Commissioner Blasts Life & Health Insurance Industry Attack On Rescission Regulations

Commissioner Poizner today responded to an insurance industry lawsuit to block regulations that prevent the practice of unfair rescissions in the individual health insurance industry.  See our August 5 blog post.

“I find it unconscionable that insurers would sue to keep the Department from stopping the horrific practice of illegal rescissions,” said Commissioner Poizner. “Sometimes I think representatives in this industry have their heads permanently stuck in the sand. Illegal rescissions are a repugnant industry practice. In this current environment, this lawsuit is simply short-sighted and morally wrong.”

The lawsuit was filed by the Association of California Life & Health Insurance Companies (ACLHIC), an industry trade association of life and health insurance companies, in Sacramento Superior Court on August 16, two days before the new regulation went into effect.

August 19, 2010   Posted in: Blog  Comments Closed

Insurer’s Independent Counsel’s Retention of Investigator Who Allegedly Violated Third Party Claimant’s Rights Not Attributable To Insurer

In the unpublished case of Henriks v. State Farm Mutual Automobile Insurance Company, No. B208936 (August 18), Division Seven of the Second Appellate District affirmed a trial court order granting an anti-SLAPP motion by State Farm and awarding State Farm its fees and costs.  The case arose out of an automobile accident in which Henriks allegedly suffered permanent injuries as a result of the actions of State Farm’s insured.  State Farm’s insured was represented by its in-house law firm, which, in turn, hired an investigative agency to conduct surveillance on Henriks.  Henriks sued State Farm’s in-house counsel for slander and defamation based on her communications with Henrik’s counsel, and State Farm then supplemented its legal team with outside counsel as well.  That counsel, in turn, then hired another investigative firm to conduct additional surveillance.  State Farm was not involved in the retention of the second investigative agency.  That agency allegedly violated a number of Henriks’ rights in pursuit of its investigation, and Henriks sued alleging a variety of tortious acts.  State Farm filed an anti-SLAPP motion, and Henriks sought discovery to establish her case.  The trial court rejected her ex parte application seeking discovery, but told her to put her request into her opposition and said it would be considered  along with her opposition.  The trial court then granted State Farm’s motion and rejected Henriks’ discovery request, finding that the allegedly misbehaving investigative agency was an independent contractor and that State Farm could not be held responsible for any alleged misconduct absent evidence of authorization or ratification.  The trial court also awarded State Farm its attorneys fees.

The Court of Appeal affirmed in all respects.  It found the critical issue to be whether Henriks had any probability of having  the investigative agency considered as an employee rather than an independent contractor.  Her argument was based on the contention that the investigative agency was retained by State Farm’s outside counsel, which had effective control over it.  The Court found its own conclusion governed by Merritt v. Reserve Insurance Co. (1973) 34 Cal. App. 3rd 858,880,  where the court refused to “accept the claim that vicarious liability falls on one who retains independent trial counsel to conduct litigation on behalf of a third party.”  Rather, “independent counsel retained to conduct litigation in the courts act in the capacity of independent contractors, responsible for the results of their conduct and not subject to the control and direction of their employer over the details and manner of their performance.”  Ibid at p. 881.  In short, where an insurer employs independent counsel to defend its insured, the insurer is not liable for counsel’s actions.

August 18, 2010   Posted in: Blog  Comments Closed

Senate Appropriations Committee Considers “Green” Insurer Investment Incentives

The  Senate Appropriations Committee is considering a bill that would establish a new program to encourage insurer investments in qualified environmentally friendly investments. Specifically, AB 1011 (Jones-Sacramento) would authorize insurers to claim a tax credit against the gross premiums tax equal to 20 percent of qualified investments that emphasize clean energy projects, energy efficiency improvements, environmental technology projects and other investments that conserve natural resources or reduce green house gas emissions.

August 17, 2010   Posted in: Blog  Comments Closed

AB 2470 Health Care Rescission Bill Passes Out of Senate Appropriations Committee

AB 2470 (De La Torre-South Gate) passed out of the Senate Appropriations Committee this week. The bill, like previous bills AB 1945 of 2008 and AB 2 of 2009, would create an independent review panel to review decisions by health plans to rescind individual health care contracts.

August 13, 2010   Posted in: Blog  Comments Closed

Decision On Ex Parte Communications In WC Proceedings Revisited By Second Appellate District

In Alvarez v. Workers’ Compensation Appeals Board; State Compensation Insurance Fund, et al, No. B218847 (August 12) (opinion on rehearing), Division Five of the Second Appellate District revisited the decision discussed in our May 14 blog post.  Upon rehearing, the Court backed-off the very bright-line decision it first rendered.  While repeating the rationale it outlined before, the Court held that the communication in question might here be so “inconsequential” that it was not covered by Labor Code Section 4062.3.  On the other hand, the connection between the medical evaluator’s call and his earlier testimony, any suggestion that there was an agreement on how to proceed, and the evaluator’s willingness to initiate the communication might suggest that the remedy set forth in Section 4062.3 (f) is required here.  The Court ordered the WCAB to reevaluate the case based on the principles it outlined and not based on any distinction between “administrative” and “substantive” categories of communication or on who in fact initiated the conversation.

