Archive for the ‘California’ Category

The Road Ahead for Automated Cars

Wednesday, October 28th, 2015

By Hilary Rowen, Sedgwick San Francisco

Cars are starting to drive themselves. “Driver assistance” features—such as lane maintenance, adaptive cruise control, automatic braking and parking—are featured in some current model cars. Both traditional automobile manufacturers and technology companies, most notably Google, are developing more fully autonomous cars.

The new automotive technology will have three trajectories: the incremental addition of increasingly sophisticated driver assistance features to traditional automotive technology; the introduction of vehicles with operator controls that are designed to be fully autonomous in at least some driving situations; and the introduction of vehicles that do not have operator controls. The first two options are different paths to the same goal: a car that can drive itself much of the time, but that needs an operator as backup. These cars will be versatile. Under operator control, these cars can be driven anywhere and in any driving conditions. Under automated control, the cars will be able to drive themselves in many locations and a range of driving conditions. The third option—the purely robotic car—will probably be restricted to a narrower range of geographic locations: surface streets in urban downtowns and suburban locations with a high concentration of technology companies will likely be the initial venues for street-legal robots.

For more information about driverless cars and the future of insurance policies click here.

© 2015 Reprinted with permission, TheRecorder.com, October 26, 2015

Note: the title of the printed version of this article was “Sharing the road: Automated cars and human drivers.”

10th Circuit Upholds Insurer’s Application of Insured-Versus-Insured Exclusion to FDIC Receiver Claims

Friday, August 28th, 2015

By Kimberly Jackanich, Sedgwick San Francisco

Recently the Tenth Circuit Court of Appeals in BancInsure, Inc. v. F.D.I.C., Case No. 14-3063, 2015 WL 4647980, held that an insured-versus-insured exclusion unambiguously barred claims brought by the FDIC as a receiver against an insured bank’s former directors. The decision universally upheld the reasoning and holdings reached by the United States District Court for the District of Kansas in finding that the plain language of the insured-versus-insured exclusion provided for its extension to claims brought by receivers of the insured, including the FDIC. In reaching its holding, the court rejected the insured’s arguments that a shareholder derivative action exception, and a regulatory exclusion endorsement, in the insured’s policy superseded the insured-versus-insured exclusion or otherwise rendered it ambiguous with respect to claims brought by the FDIC.

The case arises out of a lawsuit filed by the FDIC in its capacity as receiver of the insured bank against the bank’s former directors and officers (D&O) alleging negligence, gross negligence, and breach of fiduciary duty. In response to the lawsuit, the insurer brought suit against the bank seeking a declaratory judgment that it owed no duty of coverage under the insured’s D&O policy pursuant to the insured-versus-insured exclusion in the bank’s policy, which provided:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons based upon, arising out of, relating to, in consequence of, or in any way involving…a Claim by, or on behalf of, or at the behest of, any other Insured Person, the Company, or any successor, trustee, assignee or receiver of the Company…

Neither party disputed that the FDIC brought the lawsuit in its capacity as receiver of the bank. Instead, the Insured argued that, when the insured-versus-insured exclusion was read in light of other policy provisions, in particular the shareholder derivative exception and the regulatory exclusion endorsement, the exclusion was ambiguous as to whether it barred claims asserted by the FDIC.

The Policy included a shareholder derivative action exception which removed from the scope of the insured-versus-insured exclusion “a shareholder’s derivative action brought on behalf of the Company by one or more shareholders who are not Insured Persons and make a Claim without the cooperation or solicitation of any Insured Person or the Company.” Because the FDIC succeeds to all rights of a failed bank, including those of any stockholder, the Insured argued that actions by the FDIC share common characteristics with a shareholder derivative action such that the insured-versus-insured exclusion was inapplicable or at least ambiguous. The court rejected the Insured’s argument, emphasizing the explicit inclusion of “receiver” in the insured-versus-insured exclusion and concluding that the shareholder derivative action exception “cannot overcome the plain language of the policy.”

