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Representative
H & L Insurance Coverage and Bad Faith Cases - Jonathan
Neil & Associates, Inc. v. Jones (2004) 33 Cal.4th 917.
This Supreme Court case raised the following
issue: “[W]hether an insurance
company’s breach of the [implied] covenant [of good faith and fair dealing]
sounds in tort when it retroactively overcharges a premium it knows is not
owed.” (33 Cal.4th at p. 923.) Horvitz & Levy filed a brief on behalf
of amicus curiae State Compensation Insurance Fund arguing that tort remedies
are not available for breach of the implied covenant under these circumstances.
The Supreme Court agreed. The court noted that tort remedies have historically
been available when an insurer in bad faith refuses to settle a third-party
claim against the insured or to pay the insured’s own first-party claim.
In other words, tort remedies have been available for an insurer’s
bad faith withholding of policy benefits. The court concluded that tort
remedies were not appropriate or necessary in the present case, involving
allegedly
excessive premiums.
- The
Upper Deck Co. v. Federal Insurance Co. (9th Cir. 2004) 358 F.3d 608.
The
insured manufactured sports trading cards. It was sued in a class action for violating
RICO and various gambling laws based on its business practice of randomly inserting
valuable, limited production "chase" cards into packages of trading
cards. The complaint alleged injury to the plaintiffs' business or property and
sought treble damages, attorney's fees, declaratory relief, injunctive relief,
restitution and disgorgement of the insured's allegedly improper gains. The complaint
did not allege bodily or mental injury. The insured tendered the defense to Federal
under primary and umbrella CGL policies, contending that the complaint could be
construed or amended to allege that plaintiff children had suffered bodily or
mental injuries by reason of gambling addiction. When Federal denied the defense,
the insured filed an action for breach of contract and declaratory relief. The
district court granted summary judgment for Federal on the ground the complaint
did not allege a covered "occurrence" or "accident." The Ninth
Circuit affirmed. The majority held that the underlying complaint did not allege
covered "bodily injury" and that mere speculation the plaintiffs would
allege such injury did not give rise to a duty to defend. "The possibility
of an amendment does not require the insurer to speculate about any conceivable
claim that a plaintiff might bring against the insured or to spin out wild theories
of recovery for every conceivable damage." (358 F.3d at p. 616.) The concurring
justice agreed with the result but would have affirmed on the ground the underlying
complaint did not allege a covered "occurrence" or "accident."
- Brizuela v. CalFarm Insurance Co. (2004)
116 Cal.App.4th 578.
CalFarm Insurance Co. denied a first party insurance claim
after the insured failed to appear for an examination under oath (EUO). CalFarm
kept asking for new dates but the insured never provided them. The trial court
granted CalFarm summary judgment on the insured's contract and bad faith claims
on the ground the EUO was a condition precedent to coverage. The Court of Appeal
affirmed, holding (1) the insured violated the insurance policy; (2) the insurer
could deny the claim on that basis without a showing of prejudice; (3) the availability
of a deposition in litigation does not excuse the insured' breach of the EUO
requirement; (4) the insured had no valid bad faith claim; and (5) the trial
court properly dismissed the action.
- State Farm v. Superior Court (Balen) (2004)
123 Cal.App.4th 1424.
The Court of Appeal granted our petition for writ of mandate
requiring the trial court to deny plaintiff's motion to compel an uninsured motorist
arbitration. The appellate court accepted our argument that an insured cannot
compel an uninsured motorist arbitration where the insurer has paid all of the
uninsured motorist policy benefits.
- Nicola International v. Farmers Group [unpublished].
Nicola International, a processor and distributor of Mediterranean
food products, was insured under a Truck commercial risk policy. Nicola made
a claim for property damage to "grape leaves" it had packaged for sale. The leaves,
which had been packaged in a brine solution, appeared to be falling apart and
the brine solution was cloudy. A lab report showed that the sediment in the jars
was comprised of tannins, which are a nature by-product of grape leaves. Based
on the lab report, Truck denied the claim under an exclusion for "decay" or "deterioration."
The trial court granted summary judgment in favor of Truck based on the exclusion.
Nicola appealed, arguing that Truck never determined what triggered the damage
and failed to rule out all possible covered causes. In our respondent's brief
on behalf of Truck, we argued that, once Truck established the loss fell within
the exclusion, the burden shifted to Nicola to demonstrate a covered cause that
might trigger an efficient proximate cause analysis. Division Four of the Second
Appellate District agreed with our position and affirmed the judgment in favor
of Truck. - Migliore v. Mid-Century Ins. Co.
