Court of Appeal Reverses a Judgment Sustaining a Demurrer by Blue Cross
Coast Plaza Doctors Hospital v. Blue Cross of California (2009) 173 Cal.App.4th 1179
11 p.
According to the allegations in the complaint, a patient checked into an out-of-network hospital for previously scheduled surgery. Because the Hospital was out-of-network the patient made an advance cash payment for the surgery. The surgery went smoothly and is not at dispute in this litigation. However, a few days after the surgery the patient suffered a life threatening respiratory distress which required her to be put on a ventilator and moved to the Hospital's ICU. (This was emergency treatment.)
Once the patient was stabilized the Hospital contacted the Independent Practice Association (IPA) that Blue Cross had contracted with to provide medical care for the patient, in order to arrange for the transfer of the patient to an in-network provider. The IPA refused to approve the transfer or to be involved in any decisions regarding the patient's medical care. The patient spent two months in the Hospital's ICU before being transferred.
The Hospital sued Blue Cross for slightly under $600,000 for the emergency care that it provided to the patient.
Blue Cross successfully demurred on the ground that because the patient's health insurance was an employee benefit, the Hospital's action against it was preempted by ERISA. The Hospital elected not to amend its complaint and appealed from the judgment that followed.
The Court of Appeal held that the Hospital's action was based on Health and Safety Code section 1371.4, and that section 1371.4 falls within ERISA's saving clause (ERISA section 514(b)(2)(A)) as state law regulating insurance. It reversed the judgment and remanded for further proceedings.
Showing posts with label insurance. Show all posts
Showing posts with label insurance. Show all posts
Monday, May 11, 2009
Thursday, December 6, 2007
Review Roundup II
Fairbanks v. Superior Court (S157001)
When I wrote about this decision I praised it for its thoroughness. It was an issue of first impression but I found the Court of Appeal's four-part statutory interpretation very persuasive. I predicted that the Court of Appeal had resolved forever the question of whether insurance is covered by the Consumer Legal Remedies Act (CLRA). I was wrong.
On Nov. 14, the Supreme Court granted review on that very question.
When I wrote about this decision I praised it for its thoroughness. It was an issue of first impression but I found the Court of Appeal's four-part statutory interpretation very persuasive. I predicted that the Court of Appeal had resolved forever the question of whether insurance is covered by the Consumer Legal Remedies Act (CLRA). I was wrong.
On Nov. 14, the Supreme Court granted review on that very question.
Sunday, September 23, 2007
Receiver Can Recover Punitive Damages on Behalf of Recivership Estate in Insurance Bad Faith Action
Brant Attorney Fees Can Be Recovered For Defending a Judgment on Appeal
Baron v. Fire Insurance Exchange (Sept. 4, 2007, H029830, Sixth Appellate District)
18 p. opinion
While an arbitration was in process between the two owners of a property, the property was extensively damaged by a fire. After issuing his decision, the arbitrator, on the stipulation of the two owners, appointed respondent Baron to be the receiver of the property. Baron was authorized to take possession of the property and all fire insurance proceeds. He was also empowered to restore or sell the property and to engage in any legal proceedings that he thought necessary to care for the property. For these services he was to be compensated at an hourly rate.
Fire Insurance Exchange, which had issued a policy that included fire insurance for the property, then engaged in a series of actions that provide a perfect example of insurer bad faith. Baron sued Fire Ins. for breach of the insurance contract, bad-faith refusal to pay policy benefits, declaratory relief, negligence, fraudulent misrepresentation and negligent misrepresentation. At trial the jury found in favor of Baron on all issues and awarded compensatory damages of $96,462 and punitive damages of $1.5 million.
In its appeal Fire Ins. argued that the receiver's appointment was void because the arbitrator had no jurisdiction to appoint him. Fire Ins. had not sought dismissal of the lawsuit in the trial court and the Court of Appeal held that Fire had waived this argument. Because the statute of limitations had run on any bad faith action by the insured, invalidating the appointment of the receiver would work a substantial injustice.
