(Cases from July 13 through August 19, 2020)
Appellate Law Update
The following published decisions may be of interest to attorneys practicing insurance law:
California Court of Appeal
Insured was not required to horizontally exhaust all primary policies across all policy years to access excess insurance. SantaFe Braun, Inc. v. Insurance Company of North America (2020) 52 Cal.App.5th 19.
The insured sought insurance coverage for its asbestos-related liabilities covering many years. The insured’s primary insurers tendered their policy limits into a trust for use in defending and settling the claims. The insured and its umbrella and excess carriers then proceeded to litigate the respective responsibilities of the umbrella and excess carriers. Through multiple trial phases, the trial court sought to adjudicate, based on the policies’ language, whether they required horizontal or only vertical exhaustion. Applying “other insurance” language in the policies, the trial court concluded that horizontal exhaustion was required, and that the insured had not proven exhaustion. The insured appealed.
The Court of Appeal (First Dist., Div. Four) reversed. Per the California Supreme Court’s recent decision in Montrose Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th 215, “other insurance” clauses did not mandate horizontal exhaustion, and accordingly, the insured was not required to show all primary layer policies applicable to the asbestos claims had exhausted (horizontal exhaustion) before accessing umbrella or excess insurance. So long as underlying policies had exhausted (vertical exhaustion), the insured could call upon its excess insurance for that policy year. Further, to prove exhaustion, the insured could rely on the primary or underlying umbrella or excess insurer’s allocation of the policy payments.
Insurer who defended certain subcontractors in construction defect suit was not entitled to equitable subrogation against other subcontractors. Carter v. Pulte Home (Travelers Property Casualty Co. of America) (2020) __ Cal.App.5th__
Pulte Home, the general contractor on a housing project, was sued for construction defects in a housing project. Pulte tendered the defense to its subcontractors’ insurers, claiming additional insured status under the subcontractors’ policies by virtue of provisions in its contracts with the subcontractors obliging the subcontractors to defend Pulte against claims arising out of the subcontractors’ work. Travelers accepted Pulte’s defense on behalf of several of its insured subcontractors, and then filed an equitable subrogation action against the subcontractors who declined to defend Pulte. The trial court found for the defendants, holding that the equities tipped against Travelers because it would be unfair to shift the “entire” loss onto the defendant subcontractors on a joint and several basis.
The Court of Appeal (First Dist., Div One) affirmed. Travelers steadfastly argued in the trial court that it was entitled to shift the entire loss onto the other subcontractors. Under the circumstances, that would be inequitable because the other subcontractors were not responsible for the entire loss; they were responsible for only a portion of the loss attributable to their own work. The Court of Appeal distinguished the recent decision in Pulte Home Corporation v. CBR Electric, Inc. (2020) 50 Cal.App.5th 216 [allowing equitable subrogation in favor of a different insurer in the same litigation, as to the portion of the loss attributable to each subcontractor], on the ground that Travelers here made a deliberate decision to argue for shifting the entire loss to the subcontractors rather than only the subcontractors’ proportionate share.
Plaintiff who prevailed against her insurer in uninsured motorist arbitration was entitled to costs under section 998. Storm v. Standard Fire Insurance (2020) __ Cal.App.5th__
The plaintiff was injured in an accident with an uninsured motorist. She submitted an uninsured motorist claim to her own insurer. When the insurer disputed the amount of the plaintiff’s claimed damages, the parties submitted the dispute to arbitration. The plaintiff served a Code of Civil Procedure section 998 offer, which the insurer did not accept. The arbitrator found for the plaintiff and awarded an amount greater than her section 998 offer. The plaintiff then moved to confirm the arbitration award in the trial court, and requested costs including costs under section 998 and costs for confirming the arbitration award under Code of Civil Procedure section 1293.2. The insurer opposed the costs request, citing policy provisions that “[e]ach party will . . . [p]ay the expenses it incurs [in arbitration]” and “[b]ear the expenses of the arbitrator equally.” The insurer argued these provisions barred the plaintiff from recovering costs, including those under section 998. The insurer also argued that the plaintiff’s requests for costs was barred by her failure to request them from the arbitrator. The trial court confirmed the award, but denied costs.
The Court of Appeal (Second Dist., Div. Four) reversed the denial of costs. The language of the policy providing that the parties would bear the costs of arbitration equally did not clearly preclude recovery of costs under section 998 or under section 1293.2. Further, the parties’ agreement limited the arbitrator’s powers and did not authorize the arbitrator to rule on costs under section 998. The plaintiff was therefore not required to present her costs requests to the arbitrator; it was proper for her to present her request to the trial court.
Insurers may be liable for bad faith where they unreasonably review a claim, even where the decision on its face appears reasonable. Ghazarian v. Magellan (2020) __ Cal.App.5th__
The plaintiffs’ health insurer authorized the plaintiffs’ autistic son to receive 157 hours per month of therapy prior to his seventh birthday. After he turned seven, the insurer reduced the authorization to only 81 hours per month, asserting that was the maximum numbers of hours that were reasonably medically necessary. The plaintiffs sought review before the Department of Managed Health Care, and two of the reviewing physicians disapproved of the reduction while a third approved of it. The plaintiffs then filed this action alleging bad faith, unfair competition, and other claims against the insurer. The insurer sought summary judgment on the bad faith claim, arguing that the fact one of the physicians agreed with its decision meant it acted reasonably as a matter of law. The trial court granted the motion.
The Court of Appeal (Fourth Dist., Div. Three) reversed as to the bad faith and unfair competition claims. An insurer may be liable for bad faith where it unreasonably reviews a claim, even where the decision may appear facially reasonable. Here, while one physician agreed with the reduction of hours, his rationale was different than the insurer’s. Specifically, the physician thought the therapy was insufficiently productive to warrant more time, whereas the insurer asserted the therapy’s success permitted a reduction of time. Further, “the medical necessity standards defendants used to deny plaintiffs’ claim appear to arbitrarily reduce ABA therapy for children once they turn seven. There are questions of fact as to the reasonability of these standards,” precluding resolution of the bad faith issue as a matter of law. As for the unfair competition claim, insurance bad faith can serve as a predicate unlawful act under the unfair competition law, so that claim also survived summary judgment. The plaintiffs had standing under the unfair competition law because the bad faith practices caused them to hire an attorney, which constituted the loss of money.
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.