California Supreme Court to Tackle Labor and Insurance Issues

The California Supreme Court has five civil cases scheduled for its April calendar, each addressing important questions of labor and insurance law.  

  • Independent Contractors or Employees – Class Actions: In Ayala v. Antelope Valley Newspapers, Inc., S206874, the court will address the determination of whether and when common issues dominate in a class action in which the putative class members – in this case, newspaper home delivery carriers – are claiming that they were improperly classified as independent contractors when they should be employees.  The trial court denied certification on all claims, while the Court of Appeal approved certification on the issue of classification, but agreed that the wage and hour claims lacked commonality. In two other Court of Appeal cases which addressed this issue, one also found that the classification issue should not be certified as a class, while the other approved certification.  (Sotelo and Bradley, respectively).
  • Federal Arbitration Law v. California Labor Law:  The matter of Iskanian v. CLS Transportation Los Angeles, LLC, S204032, addresses the continuing dispute over the impact of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion on California law.  In Concepcion, the U.S. Supreme Court empowered waivers of class arbitrations in most consumer contracts, which has resulted in a series of responses by California courts, as previously discussed by Sedgwick partner Kirk Jenkins here.  The issue in Iskanian is whether Concepcion implicitly overruled the court’s decision in Gentry, which held that a class arbitration waiver in an employment contract is not enforceable if the prohibition of class relief would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state's overtime laws.
  • What Rights Do Undocumented Workers Have?  In Salas v. Sierra Chemical Co., S196568, the trial court dismissed claims under the Fair Employment and Housing Act in light of after-acquired evidence and unclean hands, based on plaintiff’s use of false documentation to obtain this employment.  The court initially granted review to address whether California statutes preserving access to state protections and remedies regardless of immigration status barred such a ruling.  The court then requested supplemental briefing on the issue of whether federal preemption precluded an undocumented worker from obtaining, as a remedy for a violation of “state labor and employment laws,” an award of compensatory remedies, including back pay.   
  • Can an Advertisement That Does Not Name or Refer to a Product be Disparaging?  On the grounds that the advertisement at issue neither named nor disparaged the underlying plaintiff’s product, the trial court granted summary judgment for the insurer in the related coverage dispute, which was affirmed on appeal in Hartford Casualty Ins. Co. v. Swift Distribution, Inc., S207172.  The court granted review on the issue of whether the pleading allegations were sufficient to constitute disparagement, perhaps by implication, to support a duty to defend.
  • Who Owns a Life Insurance Policy?  The court granted review over In re Marriage of Valli S193990 to determine the ownership of a life insurance policy.  The Court of Appeal concluding that the insurance policy on the husband’s life was the wife’s separate property upon dissolution of the marriage, even though the policy was purchased during the marriage and the premiums prior to the couple’s separation were paid with community funds, because the policy listed the wife as the owner.

The Supreme Court files its opinion within 90 days of oral argument, which here take place on April 2 and 3, 2014.  So, we should have decisions on these issues by or before July 2014.  For more details on Labor (compensation cases or other) or Insurance cases currently pending before the California Supreme Court, follow the links to see our summaries.

Image courtesy of Flickr by Ken Lund

A Claim for Medical Expenses Is Limited to the Rate Negotiated by Plaintiff's Insurer - So Rules The California Supreme Court in Howell


Adding its voice to a continuing national debate, the California Supreme Court has adopted the minority rule and held that tort damages for past medical expenses are limited to those amounts actually paid and accepted as full payment for the services provided, when such amounts are determined by an existing agreement with the plaintiff’s insurance carrier. In such a case, an amount otherwise “billed” using rates outside of the agreement is irrelevant. In its opinion, the Court explained that only the prenegotiated amount actually paid by, or on behalf of, the plaintiff to settle a previous medical bill is recoverable as economic damages, because such a payment is the extent of plaintiff’s actual loss. As a result, the collateral source rule does not apply, because the issue is the measure of plaintiff’s actual damages, not how they were paid. The Court noted that, to be recoverable, such damages must be both reasonable and actually incurred. While acknowledging that this could result in wildly different damages for the same injury, depending on whether the plaintiff was insured, this does not change the measure of a particular plaintiff’s damages. The Court noted a similar disparity in lost income damages between different plaintiffs with identical injuries. There were several amicus briefs filed in this matter, including one prepared by Sedgwick. For more details about Howell, see the Damages update page.