August 12, 2010   Posted in: Blog  Comments Closed

Criminal Restitution Payments Recoverable By Bankruptcy Trustee As Preferences

In In the Matter of Silverman, Debtors ; State Compensation Insurance Fund v. Zamora, Chapter 7 Trustee, No. 08-56508 (August 12), the Ninth Circuit dealt with two issues of first impression: (1) do district court decisions bind bankruptcy courts in other districts; and (2) are criminal restitution payments recoverable by a bankruptcy trustee as a preference?  The first issue is outside the scope of this blog; the court answered No.  The second is not outside this blog’s scope.  In a case involving criminal restitution payments owed by debtors to SCIF as a result of workers’ compensation insurance fraud, the Ninth Circuit determined that restitution payments, so long as they otherwise meet the statutory requirements of 111 U.S.C. Section 547 (b), are recoverable as preferences by a trustee.

SCIF relied mainly on Kelly v. Robinson (1986) 479 U.S. 36, in which the Supreme Court found that criminal restitution payments were nondischargeable in bankruptcy, and Becker v. County of Santa Clara (in Re Nelson) 91 B.R. 904 (N.D.Cal. 1988), in which the Northern District ruled that, because criminal restitution payments are nondischargeable under Kelly, they are also not preferences.  The bankruptcy court below found Kelly distinguishable and Nelson unpersuasive, and the district court concurred.  Restitution payments are not excluded statutorily as preferences, and there is no good policy reason to treat them as such.  The Ninth Circuit agreed with this plain language understanding.  It also found that the Kelly rationale was based on a long history of judicial exceptions for restitution payments in discharge statutes and a policy of not disturbing state criminal proceedings.  Neither applied here. Considering them preferences does not undermine the goals of state criminal proceedings as making them dischargeable would.  Further, not considering them preferences would disadvantage other creditors by incenting a debtor to pay off a nondischargeable obligation first.  The Court also rejected SCIF’s argument that restitution payments are for the benefit of society and therefore do not fall within the meaning of the preference statute.  While they may serve society in some senses, they are clearly “for the benefit” of the creditor within the meaning of the preference statute.

August 12, 2010   Posted in: Blog  Comments Closed

WCIRB Recommendation Of 29.6% Rate Increase Now Before Commissioner

The Workers’ Compensation Insurance Rating Bureau of California’s governing board has approved a recommendation to increase rates by 29.6% beginning Jan. 1, 2011.  That recommendation now goes to the Insurance Commissioner.

Governor Schwarzenegger has already written a letter to Commissioner Poizner asking him to reject the recommendation for any such  rate increase.

“I am confident you will not allow such a tremendous financial burden on California businesses at this time,” Gov. Schwarzenegger said in the Tuesday letter.

The governor’s letter also said insurers must use the tools provided in reform legislation that he signed into law in 2004 before they consider raising workers compensation insurance rates.  This is the same approach the Commissioner has taken in response to past proposed rate increases.

August 12, 2010   Posted in: Blog  Comments Closed

Insurer Liable For Failure to Defend Negligent Retention Claim In Aftermath Of Child Molestation

Howard v. American National Fire Insurance Company, Nos. A121569 and A123187 (August 11), is a decision from Division Four of the First Appellate District dealing with a claim against the Roman Catholic Bishop of Stockton for negligent retention  of a priest who had molested the plaintiff as a child.  The Bishop settled with the plaintiff while the case was on appeal, and agreed to join the plaintiff in an action against the Bishop’s insurers to recover on the judgment and for bad faith failure to defend, settle, and indemnify the underlying molestation case.  The action before the appellate court was adjudicated in the plaintiffs’ favor with an award of almost $3 million in damages.  The insurer appealed the judgment, and plaintiffs appealed the denial of prejudgment interest.  The insurer also challenged the legal costs awarded to plaintiffs in a postjudgment order.  The Court of Appeal’s decision on the case is a virtual hornbook of California insurance bad faith law and should be absorbed by anyone litigating under that rubric.

