California Insurance Law 2014 Year in Review

Transcription

1 California Insurance Law 2014 Year in Review

2 INTRODUCTION The California appellate courts issued an unusual number and variety of insurance-related opinions in The California Supreme Court issued an important and highly anticipated ruling on the scope of product disparagement coverage, and the California Courts of Appeal and the Ninth Circuit issued several important decisions concerning commercial general liability coverage, property coverage, auto insurance and bad faith. These cases included: 2014 A Ninth Circuit opinion interpreting the prior publication exclusion to eliminate coverage for advertising injury arising out of substantially similar advertisements before and during the relevant policy period. A California Court of Appeal decision clarifying the settlement duties of third-party insurers in cases involving multiple claimants and/or multiple insureds. A California Court of Appeal case addressing what constitutes property damage within the meaning of a commercial general liability policy. Two California Court of Appeal cases addressing offsets and bad faith in the context of underinsured motorist coverage. A California Court of Appeal case further reinforcing the trend in California courts holding that an occurrence does not include deliberate conduct by the insured, regardless of whether the insured expected or intended the resulting harm. The following report summarizes some of the most important insurance decisions issued by California courts in Michael Topp Sedgwick San Francisco michael.topp@sedgwicklaw.com

3 NOTABLE CASES AND DECISIONS General Liability Coverage Advertising Injury Product Disparagement Hartford Casualty Ins. Co. v. Swift Distribution, Inc., 59 Cal.4th 277 (un. 12, 2014). The California Supreme Court found CGL coverage inapplicable to a competitor s claim that the insured s advertisements promoted a product that resembled and had a similar name to the competitor s product; the court adopted the rule that, in order to fall within coverage for publication of material that disparages another party s goods, products or services, a complaint must allege that the insured made a false or misleading statement that either expressly or by clear implication (1) specifically referred to the plaintiff s product or business, and (2) clearly derogated that product or business. Advertising Injury Prior Publication Exclusion Street Surfing LLC v. Great American E&S Ins. Co., 752 F.3d 853 (9th Cir. un. 10, 2014) (as amended by order of Nov. 14, 2014, 2014 WL ). The court held that the prior publication exclusion precluded coverage for advertisements during the policy period that were substantially similar to pre-policy period advertisements, even though the advertisements used a slightly altered version of the term street surfing, and that the advertisements were for different products. Auto Exclusion American States Ins. Co. v. Travelers Property Casualty Co. of America, 223 Cal.App.4th 495 (an. 27, 2014). A food truck was mobile equipment within the meaning of an exception to a CGL policy s auto exclusion, such that the CGL insurer had a duty to defend and indemnify a suit for injuries from hot oil splashed from the truck s deep fryer during a collision. Construction Defect Coverage Regional Steel Corp. v. Liberty Surplus Ins. Corp., 226 Cal.App.4th 1377 (May 16, 2014). The presence of inadequate seismic tie hooks in a building, necessitating demolition and repair of affected areas, did not qualify as property damage within the meaning of a CGL policy. Therefore, the insurer had no duty to defend, notwithstanding conclusory allegations of property damage unconnected to the insured s work; the impaired property and your product exclusions also applied. Employment-Related Practices Exclusion on Davler Inc. v. Arch Ins. Co., 229 Cal.App.4th 1025 (Aug. 25, 2014). The court found that the exclusion for personal and advertising injury arising out of employment-related practices unambiguously precluded coverage for employees claims of false imprisonment in the workplace. Professional Services Exclusion North Counties Engineering Inc. v. State Farm General Ins. Co., 224 Cal.App.4th 902 (Mar. 13, 2014). The court held that a professional services exclusion in an engineering company s CGL policy did not eliminate a duty to defend, where the underlying complaint alleged that the insured performed both construction and engineering services on a dam; the court found that any allegations of non-engineering services were sufficient to give rise to a duty to defend, and that claims file entries and a belated decision to defend under a reservation of rights could be considered by the court in determining whether a duty to defend existed at the time the suit was tendered. Sexual Misconduct Baek v. Continental Casualty Co., 230 Cal.App. 4th 356 (Oct. 6, 2014). A massage therapist did not qualify as an insured when sued for sexual assault; the policy covered employees only while performing duties related to the conduct of the named insured s business, and the therapist could not, as a matter of law, have been acting in the scope of employment when he fondled a client. page 3