Eleventh Circuit Concludes Significant Litigation Involving Surplus Lines Carrier

On January 18, 2011, the Eleventh Circuit Court of Appeals in Essex Insurance Co. v. Zota (.pdf) brought an end to seven years of litigation and four appellate proceedings, when it affirmed a final declaratory judgment entered in favor of a surplus lines insurer, Essex Insurance Company, following a jury trial.  Although the Eleventh Circuit’s decision is brief and unpublished, the Court’s decision and the earlier appeals in the case established certain significant precedent for surplus lines insurers doing business in the State of Florida on issues relating to policy form filing, policy delivery, and the reach of Chapter 627, Florida Statutes to surplus lines carriers.


Mercedes Zota was injured when she fell while painting a mural on the second-story ceiling of a “spec” home under construction in Lighthouse Point, Florida.  After the incident, Zota and her husband brought a negligence action against Lighthouse Intracoastal, Inc.; Broward Executive Builders, Inc., the general contractor for the project; and Jack Farji, a 50% shareholder of Lighthouse and the owner of Broward Executive.  Lighthouse’s insurer, Essex, then sought declaratory relief in federal district court regarding its obligations with respect to the defendants in the negligence action.  After the district court narrowed the issues for trial during summary judgment proceedings, the case proceeded to trial on the two remaining factual issues arising from the policy exclusion at issue:  (1) Whether Lighthouse was a contractor at the time of the construction; and (2) Whether Lighthouse was a builder at the time of the construction.  Because the jury found that Lighthouse was a builder, the Essex policy did not provide coverage and final judgment was entered in Essex’s favor.

Continue Reading...

The California Supreme Court Issues Unanimous Opinions Addressing Insurance, Consumer Protection and ADR

  • Insurance – In Century-National Ins. Co. v. Jesus Garcia, the court held that a fire insurance policy could not exclude coverage for innocent insureds because of the intentional acts of another insured; in this case the intentional act of the son setting fire to his parents house. The policy excluded coverage based on the intentional act or criminal conduct of “any insured,” and on this basis the carrier excluded coverage for the parents based on the acts of the son. While similar language was previously held as effective to exclude coverage as to all insureds in Minkler; the Court held that Insurance Code §§ 2070 and 533 limit the scope of such an exclusion in fire insurance policies to the specific insured who committed the intentional act. In doing so, the Court warned that this holding may have limited application in other contexts. For more details about Century-National Ins. Co. see the Insurance update page.
  • Consumer Protection – The Song-Beverly Credit Card Act of 1971 is a consumer protection act which bars businesses from requesting that cardholders provide “personal identification information” during credit card transactions, and then recording that information. In Pineda v. Williams-Sonoma Stores, Inc. the Supreme Court found that zip codes constituted “personal identification information,” making it a violation of the act for a business to request and record zip codes as a part of credit card transactions. For more details about Pineda see the B & P 17200/Class Actions/Commercial update page.
  • ADR – Several of the plaintiffs in Tarrant Bell Property, LLC v. Superior Court (Abaya) signed lease agreements requiring that any arbitrable issues, including those involving conditions at the subject mobilehome park, which were made subject to judicial proceedings would be decided by a referee upon the motion of any party pursuant to CCP § 638.  After the residents collectively brought suit, the trial court refused to enforce this provision and the Supreme Court affirmed, finding that the trial court had discretion to deny the motion. Moreover, given the redundancy that would result from referring only some of the residents to a referee over the same legal issues, the trial court did not abuse its discretion. In so ruling, the Court disapproved of both Greenbriar Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337, and Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950, to the extent they are inconsistent. For more details about Tarrant Bell Property, LLC see the ADR update page.

Can Casual Conversations With the Insured Waive a Written Notice of Claim Clause?

An insurance policy required that the insured "immediately record the specifics of the claim" and "see to it that we receive written notice of the claim . . . as soon as practicable."

The insured waited 27 months before giving its insurer written notice of a defamation suit.