The Court of Appeal modified the judgment to award prejudgment interest and affirmed the judgment in all other respects.  The appellate court also affirmed the postjudgment order awarding costs with one modification. The appellate court endorsed the trial court’s finding that the molestation had occurred during the insurer’s policy period.  Nor were plaintiffs barred from arguing such by any findings in the underlying case where the exact timing of the molestation was not formally adjudicated.  The Court went on to find that the trial court had properly calculated plaintiffs’ damages and that no double recovery took place by virtue of other insurers’ settlement of the same claim.  The insurer’s argument, the Court determined, ignored the distinction between damages and prejudgment interest and the fact that the Bishop’s settlement with the victim did not stop interest from accruing.  The Court also made short work of the insurer’s arguments that it had not violated its obligations to defend and settle.  The genuine dispute doctrine, it held, might insulate it, under appropriate facts, from a first-party bad faith claim, but that doctrine does not override an insurer’s obligation to settle within policy limits.  In any event, there was no genuine dispute here because the insurer’s entire position rested on an unfair reading of the victim’s deposition testimony.  The Court also upheld the plaintiffs’ calculation of interest due on what the Court found was a fixed policy limit obligation and its costs calculation with the single deletion of private judging fees.

August 11, 2010   Posted in: Blog  Comments Closed

Reformation Action Mooted Where Coverage Issue Was Settled

Insurance Associates of Northern California v. Royal Indemnity Company, No. A123055 (August 10) is an unpublished decision from Division Five of the First Appellate District finding that Royal’s settlement with plaintiffs in a coverage action regarding a home construction project terminated any coverage issues arising from the policy Royal issued at broker Insurance Associates’ behest.  The Court’s rationale, upholding the trial court, was that Insurance Associates could not show that its reformation claim will affect its liability for its alleged negligence in drafting the disputed policy.  Insurance Associates sought reformation of the policy to match the contracting parties’ alleged intent to provide coverage under the facts of the case.  The trial court did not conclude that such reformation claim was improperly stated.  Instead, it granted a motion for judgment on the pleadings on the ground that Royal’s own settlement with the plaintiffs terminated the issue of coverage.  The reformation claim, it found, was moot. The  Court saw Three Eye Blind, Inc. v. Near North Entertainment Insurance Services, LLC (2005) 127 Cal. App. 4th 1311 as directly on point.  There a dispute over allegedly imperfect coverage which was similarly resolved did not absolve a broker of its own responsibility for what had occurred.  While it was true that the settlement of the coverage issue in Three Eye Blind was deemed relevant to the measure of damages against the broker, the Court of Appeal noted that the trial court here could refer to the settlement in the case before it in crafting its own resolution of the broker’s liability; the policy did not have to be reformed.

August 10, 2010   Posted in: Blog  Comments Closed

Former Anthem Blue Cross President Reportedly Resisted Rate Hikes

Today’s Los Angeles Times reports that former Anthem Blue Cross president Leslie Margolin, apparently forced out of the company in the wake of the controversy over Anthem Blue Cross’ rejected rate hikes as high as 39 percent for individual health plans, claims she fought the proposed hikes internally.  “I thought the rates were too high,” she reportedly said. “I thought the impact on our membership was too significant.”

The Times says that Margolin did not object to the rates in her Sacramento testimony this past February. But in the months that followed, it says, she repeatedly voiced her objections to WellPoint and in appearances outside the company, remarks that went largely unnoticed by the public.

In a March talk at Pepperdine University’s business school, for instance, she allegedly told a gathering of students and business leaders that she wasn’t responsible for rate increases she believed were ill-timed and ill-advised.  While Margolin does not concede she was fired, she does admit to being ushered out the door without, she says, an opportunity to say good-by to Anthem Blue Cross employees.

August 10, 2010   Posted in: Blog  Comments Closed

Without Policy Or Abstract, There Is No Claim Against Title Company

In Soifer v. Chicago Title Company, et al, No. B217956 (August 10), plaintiff Soifer appealed from a judgment of dismissal of his claim against Chicago Title.  In Southland Title Corp. v. Superior Court (1991) 231 Cal. App. 3rd 530, Division Three of the Second Appellate District held that a title company is not liable for the negligent preparation of a preliminary title report.  Rather, if a representation is sought as to the condition of the title to a particular property, an abstract should be obtained.  In this case, Soifer sought neither a policy of title insurance nor an abstract of title.  The same Court of Appeal, affirming the judgment of the lower court, adhered to its prior analysis in Southland and extended it to the several claims asserted by Soifer.