What Fire Ins. had argued in the trial court was that the receiver was not authorized to pursue the purely personal tort causes of action. The trial court had rejected this upon equitable grounds (the insured's statute had already run). In addition the arbitrator's appointment of the receiver had been explicitly confirmed when the arbitration award had been confirmed by the superior court. The superior court had statutory authority to appoint a receiver.
Fire Ins.' second contention on appeal was that the receiver lacked standing to pursue the tort causes of action and therefore could not obtain an award of punitive damages because punitive damages could only be awarded in a tort action. (Fire Ins. did not raise the issue of whether the receiver had the authority to bring the actual tort claims of bad faith and fraud, just whether he could obtain an award of punitive damages on them.) Fire Ins. argued that the turning over of the insurance claims to the receiver was in essence an assignment of them to him. The personal tort causes of action associated with insurance bad faith cannot be assigned.
The Court of Appeal disagreed with this characterization of the receiver's role. The respondent was not acting as an assignee. He had been explicitly authorized by the arbitrator's appointment (confirmed as an order of the court) to pursue the tort claims. The damages recovered on them would go to the receivership estate. The receiver would be permitted to retain his contractual compensation, not the full recovery on the cause of action, the way an assignee would.
Finally the Court of Appeal addressed the respondent's request for Brandt attorney fees for defending the judgment on appeal. After strongly implying that it would have declined to address this issue if Fire Ins. had objected to the extreme lateness of the respondent's papers on it, the Court found for the respondent on the merits. The pupose of the Brandt rule is to see to it that an insured gets the full benefits of his insurance policy. This does not occur if the insured is out-of-pocket for the attorney fees expended to get those benefits. This reasoning logically extends to the attorney fees spent to defend a judgment on appeal.
Justice Elia wrote the opinion. Presiding Justice Rushing and Justice Premo concurred.
Comment: This opinion is the source of the quote of the week for the week of September 3rd on the Civil Litigation Quote of the Week blog.
Baron v. Fire Insurance Exchange (Sept. 4, 2007, H029830, Sixth Appellate District)
18 p. opinion
While an arbitration was in process between the two owners of a property, the property was extensively damaged by a fire. After issuing his decision, the arbitrator, on the stipulation of the two owners, appointed respondent Baron to be the receiver of the property. Baron was authorized to take possession of the property and all fire insurance proceeds. He was also empowered to restore or sell the property and to engage in any legal proceedings that he thought necessary to care for the property. For these services he was to be compensated at an hourly rate.
Fire Insurance Exchange, which had issued a policy that included fire insurance for the property, then engaged in a series of actions that provide a perfect example of insurer bad faith. Baron sued Fire Ins. for breach of the insurance contract, bad-faith refusal to pay policy benefits, declaratory relief, negligence, fraudulent misrepresentation and negligent misrepresentation. At trial the jury found in favor of Baron on all issues and awarded compensatory damages of $96,462 and punitive damages of $1.5 million.
In its appeal Fire Ins. argued that the receiver's appointment was void because the arbitrator had no jurisdiction to appoint him. Fire Ins. had not sought dismissal of the lawsuit in the trial court and the Court of Appeal held that Fire had waived this argument. Because the statute of limitations had run on any bad faith action by the insured, invalidating the appointment of the receiver would work a substantial injustice.
What Fire Ins. had argued in the trial court was that the receiver was not authorized to pursue the purely personal tort causes of action. The trial court had rejected this upon equitable grounds (the insured's statute had already run). In addition the arbitrator's appointment of the receiver had been explicitly confirmed when the arbitration award had been confirmed by the superior court. The superior court had statutory authority to appoint a receiver.
Fire Ins.' second contention on appeal was that the receiver lacked standing to pursue the tort causes of action and therefore could not obtain an award of punitive damages because punitive damages could only be awarded in a tort action. (Fire Ins. did not raise the issue of whether the receiver had the authority to bring the actual tort claims of bad faith and fraud, just whether he could obtain an award of punitive damages on them.) Fire Ins. argued that the turning over of the insurance claims to the receiver was in essence an assignment of them to him. The personal tort causes of action associated with insurance bad faith cannot be assigned.