The Appellate Court held that the insured had breached the written notice clause, and that the presence or absence of actual notice had no bearing on the issue.

But last week, a divided Illinois Supreme Court reversed. West American Insurance Co. v. Yorkville National Bank, [pdf] No. 108285.

The plaintiff offered testimony of several casual contacts with representatives of the insurer following the filing of the lawsuit.

The president of the insured told an insurance agent "in passing" that the insured had "a defamation suit in Ottawa" -- the suit was in Joliet -- and it was a "he said/she said sort of thing." The president said nothing about when the alleged defamation took place, nor did he provide the agent with a copy of the complaint, nor did he offer to send any additional information. The agent said the suit was "probably not" covered, but the president never pursued the matter.

Later, the president met another insurance agent. He vaguely referred to a defamation suit and asked whether the policy would cover it. The agent gave "basically the same response."

Finally, the defamation suit was briefly mentioned at three meetings of the bank board of directors, although apparently no information was recounted about where the suit was filed, when the incident allegedly took place, or who the parties to the lawsuit were.

The majority held that the timeliness of an insured's notice was judged by a five factor test: (1) the specific language of the policy's notice provision; (2) the insured's sophistication in commerce and insurance matters; (3) the insured's awareness of an event that may trigger insurance coverage; (4) the insured's diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer.

 The Court held that the first factor weighed in neither direction, and the second and third weighed against a finding of reasonable delay.

However, the Court held that the fourth factor weighed heavily in favor of a finding of reasonableness. An insurer is deemed to have "actual notice," the Court found, where it has sufficient information to locate and defend the suit. The Court held that the casual conversations between officers of the insured and various agents were sufficient for the insurer to "locate and defend" the action, and taken together, the factors weighed in favor of finding the insured's delay in notice reasonable.

Justice Charles Freeman dissented. "[I]t is apparent," Justice Freeman wrote, "that [the insured] breached each and every reporting obligation it agreed to as a condition of coverage."

Justice Freeman strongly condemned the majority's decision:  

By ignoring the settled rules of insurance policy construction . . . the majority redirects the focus of analysis away from compliance with policy provisions to an unworkable and problematic case-by-case examination, requiring swearing contests between the insurer and insured as to whether and when notice was provided . . . today's opinion . . . effectively overrules decades of precedent establishing that notice provisions are conditions precedent to coverage under a policy.

Important Medicare Preemption Decision

At long last, the Ninth Circuit Court of Appeals issued its opinion in the Uhm v. Humana, Inc. (.pdf), matter, finding the Medicare Act’s exhaustion requirements and preemption provision barred all of the plaintiffs’ common law claims. (-- F.3d --  (9th Cir. 2010).) Originally, the court issued an opinion two years ago, but vacated the decision last summer and took the case under submission after soliciting amicus assistance from the Centers for Medicare and Medicaid Services. The new Uhm decision is strong support for Medicare Act preemption, reflecting CMS’ underlying thesis that state law claims interfering with Medicare standards and regulations must be preempted.

Texas Supreme Court Grants Review in Four Cases

On May 28, 2010, the Texas Supreme Court granted petitions for review in the following cases:

  • Anglo-Dutch Petroleum Int’l v. Greenberg Peden P.C.—This case concerns the construction of a contingency fee agreement and the circumstances under which a court can conclude that an agreement is ambiguous.
  • Hyde Park Baptist Church v. Turner—This case concerns the sufficiency of the evidence to support an award of future mental anguish damages and the qualifications of a clinical psychologist to render an opinion in such a case. In addition, the case will consider whether a jury may properly apportion more responsibility to a negligent tortfeasor than an intentional tortfeasor.
  • American Home Assurance v. Maryland Cas. Co.—The case will consider the application of the notice and settlement-without-consent provisions of a liability policy covering an additional insured where the additional insured’s own liability insurers have paid a claim and seek subrogation.
  • Molinet v. Kimbrell—This case will resolve the conflict between the absolute two-year statute of limitations applicable to healthcare claims and the 60-day window for asserting claims against persons designated as responsible third parties under the proportionate responsibility statute.

Oral argument has not been set for these cases.