The Policy also included a regulatory exclusion endorsement, which eliminated a policy exclusion for “any action or proceeding brought by or on behalf of any federal or state regulatory or supervisory agency or deposit insurance organization,” and set forth an aggregate liability cap of $5 million for claims brought by such agencies. The Insured argued that the maximum aggregate liability cap provided coverage over claims previously excluded under the regulatory exclusion such that the endorsement should prevail over the original printed provisions of the Policy, including the insured-versus-insured exclusion. The Insured further argued that the endorsement evidenced “a clear intent to provide coverage” for actions previously excluded under the regulatory exclusion. Rejecting the Insured’s arguments, the court reasoned that, “removing an exclusion is not the same thing as affirmatively providing coverage.” The court further emphasized that an inference of coverage cannot be created from the deletion of an exclusion, especially where the endorsement clearly states the parties’ intent not to vary or waive other limitations of the policy. The court also rejected the Insured’s assertions that the regulatory action endorsement would be rendered meaningless by application of the insured-versus-insured exclusion, stating that “the mere overlap between the two exclusions does not introduce ambiguity into the plain language of the insured-versus-insured exclusion barring coverage of claims by ‘any…receiver of the Company.’”

The court’s holding reaffirms that an endorsement providing additional coverage is still subject to other policy exclusions and limitations, particularly when the endorsement explicitly provides that it does not alter, vary, or waive other policy provisions. Further, the court’s refusal to allow the regulatory exclusion endorsement to supersede the insured-versus-insured exclusion reinforces that courts will interpret policies as a whole. Thus, when endorsements are clear that they only affect designated parts of the policy, insureds may face an uphill battle in their efforts to broadly create affirmative coverage that was not intended by the insurers.

Insurer May Seek Recovery of Excessive, Unreasonable and Unnecessary Fees Directly From Cumis Counsel

Tuesday, August 11th, 2015

By Jason Chorley, Sedgwick San Francisco

On August 10, 2015, the California Supreme Court held that where an insurer (1) declines to defend its insured, (2) is compelled by court order to permit the insured to be represented by Cumis counsel, (3) is ordered to pay reasonable and necessary defense expenses while reserving the right to recover payments for unreasonable and unnecessary expenses, and (4) alleges that Cumis counsel charged fees that were excessive, unreasonable, and unnecessary, the insurer may seek reimbursement directly from Cumis counsel:

If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s expense. Cumis counsel provide no convincing reason why they should be absolutely immune from liability for enriching themselves in this fashion. Alternatively, Cumis counsel fail to persuade that any financial responsibility for their excessive billing should fall first on their own clients — insureds who paid to receive a defense of potentially covered claims, not to face additional rounds of litigation and possible monetary exposure for the acts of their lawyers.

Background

Hartford Casualty Insurance Company issued one commercial general liability insurance policy to Noble Locks Enterprises, Inc. and a second policy to J.R. Marketing, LLC. In September 2005, a lawsuit was filed against Noble Locks and J.R. Marketing and several of their employees in Marin County, California. Later actions were filed against the same parties in Nevada and Virginia.

The Marin County action was tendered to Hartford, which disclaimed a duty to defend. The insureds, represented by Squire Sanders, immediately commenced a coverage action against Hartford. Hartford subsequently agreed to defend its insureds subject to a reservation of rights, but declined to provide independent counsel. The court in the coverage action ordered on summary judgment that Hartford had a duty to defend the Marin County action as of the date of tender and must pay for Cumis counsel for its insureds. The insureds retained Squire Sanders as their Cumis counsel as well. The court in the coverage action also entered an enforcement order, prepared by Squire Sanders, ordering Hartford to pay all past and future defense invoices, declaring that Squire Sanders’ invoices still needed to be reasonable and necessary, and that if Hartford wanted to challenge fees, it may do so through a reimbursement action after the Marin County action concluded, and that, as a breaching insurer, Hartford forfeited the benefit of Civil Code section 2860’s limitations on rates.

After the Marin County action concluded, Hartford filed a cross-complaint against Squire Sanders and various persons for whom it paid defense expenses in the Marin County action. Hartford sought to recover a significant portion of the $15 million in defense fees, including some $13.5 million paid to Squire Sanders, for services rendered to non-insureds, rendered prior to the tender of the Marin County action, for any services in the Nevada or Virginia actions, and for “abusive, excessive, unreasonable, or unnecessary” fees. The trial court in the coverage action sustained the cross-defendants’ demurrer to the reimbursement and rescission causes of action in Hartford’s first amended cross-complaint. The trial court held that Hartford’s right of reimbursement was from its insureds, not directly from Cumis counsel. Hartford appealed.

The Court of Appeal affirmed the trial court decision concluding that allowing Hartford to seek reimbursement directly from Cumis counsel would frustrate the policies underlying Civil Code section 2860. The Court of Appeal further held that, where an insurer breaches its duty to defend and loses all right to control the defense, it is likewise barred from maintaining a reimbursement action against independent counsel where it considers those fees unreasonable or unnecessary. Hartford appealed.