The Court concluded that a plaintiff cannot recover for errors in a title company’s statements regarding the condition of title to a property in the absence of a policy of title insurance or the purchase of an abstract of title.  The informal e-mail relationship plaintiff herein had with Chicago Title fell well short of either.  The Court noted that, prior to the enactment of Insurance Code Section 12340.10 and 12340.11, caselaw had held that a preliminary title report is the equivalent of an abstract, and that a title insurer could be held liable for negligence in a preliminary title report.  However, the 1981 legislation was expressly designed to “make a formal distinction between” a preliminary title report and an abstract of judgment.  That represented a policy decision to create a bright-line distinction between anything less than an abstract and an abstract, and that distinction was enforceable here.  The communications between plaintiff and Chicago Title, even less than a preliminary title report,  did not encompass “…a written representation…listing all recorded conveyances, instruments or documents which…impart constructive notice…” as specified in Section 12340.10, and the Court declined to entertain theories giving them that equivalence.

August 10, 2010   Posted in: Blog  Comments Closed

Third Appellate District Weighs In On Collateral Source Rule’s Impact On “Written Off” Portion Of Medical Insurance Reimbursements

The partially published opinion of the Third Appellate District in King v. Willmett, No. C059236 (August 9) is that District’s thoughtful contribution to the current debate over the collateral source rule’s interaction with write-offs by health insurers based on negotiated agreements with health care providers.  Reversing the trial court, which, the Third District conceded, had responded appropriately to the District’s prior decisions on the subject, the Court held, in a 2-1 decision, that, in a negligence action against a nonpublic defendant, the reduction of a plaintiff’s award of past medical expense damages to the dollar amount ultimately paid by the plaintiff’s private health insurer is inappropriate.  The Court anchored  its holding on its understanding of public policy considerations expressed by the Supreme Court and the legislature’s enactment of specific statutes restricting the operation of the collateral source rule in only two limited kinds of cases.

The appellate court’s ruling rested heavily on its understanding of the Supreme Court’s strong support for the collateral source rule in Helfend v. Southern California Rapid Transit District (1970) 2 Cal. 3rd 1.  The Supreme Court there overrode concerns about unfair double recovery in finding the undiscounted pricing closest to a plaintiff’s actual damages and in recognizing the impact of contingency fees on plaintiffs’ real recoveries.  The Court here also noted that the legislature has chosen to abrogate the collateral source rule in only two limited situations:  actions for professional negligence against health care providers, where Civil Code Section 3333.1 governs; and actions against public entities, where Government Code Section 985 governs.  The Court found that if the legislature had wanted to further abrogate the rule, it would have done so.   The Court went on to conclude that subsequent caselaw addressing the impact of public payment of medical expenses such as under Medi-Cal did not relevantly address a private insured’s entitlement and therefore did not override the Supreme Court’s broad statements in Helfend.

Dissenting Justice Hull, noting that the Supreme Court has the issue now before it in Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal. App. 4th 686, rev. gtd. March 10, 2010, disagreed, arguing that nobody suffers harm arising from bills he or she did not have to pay.  Justice Hull did not agree with the contention that a private insured should not be disadvantaged by his or her “thrift” in securing health insurance and argued that the only benefit to which he or she is entitled is that which was bargained for in purchasing insurance in the first place.  He contended that the determination of the reasonable cost of medical services rests most appropriately with the two parties with the most sophistication in the matter, the health care provider and the health care insurer, and that their determinations in any given case  should be generally respected by the courts.

August 9, 2010   Posted in: Blog  Comments Closed

Supreme Court Holds Civil Code Section 3345 Trebling Does Not Apply To UCL Actions

In Clark v. Superior Court (National Western Life Insurance Company), No. S174229 (August 9), the California Supreme Court unanimously reversed an opinion from Division Seven of the Second District Court of Appeal (See our May 22, 2009 blog post.) that Civil Code Section 3345 trebling applies to UCL claims.  Under the UCL, plaintiffs here, who are senior citizens, sued an insurer, alleging deceptive business practices relating to the purchase and sale of annuity contracts.  Plaintiffs sought a monetary award, and they asserted that Section 3345 entitled them to a trebling of such award.  Section 3345 (b) provides that, in an action involving senior citizens seeking to redress unfair competition, a trier of fact may award up to three time the amount imposed as “a fine, or a civil penalty or other penalty, or any other remedy the purpose or effect of which is to punish or deter.” The issue before the Court was the applicability of that provision to the UCL, which generally limits a private party’s remedies to injunctions and restitution.

The Court concluded that because Section 3345 authorizes trebling only when it arises out of a remedy that is in the nature of a penalty, and because restitution under the UCL is not a penalty, an award of restitution under the UCL is not subject to trebling.  The Court, however, first disagreed with the defendant insurer’s contention that such trebling only applies to actions under the Consumer Legal Remedies Act (CLRA).  The broad language of Section 3345 (a) precludes such an understanding.  And, under subsection (b), the statute’s reach extends to “any statute” that implicates Section 3345′s “specified remedies.”  Furthermore, Section 3345 was part of broader legislation that created other new remedies; had its reach been restricted to the CLRA, the legislature would have amended only that act.  However, the Court agreed with the remainder of the insurer’s analysis.  The Court of Appeal, it found, improperly determined that any remedy with a deterrent effect falls within the trebling provision.  But immediately preceding subsection (b)’s language arguably suggesting that, quoted above,  is phrasing, also quoted above, restricting any trebled recovery to a statutorily authorized “fine, or a civil penalty or other penalty.”  Thus, trebling only applies to “a remedy that is in the nature of a penalty.”  Any other interpretation renders part of subsection (b) surplusage.  Because restitution is not a penalty, the Court went on, the Court of Appeal’s interpretation was incorrect.