Florida Supreme Court Decides That Bad-Faith Claim Cannot Be Maintained Against Indemnity Insurer Where Bad Faith Did Not Cause Insured's Damages

The Florida Supreme Court recently decided, in a case of first impression, that a cause of action for third-party bad faith against an indemnity insurer cannot be maintained when the insurer’s actions were not a cause of the damages to the insured or when the insurer’s actions never resulted in exposure to liability in excess of the policy limits of the insured’s policies.  

In Perera v. United States Fidelity & Guaranty Co. (.pdf), the plaintiff’s husband, an employee of Estes Express Lines Corporation, was crushed to death by a piece of equipment, and his wife filed a wrongful death suit against Estes.  Estes had three insurance policies:  a $1 million commercial liability policy issued by Cigna, a $1 million excess worker’s compensation employer’s liability policy issued by USF&G, and a $25 million umbrella excess liability policy issued by Chubb.  USF&G denied coverage.  The parties entered into a settlement for $10 million, with Estes to pay $5 million, made up of $750,000 from Estes, $500,000 from Cigna, and $3.75 million from Chubb.  The remaining $5 million was to be sought by Estes or Perera in a lawsuit against USF&G. 

Continue Reading...

American Law Institute Announces New Projects on Election Law and Insurance

The 87th Annual Meeting of the American Law Institute was called to order this morning by President Roberta Cooper Ramo. After the traditional opening remarks by the President of the American Bar Association, Carolyn B. Lamm, ALI Director Lance Liebman announced two new projects on which the ALI will soon begin work, on Election Law and Insurance Law. Director Liebman also noted that even though the third wave of Restatements has not yet been completed, it won't be long before the Institute begins work on the Restatements (Fourth).

The California Supreme Court Sets A Busy Civil Calendar

The California Supreme Court has scheduled oral argument in seven civil cases, five at the end of May and two in Los Angeles at the beginning of June. These hearings should address a wide variety of issues, including:

  • Do employees have a private right of action against employers who take some of the tips? See the Lu case in the Employment-Compensation & Benefits update.
  • Should CA recognize the "Stray Remarks" Rule in discrimination cases? See the Reid case in the Employment - Other update.
  • Can an insured sue an insurer for fraudulently inducing settlement and seek to avoid the release without returning the money already paid? See the Village Northridge Homeowners Assn. case in the Insurance update.
  • Does an administrative proceeding constitute a “suit” to trigger insurance coverage? See the Ameron Internat. Corp. case in the Insurance update.  
  • Are non-signatory heirs bound by an arbitration agreement signed by the decedent? See the Ruiz case in the ADR update.
  • Does the damages enhancement for actions brought by elderly plaintiffs apply to §17200 actions? See Clark case in the Damages update.
  • Are evidentiary objections not expressly ruled on regarding an MSJ motion preserved for appeal? See the Reid case in the Appeals & Writs update.
  • What is the preclusive effect of the investigatory findings of a federal agency? See the Murray case in the Civil Procedure/Evidence/Discovery update.

These cases represent about 10% of the civil cases currently under review by the Court.

Update: Oral argument in Ameron has been continued to the September 2010 calendar.


Supreme Court Short List Profiles: Justice Carlos Moreno of the California Supreme Court

Appellate Strategist has posted several times in the last week about names being discussed as possible nominees to replace retiring Justice John Paul Stevens. But a list of names, however important, says little about the nominees. We therefore begin our series of short profiles of those whose names top the list. We begin with Carlos Moreno, an Associate Justice of the California Supreme Court.

The recipient of a B.A. in political science from Yale University (1970) and a 1975 J.D. from Stanford Law School, Carlos Moreno served in the Los Angeles City Attorney's Office, prosecuting criminal and civil consumer protection cases. In 1979, he joined a private firm, representing clients in general commercial litigation. He has a solid background as a trial judge, having served on the Los Angeles Superior Court and the U.S. District Court of Appeal, Central District of California. He was appointed to the California Supreme Court in 2001.