(2002) 97 Cal.App.4th 592.
Action for breach of contract,
bad faith, and negligence arising from denial of an insurance claim for damages
to plaintiff’s home from two aftershocks of the Northridge earthquake. Four
months after discovering the damage, plaintiff filed a claim for damages and received
payment, but contended the amount was too low. Defendant insurer denied plaintiff’s
claim for additional benefits. Almost three years after plaintiff first discovered
the damages, she filed suit against defendant insurer. The jury awarded plaintiff
$50,000 on the negligence claim, but assigned 80% of the fault to plaintiff. However,
the trial judge found that the dates assigned by the jury on the special verdict
form indicated that plaintiff’s claim was time-barred, and entered judgment
for defendant insurer. Plaintiff appealed, claiming, in part, that newly-enacted
Code of Civil Procedure section 340.9 revived her claim for damages arising from
the Northridge earthquake. The Court of Appeal affirmed, holding section 340.9
applied only to claims arising from the January 17, 1994 Northridge earthquake
itself and not to subsequent aftershocks. - American
Medical International v. National Union Fire Insurance Co. of Pittsburgh
(9th Cir. 2001) 244 F.3d 715.
Bad faith action by
insured corporation under directors and officers policy based on insurer's settlement
of action against director over corporation's objection. The jury awarded no contract
damages, $11,000,000 in compensatory damages for breach of the implied covenant
of good faith and fair dealing, and $1,000,000 in attorneys' fees. The Court of
Appeals affirmed in an unpublished memorandum disposition, holding that the insurer's
conduct in settlement constituted breach of the duty of good faith owed to corporation
without regard to any coverage issues. The United States Supreme Court granted
a petition for writ of certiorari, vacated the judgment, and remanded to Court
of Appeals for further consideration under Waller v. Truck Insurance Exchange.
The Court of Appeals vacated the district court's judgment and remanded for reconsideration
in light of Waller. On reconsideration, the district
court reinstated the $12,000,000 judgment. Defendant appealed again. The Court
of Appeals reversed, holding: (1) in light of Waller, there could be
no bad faith liability in the absence of coverage; and (2) the exclusion for claims
by former directors barred coverage. - Kazi v.
State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871.
Action for bad faith and breach of contract arising from defendant insurers' denial
of a defense in the underlying action. The insurers' policies covered claims for
physical injury, loss, or destruction of tangible property. The underlying complaint
alleged the insureds obstructed their neighbors' easement over a portion of the
insureds' property. The trial court granted nonsuit for the insurers, finding
no duty to defend. The Court of Appeal reversed, holding the insurers had a duty
to defend because the easement dispute involved damage to tangible property under
each of the insurers' liability policies. The Supreme Court reversed the Court
of Appeal's judgment, holding the destruction of an easement is not physical injury,
loss, or destruction of tangible property within the meaning of the insurance
policies, and therefore did not trigger the insurer's duty to defend or indemnify.
- Kramer v. State Farm Insurance Co. (1999) 76
Cal.App.4th 332.
Action for bad faith and breach
of contract based on denial of claim under rental dwelling policy covering liability
arising from the "ownership, maintenance or use" of the premises where plaintiffs
in the underlying action were molested. Trial court granted summary judgment for
insurer. Appellate court affirmed, finding no coverage absent a causal relationship
between the use of the premises and the molestation. - Notrica
v. State Compensation Insurance Fund (1999) 70 Cal.App.4th 911.
Insurance bad faith action by employer against workers' compensation insurance
carrier. Jury awarded $478,606.00 in compensatory damages and $20,000,000 in punitive
damages. Court of Appeal affirmed the compensatory damages, holding the plaintiff
had sufficiently presented evidence to support the judgment and the award was
not tainted by evidentiary or instructional error. Court of Appeal remitted the
punitive damages to $5,000,000, holding that it was excessive in light of State
Fund's public entity status and that the jury was likely influenced by passion
and prejudice. - Palmer v. Truck Insurance Exchange
(1999) 21 Cal.4th 1109.