The Court of Appeal disagreed with this characterization of the receiver's role. The respondent was not acting as an assignee. He had been explicitly authorized by the arbitrator's appointment (confirmed as an order of the court) to pursue the tort claims. The damages recovered on them would go to the receivership estate. The receiver would be permitted to retain his contractual compensation, not the full recovery on the cause of action, the way an assignee would.
Finally the Court of Appeal addressed the respondent's request for Brandt attorney fees for defending the judgment on appeal. After strongly implying that it would have declined to address this issue if Fire Ins. had objected to the extreme lateness of the respondent's papers on it, the Court found for the respondent on the merits. The pupose of the Brandt rule is to see to it that an insured gets the full benefits of his insurance policy. This does not occur if the insured is out-of-pocket for the attorney fees expended to get those benefits. This reasoning logically extends to the attorney fees spent to defend a judgment on appeal.
Justice Elia wrote the opinion. Presiding Justice Rushing and Justice Premo concurred.
Comment: This opinion is the source of the quote of the week for the week of September 3rd on the Civil Litigation Quote of the Week blog.
Sunday, September 9, 2007
Exclusion Clause Was Not Clear and Plain Enough to Defeat the Reasonable Expecations of the Insured
An Insurance Company That Had Not Provided Notice to the Insured Could Not Rely Upon an Unusually Broad Interpretation of an Exclusion Clause
Essex Insurance Company v. City of Bakersfield (Aug. 27, 2007, F051091, Fifth District)
19 p. opinion
In this insurance coverage action the Court of Appeal reversed the summary judgment granted to Essex Insurance Company in a declaratory relief action. The Court of Appeal held that the very broad interpretations which Essex applied to the auto exclusions in its policy defeated the reasonable expectations of the insured. Because the exclusions were not plain and clear enough to defeat those reasonable expectations, Essex had a duty to defend its insured, the City of Bakersfield, in a third party action.
The City bought a special events CGL policy from Essex to cover a fundraising event for D.A.R.E. that the City was holding on private property. During the event an access point to the parking lot on the private property was designated as "exit only." Cars exiting at that exit made right turns into the eastbound lane of State Route 119. A City police officer who was monitoring that area of the parking lot saw a white van merging onto the right shoulder from the eastbound lane. He waved the van along. Guillermo Mena was driving a tractor-trailer that was behind the white van in the eastbound lane. Unable to determine what action the white van was taking, Mena applied his brakes. As a result, the tractor-trailer jackknifed and travelled into the westbound lane where it hit a car being driven west by Gloria Navarro.
Navarro sued the City alleging that the City had caused a dangerous condition during the D.A.R.E. event that contributed to the accident in which Navarro was seriously injured. The City tendered the defense and indemnification of the Navarro lawsuit to Essex. Essex rejected the tender and brought this action for declaratory relief.
The Essex CGL policy contained a modified auto exclusion which stated: "This insurance does not apply to bodily injury or property damage arising out of, caused by, or contributed to by the ownership, non-ownership, maintenance, use or entrustment to others of any auto." The word "non-ownership" had been substituted for the phrase "owned or operated by or rented to or loaned to any insured." Essex contended that the City's non-ownership of the vehicles involved in the accident caused the Navarro action to be excluded from coverage.
The Court of Appeal held that this interpretation of the auto exclusion created an unusual and unfair limitation of coverage that defeated the insured's reasonable expectations. In the absence of evidence that Essex brought its broad interpretations to the attention of the insured, the policy came within the rule established by the California Supreme Court that provisions limiting coverage that are not conspicuous, plain and clear cannot defeat an insured's reasonable expectations of coverage as provided by the insuring clause.
No reasonable insured would have expected that the policy would protect it from liability for negligently creating a dangerous condition of public property in all cases except where the dangerous condition led to an automobile accident involving vehicles that had no connection to the insured.
In addition, the Essex interpretation created an unusual distinction between the auto exclusion and the other insurance exclusions in the policy. The other exclusions excluded coverage for acts done by City employees in the scope of employment, by the City as employer, and certain events involving spectators and third parties that occurred on the premises of the event. When read in conjunction with these other exclusions, the auto exclusion was clearly meant to apply to cases involving the acts or omissions of the insured or its agents.