Moreno’s standing as a legal scholar is beyond dispute. He has a well-deserved reputation for integrity that cuts across ideological boundaries, and a good judicial temperament, though he has been known to politely but firmly challenge attorneys who make bald statements about legal propositions, often asking “what’s your authority for that, counsel?” (That is not a criticism, by the way.) He construes statutes as they are written, even if he disagrees with the underlying policy, subscribing to the (sometimes novel) view that that is a jurist’s job. His substantive specialties include criminal cases and arbitration.

Join us below the jump for a sampling of recent opinions he has authored.

Continue Reading...

Texas Supreme Court Grants Review in Six Cases

On April 9, the Texas Supreme Court granted petitions for review in the following cases:

  • Offshore Specialty Fabricators v. Wellington Underwriting Associates. The case addresses whether an all-risk insurance policy covers weather stand-by charges incurred by the insured.
  • XTO Energy Inc. v. Smith Production Inc. The case will determine whether joint operating agreements for oil and gas drilling operations are construed according to their language only or whether industry custom should also be considered.  A possibly fundamental case in the oil and gas field.  
  • Haygood v. de Escabedo. This case turns on whether the statute limiting recovery of medical damages to those “actually incurred” permits recovery of amounts charged but later written off by the provider.  The courts of appeals are divided on the issue, which arises in many personal injury cases.
  • Reid Road Municipal Utility Dist. No. 2 v. Speedy Stop Food Stores Inc. The case will determine whether the “property owner rule” which permits property owners who are not qualified as experts to testify as to the market value of the property applies to corporate property owners.
  • Andrade v. NAACP of Austin.  The underlying case is a challenge to the Secretary of State’s certification of certain paperless voting machines.  The case addresses whether voters have standing to challenge the Secretary’s certification and whether the Secretary enjoys sovereign immunity from such a suit.
  • Marsh USA Inc. v. Cook. The case turns on the enforceability of non-solicitation agreements upon a former employee and whether the agreement was supported by independent consideration.

Oral argument has not yet been set for any of these cases.

"Cutting-Edge" Law: Another California Court Trims a 7-Figure Punitive Damages Award Down to Size

Add yet another appellate opinion to the growing list of California courts that have cut punitive damage awards on constitutional excessiveness grounds. In this one, Amerigraphics, the jury awarded $3 million in punitive damages in an insurance bad faith case.  The trial court cut that number  to $1.7 million, but according to the California Court of Appeal (Second District, Division 2), that was not enough.  The constitutionally-permissible maximum was $500,000. 

At the risk of looking a gift horse in the mouth, the case is a mixed bag for insurer defendants.

One of the principal questions in deciding excessiveness is how bad – “reprehensible” -  the defendant’s conduct was.  That is determined under a scale of relative reprehensibility.  The theory is simple: relatively speaking, some acts and harms are worse, and therefore more deserving of punishment, than others.  For example:

1. Defendants who are repeat offenders – who have committed the act before – need a bigger punishment to discourage them from repetition, to get the message across.

Amerigraphics rejected the notion that an insurer which commits multiple acts in the handling of a single claim for benefits can be viewed as a “repeat offender.”  Though the insurer’s

“conduct could  be characterized as more than a single isolated incident, as the evidence showed several discrete acts of misconduct involving Amerigraphics’s claim for coverage under various policy provisions, the conduct at issue ultimately involved only one insured and one claim. There was no evidence presented that [the insurer] acted similarly toward other insureds in similar circumstances.”   (Emphasis added.)

More authority for the “one claim, one punishment rule.”  That’s as it should be.  Any act – such as the denial of a single claim for benefits – could theoretically be broken down into a series of smaller “sub-acts.” That doesn’t mean the punishment should be multiplied by the number of sub-acts.  (See also Walker v. Farmers Ins. Exch. (2007) 153 Cal.App.4th 965, 975; 63 Cal. Rptr. 3d 507)  Courts should not be in the business of finding ways to maximize a plaintiff’s punitive award.  By definition, in the constitutionality jurisprudence, the plaintiff is made whole by the compensatory award;  the punitive award punishes the defendant; it does not compensate the plaintiff for the injury.

2. Physical harm is worse than economic harm, but, relatively speaking, a defendant who causes economic injury to a financially vulnerable plaintiff deserves more punishment.  

