APPELLATE LAW UPDATE

The following published decisions may be of interest to attorneys practicing insurance law:

CALIFORNIA COURT OF APPEAL

Property insurance policies do not cover economic losses flowing from COVID-19-related business closures even where the insured alleges the virus was present on its premises. United Talent Agency v. Vigilant Insurance Co. (2022) __ Cal.App.5th __.

United Talent Agency sued its property insurer seeking coverage for losses due to cancelled events and loss of use of its property during the COVID-19 pandemic.  It alleged that the virus was present on its premises and its premises were therefore damaged by the virus contamination.  The insurer successfully demurred to the complaint and United Talent appealed.

The Court of Appeal (Second Dist., Div. Four) affirmed.  Following the recent decision Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 699, the court held that “[i]t is now widely established that temporary loss of use of a property due to pandemic-related closure orders, without more, does not constitute direct physical loss or damage” as is required to trigger coverage under a standard property policy.  The court further held, resolving a question potentially left open by Inns-by-the-Sea, that the presence of a virus at the insured premises does not constitute property damage for purposes of a first-party property policy.  The court distinguished the cases finding coverage for environmental contamination on the grounds that those cases involved third-party liability policies, and specific environmental damage that had to be remediated.  Unlike in those cases, “the virus exists worldwide wherever infected people are present, it can be cleaned from surfaces through general disinfection measures, and transmission may be reduced or rendered less harmful through practices unrelated to the property, such as social distancing, vaccination, and the use of masks. Thus, the presence of the virus does not render a property useless or uninhabitable, even though it may affect how people interact with and within a particular space.” See also Musso & Frank Grill v. Mitsui Sumitomo Insurance (2022) __ Cal.App.5th __[“Under California law, a business interruption policy that covers physical loss and damages does not provide coverage for losses incurred by reason of the COVID-19 pandemic;” further, the virus exclusion bars coverage for COVID-19-related losses]

Insurance Code section 533 barred coverage for fund contributions made to abate public nuisance caused by lead paint.  Certain Underwriters at Lloyd’s London v. ConAgra Grocery Products Company (2022) __ Cal.App.5th __.

In a public nuisance action against lead paint manufactures, ConAgra was held liable for its predecessor-in-interest’s promotion of lead-based paint throughout the community, and was required to contribute to an abatement fund for local governments to use to remediate lead paint contamination in residential homes.  ConAgra sought coverage from its liability insurers to cover its contribution to the abatement fund, but its insurers denied coverage under Insurance Code section 533, which bars insurers from indemnifying insureds against “wilful acts”—i.e., deliberate conduct that the insured expected or intended to cause harm.  The insurers argued that the underlying public nuisance finding included a finding that the predecessor acted with knowledge that its promotions would result in lead paint being used in a way that would inevitably cause harm, making its conduct necessarily “wilful” for section 533 purposes. The trial court granted summary judgment for the insurers.  ConAgra appealed, arguing that (1) section 533 does not apply to successors-in-interest; (2) section 533 required proof that the predecessor’s promotions of lead paint caused the particular harm to be remediated; and (3) section 533 requires proof that corporate managing agents, not merely employees, expected or intended to cause the harm. 

The Court of Appeal (First Dist., Div. Two) affirmed the summary judgment, rejecting all of ConAgra’s arguments.  A successor corporation in a merger with notice that it is purchasing the predecessor’s liabilities is as responsible as the predecessor for the predecessor’s willful acts.  Further, because ConAgra was required to contribute to an abatement fund rather than to pay damages for harm to particular homes, section 533 did not require proof that the predecessor’s promotions caused harm to particular homes or that particular homes needed to be inspected or abated.  As long as the promotions were a substantial factor in causing the public nuisance for which ConAgra was liable—as the underlying judgment established—section 533 could apply.  Finally, because the underlying action finding ConAgra’s predecessor liable for a public nuisance necessarily established that the predecessor had actual knowledge of the harms associated with lead paint when it promoted lead paint for interior residential use, section 533 barred coverage.  For purposes of section 533, corporations are charged with knowledge acquired by all their employees in the course of their employment, not only management. 

Medical provider could not require patients with health insurance to assign underinsured motorist benefits to it as a condition of emergency medical treatment. Dameron Hospital Association v. AAA Northern California, Nevada & Utah Insurance Exchange (2022) __ Cal.App.5th __.

Before providing emergency medical treatment to car accident victims, the plaintiff medical provider required the patients (or their family members) to assign the patient’s rights to uninsured or underinsured motorist (UM) payments to the provider as additional security that the provider would be paid for the emergency services.  After the defendant insurance carrier paid UM benefits directly to its insureds, the medical provider sued the carrier seeking to enforce the assignments.  The trial court concluded that the assignments were unenforceable.

The Court of Appeal (Third Dist.) agreed.  In attempting to collect more for emergency medical services than the payments it negotiated with the patients’ health insurers, the medical provider violated the Knox-Keene Act, which precludes health care providers from bringing patients into payment disputes with their health insurers.

Act of cutting neighbor’s trees is not an “occurrence” even where the insured mistakenly believed the land and trees were hers. Ghukasian v. Aegis Security Insurance Co. (2022) __ Cal.App.5th ­­­__.

Plaintiff hired a contractor to grade land and cut trees that plaintiff believed she owned but that actually belonged to her neighbor.  The neighbor sued plaintiff for trespass and negligence.  Plaintiff’s insurer declined to defend her on the ground her homeowner’s policy limited liability coverage to property damage caused by an “occurrence,” defined as “an accident . . . which results during the policy period in . . . [p]roperty damage.”  Plaintiff brought this coverage action.  The trial court granted summary judgment for the insurer.

The Court of Appeal (Second Dist., Div. Four) affirmed.  The insured’s deliberate acts of grading land and cutting trees were not potentially covered “accidents,” even though plaintiff acted under the mistaken belief she owned the land and trees.  A deliberate act is not an accident, even when the injury it produces is unintended or unexpected.  In reaching its holding the Court of Appeal distinguished the Supreme Court’s decision in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co. (2018) 5 Cal.5th 216, in which an employer was sued for negligently hiring and supervising an employee who deliberately injured a third party.  The Supreme Court held that, though the employer’s acts of hiring and supervising were deliberate, the employer was potentially liable for an accident because those deliberate acts did not directly produce the third party’s injury.  Rather, the injury was an unexpected consequence of the employee’s deliberate acts.  Here, in contrast, the insured’s deliberate acts directly caused the neighbor’s injury.  Those deliberate acts could not be accidents because “there was no additional, independent act that produced the damage.”