August 9, 2010   Posted in: Blog  Comments Closed

DOI Schedules Public Discussion On Rating Organization WC Insurance Coverage Web Sites

The Department will hold a prenotice public discussion on August 25, 2010 in Sacramento to discuss regulations to be adopted to carry out the provisions of Insurance Code section 11752.75.  The purpose of the draft regulations is to provide the standards required to allow a person to submit a query on a rating organization’s Internet Web site for workers’ compensation coverage information concerning a specified employer on a specified date and to allow for employers to dispute with the rating organization or the employer’s insurer the accuracy of the information displayed on the Internet Web site.

August 9, 2010   Posted in: Blog  Comments Closed

AB 2490 WC Choice of Law Legislation Awaiting Senate Floor Vote

AB 2490 (Jones-Sacramento) is still awaiting a vote on the Senate floor. This bill, as previously discussed, would prevent employers and their workers’ compensation insurance providers from agreeing to resolve future disputes under a choice of law or choice of forum other than California.

August 6, 2010   Posted in: Blog  Comments Closed

Health Care Rescission Legislation Still In Senate Appropriations Committee

AB 2470 (De La Torre-South Gate) passed the Senate Health Committee, as previously report, and now is in the Senate Appropriations suspense file. The bill, like previous bills AB 1945 of 2008 and AB 2 of 2009, would create an independent review panel to review decisions by health plans to rescind individual health care contracts. The bill would require the panel to determine whether a health plan enrollee “intentionally misrepresented” material information on his or her application in order to obtain health care.

August 6, 2010   Posted in: Blog  Comments Closed

New Rescission Regulations Go Into Effect August 18

Commissioner Poizner announced today that his new regulations designed to combat illegal rescissions will go into effect on August 18.  The regulations do the following:

  • Prohibit insurers from rescinding policies when they are not in compliance with specified underwriting practices regulations.
  • Restrict health condition and history questions on applications to those that are necessary for medical underwriting.
  • Require all questions on health insurance applications be clear, specific and understandable.
  • Require use of new and improved health history questionnaires approved by the Department before an insurer can rescind.
  • Allow consumers to indicate that they are unsure of or cannot remember the answer to a particular health history question.
  • Require that agents attest if they help applicants with a health insurance application.
  • Prohibit confusing phrasing of application questions like double-negatives and certain compound questions.
  • Require that consumers be given a copy of their application to check for discrepancies.
  • Require that insurers not rely solely on self-reported health history when possible.
  • Prohibit insurers from conducting certain rescission-focused investigations long after becoming aware of a possible misrepresentation or omission by the applicant. Also prohibits insurers from seeking information outside the scope of such an investigation.
  • Require that insurers give consumers the opportunity to respond during rescission investigations, and that insurers must listen to consumer-provided information.
  • Require that insurers identify and resolve any reasonable questions arising from the application. Insurers must document their effort to resolve these issues and make those documents available to the Commissioner.

The regulations were approved by the Office of Administrative Law on July 19, 2010.

August 5, 2010   Posted in: Blog  Comments Closed

Direct Physical Loss Required for Property Damage Claim Not Met Without Change In State of Property Allegedly Damaged

In the case of MRI Healthcare Center of Glendale, Inc. v. State Farm General Insurance Company, No. B213985 (August 4; ordered published August 18), the trial court granted State Farm’s motion for summary judgment on a claim by MRI on a business insurance policy for alleged loss.  The claimed loss arose as a result of claimed damages to MRI’s magnetic resonance imaging machine and loss of income after the machine failed to satisfactorily “ramp up” after it was “ramped down.”  State Farm argued that the MRI machine did not sustain “direct physical loss” and that the alleged loss was not the result of an “accident.”  State Farm further contended that the rainstorms MRI contended were the predominant cause of the loss were not a legally cognizable cause of the claimed loss and that all other potential causes of the loss are specifically excluded under the policy.

