California Insurance Law Quarterly - Fall 2013 Newsletter
FEATURED ARTICLE
California Court of Appeal Clarifies Law on a Carrier’s Duty to Settle
On October 7, 2013, the California Court of Appeal made its most recent pronouncement regarding California law on a carrier’s duty to settle in Reid v. Mercury Insurance Co., 2013 Cal. App. LEXIS 798 (Oct. 7, 2013). The Reid court held that, as a general matter, even if the insured’s liability in excess of the policy limits is reasonably certain, a carrier cannot be held liable for bad faith failure to settle in the absence of a within-limits demand from the claimant.
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California Insurance Case Summaries, July – September 2013
No Coverage for Policyholder for a Plaintiff’s Attorneys’ Fees Where the Lawsuit Did Not Allege a “Wrongful Act”
Screen Actors Guild Inc. v. Federal Ins. Co., 2013 U.S. Dist. LEXIS 100638 (C.D. Cal. July 11, 2013)
In Screen Actors Guild v. Federal Insurance Co., the district court held that the D&O insurer for the Screen Actors Guild (“SAG”) was not obligated to reimburse an attorneys’ fee award and class plaintiff’s
enhancement award because the amounts owed by SAG in the underlying litigation resulted from SAG’s preexisting duty to pay the class plaintiffs and not from a “Wrongful Act” as defined in the policy.
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Bad Faith Liability Cannot Be Premised On Breach of a Reformed Contractual Term When the Alleged Breach Occurs Prior to the Reformation
O’Keefe v. Allstate Indem. Co., 2013 U.S. Dist. LEXIS 99581 (C.D. Cal. July 15, 2013)
O’Keefe v. Allstate Indemnity Co. involved an automobile policy that explicitly excluded coverage for one driver based on his suspended license. When the license was reinstated, the driver contacted the insurance agent
and asked to be added to the policy. The agent told the driver that he was “good to go.” The driver was involved in an accident approximately one week later. He tendered the claim to his carrier, but the carrier denied
coverage based on the driver’s excluded status. When the carrier refused to change its position based on the statements of the insurance agent, the driver sued the carrier for breach of contract, breach of the implied covenant
of good faith and fair dealing and negligent misrepresentation. The carrier moved to dismiss the cause of action for breach of the implied covenant based on the argument that, as drafted, the policy did not provide coverage for the
driver, which precluded any potential bad faith liability.
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California Supreme Court Finds that Violations of the Unfair Insurance Practices Act Can Form the Basis of a UCL Claim
Zhang v. Superior Court, 57 Cal. 4th 364 (Aug. 1, 2013)
In Zhang v. Superior Court, the California Supreme Court held that although only the Insurance Commissioner has the authority to prosecute direct claims against an insurer for violations of California’s Unfair Insurance
Practices Act (“UIPA”) (Ins. Code § 790.03(h)), a private cause of action under California’s Unfair Competition Law (“UCL”) (Bus. & Prof. Code §§ 17200 et. seq.) against
an insurer can still be based on conduct proscribed by the UIPA if that conduct also is independently actionable under another statute or the common law.
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Extended Reporting Period Held to Apply Only to Claims First Made During That Period and Not Claims Made During the Original Policy Period
PCCP, LLC v. Endurance Am. Specialty Ins. Co., 2013 U.S. Dist. LEXIS 114400 (N.D. Cal. Aug. 13, 2013)
PCCP, LLC v. Endurance American Specialty Insurance Co. concerned the interpretation of an Automatic Extended Reporting Provision (“AERP”) which, by its terms, provided coverage only for “[c]laims first
made against the Insured during the” AERP itself, and not for claims first made during the original policy period. In PCCP, an underlying claim was first made against the insured during the original policy period,
but that claim was not reported to the carrier until approximately one month after the policy period expired. The policy’s AERP provided coverage for claims reported to the carrier within 60 days after the policy period expired,
but only if the claim was first made during the AERP. The carrier denied coverage for the claim on the basis that it was not timely reported, and the policyholder sued. The parties filed cross-motions for summary judgment, and the
PCCP court ruled in favor of the carrier.
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Insurer’s Reservation of Rights Does Not Entitle Insured to Independent Counsel Absent an Actual Conflict of Interest
Federal Ins. Co. v. MBL, Inc., 219 Cal. App. 4th 29 (Aug. 26, 2013)
In Federal Insurance Co. v. MBL, Inc., the Sixth Appellate District held that a third-party defendant-insured in an environmental contamination action was not entitled to independent counsel because the insured failed to establish any conflict of interest as a result of its liability insurers’ agreement to defend subject to a reservation of rights on various issues. The insurers denied that their reservation of rights created an actual conflict of interest and filed an action seeking a declaration that they were not obligated to provide independent counsel to the insured. The trial court ruled in favor of the insurers on summary judgment.[Read more →]
Insurer Has No Duty to Pay for Independent Counsel and May Reassert Its Right to Control the Defense When the Insurer Withdraws the Reservation of Rights Triggering the Insured’s Right to Independent Counsel
Swanson v. State Farm General Ins. Co., 2013 Cal. App. LEXIS 759 (Sept. 23, 2013)
Swanson v. State Farm General Insurance Co. presented an issue of first impression regarding whether an insurer has a duty to provide an insured with independent counsel, pursuant to California Civil Code section 2860 (“Section
2860”), after the insurer withdraws its reservation of rights that triggered the right to independent counsel in the first instance. The Swanson court ruled in favor of the carrier on this issue.