Essex's interpretation also did not comport with the common understanding of CGL policies. CGL policies have a very broad excluding clause but also contain numerous exclusions. The exclusions fall into two categories. The first are risks that the insurer does not want to cover under any circumstance (war, intentional injury and environmental pollution, for example). The second category of exclusions are for risks usually covered by other insurance policies. The auto exclusion excludes risks that would normally be covered by automobile liability insurance. However, there is no kind of automobile policy that the City could have bought to cover it for risks arising from an automobile accident where the City had no connection to the automobiles involved in the accident.
The Essex auto exclusions were not clear and plain enough to defeat the City's reasonable expectation that it had insurance for the negligent creation of a dangerous condition. The Navarro lawsuit therefore fell within the potential coverage of the policy and Essex had an obligation to provide the City with a defense.
Justice Hill wrote the opinion. Presiding Justice Vartabedian and Justice Wiseman concurred.
Comment: This opinion is the source of the quote of the week for the week of August 27th on the Civil Litigation Quote of the Week blog.
Essex Insurance Company v. City of Bakersfield (Aug. 27, 2007, F051091, Fifth District)
19 p. opinion
In this insurance coverage action the Court of Appeal reversed the summary judgment granted to Essex Insurance Company in a declaratory relief action. The Court of Appeal held that the very broad interpretations which Essex applied to the auto exclusions in its policy defeated the reasonable expectations of the insured. Because the exclusions were not plain and clear enough to defeat those reasonable expectations, Essex had a duty to defend its insured, the City of Bakersfield, in a third party action.
The City bought a special events CGL policy from Essex to cover a fundraising event for D.A.R.E. that the City was holding on private property. During the event an access point to the parking lot on the private property was designated as "exit only." Cars exiting at that exit made right turns into the eastbound lane of State Route 119. A City police officer who was monitoring that area of the parking lot saw a white van merging onto the right shoulder from the eastbound lane. He waved the van along. Guillermo Mena was driving a tractor-trailer that was behind the white van in the eastbound lane. Unable to determine what action the white van was taking, Mena applied his brakes. As a result, the tractor-trailer jackknifed and travelled into the westbound lane where it hit a car being driven west by Gloria Navarro.
Navarro sued the City alleging that the City had caused a dangerous condition during the D.A.R.E. event that contributed to the accident in which Navarro was seriously injured. The City tendered the defense and indemnification of the Navarro lawsuit to Essex. Essex rejected the tender and brought this action for declaratory relief.
The Essex CGL policy contained a modified auto exclusion which stated: "This insurance does not apply to bodily injury or property damage arising out of, caused by, or contributed to by the ownership, non-ownership, maintenance, use or entrustment to others of any auto." The word "non-ownership" had been substituted for the phrase "owned or operated by or rented to or loaned to any insured." Essex contended that the City's non-ownership of the vehicles involved in the accident caused the Navarro action to be excluded from coverage.
The Court of Appeal held that this interpretation of the auto exclusion created an unusual and unfair limitation of coverage that defeated the insured's reasonable expectations. In the absence of evidence that Essex brought its broad interpretations to the attention of the insured, the policy came within the rule established by the California Supreme Court that provisions limiting coverage that are not conspicuous, plain and clear cannot defeat an insured's reasonable expectations of coverage as provided by the insuring clause.
No reasonable insured would have expected that the policy would protect it from liability for negligently creating a dangerous condition of public property in all cases except where the dangerous condition led to an automobile accident involving vehicles that had no connection to the insured.
In addition, the Essex interpretation created an unusual distinction between the auto exclusion and the other insurance exclusions in the policy. The other exclusions excluded coverage for acts done by City employees in the scope of employment, by the City as employer, and certain events involving spectators and third parties that occurred on the premises of the event. When read in conjunction with these other exclusions, the auto exclusion was clearly meant to apply to cases involving the acts or omissions of the insured or its agents.