Amerigraphics suggested that the very nature of the insurance relationship means that insureds will qualify as “financially vulnerable.”  The court relied on the “unique” nature of the relationship: insureds purchase policies “precisely to buy peace of mind and security.” Therefore, an insured is “not on equal footing . . . .” with its insurer.  That may have been true in the Amerigraphics case, which involved a small insured put out of business by the carrier’s claims handling, but it does not apply across the board, nor should it.  When, e.g., the insured is a large corporation with an insurance claim, the parties are on relatively equal footing.  The concept of financial vulnerability is not automatically satisfied merely because this is an insurance relationship.  Example in point: Slottow v. Amer. Cas. Co. of Reading, Pa. (9th Cir. 1993) 10 F.3d 1355, 1362 (applying Calif. law.)

California: Cutting Back On Punitive Damages Against Insurers?

With a recent employment decision, the California Supreme Court has handed insurance companies a compelling new argument, potentially limiting their exposure to punitive damages in bad faith cases. The question is: when is an insurance company subject to punitive damages for the acts of an employee/ adjuster in connection with the handling of a single insured’s claim for benefits? The answer is, in all probability: not as often as it was before.

In California, a corporate defendant can only be subject to punitive damages if a corporate officer, director or managing agent committed, authorized, or ratified the wrongful conduct. Cal. Civil Code, § 3294(b). Everyone knows who the officers and directors are, but the meaning of "managing agent" has been open to debate.

In 1999, the State Supreme Court, in White v. Ultramar, Inc. (1999) 21 Cal.4th 563, held a managing agent is someone who makes "corporate policy."

But White was an employment case. For the next decade, insureds continued to argue that the managing agent test was different for corporate insurer defendants. They relied on a 1972 State Supreme Court opinion – a holdover from the Bird Court - in an insurance bad faith case: Egan v. Mututal of Omaha Ins. Co. (1979) 24 Cal.3d 809. Egan, decided before the punitive damages statute was amended, had said that the corporate insurer could be liable for punitives for the adjuster’s malicious, fraudulent or oppressive acts because the insurer vested the adjuster with discretion over the handling of the claim.

Egan’s test for managing agent (discretion over a single claim) appears at odds with White’s narrower test (one who makes "corporate policy.") Which rule applies in bad faith cases? The White court clearly intended to narrow Egan’s definition of managing agent, but was Egan still good law in insurance lawsuits? White did not overrule Egan and in fact sometimes cited with it with seeming approval.

The tension between the two tests went unresolved, and indeed largely unnoticed until 2009. Then, one California intermediate court of appeal came down on the Egan side in an insurance case. (Major v. Western Mut. Ins. Co. (2009) 169 Cal.App.4th 1197.) Major held that it is the vesting of discretion in the adjuster that matters, not so much whether that adjuster is thereby making corporate policy.

But Major was on the books for barely half a year when it turned out to be not so "major" after all. In Roby v. McKesson Corp. (2009) 47 Cal.4th 686, the California Supreme Court explained what it meant by the making of "corporate policy," in the bargain further narrowing the test:

"we were referring to formal policies that affect a substantial part of the company and that are the type likely to come to the attention of corporate leadership. It is this sort of broad authority that justifies punishing an entire company for an otherwise isolated act of oppression, fraud or malice." (Emphasis added.)

Note the critical language:

  • The policy must be "formal;" it must affect a "substantial part of the company;" it should be of the type "likely" to come to the attention of the corporation’s leadership; indeed, the very rationale for imposing punitive damages is to punish the corporation for something it did, in its own right, not for a renegade or isolated act.
  • Roby thereby rejects the notion that a corporation can be subject to punitive damages for what might be characterized as the making of ad hoc "policy." Yet that is precisely what a rogue or unsupervised insurance adjuster does when "maliciously" handling a single claim.

Defense lawyers take note: Roby offers a potent new weapon in the arsenal for defending against punitive damage claims in bad faith cases. It is far from clear that an insurer can be subject to any punitive damages for merely vesting discretion in an adjuster in connection with a single claim for benefits.

Innocent Blood: California Style. May the "Innocent" Insured Recover Despite a Coinsured's Intentional, Excluded Act?