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Carrier Held to Have No Duty to Defend Lawsuit Involving a Negligence Claim Because That Count Was “Inseparably Intertwined” With a Claim for Non-Covered, Intentional Conduct
Rizzo v. Ins. Co. of the State of Penn., 2013 U.S. Dist. LEXIS 126255 (C.D. Cal. Aug. 30, 2013)
Rizzo v. Insurance Co. of the State of Pennsylvania involved several underlying lawsuits against Richard Rizzo based on his allegedly fraudulent and self-interested acts while serving as an administrator for the City of Bell,
California. During his time in office, Rizzo was alleged to have, among other things, siphoned off millions of taxpayer dollars to personal accounts and to have drafted intentionally self-serving contracts for city officials. As
a result of these alleged actions, Rizzo was named as a defendant in an action filed by the California Attorney General and was also named in a cross-complaint filed by the City of Bell. In addition, Rizzo was named in multiple criminal
actions which sought, among other things, fines and penalties.
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Commercial Building Owner’s Policy Did Not Clearly Limit Loss of Rents Coverage to Instances Where a Signed Lease Was Already in Effect at the Time of Physical Damage
Ventura Kester, LLC v. Folksamerica Reinsurance Co., 219 Cal. App. 4th 633 (Sept. 11, 2013)
Ventura Kester owned a commercial building that was vandalized. Folksamerica Reinsurance Company issued a commercial building owner’s policy that was in effect at the time of the vandalism. There was a tenant leasing the property
when the policy was issued but the property was vacant when it was vandalized. The insurer paid for the property damage but denied coverage for any claimed loss of rents because there was no signed lease at the time of the loss.
Ventura Kester filed suit, arguing that the policy covered loss of rents regardless of whether there was a signed lease in effect, and claimed that it, in fact, lost rents as a result of the vandalism. The carrier prevailed in the
trial court on the parties’
cross-motions for summary judgment.
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Insurer Could Not Move Forward with a Declaratory Relief Action Against Its Insured When The Same Issues Would be Adjudicated in the Underlying Action
Allied Prop. & Cas. Ins. Co. v. Roberts, 2013 U.S. Dist. LEXIS 132239 (E.D. Cal. Sept. 12, 2013)
Allied Property & Casualty Insurance Co. v. Roberts considered the issue of whether an insurer may move forward with a declaratory relief action against its insured when the same issues will be adjudicated in the underlying action. The coverage dispute in Roberts arose from an underlying tort action brought against the insureds due to a fire that took place in a warehouse located on the insureds’ property, in which two individuals working at the warehouse were killed and property was destroyed. The claimants in the underlying action alleged, among other things, that the insureds were liable because they knew or should have known that the warehouse was being used for business purposes. The insureds, on the other hand, defended the underlying action by claiming that they had no knowledge of the business activities in the warehouse.[Read more →]
Excess Carrier Could Not Seek Reimbursement from the Primary Insurer Based On Its Rejection of a Claimant’s Settlement Offer Within Its Primary Limits Because There Was Not a Final Excess Judgment
RSUI Indem. Co. v. Discover P&C Ins. Co., 2013 U.S. Dist. LEXIS 136997 (E.D. Cal. Sept. 23, 2013)
In RSUI Indemnity Co. v. Discover P&C Insurance Co, the primary insurer issued the insured a commercial automobile liability policy with a $1 million limit per-occurrence and in the aggregate, while an excess insurer issued the insured a policy with an additional $4 million in coverage. The insured tendered an underlying action involving an automobile accident to the primary insurer, who agreed to defend. The third-party claimant offered to settle her claim for an amount within the primary insurer’s policy limits, but the primary insurer rejected the offer. The case ultimately settled, requiring the excess insurer to pay more than $3.5 million under its policy.[Read more →]
Carrier Limited to “Modest” Attorney’s Fees Awards in Federal Interpleader Action
State Farm Life Ins. Co. v. Cai, 2013 U.S. Dist. LEXIS 127594 (N.D. Cal. Sept. 6, 2013)
State Farm Life Ins. Co. v. Cai involved a $250,000 life insurance policy issued to Ying Deng that named Jason Cai as the beneficiary. Deng died in May 2003, and Deng’s estate claimed Cai intentionally caused that death
to obtain the policy proceeds. If these allegations were true, Cai’s actions would invalidate him as a proper beneficiary. Based on the dispute between Cai and Deng’s estate, State Farm filed the Cai interpleader
action. In so filing, State Farm deposited approximately $304,000 with the court—the policy limits plus interest—and asked the court to adjudicate the proper beneficiary. Subsequently, State Farm filed a motion to be
dismissed from the Cai action, and for $25,000 in attorney’s fees incurred in bringing the Cai action.
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