Essex's interpretation also did not comport with the common understanding of CGL policies. CGL policies have a very broad excluding clause but also contain numerous exclusions. The exclusions fall into two categories. The first are risks that the insurer does not want to cover under any circumstance (war, intentional injury and environmental pollution, for example). The second category of exclusions are for risks usually covered by other insurance policies. The auto exclusion excludes risks that would normally be covered by automobile liability insurance. However, there is no kind of automobile policy that the City could have bought to cover it for risks arising from an automobile accident where the City had no connection to the automobiles involved in the accident.
The Essex auto exclusions were not clear and plain enough to defeat the City's reasonable expectation that it had insurance for the negligent creation of a dangerous condition. The Navarro lawsuit therefore fell within the potential coverage of the policy and Essex had an obligation to provide the City with a defense.
Justice Hill wrote the opinion. Presiding Justice Vartabedian and Justice Wiseman concurred.
Comment: This opinion is the source of the quote of the week for the week of August 27th on the Civil Litigation Quote of the Week blog.
Saturday, September 8, 2007
No Discovery of Reinsurance Information
Code of Civil Procedure Section 2017.210 Does Not Authorize Discovery of Reinsurance Information
Catholic Mutual Relief Society v. Superior Court (Aug. 27, 2007, S134545, Supreme Court)
25 p. opinion (20 p. majority, 5 p. dissent)
The question in this case was whether Code of Civil Procedure section 2017.210, which permits discovery of specific aspects of a defendant's insurance coverage, authorizes pretrial discovery of a non-party liability insurer's reinsurance agreements. The discovery was sought for the purpose of facilitating settlement of the underlying tort action. The Supreme Court decided 4 to 3 that the discovery of reinsurance information is not permitted.
The non-party petitioner Catholic Mutual Relief Society is, through a wholly owned subsidiary, the liability insurer for more that three hundred archdioceses and other Catholic church entities. Included among them are the Archdiocese of San Diego and the Archdiocese of San Bernardino. The discovery dispute addressed here arose out of an action by 144 plaintiffs against those two Archdioceses for alleged childhood abuse by priests.
As part of normal discovery under CCP 2017.210 the defendant Archdioceses had produced copies of the liability insurance policies issued to them by the Petitioner. The plaintiffs contended that this information was insufficient, that they also need information about the Petitioner's reinsurance agreements in order to determine whether the Petitioner was financially sound enough to cover its policies.
CCP 2017.210 permits discovery of the "existence and contents of any agreement under which any insurance carrier may be liable to satisfy in whole or in part a judgment that may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment."
The majority found the phrase "satisfy the judgment" ambiguous because liability insurers are directly liable to satisfy the judgment in an underlying action, while a reinsurer is only derivatively liable to indemnify or reimburse the liability insurer for payments to satisfy the judgment. To resolve this ambiguity they examined the legislative history of the code provision. They concluded that the provision codified a common law rule permitting limited discovery of a defendants liability insurance coverage. As a consequence it was not intended to, and did not, authorize discovery of reinsurance agreements.
Justice Baxter wrote the opinion. Chief Justice George and Justices Chin and Moreno concurred.
Justice Corrigan dissented. Justices Kennard and Werdegar concurred in the dissent.
The dissenting Justices found no ambiguity in the statute. They would have held that the obligation to "indemnify or reimburse" encompassed the duty assumed by reinsurers. Furthermore the discovery of reinsurance contracts would not result in the revelation of the liability insurer's total assets. Reinsurance is a very specific asset that has value only when liability has been incurred. Liability insurers that had backed up their policies with discoverable assets were in no position to complain about the disclosure of those assets.
Comment: In footnote 5 the majority opinion states that this matter had become moot as to these parties after it had been submitted to the Court of Appeal. The Court of Appeal proceeded because the issue was likely to reoccur and because of the broad public interest of the issue. The Supreme Court obviously agreed with that decision. It is completely coincidental that the underlying action was settled 11 days after this opinion was filed. The settlement was, apparently, triggered by a rapidly approaching Bankruptcy Court deadline. As a side note, many of the 144 plaintiffs brought their actions during the 2003 revival of childhood abuse actions that was the topic of the Supreme Court's Aug. 20, 2007 decision, Shirk v. Vista Unified School District.
