California insurance law decisions from the 
third quarter of  2014









Millennium Labs, Inc. v. Darwin Select Ins. Co., 2014 U.S. Dist. LEXIS 89742 (S.D. Cal. July 1, 2014)


In a coverage action, the court denied reconsideration of its order granting summary judgment to the plaintiff insured.  The complaint in the underlying action alleged Millennium engaged in a concerted plan to attack its competitor through marketing efforts that included statements disparaging Millennium's competitor.  These allegations of disparagement fell within the scope of coverage by the insurer for advertising injury.











Discover Property and Casualty Ins. Co. v. Blair, 2014 U.S. Dist. LEXIS 128029 (C.D. Cal. August 26, 2014)


In a coverage action, the court found there was no duty to defend claims for injuries arising out of an accident involving a passenger van with a load capacity in excess of 1,500 pounds under a policy that did not list the van on the Declarations page and barred coverage for injuries resulting from the use of a vehicle with a load capacity in excess of 1,500 pounds.  The court found the phrase "load capacity" was not ambiguous, and readily understood by reference to common dictionary definitions.


Mercury Casualty Co. v. Chu, 229 Cal.App.4th 1432 (September 24, 2014)


In an action for declaratory relief, the court held that California's statutory scheme governing auto liability insurance does not permit an auto liability policy to bar coverage for "residents" defined as individuals who reside with the named insured and applied to include individuals who are not related to the named insured.











Snyder v. California Ins. Guaranty Ass'n, 229 Cal.App.4th 1196 (Sept. 17, 2014)


In an action seeking coverage from CIGA for asbestos-related bodily injury claims, the court held that claims against CIGA do not accrue until the insured has exhausted all claims for coverage against other insurers and determined what recovery the insured will obtain in any related insolvency proceedings.






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Alterra Excess & Surplus Ins. Co. v. Gotama Building Engineers, Inc., 2014 U.S. Dist. LEXIS 110416 (C.D. Cal. July 24, 2014)


In an action for declaratory relief, the court granted plaintiff's motion for summary judgment, holding that coverage for a claim based on a demand letter delivered during the 2012 policy period but not disclosed in the application for insurance in the 2013 policy, was barred under an exclusion for any claim arising from any act, error or omission which might reasonably be expected to give rise to a claim but which the insured did not disclose in its application.  Coverage was also barred under the 2012 policy because the insured did not report that claim during the 2012 policy period.


Blum Collins, LLP v. NCG Professional Risks Ltd., 2014 U.S. Dist. LEXIS 109915 (C.D. Cal. July 31, 2014)


In a coverage action, the court found a tolling agreement with a former client regarding their dissatisfaction with the insured's services constituted circumstances that "may result in a claim," and the failure to disclose that agreement was a material omission in the application for insurance that entitled the insurer to deny coverage under an exclusion that barred coverage for acts, errors or omissions prior to the date of insurance if the insured could have reasonably foreseen that such acts, errors or omissions might be expected to be the basis of a claim.












American Zurich Ins. Co. v. Ironshore Specialty Ins. Co., 2014 U.S. Dist. LEXIS 100787 (E.D. Cal. July 23, 2014)


In a contribution action, the court denied plaintiff's motion for summary judgment of defendant's duty to defend reasoning defendant's policy excluded coverage for property damage from work performed prior to the policy period.  Plaintiff argued defendant could not foreclose the "sudden and accidental" exception to the exclusion, but the court found "the only rational interpretation of the allegations is that the claim was predicated on faulty construction.  Common sense dictates that where a plaintiff has alleged that they were given a product in a defective condition that they are not alleging the opposite, i.e., that damage was sudden and accidental."











Continental Casualty Co. v. Surplus Lines Ins. Co., 2014 U.S. Dist LEXIS 131289 (E.D. Cal. September 17, 2014)


In an action for contribution and subrogation, the court found plaintiff was entitled to subrogation for portions of the settlement paid on behalf of the insured for which it provided excess insurance coverage.  Defendant argued its insured was entitled to indemnity from plaintiff's insured, but the court declined to resolve that issue in this action.  The court found defendant was obligated to pay that portion of the settlement attributable to the negligence of its insured.


Valley Forge Ins. Co. v. Zurich American Ins. Co., 2014 U.S. Dist. LEXIS 142075 (N.D. Cal. September 30, 2014)


In a contribution action seeking reimbursement of defense costs and settlement payments, the court found there was no contribution or indemnity due to plaintiff.  Plaintiff insured the subcontractor; defendant insured the general contractor; the subcontractor agreed to indemnify the general contractor, but not for damages arising from the sole negligence or willful misconduct of the general contractor.  The court found the injuries caused by the collapse of the roof arose out of the performance of the subcontractor's work to demolish the roof.  The court also found the subcontractor was negligent, in part, which entitled the general contractor to indemnity and precluded contribution from the general contractor's insurer.


