Appellate Update – February 2020

December 10, 2019, through February 10, 2020

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

California Court of Appeal

Insurers have the right to appeal a small claims default judgment against their insured.  Pacific Pioneer Insurance Company v. Superior Court (Gonzalez) (2020) __ Cal.App.5th __Click here for opinion.

In this small claims action arising out of a vehicle accident, the defendant defaulted and the trial court entered judgment against him for $10,000.  The defendant’s insurer then sought to appeal the default judgment to the superior court appellate division.  The trial court struck the notice of appeal, holding that the insurer could not appeal because Code of Civil Procedure section 116.710, subdivision (d), precludes a nonappearing defendant from appealing a small claims default judgment.  The insurer sought a writ of mandate to have its appeal reinstated.

The Court of Appeal (Fourth Dist., Div. Three) issued the writ, directing the trial court to vacate its order striking the insurer’s notice of appeal.  Under Code of Civil Procedure section 116.710, subdivision (c), “the insurer of the defendant” may appeal from any small claims judgment exceeding $2,500 if it stipulates that its policy covers the loss.  That provision allows the insurer to appeal, even if subdivision (d) precludes the insured himself from appealing following his failure to appear.

An arbitration clause in an insurance policy can bind non-signatory additional insureds.  Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc.) (2020) __ Cal.App.5th __Click here for opinion.

Philadelphia’s insured, the Future Farmers of America, hosted an event at a property owned by SMG Holdings.  In its rental contract with SMG, Future Farmers promised to name SMG as an additional insured under its liability policy.  Future Farmers obtained a policy that did not expressly name SMG but did insure (1) any “managers, landlords, or lessors of premises” for any claims arising out of the named insured’s rental of the premises, and (2) anyone the named insured was required to insure under a contract, so long as the claims arose out of the named insured’s negligence.  When a Future Farmers event attendee was injured in the property’s parking lot, SMG demanded Philadelphia defend it.  Philadelphia refused, arguing that injuries occurring in the parking lot were not covered because Future Farmers’ rental agreement did not cover use of the parking lot, and failure to maintain the parking lot was not the result of Future Farmers’ negligence.  Philadelphia petitioned to compel arbitration of the coverage dispute under the policy’s mandatory arbitration provision, which applied to, among other things, coverage disputes.  The trial court refused to compel arbitration, holding that SMG was not a third-party beneficiary of the insurance contract, and that Philadelphia was equitably estopped from seeking to compel arbitration.  The trial court reasoned that Philadelphia could not take the “ ‘inconsistent’ ” position that SMG was not covered by the policy but was covered by the arbitration provision.  Philadelphia appealed.

The Court of Appeal (Third Dist.) reversed.  While SMG was not a signatory to the arbitration agreement, the agreement was intended to benefit “managers” of leased premises like SMG, so it was a third-party beneficiary of that agreement.  Further, SMG’s attempt to take advantage of the policy was predicated on it being a beneficiary of the policy.  Similarly, SMG’s attempt to invoke the policy’s benefits estopped it from denying it was bound by the arbitration agreement.   

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.