Catholic Mutual Relief Society v. Superior Court (Aug. 27, 2007, S134545, Supreme Court)
25 p. opinion (20 p. majority, 5 p. dissent)
The question in this case was whether Code of Civil Procedure section 2017.210, which permits discovery of specific aspects of a defendant's insurance coverage, authorizes pretrial discovery of a non-party liability insurer's reinsurance agreements. The discovery was sought for the purpose of facilitating settlement of the underlying tort action. The Supreme Court decided 4 to 3 that the discovery of reinsurance information is not permitted.
The non-party petitioner Catholic Mutual Relief Society is, through a wholly owned subsidiary, the liability insurer for more that three hundred archdioceses and other Catholic church entities. Included among them are the Archdiocese of San Diego and the Archdiocese of San Bernardino. The discovery dispute addressed here arose out of an action by 144 plaintiffs against those two Archdioceses for alleged childhood abuse by priests.
As part of normal discovery under CCP 2017.210 the defendant Archdioceses had produced copies of the liability insurance policies issued to them by the Petitioner. The plaintiffs contended that this information was insufficient, that they also need information about the Petitioner's reinsurance agreements in order to determine whether the Petitioner was financially sound enough to cover its policies.
CCP 2017.210 permits discovery of the "existence and contents of any agreement under which any insurance carrier may be liable to satisfy in whole or in part a judgment that may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment."
The majority found the phrase "satisfy the judgment" ambiguous because liability insurers are directly liable to satisfy the judgment in an underlying action, while a reinsurer is only derivatively liable to indemnify or reimburse the liability insurer for payments to satisfy the judgment. To resolve this ambiguity they examined the legislative history of the code provision. They concluded that the provision codified a common law rule permitting limited discovery of a defendants liability insurance coverage. As a consequence it was not intended to, and did not, authorize discovery of reinsurance agreements.
Justice Baxter wrote the opinion. Chief Justice George and Justices Chin and Moreno concurred.
Justice Corrigan dissented. Justices Kennard and Werdegar concurred in the dissent.
The dissenting Justices found no ambiguity in the statute. They would have held that the obligation to "indemnify or reimburse" encompassed the duty assumed by reinsurers. Furthermore the discovery of reinsurance contracts would not result in the revelation of the liability insurer's total assets. Reinsurance is a very specific asset that has value only when liability has been incurred. Liability insurers that had backed up their policies with discoverable assets were in no position to complain about the disclosure of those assets.
Comment: In footnote 5 the majority opinion states that this matter had become moot as to these parties after it had been submitted to the Court of Appeal. The Court of Appeal proceeded because the issue was likely to reoccur and because of the broad public interest of the issue. The Supreme Court obviously agreed with that decision. It is completely coincidental that the underlying action was settled 11 days after this opinion was filed. The settlement was, apparently, triggered by a rapidly approaching Bankruptcy Court deadline. As a side note, many of the 144 plaintiffs brought their actions during the 2003 revival of childhood abuse actions that was the topic of the Supreme Court's Aug. 20, 2007 decision, Shirk v. Vista Unified School District.
Tuesday, August 28, 2007
An Excess Judgment Can Be Recovered as Damages in a Contract Action Based Upon a Breach of the Covenant of Good Faith in an Insurance Policy
The Statute of Limitations is Equitably Tolled During the Time Between Entry of a Judgment and the Date That it Becomes Final
Archdale v. American International Specialty Lines Insurance Co. (Aug. 22, 2007, B188432, Second Appellate District, Division Three)
Opinion on Rehearing
43 page opinion
There is extensive case law concerning tort liability for breach of the covenant of good faith and fair dealing in insurance contracts but considerably less about contract actions based upon breach of the covenant. Fewer plaintiffs elect to pursue a contract claim because a tort claim permits recovery of greater damages. Emotional distress damages, punitive damages and Brandt fee awards are available in tort claims but do not qualify as contract damages. This opinion discusses a contract cause of action based upon breach of the covenant.