AIG Specialty Ins. Co. v. Phoenician, LLC, 2014 U.S. Dist. LEXIS 135019 (E.D. Cal. September 24, 2014)


In a subrogation action, the plaintiff excess insurer complained the defendant primary insurer misinformed plaintiff that their insured was a defunct corporation when the insured was in operation, and also failed to properly respond to a notice of defect thereby limiting its defenses.  The insured and primary insurer subsequently settled some of those claims purporting to allocate them so as to trigger coverage under plaintiff's excess policy.  The court found plaintiff had no claim for equitable subrogation because the insured had no discernable cause of action against its primary insurer for failing to settle those claims earlier, and the primary insurer had no duty to the excess insurer to provide more accurate information regarding the insured.  Defendant's motion to dismiss was granted with leave to amend.













Pest Master Servs. v. Travelers Casualty & Surety Co., 2014 U.S. Dist. LEXIS 108416 (C.D. Cal. July 17, 2014)


In a coverage action, the court granted the insurer's motion for summary judgment reasoning that losses the insured sustained because of its payroll company's failure to properly pay payroll taxes were not "computer fraud."  Although the payroll company used a computer to fraudulently transfer money, coverage did not extend to an authorized person submitting fraudulent data into a computer system; "fraudulently causing a transfer" as specified in the policy is different than "causing a fraudulent transfer," which was done in this case.






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David v. Allstate Ins. Co., 2014 U.S. Dist. LEXIS 119473 (C.D. Cal. August 25, 2014)


In a coverage action, the court found there was no duty to defend a claim alleging damages caused by a physical assault, although the insured insisted he acted in self defense; whether the insured acted in self defense or otherwise, his conduct was not an accident, and so not an "occurrence" under the policy.











St. Paul Fire & Marine Ins. Co. v. Ace American Ins., 2014 U.S. Dist. LEXIS 113295 (E.D. Cal. August 14, 2014)


In a contribution action, the court found defendant's commitment to various Additional Insureds for liability arising out of the additional insureds' "ongoing operations" provided coverage for alleged construction defects and associated property damage.  The court acknowledged the coverage did not extend to property damage arising out of completed operations but found the alleged claims potentially alleged property damage that arose from the subcontractors' ongoing operations and occurred during those operations.  The manifestation of that property damage did not conclusively resolve that potential.











EFK Investments, LLC v. Peerless Ins. Co., 2014 U.S. Dist. LEXIS 137864 (N.D. Cal. September 26, 2014)


In a coverage action, the court denied defendant's motion to dismiss based on application of the pollution exclusion.  The underlying complaint alleged damage caused by dust and debris from sandblasting operations, some of which was contaminated with lead.  The court found there was insufficient information to find the pollution exclusion barred coverage.  The court also found the lead exclusion did not preclude coverage for all damage arising from an occurrence, without information regarding what portion was caused in whole or in part by lead contamination and absent evidence of efforts made to limit that contamination.










McAdam v State Nat'l Ins. Co., 2014 U.S. Dist LEXIS 99694 (S.D. Cal. July 21, 2014)


In a discovery dispute, the court found communications between an independent claims adjuster assigned to investigate the insured's claim and a third-party claims service were not privileged, because the independent claims adjuster was principally concerned with gathering facts and defendants failed to establish the claims adjuster needed any confidential information to fulfill its obligations.


Feduniak v. Old Republic Nat'l Title Ins. Co., 2014 U.S. Dist. LEXIS 109639 (N.D. Cal. August 7, 2014)


In a coverage action, the plaintiff insured sought communications between their counsel in the underlying action and their insurance company that paid for the work of their counsel.  Old Republic argued the underlying action was really a subrogation suit, but the court reasoned the insured also had an interest in that action and under the "joint client" exception to the attorney-client privilege, the insured was entitled to communications between its counsel and its insurance company.












Arroyo v. Uniguard Ins. Co., 2014 U.S. Dist. LEXIS 131191 (N.D. Cal. September 17, 2014)


In an action seeking coverage for a default judgment after the tender was denied, the court found coverage for claims the insured chose inappropriate root stocks and improperly planted a vineyard was barred under a general liability policy by Exclusion j(5), barring coverage for property damage to that "particular part of real property, including but not limited to vines or other growing crops" on which the insured was performing operations.  The court rejected plaintiff's efforts to separate the insureds work into different parts, separating planting the vineyard from maintaining the vineyard.




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Jones v. Travelers Casualty Ins. Co., 2014 U.S. Dist. LEXIS 98187 (N.D. Cal. July 18, 2014)


In an action alleging defendant's underwriting violated the federal Fair Housing Act and California's Fair Employment and Housing Act, the court permitted plaintiff to seek documents revealing the identity of other landlords subject to the same underwriting practices from underwriting files reflecting treatment of similarly situated landlords.