California Supreme Court Discussion

In a majority opinion of Chief Justice Cantil-Sakauye, and Justices Werdegar, Chin, Corrigan, and Kruger, the California Supreme Court reversed the Court of Appeal decision insofar as the dismissal of Squire Sanders was upheld.

The Supreme Court noted the distinction between its finding of a right of restitution against the insured in Buss with its finding in the present case. In Buss, the Supreme Court held that, where an insurer defends a mixed action, it is entitled to reimbursement for those fees and costs attributable solely to defending claims not covered by the policy because the insured would be unjustly enriched at the insurer’s expense – the assumption being that those non-covered fees and expenses were still reasonable and necessary to the insured’s defense against those non-covered claims. Here, however, the question presented is whether independent counsel is unjustly enriched if its fees were excessive, unreasonable and unnecessary for the insureds’ defense to any claim, and not incurred for the benefit of the insured. The Supreme Court found in the affirmative, but limited to the facts of this case.

The Supreme Court rejected the argument that Squire Sanders was merely an incidental beneficiary of Hartford’s promise to pay the costs of defending potentially covered third party claims against its insureds. The Supreme Court reasoned that Hartford’s defense obligation was not unlimited, but rather restricted to reasonable and necessary defense expenses, not Squire Sanders’ alleged overcharges: “Hartford did not accept a bargain binding it to absorb whatever defense fees and expenses the insureds’ independent counsel might choose to bill, no matter how excessive.”

The Supreme Court also rejected Squire Sanders’ argument that Cumis counsel’s independence, zeal, and undivided loyalty to its client would be compromised if it had to defend an insurer’s lawsuit challenging the reasonableness of its efforts in hindsight. The Supreme Court reasoned that attorneys in numerous settings know they will later have to justify their fees to a third party, and in fact, Civil Code section 2860 addresses the possibility of Cumis fee disputes potentially involving Cumis counsel itself, not just the insured. There is no threat to Cumis counsel’s independence by allowing reimbursement under principles of restitution, rather than only permitting the procedures of Civil Code section 2860. The Supreme Court also rejected Squire Sanders’ argument that 2860 provides for a contemporaneous resolution of fee disputes, reasoning that while 2860 does not foreclose contemporaneous resolution, it also does not require it. Further, the trial court’s order specifically provided that Hartford could seek reimbursement after the Marin County case concluded.

Squire Sanders’ argument that the insureds have the sole responsibility and authority to monitor counsel’s expenditure was rejected by the Supreme Court as creating a circuitous, complex, and expensive procedure. The Supreme Court refused to hold that “any direct liability to Hartford for bill padding by Squire Sanders must fall solely on the insureds.” The Supreme Court also rejected Squire Sanders’ due process argument based on attorney-client privilege, finding that an objective review of the underlying case is unlikely to involve an examination of attorney-client communications, which could be redacted in any event.

The Supreme Court’s decision was guided by the trial court’s order, drafted by Squire Sanders, requiring Hartford to pay for independent counsel and permitting a reimbursement action after the Marin County action concluded. The Supreme Court did not decide whether Hartford as a breaching insurer can pursue anyone for reimbursement of fees because that issue was addressed in the trial court’s order and not before the Supreme Court. The Supreme Court noted that Squire Sanders’ own conduct supports the ruling, as it drafted the initial order. The Supreme Court concluded that allowing Hartford to pursue a narrow claim for reimbursement against Squire Sanders under the terms of the 2006 enforcement order neither rewards an undeserving insurer nor penalizes unsuspecting Cumis counsel.

Concurring Opinion

In a concurring opinion, Justice Liu observed that none of the parties appeared blameless, including Hartford’s insured, J.R. Marketing, which was not “a helpless bystander.” Because the majority opinion relies on dual assumptions that (1) Squire Sanders’ billings were objectively unreasonable and unnecessary and (2) were not incurred for the benefit of the insured, Justice Liu reasoned that the majority opinion leaves open the possibility that some portion of the Squire Sanders fees were incurred for the benefit of J.R. Marketing. On remand, Justice Liu posited that Hartford bears the burden to show that Squire Sanders’ fees were objectively unreasonable and were not for the benefit of J.R. Marketing. To the extent the fees were unreasonable, but incurred for the benefit of J.R. Marketing, Hartford’s reimbursement action should lie against J.R. Marketing. Justice Lui concluded that Hartford should have to overcome a presumption that the fees were incurred for the benefit of J.R. Marketing because J.R. Marketing controlled the defense.