In the underlying action a multi-vehicle collision led to a lawsuit by the Archdales (the appellants here) against the driver of the truck that caused the accident and his employer. American International Specialty Lines Insurance Company (AIS), the company's insurer provided a defense and apparently acknowledged coverage. The policy limits were $500,000. Before trial the Archdales offered to settle for policy limits but AIS rejected the settlement offer. The trial resulted in a judgment of $1,292,495 in favor of the Archdales. After it rejected the Archdales settlement offer, AIS settled with another claimant from the same accident for $142,500. Following an unsuccessful appeal of the underlying judgment, AIS paid the Archdales the $357,500 remaining on the policy.
In this action the Archdales pursued the truck driver's contract causes of action against AIS (breach of express policy provisions and breach of the implied covenant) which had been assigned to them by the truck driver. The truck driver himself pursued his unassignable purely personal tort claim for emotional distress.
Statute of Limitations, Equitable Tolling and Assignment
The trial court granted AIS summary judgment based upon the statute of limitations because the judgment in the underlying action had been entered on May 3, 1999 and this action was filed on Sept. 12, 2003.
The Court of Appeal upheld the summary judgment against the truck driver because the two year statute on his tort action had run before this action was filed. However, the court concluded that the Archdales' contract claims were timely because the statute of limitations had been equitably tolled between the May 3, 1999 entry of the judgment and Nov. 27, 2001, when the judgment became final after remittur issued following the appeal.
There was evidence that although the Archdales' Sept. 12, 2003 complaint was based upon the assignment to them of the truck driver's contract claims, those claims were not actually assigned to them until Sept., 2004. However, the four year limitations period still had not run by Sept., 2004 which meant that the retroactive assignment did not prejudice AIS and therefore it was not barred by Civil Code section 2313.
Contract Action for Breach of the Covenant of Good Faith and Fair Dealing
The Court found that the Archdales' cause of action for breach of an express contract provision failed because there were no allegations of such a breach. AIS had provided a defense and had paid out the policy limits. The cause of action for breach of the implied covenant, however, stated a valid cause of action.
An insurer's failure to accept a reasonable settlement offer to resolve a third party claim against its insured constitutes a breach of the covenant of good faith and fair dealing. If the failure to settle leads to an excess judgment, that excess judgment is a consequential of the breach within the meaning of Civil Code 3300 and therefore is recoverable in a contract action.
An insurer has a duty to accept a reasonable offer to settle a claim against its insured. The Court quoted the following language from Johansen v. California State Auto. Assn. Inter-Ins Bureau (1975) 15 Cal.3d 9, 16 as the standard for determining if a settlement offer is reasonable: "the only permissible consideration in evaluating the reasonableness of the settlement offer becomes whether, in light of the victim's injuries and the probable liability of the insured, the ultimate judgment is likely to exceed the amount of the settlement offer. Such factors as [1] the limits imposed by the policy, [2] a desire to reduce the amount of future settlements, or [3] a belief that the policy does not provide coverage should not affect a decision as to whether the settlement offer in question is a reasonable one."
Justice Croskey wrote the opinion. Presiding Justice Klein and Justice Kitching concurred.
Comment: The Court here was dealing with a summary judgment based upon a statute of limitations defense. The merits of the contract action had not been litigated. The issue of the reasonableness (and the associated evidence) of the Archdales' settlement offer was not before it. In footnote 23 the Court noted the existence of case law stating that the size of the judgment furnishes an inference of the value of the claim. A question not before the court, but perhaps on the minds of practitioners, is how to ensure that an insurance company fulfills its good faith duty to its insured when there are multiple claimants, as there were here after the multi-vehicle collision? Even if a claimant's damages indisputably exceed the policy limits, can the insurance company pay the full policy amount when there are other claims? That leaves the insured exposed for the complete amount of those other claims, a very serious situation for the insured if those claims are also substantial. In addition, once the policy limits have been paid there is no additional coverage and when there is no possibility of coverage can there be any duty to defend? These are questions that the trial court will may have to address during the trial of this action.
