d 134

O’Morrow v. Borad (1946) 27 Cal.2d 794

Purefoy v. Pacific Auto Indem. Exch. (1935) 5 Cal.2d 81

Rockwell Internat. Corp. v. Superior Court (1994) 26 Cal.App.4th 1255

State Farm and Cas. Co. v. Miller (1970) 5 Cal.App.3d 837

Truck Ins. Exch. v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966

Valladao v. Fireman’s Fund Indem. Co. (1939) 13 Cal.2d 322

Wright v. Farmers Auto. Inter-Ins. Exch. 39 Cal.App.2d 70

Xebec Development Partners, LTC, vs. National Union Fire Ins. Co. (1993) 12 Cal App 4th 501