Action under primary and
umbrella business policies for declaratory relief and breach of duty to defend
in underlying action for trademark infringement. Trial court sustained demurrer
without leave to amend. Court of Appeal affirmed as to primary policy, holding
(1) plaintiffs were not named insureds under that policy; and (2) uninsured partnership
exclusion barred coverage. Court of Appeal reversed as to umbrella policy, holding
(1) named insured designation was ambiguous; (2) trademark infringement is not
an inherently willful act; and (3) plaintiff's liability fell within policy's
coverage for infringement of title or slogan. California Supreme Court reversed
as to the umbrella policy, holding coverage for "infringement of title" was limited
to infringement of titles of literary or artistic works and did not include names
of businesses. - Cates Construction, Inc. v.
Talbot Partners (1999) 21 Cal.4th 28.
Action
against surety for breach of a construction performance bond and tortious bad
faith. On breach of bond claim, trial court held surety liable to developer for
approximately $5,000,000 and to developer's lender for approximately $1,500,000.
On tortious bad faith claim, trial court awarded developer $1 in compensatory
damages and $28,000,000 in punitive damages. Court of Appeal affirmed, but reduced
punitive damages award to $15,000,000 and remanded for recalculation of prejudgment
interest on the awards. Supreme Court reversed punitive damage award in its entirety
after holding a surety's breach of the implied covenant of good faith and fair
dealing in a construction performance bond does not give rise to cause of action
in tort. The Supreme Court affirmed the award of compensatory damages based on
the terms of the performance bond at issue in the case. - Cigna
Property & Cas. Ins. Co. v. Polaris Pictures Corp. (9th Cir. 1999)
159 F.3d 412.
Insurer's action to rescind marine
insurance contract after claim was made for the sinking and consequent total loss
of a motor yacht. District court granted summary judgment on behalf of insurer
and awarded insurer $2.5 million in attorneys' fees. Ninth Circuit affirmed, holding
a marine insurance policy on a yacht can be rescinded when corporate insured failed
to disclose the interest of a principal with a history of multiple total losses
on similar vessels. - Industrial Indemnity v.
Apple Computer, Inc. (1999) 71Cal.App.4th 452.
Bad faith and declaratory relief action involving two insurers whom plaintiff
Apple Computer, Inc. alleged breached a duty to defend against Apple Records'
underlying trademark infringement action in England. Jury awarded contract damages
consisting of attorney's fees and costs in the underlying action and bad faith
damages consisting of Brandt fees spent to pursue the claim for contract
benefits. After calculating prejudgment interest, trial court entered judgment
of $17,166,212 against one insurer and $17,786,539 against the other. Court of
Appeal reversed with directions to enter judgment for the insurers, holding: (1)
policy of one insurer excluded coverage for claims of trademark infringement and
unfair competition based upon infringement of trade mark, service mark or trade
name; (2) policy of other insurer covered advertising injury only in North America;
and (3) the term "title" in second insurer's umbrella policy coverage clause could
not be interpreted to include a business name under the policy. - Old
Republic Ins. Co. v. Superior Court (Nautilus Ins. Co.) (1998) 66 Cal.App.4th
128.
Action for declaratory relief, contribution
and equitable indemnity against two insurers by a third insurer that settled a
third party's lawsuit for waste and breach of lease against an insured. All three
insurers had issued substantially similar CGL policies to the insured. The Court
of Appeal had previously ruled the plaintiff insurer's policy provided coverage.
In this subsequent action, another division of the Court of Appeal disagreed with
the prior unpublished opinion and granted defendant insurers' writ petition from
the denial of their summary judgment motions, holding there was no coverage or
potential for coverage as a matter of law. - Stonewall
Insurance Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810.
Action to determine the obligations of several successive insurers (primary and
excess) to indemnify city when a slow-moving landslide triggered by a defective
city storm drain slowly destroyed a home. Court of Appeal held all insurers on
the risk from the inception of the damage until the home was totally destroyed
were obligated to indemnify the city. Court adopted a "qualified time on the risk"
method of apportionment among the insurers, i.e., indemnity apportioned among
successive insurers based upon the amount of time each policy was in effect. Court
also adopted horizontal exhaustion rather than vertical exhaustion, i.e., all
successive primary policies had to be exhausted before any excess insurer was
required to contribute to the loss. - Waller
v. Truck Insurance Exchange (1995) 11 Cal.4th 1.