Division Eight of the Second Appellate District affirmed.  The Court agreed that although the MRI machine may have malfunctioned after it was ramped down, it did not suffer any “physical loss” within the meaning of the policy.  Further, even if the malfunction were characterized as “physical loss”, it was certainly not “accidental.”  The Court found that, although the term “direct physical loss” was not defined in the policy, it is recognized that it “contemplates an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it so.”  See AFLAC Inc. v. Chubb & Sons, Inc. (Ga. App. 2003) 581 S.E. 2nd 317, 319.  Here storms in 2005 resulted in a decision to repair the roof to prevent water incursion.  It was only after the roofers found structural damage to the roof immediately above the MRI machine — caused by MRI’s purported negligence in installing and maintaining a skylight — that it was decided the roof had to be removed and the MRI machine ramped down.  Thus, any damage suffered by the machine in 2006 was not directly attributable to the 2005 storms.  The subsequent failure of the machine to ramp up emanated from the “inherent nature of the machine” rather than any physical damage.  This does not constitute “direct physical loss” under the policy.  See Pirie v. Federal Insurance Co. (Mass. App. Ct. 1998) 696 N.E. 2nd 553, 555 (internal defect of building “does not rise to the level of physical loss”).  In the end, the MRI machine was ramped up simply by using a “different combination” of wires in the unit to “open the superconductive switches” in the machine.  Likewise, the ramping down of the machine was intentional, and the failure to ramp up was simply the product, albeit unfortunate, of that intentional act.  This is not an accident.  The Court also rejected a number of other contentions made by MRI as being unrelated to the actual cause of the claim made.

August 4, 2010   Posted in: Blog  Comments Closed

No Tolling Where Evidence Showed Defendant’s Flight To Foreign Jurisdiction Caused Absence

In the unpublished case of The People v. Indiana Lumbermens Mutual Insurance Company, No. G042748 (August 3), the defendant surety moved for an order tolling the 180-day bail forfeiture vacation period pursuant to Penal Code Section 1305 (e).  The trial court denied the motion and entered summary judgment for the People.  The surety asserted on appeal that the trial court erred because the criminal defendant had been temporarily disabled by his detention in Mexico.  Alternatively, the surety argued the court should have tolled the period on equitable principles.

Division Three of the Fourth Appellate District sided with the trial court.  The Court took the view that a detention occurs where civil authorities restrain a defendant — that is, when the operation of law is the direct cause of a defendant’s failure to appear (deportation) or where foreign authorities forbid a surety from bringing a defendant across the border.  A detention, however, has not prevented an appearance where it “merely buttresses” the preexisting direct cause, such as where a defendant voluntarily flees to a country in which bail agents cannot travel.  The appellate court found the “flimsy, unauthenticated, hearsay evidence” presented by the surety in this case insufficient to demonstrate the defendant was ever held within this meaning.  Instead, the evidence supported the belief that the defendant’s flight caused his absence.  The Court also rejected the notion that it should create an equitable tolling the legislature expressly failed to pass covering the scenario when the defendant is in custody outside the court’s jurisdiction and the prosecutor seeks extradition.  The Court found that the surety had failed to meet the premise of both its own suggestion and existing law because it had not proven that the defendant was in fact in custody.  The Court was also critical of the state of the surety’s record on appeal and said it provided an insufficient basis to even ponder an equitable remedy.

August 3, 2010   Posted in: Blog  Comments Closed

Assault and Battery Exclusion In Policy Sold Security Guard Company Upheld

In the unpublished case of Krause v. Western Heritage Insurance Company, No. G041405 (August 2), Division Three of the Fourth Appellate District affirmed a trial court decision upholding the validity of an assault and battery exclusion in a liability policy sold a private security guard company.  A private security guard shot and killed a man at an apartment complex. Western Heritage declined to defend, citing the assault and battery exclusion in the liability policy.  Plaintiffs then obtained a default judgment of more than $6 million against the employer of the guard along with an assignment of rights against Western Heritage.  The trial court granted Western Heritage’s motion for a directed verdict at trial, finding that there was no basis for coverage under the policy.

Private security guard companies must carry liability coverage under Business & Professions Code Section 7583.39.  The policy at issue here contained coverage for the guard as an armed guard as opposed to an unarmed guard, for which an extra premium was charged.  The operator of the company here testified the company believed it would be covered for a shooting such as occurred here.  However, the policy contained an assault and battery exclusion, which Western Heritage had declined to remove during pre-purchase negotiations.  Western Heritage also contended on appeal that the event at issue did not meet even the definition of an “occurrence” under the policy language, citing Delgado v. Interinsurance Exchange of the Auto Club (2009) 47 Cal. 4th 302, 317, because the underlying act was purposeful; the appellate court declined to entertain that issue because it was raised for the first time on appeal.