The problem of coverage for the so-called "innocent insured" is a recurring one.  The issue arises when there is more than one insured on the policy and one commits an act that would bar coverage.  Does that act bar coverage for all, or only for the intentional actor?  In California, this problem has reared its head again, or, more accurately, two heads, in the form of two cases the state Supreme Court has agreed to hear and decide.  One presents the issue in the context of property coverage, the other as whether there is a duty to defend the non-actor insured under a liability policy.

  • Century National Ins. Co. v. Garcia, S179252, rev. gr. 3/17/10.  The state Supreme Court just granted review last week.  At issue is whether an insurer may enforce an exclusion in a fire policy that denies coverage to "innocent insureds" for damages from a fire intentionally caused by a coinsured.  The gist of the insured's argument is that California Insurance Code Section 2071 mandates the language of fire policies, and it couches the intentional acts exclusion in terms of "the insured."  Century National's policy barred coverage for all when any insured acted intentionally.  Garcia asks whether insurers may deviate from the statute's prescribed language, and to what extent.
  • Minkler v. Safeco Ins. Co., S174106, question certified 8/12/10.  Minkler, now fully briefed, asks whether the severability clause in a liability insurance policy can trump an intentional acts exclusion which prohibits coverage for all insureds when "an insured" -- i.e., any insured -- has committed an excluded intentional act.  In Minkler, one insured committed child sex abuse.  The victim sued not only the abuser but his mother, also an insured, for negligently-supervising her adult son.  The victim and insured in Minkler argue that the severability clause creates separate insurance policies, and therefore, an "innocent" insured sued for negligently-supervising the intentional actor is entitled to a defense.  Their theory is that because there supposedly are "separate" policies, the only intent that is relevant is that of the mother, who never committed an intentional act.  The insurer, by contrast, contends that the severability clause was never designed to rewrite the plain language of the exclusions.  The insurer is represented by Appellate Strategist lawyers.

Florida Insurance Brokers Beware: Liability Expands

Insurance brokers in Florida can now be liable to insurance companies which suffer a loss as a result of the broker’s own fraud or negligence in providing information in an application material to the issuance of a policy.

An appellate court in Florida has issued an opinion applying section 552 of the Restatement (Second) of Torts to insurance brokers, thus allowing claims for negligence and fraudulent misrepresentation to proceed against a broker who did not fully disclose all material information relied upon by the insurance company in issuing a policy.

In Liberty Surplus Ins. Corp., Inc. v. First Indemnity Ins. Servs., Inc. (.pdf), Florida’s Fourth District Court of Appeal reversed the trial court’s dismissal of a complaint filed by an insurance company against a broker for, among other things, negligence and fraudulent misrepresentation. The broker had submitted an application for professional liability insurance on behalf of a law firm. The law firm provided full disclosure to the broker of numerous malpractice claims and disciplinary proceedings involving the firm and its members over the preceding 5-year period; however, the broker only forwarded some, but not all, of that information to the insurance company as part of the application. The insurance company issued and subsequently renewed the professional liability policy to the law firm.

After the law firm was sued in a class action for professional malpractice action, the insurance company discovered the information about the prior claims and proceedings that the broker had not disclosed. The insurance company settled the underlying lawsuit against its insured and filed a complaint against the broker to recover the amount it paid. The trial court dismissed the complaint with prejudice on the ground that any misrepresentations or altering of the application by the broker were imputed to the insured and no legal relationship existed between the insurer and broker.

Section 552 of the Restatement (Second) of Torts provides:

(1) One who, in the course, of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Although Florida had previously adopted section 552 and applied it to professionals such as accountants, title agents, and other types of professionals who supply information to business transactions, that provision had never been expressly applied to insurance brokers – until now. The court found the application of section 552 to an insurance broker to be appropriate when the broker submits an application for insurance that fails to disclose material facts about the applicant that the insurer justifiably relies upon in issuing a policy.

As such, insurance companies can now sue brokers in Florida for negligently or fraudulently misrepresenting or withholding material facts in an application for insurance.