4 Bad Faith Duty to Settle Graciano v. Mercury General Corp., 231 Cal.App.4th 414 (Nov. 12, 2014). The court clarified that, in order to trigger a claim for wrongful refusal to settle, the insured or the claimant must show (1) that the terms of the claimant s settlement offer were clear enough to have created an enforceable contract resolving all claims had it been accepted by the insurer, (2) the offer must have included the claims of all third party claimants, (3) the settlement must have released all insureds, and (4) the time for acceptance must have allowed the insurer an adequate amount of time to investigate and evaluate its insureds exposure; the court further held that where a liability insurer timely tenders its full policy limits, it has acted in good faith as matter of law. UIM Arbitration Maslo v. Ameriprise Auto and Home Insurance, 227 Cal. App.4th 626 (un 27, 2014). The court held that a complaint adequately stated a cause of action for bad faith against an uninsured motorist s insurer for unreasonably insisting on arbitration, despite the existence of a genuine dispute about the amount of the insured s damages and that the arbitrator s award was less than the amount demanded by the insured. Property Insurance Water Damage Causation Pyramid Technologies, Inc. v. Hartford Casualty Ins. Co., 752 F.3d 807 (9th Cir. May 19, 2014). The court concluded that summary judgment for an insurer must be reversed as there were issues of fact concerning whether corrosion, tarnish or discoloration of the insured s warehoused parts was proximately caused by covered water damage. However, the court upheld summary judgment for the insurer on the insured s business interruption claim, which was based solely on an anticipated contract with a customer, where the evidence that the contract would have come into being was entirely speculative. Replacement Cost Coverage Stephens & Stephens XII, LLC v. Fireman s Fund Ins. Co., 231 Cal.App.4th 1131 (Nov. 24, 2014). In a suit for recovery of replacement cost under a first party property policy, the court found that the insured was entitled to a conditional judgment allowing for recovery of replacement cost upon satisfaction of the repair or replacement condition after trial. Subrogation Law360 s annual listing of the 100 U.S.-based law firms with the largest insurance practices ranks Sedgwick 12th, based on the number of partners in the insurance practice group globally within the firm. KB Home Greater Los Angeles, Inc. v. Superior Court, 223 Cal.App.4th 1471 (Feb. 21, 2014). The court held that an insurer s subrogation action against a builder was barred because the insurer did not give the builder pre-repair notice of the defects, and an opportunity to inspect and cure, as required by the California Right to Repair Act, Civil Code 895 et seq. Auto Insurance Use of Motor Vehicle Encompass Ins. Co. v. Coast National Ins. Co., 764 F.3d 981 (9th Cir. Aug. 13, 2014). The court held that a bystander s action in removing an injured passenger from a vehicle following an accident was using the vehicle with the permission of the owner, within the California Insurance Code s broad definition of use of a motor vehicle as operating, maintaining, loading or unloading of a motor vehicle. Underinsured Motorist Coverage Top Firm Elliot v. GEICO Indemnity Company, 231 Cal. App.4th 789 (Nov. 19, 2014). The court held that a provision reducing the amount payable under UIM coverage by amounts paid by or for all persons or organizations liable for the injury allowed an offset for injuries suffered by the insured in a collision with an intoxicated motorist, by the amount of the insured s recovery from the restaurant that served alcohol to the intoxicated motorist. page 4

5 Liability of Adjusters Bock v. Hansen, 225 Cal.App.4th 215 (Apr. 2, 2014). The court held that an insured may assert tort claims for negligent misrepresentation and intentional infliction of emotional distress against an adjuster employed by a property insurer, despite the absence of a contractual relationship between the insured and the adjuster. This case arose solely on the pleadings. The court did not make a finding as to whether the insured s claims were meritorious, but it found that the plaintiff s complaint sufficiently stated the claims, such that the plaintiff could proceed with its suit against the insurer. Agents and Brokers Douglas v. Fidelity National Ins. Co., 229 Cal.App.4th 392 (Aug. 29, 2014). In a bad faith action for denial of a fire claim due to misrepresentations in the policy application, the court held that the existence of an agency relationship between the insurer and a broker was a question of fact for the jury; the mere fact that the broker had limited binding authority did not establish an agency relationship. Homeowners Liability Insurance Upasani v. State Farm General Ins. Co., 227 Cal. App.4th 509 (un. 6, 2014). The court held that claims against insureds for conspiracy to aid child abduction did not give rise to a potential for coverage, because the conspiracy claims necessarily implicated non-accidental conduct, and hence there was no occurrence; court also determined that claims for emotional distress did not seek damages for bodily injury within the meaning of the policies. Policy Interpretation Additional Insureds Transport Ins. Co. v. Superior Court, 222 Cal.App.4th 1216 (an. 13, 2014). The court held that ambiguity in an additional insured endorsement must be resolved in accordance with the expectations of the purported additional insured, not the named insured. Therefore, the court found a previous ruling in which coverage for the named insured did not preclude an excess / umbrella insurer from asserting that it had no duty to defend a purported additional insured. page 5

6 AUSTIN BERMUDA* CHICAGO DALLAS FORT LAUDERDALE HOUSTON KANSAS CITY Sedgwick LLP is an international litigation and business law firm that provides counseling, risk management, litigation management, trial, appellate and transactional legal services to sophisticated corporate clients. Founded in 1933 as a two-attorney firm in San Francisco, Sedgwick now has more than 330 attorneys in offices around the world. Sedgwick s collective experience spans the globe and virtually every industry. LONDON LOS ANGELES MIAMI NEW YORK NEWARK ORANGE COUNTY SAN FRANCISCO SEATTLE WASHINGTON, D.C. *Associated office LOS ANGELES 801 S. Figueroa Street 19th Floor Los Angeles, California tel ORANGE COUNTY 3 Park Plaza 17th Floor Irvine, California tel SAN FRANCISCO 333 Bush Street, 30th Floor San Francisco, California tel 2014 Sedgwick LLP