Action for denial of defense under a commercial liability policy. After the court
directed a verdict on bad faith against the insurer, the jury returned a verdict
in favor of the insureds for approximately $2,100,000 in compensatory damages
and costs plus $56,000,000 in punitive damages. Court of Appeal reversed with
directions to enter judgment in favor of insurer. Supreme Court affirmed.
- State Farm Fire & Casualty Co. v. Richardson
(1995) 32 Cal.App.4th 1.
Coverage dispute
and bad faith action arising out of personal liability umbrella policy. Insurer
provided defense under reservation of rights but failed to pay defense counsel
in timely manner. Trial court entered summary judgment in favor of insurer. Court
of Appeal affirmed, holding delay in paying defense counsel could not support
a claim for bad faith where no defense was owed and where late payments did not
prejudice the insured's defense. - Tomaselli
v. Transamerica Insurance Co. (1994) 25 Cal.App.4th 1269 ("Tomaselli
1").
Action for denial of coverage
based upon various exclusions and failure of insured to file a timely claim. Jury
awarded $760,000 in compensatory damages and $11,250,000 in punitive damages.
Court of Appeal affirmed the compensatory damage award, but reversed the punitive
damage award in its entirety. - McLaughlin v.
National Union Fire Ins. Co. (1993) 21 Cal.App.4th 486.
Action arising out of insurers' handling of investors' claims against an insolvent
investment firm and its directors and officers. Investors entered into stipulated
judgments against directors and brought assigned claims and third party bad faith
claims against insurer. Trial court awarded approximately $6,000,000 in emotional
distress damages and $43,000,000 in punitive damages. Court of Appeal held the
verdict was tainted by numerous erroneous coverage instructions and reversed.
- Stewart v. Truck Insurance Exchange (1993)
17 Cal.App.4th 468.
Action brought by third party
against insurer arising out of insurer's handling of third party's medical malpractice
claim against insured hospital. The trial court granted a nonsuit on the plaintiff's
claim for punitive damages. The jury awarded $175,000 in financial injury damages
and $25,000 in emotional distress damages. The trial court found the financial
injury award excessive and granted a new trial on that issue. The trial court
also granted a new trial on punitive damages. The Court of Appeal reversed the
grant of a new trial on punitive damages with directions to enter judgment for
insurer on that issue and remanded the case to the trial court for a new trial
on financial injury damages only. - Helfand v.
National Union Fire Ins. Co. (1992) 10 Cal.App.4th 869.
Declaratory relief action by former investors in Technical Equities Corporation
seeking a declaration of rights under a D&O policy with policy limits
of $10,000,000 per year for three consecutive years. The trial court substantially
agreed with plaintiffs' interpretation that all three years of the policy were
available to satisfy plaintiffs' claims without reduction for defense costs. The
Court of Appeal reversed except insofar as the trial court held the policy benefits
during the third year were available to satisfy claims. - Chatton
v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846.
Declaratory relief action by former Technical Equities investors seeking a declaration
of their rights under a comprehensive general liability policy. The trial court
substantially agreed with plaintiffs' interpretation of coverage. The Court of
Appeal reversed, holding: (1) Emotional distress without physical injury does
not constitute "bodily injury" covered by the policy; (2) the "bodily injury"
clause of the CGL policy does not cover claims for emotional distress arising
out of investment losses caused by negligent misrepresentation; (3) the wrongful
activities of the Technical Equities directors and officers were not "occurrences"
covered by the bodily injury portion of the CGL policy; and (4) the advertising
liability clause of the CGL policy provides coverage only for common law unfair
competition, i.e., competitive rivalry, not unfair and deceptive business practices
committed against the public. - Hurley Construction
v. State Farm Fire & Casualty Co. (1992) 10 Cal.App.4th 533.
Action for denial of defense in underlying case against insured for insurance
fraud. Trial court granted State Farm's motion for summary judgment. Court of
Appeal affirmed, holding there was no potential coverage or duty to defend because
no "accident" or damage to tangible property was alleged. - Love
v. Fire Insurance Exchange. (1990) 221 Cal.App.3d 1136.
Action for denial of property insurance benefits under homeowner's policy. Trial
court granted summary judgment in favor of Fire Insurance Exchange. Court of Appeal
affirmed. - Brodkin v. State Farm Fire &
Casualty Co. (1989) 217 Cal.App.3d 210.
Action for denial of property insurance benefits under homeowner's policy. Trial
court granted summary judgment in favor of State Farm based on exclusions for
earth movement and contamination. Court of Appeal affirmed.
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