California Appellate Court End-Runs Moradi-Shalal

The California Court of Appeal has issued an opinion which, if allowed to stand, threatens to eat away at the once-settled body of law that prohibits third-party claimants who were injured by an insured from suing the insured's insurance company for unfair claims settlement practices under California Insurance Code § 790.03.  Over 20 years ago, the State Supreme Court held that only the State's Insurance Commissioner may pursue insurers for improper settlement practices under that statute; § 790.03 does not grant either insureds or third-party claimants the right to sue insurers for violating the statute's prohibitions.  (Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287.)

But the new opinion -- from the intermediate appellate court -- would create a loophole that could accommodate a whole fleet of trucks.  (Zhang v. Superior Court (2009) 178 Cal.App.4th 1081.)  According to Zhang, if plaintiff's allegations are not limited to unfair claims handling, but also include "specific" allegations that the insurer "made fraudulent misrepresentations and promulgated misleading advertising" -- i.e., it never intended to pay covered claims -- the complaint will survive the insurer's demurrer challenge.  However, to prevail, plaintiff would be required to prove the insurer made false representations to the public and that the insurer had a policy that was inconsistent with these representations.

Zhang candidly acknowledged it disagreed with a prior opinion which held squarely to the contrary.  (Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061.)  The conflict in the published opinions of the intermediate appellate courts makes Zhang a prime candidate for review by the California Supreme Court.  Indeed, the high court extended its time to rule on the insurer's Petition for Review until March 9.  (Ptn. for Review filed 12/09/09, No. S18542.)

Zhang is a troubling opinion, and Appellate Strategist urges interested parties to support the insurer's petition.  It is easy enough to allege a policy or practice.  Under this decision, that alone is sufficient to defeat the insurer's demurrer against what should have been a stillborn claim.  The value of Moradi-Shalal is that it deals an immediate fatal blow, saving defendants the time and expense of discovery and trial on allegations a plaintiff cannot possibly prove.  If Zhang survives, the insurer cannot defeat the suit short of a motion for summary judgment, and perhaps not even then.

Continue Reading...

Money for Nothing: Can You Collect for Expenses Nobody Will Ever Pay?

Can a California trial court reduce a personal injury plaintiff's recovery for medical expenses to reflect the amount actually paid by his health insurer?  That question matters a lot to attorneys, parties and insurers, trying to value claims and where appropriate, seek settlements in thousands of cases every day.

For twenty years, the answer under California law was "yes," as held in Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298.  In November, California's Fourth District Court of Appeal held that the answer was "no."  Howell v. Hamilton Meats & Provisions, Inc. [pdf] (2009) 179 Cal.App.4th 686.

On March 10, 2010, the California Supreme Court agreed to review Howell and resolve the conflict.  By virtue of the Court's order, Howell is automatically depublished and non-citable, making Hanif and Nishihama the only precedent on this important question until the Supreme Court speaks in Howell.

Texas Supreme Court Civil Issues Pending: Insurance


Assumption of Liability Exclusion.
Where the insured is immune from tort liability as a government contractor and the alleged contractual liability mirrors tort liability, does the insurance policy’s assumption of contractual liability exclusion apply? Did insurer waive its coverage defenses by associating in the defense of the insured? Gilbert Texas Construction v. Certain Underwriters of Lloyds, No. 08 0246, formerly 245 S.W.3d 29 (Tex. App.—Dallas 2007), review granted 04/17/09.

Mold Exclusion, Expert Qualifications.
Does a mold exclusion in a homeowner’s policy apply for mold caused by plumbing leak? Was expert relied upon by insured to establish causation qualified and reliable? State Farm Lloyds v. Page, No. 08-0799, formerly 249 S.W.3d 257 (Tex. App.—Waco 2008), review granted 06/19/09.

Workers' Compensation, Causation, Attorney’s Fees.
Did claimant’s causation expert properly employ differential diagnosis to determine that work-related knee injury was a producing cause of the worker’s death? Did the trial court submit an incorrect definition of “producing cause” by failing to include the concept of “substantial factor?” Does the Texas Constitution guarantee a jury trial on the issue of attorney’s fees in worker’s compensation cases? Transcontinental Ins. Co. v. Crump, No. 09 0005, formerly 274 S.W.3d 86 (Tex. App.—Houston [14th Dist.] 2008), review granted 10/23/09.