Peerless Ins. Co. v. Clear Gear, LLC, 2014 U.S. Dist. LEXIS 100679 (N.D. Cal. July 23, 2014)


In a coverage action, the court dismissed counterclaims for fraud on the grounds there were no allegations that could support that the insurance company did not intend to fulfill its representations of coverage at the time the contract was made.


Reitz v. Progressive Direct Ins. Co., 2014 U.S. Dist. LEXIS 119974 (E.D. Cal. August 27, 2014)


In a coverage action seeking coverage for damages to an automobile because of theft and fire, the court granted with leave to amend a motion to dismiss the claims for bad faith on the grounds that those claims were subject to a two-year statute of limitations and the complaint alleged the claim was denied on May 28, 2010 and the complaint was filed on May 15, 2014.


McDaniel v. GEICO General Ins. Co., 2014 U.S. Dist. LEXIS 134906 (E.D. Cal. September 24, 2014)


In a bad faith action after a judgment and assignment of rights in the underlying action, the court held the insurer was liable for breach of its duty to accept reasonable settlement offers when the insurer did not timely accept a policy limits demand.  Although the insurer argued its failure to meet the settlement demand deadline was excusable neglect, the court found subjective bad faith was not required, only the failure to accept a reasonable settlement offer.  The insurer's subsequent rejected offer of its policy limits was insufficient to avoid potential liability for bad faith.  Although the assets of the insured were approximately $12,500, and the judgment was in excess of $3 million, the assets were nonetheless sufficient to establish the insurer's obligation to protect the assets of its insured. 











Fidelity National Financial, Inc. v. Nat'l Union Fire Ins. Co., 2014 U.S. Dist. LEXIS 140030 (S.D. Cal. September 30, 2014)


In a coverage action, the court granted summary judgment for the insured finding coverage for a Ponzi scheme perpetrated by a third party using the insured's escrow services.  The court found coverage under the forgery bond because the insured suffered direct losses for which it was legally liable.  The court also found the insured's suspicion of wrongdoing was not sufficient to constitute an awareness of knowledge of facts and circumstances of a covered loss.











Martz v. Leading Ins. Co., Ltd., 2014 U.S. Dist LEXIS 104235 (N.D. Cal. July 29, 2014)


In a coverage action, the court found there was coverage for water damage because the insured could reasonably expect coverage for "specified causes of loss," which included water damage defined as the accidental discharge or leakage of water, notwithstanding exclusions barring coverage for negligent work, corrosion, continuous leakage and mold, reasoning the policy affirmatively provided coverage for "specified" losses, which could reasonably apply regardless of other exclusions.


Fay Avenue Properties, LLC v. Travelers Property Casualty Company of America, 2014 U.S. Dist LEXIS 134393 (S.D. Cal. September 23, 2014)


In a coverage action, the court denied defendant's motion for summary judgment, finding there were genuine issues of material fact whether it was reasonable for plaintiff to refuse to attend the fifth EUO under the circumstances.  The court also denied defendant's motion for summary judgment of the breach of contract claims based on misrepresentations by the insured, finding genuine issues were created by plaintiff's explanation that prior conflicting and false statements were made because the insured was mistaken or confused.


Nationwide Mutual Ins. Co. v. Ryan, 2014 U.S. Dist. LEXIS 135829 (N.D. Cal. September 25, 2014)


Material misrepresentations in vandalism claim submitted by insured regarding the scope of purported damages and items requiring repair supported voiding policy and declining to pay further benefits, notwithstanding a separate arbitration award for payment of further losses.


Najah v Scottsdale Ins. Co., 2014 Cal.App. LEXIS 878 (2nd App. Dist. September 30, 2014)


In an unreported decision, the California court of appeals affirmed a judgment against an insured seeking coverage for property damage to real property acquired through foreclosure proceedings, reasoning the "full credit bid rule" prevents a lender from seeking insurance coverage for damages to property damaged before the foreclosure sale.












Burlington Ins. Co. v. Affordable Housing Alternatives, Inc., 2014 U.S. Dist. LEXIS 102199 (C.D. Cal. July 11, 2014)


In an action for reimbursement of defense costs, the court affirmed the application of an habitability exclusion to claims for a breach of habitability and ordered a reimbursement of defense costs paid by plaintiff in the underlying action. 





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In re Subpoena to Produce Documents of Clapp, Moroney, Bellagamba, Vucinich, Beeman & Scheley, 2014 U.S. Dist. LEXIS 105751 (N.D. Cal. July 31, 2014)


In a motion filed to quash a subpoena served in another action, the court required production of a redacted conflict check which reflects any entities related to clients and former clients whose representations may create a conflict of interest.