But the appellate court had no problem upholding the assault and battery exclusion as applied to the facts of the case before it.  Plaintiffs argued that the policy’s intentional acts exclusionary language covered “bodily injury” resulting from the use of reasonable force; otherwise, they argued, the clause there pertaining to the use of reasonable force would be a useless appendage to the policy. Western Heritage, in turn, persuasively argued the assault and battery exclusion did not conflict with the policy’s intentional injury exclusion.  Rather, the intentional acts exclusion simply did not exclude occurrences in which force is used in defense of persons or property.  The assault and battery exclusion, however, excluded, separately, any bodily injury arising out of assault and battery.  The Court’s inquiry therefore focused ultimately on whether an assault and battery had occurred here.

Reviewing the case law, the appellate court then found that assault and battery exclusions have been found unambiguous and upheld in California and elsewhere.  But, the Court went on, that does not mean that any exercise of force to protect persons or property necessarily involves an assault and battery.  There may exist factual scenarios, the Court said, in which the use of physical force by an insured leads to bodily injury that does not entail a lack of possible coverage under the policy.

Nonetheless, it was clear here that there was a purposeful firing of a gun at a vehicle.  There was no evidence the discharge of the gun was not purposeful.  There was nothing in the record akin to a bouncer negligently throwing an unruly reveler to the ground.  No independent intervening act or omission caused the death complained of.  Whatever the reach of the undefined assault and battery exclusion at issue here, it “must mean an intentional discharge of a gun in the direction of a human being, resulting in the immediate death of that individual by way of a bullet in the chest.”  Finally, the appellate court found there was no public policy reason to not uphold the exclusion.  The coverage was not illusory with the exclusion.  The policy would cover accidental discharges of a firearm or target practice mishaps.  It could cover a guard misplacing a firearm that ultimately comes into the hands of a child.  Although, the Court concluded, security firms might be better served with a policy without such an exclusion, the coverage here was  not illusory and therefore is enforceable according to its terms.

August 2, 2010   Posted in: Blog  Comments Closed

Sixth Appellate District Upholds Policy Provision Requiring Notice Within Certain Period Of Time

In the unpublished case of Z. F. Micro Solutions, Inc., et al, v. Certain Underwriters At Lloyd’s, London, No. H034513 (August 2), Z. F. Micro and its president sued their liability insurers when they refused to defend and indemnify them against a cross-complaint by a third party.  The Superior Court granted summary judgment to the insurers based on appellants’ untimely notice of the third party claim.  Appellants argued on appeal the policy provision requiring notice within a certain period of time was not conspicuous and therefore should not be enforced.   The policy was a claims-made form and it gave appellants 60 days after the certificate period had ended to report a claim.  Appellants had not purchased an extended reporting period option.  In the case at hand, appellants made their report four days late and then argued that they had not seen the term because it was not on the cover page or in the insuring clause and that forfeiture under these circumstances would be “extremely harsh.”  The trial court found no basis in law or fact for appellants to argue equitable excuse.

The Sixth Appellate District agreed.  There was no confusion in the fact that the form was a claims-made policy with a reporting period extending outside the policy period.  The entire coverage section of the policy form was just three and a half pages.  The reporting obligation on the last page was contained in its own paragraph, set apart from other subjects and  labeled “NOTIFICATION” in capital letters.  Perfect drafting is not required; nor must limiting language appear in the Declarations language or in the insuring clause.  See Zubia v. Farmers Insurance Exchange (1993) 14 Cal. App. 4th 790, 795-796.  There was no disconnect between the labeling and the language below it such as was found in Jauregui v. Mid-Century Insurance Co. (1991) 1 Cal. App. 4th 1544 and Ponder v. Blue Cross of Southern California (1983) 145 Cal. App. 3rd 709.  Nor was there a failure to set off restrictive language such as was found in Thompson v. Mercury Casualty Co.  (2000)  84 Cal. App. 4th 90, 97.  Noting that appellants had been offered an extended reporting period, the Court said their excuse for nonreporting — allegedly inconspicuous disclosure — was not valid and provided no basis for such relief, distinguishing Root v. Equity Specialty Insurance Co. (2005) 130 Cal. App. 4th 926, where an attorney sued for malpractice had only hours to react to a claim filed three days before his policy expired and served after it had expired with his only notice being what he believed to be a “prank” phone call on the expiration date itself.