Insurance is Not Covered by the Consumer Legal Remedies Act
Insurance is Neither a Good Nor a Service Within the Meaning of the CLRA
Fairbanks v. Superior Court (Aug. 22, 2007, B198538, Second Dist. Div. Three)
16 page opinion
UPDATE: REVIEW GRANTED (On Nov. 14 the Supreme Court granted review) (S157001)
The Court of Appeal resolved the question of whether the Consumer Legal Remedies Act (Civil Code section 1750 et seq.), a statute intended to protect low-income consumers from deceptive or unfair business practices, covers insurance. The CLRA prohibits deceptive or unfair acts in the sale or lease of goods and services. The Court held that insurance was neither a "good" nor a "service" within the meaning of the Act.
The Court found that the plain language of the CLRA excluded insurance because its definitions of "goods" and "services" could not be read to include insurance. The Court also noted dicta from the California Supreme Court that insurance is neither a good nor a service under the CLRA.
In addition, the Court examined the legislative history of the CLRA. The CLRA was adapted from the National Consumer Act, a model statute. However, the NCA definition of services specifically included insurance. The California legislature eliminated insurance from that definition when it adapted the language of the NCA. At the time that the CLRA was enacted, insurance practices in California were already regulated by the Unfair Insurance Practices Act (UIPA). Omitting insurance from the CLRA left the regulatory scheme developed under the UIPA intact and in force.
Finally, the Court noted policy considerations supporting its ruling. The CLRA provides for private actions with the recovery of restitutionary relief, injunctive relief, compensatory damages, punitive damages and attorney's fees. The UIPA provides only for administrative enforcement. The California Supreme Court has explicitly held that the UIPA does not create a private right of action.
Justice Croskey wrote the opinion. Presiding Justice Klein and Justice Kitching concurred.
Comment: Although it is short, this opinion is extremely thorough. It examines all four of the criteria that are commonly used to interpret a statute - the plain language of the statute, other case law interpretations, indications of legislative intent and public policy considerations. The definitions of "good" and "service" in the statute were all by themselves very pursuasive on the question of whether insurance is covered by CLRA. One consequence of the thoroughness of this opinion should be the prevention of any future calls upon limited judicial resources to deal with arguments that insurance is covered by CLRA.
Fairbanks v. Superior Court (Aug. 22, 2007, B198538, Second Dist. Div. Three)
16 page opinion
UPDATE: REVIEW GRANTED (On Nov. 14 the Supreme Court granted review) (S157001)
The Court of Appeal resolved the question of whether the Consumer Legal Remedies Act (Civil Code section 1750 et seq.), a statute intended to protect low-income consumers from deceptive or unfair business practices, covers insurance. The CLRA prohibits deceptive or unfair acts in the sale or lease of goods and services. The Court held that insurance was neither a "good" nor a "service" within the meaning of the Act.
The Court found that the plain language of the CLRA excluded insurance because its definitions of "goods" and "services" could not be read to include insurance. The Court also noted dicta from the California Supreme Court that insurance is neither a good nor a service under the CLRA.
In addition, the Court examined the legislative history of the CLRA. The CLRA was adapted from the National Consumer Act, a model statute. However, the NCA definition of services specifically included insurance. The California legislature eliminated insurance from that definition when it adapted the language of the NCA. At the time that the CLRA was enacted, insurance practices in California were already regulated by the Unfair Insurance Practices Act (UIPA). Omitting insurance from the CLRA left the regulatory scheme developed under the UIPA intact and in force.
Finally, the Court noted policy considerations supporting its ruling. The CLRA provides for private actions with the recovery of restitutionary relief, injunctive relief, compensatory damages, punitive damages and attorney's fees. The UIPA provides only for administrative enforcement. The California Supreme Court has explicitly held that the UIPA does not create a private right of action.
Justice Croskey wrote the opinion. Presiding Justice Klein and Justice Kitching concurred.
Comment: Although it is short, this opinion is extremely thorough. It examines all four of the criteria that are commonly used to interpret a statute - the plain language of the statute, other case law interpretations, indications of legislative intent and public policy considerations. The definitions of "good" and "service" in the statute were all by themselves very pursuasive on the question of whether insurance is covered by CLRA. One consequence of the thoroughness of this opinion should be the prevention of any future calls upon limited judicial resources to deal with arguments that insurance is covered by CLRA.
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