Fidelity & Guaranty Ins. Co. v. Centex Homes, 2014 U.S. Dist. LEXIS 113845 (E.D. Cal. August 15, 2014)


In an action for declaratory relief, the court found the plaintiff's request for a judicial declaration of their right to appoint counsel to defend the insured was not ripe, as the insured had agreed to allow plaintiff to appoint co-counsel to participate in the defense of the insured.


St. Paul Mercury Ins. Co. v. Shappell Industries, 2014 U.S. Dist. LEXIS 132934 (N.D. Cal. September 19, 2014)


In an action for declaratory relief, the court granted plaintiff's motion to dismiss a counterclaim for breach of contract based on plaintiff's refusal to participate in the Joint Defense Agreement of the insured and assign its own separate counsel, finding there was no prohibition to appointing counsel, absent a conflict of interest.  Defendant was given leave to amend to allege such a conflict of interest.











Daly v. Garrett, 2014 Bankr. LEXIS 3087 (E.D. Cal. Bankr. July 11, 2014)


Negligence claim against insurance broker was subject to two-year period of limitations, which also applied to claims for breach of fiduciary duties.












Huwyler v. Amco Ins. Co., 2014 U.S. Dist. LEXIS 131291 (N.D. Cal. September 16, 2014)


In a coverage action, the court found there was no coverage under a business owner's policy issued to a general automotive repair business for claims alleging a negligent pre-purchase inspection of an automobile, because coverage was barred by an exclusion for claims arising out of any test, evaluation, consultation or advice given by the insured.  The insured's "garage operations" were limited to "servicing, repairing, parking or storing" vehicles, which did not include as necessary or incidental to those operations pre-purchase inspections and reports.


Darwin National Assurance Co. v. Rosenthal, 2014 U.S. Dist. LEXIS 135207 (C.D. Cal. September 24, 2014)


In an action for declaratory relief, the court found coverage for claims alleging bad investment advice and other negligent services was barred by an Investment Advice Exclusion barring coverage for claims "based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving, in whole or in part" investment advice, reasoning that because the claims include damages for negligent investment advice, coverage for the entire complaint was excluded.


Employers Ins. Co. v. Lexington Ins. Co., 2014 U.S. Dist. LEXIS 115747 (C.D. Cal. August 19, 2014)


In a contribution action for the costs of defending and settling a bodily injury claim suffered in a construction site accident when a concrete pump boom fell down and struck several workers, the court found coverage under a general liability policy was barred by a subsidence exclusion, because the accident was caused by poorly compacted soil that failed to support the concrete dump truck.  The court also found there was no duty to defend because the "other insurance" clause specified coverage was excess under the narrow circumstance of coverage provided under an auto liability policy.











Travelers Indemnity Co. v. Centex Homes, 2014 U.S. Dist. LEXIS 105009 (E.D. Cal. July 30, 2014)


In an action for declaratory relief, the court granted a motion to dismiss plaintiff's third cause of action for equitable reimbursement of defense costs on the ground that such relief is only available to insurance companies that "agreed to immediately defend" their insured and reserved their right to seek reimbursement, but the insurer admittedly only planned to accept its insured's tender six months after the underlying complaint was filed and still, a month after filing its Second Amended Complaint, had not yet agreed to accept the tender and defend its insured necessarily establishes it failed to "immediately" defend its insured.



Hanes v. Armed Forces Ins. Exchange, 2014 U.S. Dist. LEXIS 106036 (N.D. Cal. July 31, 2014)


In a coverage action in which defendant sought reimbursement of defense costs, the court granted summary judgment finding the discovery responses clarified that the underlying action was for "declaratory and injunctive relief and does not contain a claim for personal injury," and also affirmed the claim did not allege any bodily injury.  The court reasoned defendant's duty to defend was extinguished upon receipt of those discovery responses.











Century Surety Co. v. Cal-Regent Ins. Servs. Corp., 2014 U.S. Dist. LEXIS 101362 (S.D. Cal. July 16, 2014)


In rescission action the court denied defendants motion to stay the litigation pending resolution of the underlying liability arbitration reasoning the issues to be litigated in the coverage action were separate and distinct from those to be litigated in the liability arbitration.











Evanston Ins. Co. v. North American Capacity Ins. Co., 2014 U.S. Dist. LEXIS 92682 (E.D. Cal. July 8, 2014)


In a contribution action, the court held that coverage under defendant insurer's policy was not triggered until the $10,000 retained limit was paid for every "claim," which applied separately to every home included in the underlying construction defect action.  The policy specified that the SIR applied "to each and every claim made against you, regardless of how many claims arise from a single occurrence or are combined in a single suit."




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