August 2, 2010   Posted in: Blog  Comments Closed

WCAB Properly Ruled Applicant Had Done Enough To Object to UR Determination And That Both Parties Had Recognized That Fact

In the unpublished case of Trimas Corporation, et al, v. Workers’ Compensation Appeals Board and Frank Rendon, No. F060040 (July 30), Trimas petitioned for a writ of review of a WCAB decision.  Trimas argued that the WCAB erroneously concluded an employee may proceed to the dispute resolution process without first timely objecting to an employer’s utilization review determination, and that the WCAB erred in finding the issue waived as not raised at trial.  The Fifth Appellate District denied the petition.  The appellate court found that the WCAB had noted that the applicant did enough to resort to the dispute resolution process of Labor Code Section 4062 (a) when he disagreed with the employer’s UR denial of a recommendation for a neurological/neurosurgical evaluation.  The parties, the Court went on, then selected an agreed medical evaluator.  Furthermore, Section 4062 (a) indicates that “good cause or mutual agreement” may extend the 20 days to seek a resolution before the WCAB, and the record contained sufficient evidence that the parties here had agreed to do so at least implicitly.  The Court also held that the appellant had waived any timeliness defense by not raising it before or at the hearing, and that it would not entertain that factual issue on appeal.

July 30, 2010   Posted in: Blog  Comments Closed

Insurer Not Obligated To Speculate A Plaintiff Might Allege A Covered Claim

In the unpublished case of Innovay, Inc.,  et al, v. The Hartford Casualty Insurance Company, No. B215357 (July 30), plaintiff Innovay and its directors filed a claim against Hartford after Hartford denied Innovay’s tender of defense of a third party complaint for fraud, deceit, and negligent misrepresentation.  After filing the action, Innovay provided Hartford with extrinsic evidence, and Hartford concluded the third party might be able to amend his complaint to allege a covered claim of defamation.  Hartford then agreed to provide a go-forward defense.  The third party did not amend his complaint.  Innovay settled the action and paid the third party.

Innovay claimed that Hartford was obligated to provide a defense from the date of initial tender and was required to reimburse Innovay for the defense costs and the settlement amount it had paid.  After a bench trial, the trial court found in favor of Hartford, concluding that Hartford did not have a duty to defend or indemnify under the facts before it and therefore Hartford did not breach the policy or the implied covenant of good faith and fair dealing.  Innovay appealed.

Division One of the Second Appellate District affirmed.  To be covered under the personal and advertising injury provisions of the policy upon which Innovay relied, the injury must have arisen out of one or more enumerated offenses.  Innovay maintained the allegations in the complaint establish a potential for coverage for the enumerated offenses of libel or slander and humiliation.  The appellate court disagreed.  There were simply no allegations of libel or slander.  Nor could Innovay rely on the covered ground of “humiliation.”  The core claim was fraud; while the injury alleged may have been “humiliation,” it is the offense that triggers coverage.  Harm that results from a noncovered offense is not covered.  See American Motorists Insurance Company v. Allied-Sysco (1993) 19 Cal. App. 4th 1342, 1351, disapproved on another ground in Buss v. Superior Court (1997) 16 Cal. 4th 35, 50, fn. 12.  And while remote facts buried within causes of action may establish a defense duty, Barnett v. Fireman’s Fund Insurance Co. (2001) 90 Cal. App. 4th 500, 510, here there were no facts alleged that could provide a basis for a potential for coverage.  Hartford had never owed a defense duty in the underlying action.

The appellate court also rejected the claim that there was any inadequacy in Hartford’s investigation.  It was only obligated to act on the basis of the fact it knew at the time the claim was tendered.  See Gunderson v. Fire Insurance Exchange (1995) 37 Cal. App. 4th 1106, 1114.  Hartford was not under a duty to speculate as to what plaintiff might claim.

July 30, 2010   Posted in: Blog  Comments Closed

DOI Schedules Workshop on Principally At-Fault Regulations

The Department has scheduled a workshop in Sacramento on Friday, September 3 to consider the latest version of its Principally At-Fault Regulations.  The regulations continue to suffer from the infirmity discussed in our June 2 blog post and prior blog posts on the subject.  See, especially, our March 27, 2009 blog entry, where this issue is discussed in considerable detail.

July 30, 2010   Posted in: Blog  Comments Closed

DOI To Require Electronic Filing Of Life And Disability Forms And All Corporate Affairs Bureau Filings

The Department will hold a hearing in San Francisco on Wednesday, September 15, 2010 to consider amendments to regulations that will require that all forms filed with the Policy Approval Bureau and Actuarial Office be filed electronically through the System for Electronic Rate and Form Filings (SERFF) of the National Association of Insurance Commissioners (NAIC).  The amended regulation will apply to life, health, disability income, long-term care, variable annuity, and other form filings, eliminate provisions pertaining to paper filing, clarify various nomenclature used in submissions, and use gender-neutral language.  The Department is also considering adopting regulations to require that all applications, registrations, notices, reports, or other material that are submitted to the Corporate Affairs Bureau be submitted by means of the Department’s Online Assistance System for Insurer Submittals (OASIS).  These proposed regulations will be considered at the same hearing.  The last day to submit written comments on the proposed regulations is September 15, 2010

July 30, 2010   Posted in: Blog  Comments Closed