(Cases from August 19 to October 10, 2020)
The following published decisions may be of interest to attorneys practicing insurance law:
California Court of Appeal
An insurance agent who holds himself out as an expert in a specialized field of insurance may owe a heightened duty to explain to the insured the scope of coverage being provided. Murray v. UPS Capital Insurance Agency, Inc. (2020) __ Cal.App.5th __.
The plaintiff sought to purchase insurance to cover a $40,000 shipment of used computer equipment. He sought to purchase the insurance from the shipper, UPS, which directed him to its affiliate, UPS Capital, which procured a policy for him from Tokio Marine. The policy UPS Capital offered him, however, covered used equipment only for total loss, not a partial loss, under “abstruse” coverage language not understandable to people lacking expertise in the particular form of inland marine insurance involved. When the cargo was damaged in transit, the plaintiff filed a claim, which was denied. The plaintiff then filed this lawsuit, arguing breach of contract and negligence. As for the negligence claim, he argued that UPS Capital held itself out as an expert in inland marine insurance, and had an obligation to explain more clearly to him that the coverage provided would not include all risks of loss for the cargo he was seeking to insure. The trial court granted summary judgment for UPS Capital, holding the policy did not cover the loss and UPS Capital did not owe a heightened duty to the plaintiff to explain the limited coverage provided.
The Court of Appeal (Fourth Dist., Div. Three) reversed. While there is no per se rule “that brokers/agents, specializing in a specific field of insurance, hold themselves out as experts, and are subject to a heightened duty of care towards clients seeking that particular kind of insurance,” where the facts show that the broker or agent did hold itself out as an expert in the particular field of insurance and the insured reasonably relied on that claimed expertise, there is a basis for concluding the agent assumed a special duty to advise the insured of the scope of available coverage. “[E]vidence of specialization at a minimum creates a presumption the agent/broker anticipates their clients will rely on their acknowledged expertise and supports courts imposing an extended duty.” The plaintiff here showed a triable issue on negligence given that UPS directed him to UPS Capital for the requested specialized inland marine insurance; UPS Capital procured the policy and gave the insured directions related to the application; UPS Capital had just as much information about the risk of loss involved as the insured; and UPS Capital procured a policy that contained language only understandable to experts.
Waiver and estoppel may be used to preclude an insurer from asserting failure of a condition precedent to coverage. Dones v. Life Insurance Company of North America (2020) __ Cal.App.5th __.
Life Insurance Company of North America (LINA) issued a group supplemental life insurance policy to the County of Alameda. The policy contained a condition precedent that any employees on leave at the time of the group’s enrollment must have returned to “Active Service,” meaning they had to return from leave to work for a least one day, before the policy would become effective as to that employee. County employee Trina Johnson was on medical leave at the time the group policy issued, and passed away six months later without ever having returned to work. LINA disclaimed any obligation to pay benefits to Johnson’s beneficiary based on Johnson’s failure to have returned to “Active Service.” Johnson’s beneficiary filed suit against the County and LINA for breach of contract and bad faith, alleging, among other things, that LINA had waived the “Active Service” requirement by (1) allowing its agent, the County, to collect premiums, leading Johnson to believe the policy was in effect, and (2) failing to ensure the County provided adequate notice and documentation of what the “Active Service” requirement meant, which Johnson could easily have satisfied had she known what was required. The defendants demurred to the lawsuit, and the trial court sustained the demurrers and dismissed the lawsuit without leave to amend. The trial court held as to LINA that there was no breach of contract because the “Active Service” condition precedent to coverage had never been satisfied, and waiver and estoppel cannot be used to create insurance coverage that does not exist.
The Court of Appeal (First Dist., Div. Two) reversed as to LINA. While waiver and estoppel cannot be used to establish coverage for claims or losses that are not, in fact, covered by the policy, waiver and estoppel can be used to preclude an insurer from relying on the failure of a condition precedent to coverage. Applying waiver and estoppel in the latter circumstance does not create coverage that does not exist, but provides coverage for which the insured thought he or she had paid. Here, by collecting premiums from Johnson as if the policy were in effect and never giving clear notice to Johnson that she had not satisfied the “Active Service” requirement, LINA could be estopped from asserting the policy never went into effect. Whether estoppel or waiver applied was a question of fact that could not be resolved as a matter of law on the pleadings. Further, the complaint sufficiently alleged that the County was acting as LINA’s agent in collecting premiums and providing policy information to the covered employees so as to permit the claims against LINA to survive demurrer.
Excess insurer was not entitled to challenge the underlying insurers’ coverage decision on a prior claim as having improperly eroded the limits of the underlying policies. AXIS Reinsurance Corp. v. Northrup Grumman Corp. (2020)__ F.3d __
Northrup Grumman settled two actions alleging ERISA violations. Its primary insurer and first-layer excess carrier determined the settlement in the first action was for a covered loss. The primary insurer paid its policy limits towards the first settlement, and the first-layer excess carrier then dropped down to pay the remainder of the first settlement. The first-layer excess carrier then paid the remainder of its policy limits towards the second settlement, and Northrup requested its second-layer excess carrier then drop down to pay the remainder of the second settlement. The second-layer excess carrier filed a declaratory relief action against Northrup, arguing that the primary and first-layer excess carriers erred in concluding the first settlement was covered and, accordingly, their payments of the first settlement should not be allowed to erode the limits of insurance underlying the second-layer excess policy. On summary judgment, the district court agreed with the second-layer excess carrier that the first settlement was for an uncovered loss that should not have been counted towards determining if the insurance underlying the second-layer excess policy had exhausted.
The Ninth Circuit reversed. The second-layer excess carrier did not dispute that the second settlement was covered, and that was the settlement it was being asked to pay. An excess carrier cannot challenge the underlying insurer’s decision to pay an earlier claim unless there is evidence the payment was the product of fraud or bad faith, or the excess policy specifically reserves the right to second-guess the underlying insurer’s earlier coverage decisions.
This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.