Hospital's Suit For Reimbursement Is Not Preempted by ERISA

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.

An Insurance Clause Requiring Proration of an Unisured Motorist Claim Prevails Over A Policy With a Conflicting Clause

A Proration Clause Based Upon Insurance Code Section 11580.2(d) Prevents the Application Of An Excess Insurance Clause in Another Applicable Policy

Allstate Insurance Company v. Mercury Insurance Company (Sept. 5, 2007, B189977, Second District)
7 p. opinion

It's always nice to see an insurance coverage case in which an insurance company (or in this case, two insurance companies) have acted appropriately. When the opinion is also brief and clear, that's even nicer.

A boy who was driving his parents car had a girl passenger. An uninsured motorist ran a red light and hit the car, injuring the girl. Two insurance policies applied, the Mercury policy issued to the boy's parents and the Allstate policy issued to the girl's parents. The girl filed claims under the uninsured motorist provisions of both policies. The Mercury policy had an uninsured motorist limitation of $30,000 per person and the Allstate policy had an uninsured motorist limitation of $250,000 per person.

The Mercury policy had a clause that provided for proration of uninsured motorist coverage damages based upon the coverage limits of the applicable policies. The language of this clause tracked Insurance Code section 115080.2(d) which permits such clauses. The Allstate policy had a clause providing that it was excess to the coverage of the uninsured motorist coverage covering a vehicle that the Allstate insured did not own.

The insurance companies appropriately settled the girl's claim for personal injuries jointly for $52,200, agreeing to litigate their dispute about the amount each was required to pay afterward, in this action.

The trial court's decision, affirmed by the Court of Appeal was that language of the Mercury policy was controlling. When an uninsured motorist insurance policy contains the statutory proration clause of section 11580.2(d) it must be given deference. To decide otherwise would nullify the statute.
Presiding Justice Gilbert wrote the opinion. Justices Yegan and Coffee concurred.

Comment: Allstate clearly wanted to know how section 11580.2(d) affected all the policies that it wrote in California rather than being concerned with this single claim. The amount in dispute, just under $25,000, wasn't worth litigating, much less taking up on appeal. The good faith behavior of these insurance companies, shown by their decision not to let the conflict between them delay the insured's settlement, is a contrast to the bad faith behavior of the insurance company in Baron v. Fire Insurance Exchange.

No Insurance Coverage for Sexual Assault by Employee

Common Carrier Status Did Not Create Liability for Driver's Actions

R. A. Stuchbery & Others Syndicate 1096 v. Redland Insurance Company (Aug. 27, 2007, A114986, First District, Division Five)
12 p. opinion

This is an insurance coverage case in which the general liability insurer (Stuchbery) defended and indemnified its insured and then brought this action against the issuer of the insured's business automobile policy for reimbursement or equitable contribution for the costs of the defense and indemnification.

The insured was a shuttle service operator. The underlying action was brought by a 16 year-old girl who alleged that she had entered the shuttle because the driver, the insured's employee, had told her that he would take her to a youth center. As they were driving, the driver told the girl that because it was late at night, the youth centers were closed. He suggested she sleep at his apartment for a few hours until the centers opened. The girl accompanied the driver to his apartment where he sexually assaulted her.

Previous California cases have interpreted the portion of Redland's policy which provides coverage for a bodily injury resulting from the use of a covered auto as creating coverage only when the use of the insured vehicle was a predominating cause or a substantial factor in causing the injury.

Stuchbery argued that those previous cases concerned private vehicles while the shuttle involved in the underlying action was a common carrier. Stuchbery contended that the relationship between the driver of a common carrier and one of its passenger is defined by the common carrier vehicle. Without the vehicle, there would be no relationship between the driver and the passenger and thus no opportunity for the driver to assault the passenger.

The Court of Appeal held that the assault in this case was too attenuated from the vehicle to trigger potential coverage under the Redland policy. The passenger voluntarily left the vehicle and entered the driver's apartment. As a result the link between the use of the vehicle and the sexual assault was too weak to support Stuchbery's argument.
Acting Presiding Justice Simons wrote the opinion. Justices Gemello and Needham concurred.

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.