New California Law Sets the Stage for Insurance Regulation of Uber, Lyft

Wednesday, October 8th, 2014

By Kara DiBiasio, Sedgwick San Francisco

The emergence and success of ridesharing companies has sparked questions and debates over the gaps in insurance coverage created when private drivers offer commercial driving services.  Ridesharing companies – such as Lyft, Uber, and Sidecar – allow private drivers to login to a mobile app and pick up passengers for a fee.  This innovative structure has changed the driver-for-hire climate in cities across America, including uncertainty about who will pay when one of these drivers gets into an accident.

Most personal automobile liability policies contain exclusions for commercial driving services, so anytime a driver is available for hire or driving a passenger, they likely are not covered by their personal auto policy.  Although a ridesharing company must provide commercial liability coverage, the overlap between the driver’s policy and the commercial coverage is often murky.  Seeking to clarify these potential gaps in coverage, the California Legislature passed AB 2293, which Governor Jerry Brown recently signed into law. 

The law has two primary effects on regulation of ridesharing companies.  First, it imposes disclosure requirements on the company.  Second, it sets minimum insurance coverage requirements for all ridesharing companies operating in California. 

For the disclosure requirements, each ridesharing company is required to disclose in writing to each driver the commercial coverage and limits of liability the company provides while the driver has the app enabled.  Drivers will also have to carry proof of the company’s commercial liability coverage when they have the mobile app enabled. 

The law also sets out insurance coverage requirements for each phase of the driver’s potential liability: when the driver is using the vehicle, but the app is not enabled; when the app is enabled, but the driver is not carrying a passenger; and when the driver is carrying a passenger.  During the first phase, the driver is just an ordinary private driver on the road; the law does not set any requirements for this phase.  During the second phase, the company must provide primary coverage for death and personal injury, as well as property damage.  In addition, the company must provide excess coverage of at least $200,000 to cover any liability of the company or the driver while the app is enabled.  After the driver picks up a passenger, the law requires the company to have primary coverage of at least $1 million for death, personal injury and property damage, as well as an additional $1 million in uninsured and underinsured motorist coverage.

The law also requires the commercial liability insurer to defend and indemnify any liability claim arising out of an accident, either while the app is enabled or while the driver is carrying a passenger.  The driver’s personal auto policy is neither primary nor excess coverage while the app is on or while the driver has a passenger, unless the policy expressly states that it affords such coverage.

Most of the provisions of the new law will take effect July 1, 2015.  Pennsylvania has begun working on similar regulations for ridesharing companies, and other states will likely follow suit in the near future.  Insurers should work with coverage counsel to make sure they are ready with policies that conform to these new regulatory requirements, in advance of the laws taking effect.

Is it a Car or A Street Legal Robot: Insurance Issues for Autonomous Vehicles

Monday, October 6th, 2014

In mid-September, Mercedes-Benz became the latest car company to get a license to test self-driving vehicles in California.  Earlier in the month, GM announced that they will offer a hands-free Cadillac with new cruise control technology to adjust speed, braking and steering.  Since 2005, Google has been test-driving their autonomous vehicles (AVs) on public roads, and last summer unveiled the first test prototype for a vehicle with no steering wheel or brake pedal.     

These autonomous or self-driving vehicles will pose new challenges for the insurance industry, as will the semi-autonomous vehicles that already are entering the market.  Hilary Rowen addressed some of the issues in an article entitled, “Expect tort potholes for self-driving cars,” published in the San Francisco Daily Journal on September 26.  The article can be downloaded here.

Hawaii and Massachusetts Governors Sign Legislation Extending Statute of Limitations for Abuse Claims

Tuesday, July 1st, 2014

By Cathy Sugayan and Serena Lee, Sedgwick Chicago

There has been legislation considered for claims arising out of childhood sexual abuse that would extend the limitations periods or allow pursuit of claims that were otherwise time-barred. For example, on June 23, 2014, Hawaii’s governor signed legislation into law extending a “window” allowing previously time-barred claims to be brought until April 24, 2016.  On June 26, 2014, Massachusetts’ governor signed legislation into law extending the limitations period.  Also, this past year, the following other states have considered legislation to extend the limitations periods for childhood sexual abuse: California, Georgia, Iowa, Missouri, New York, Pennsylvania, and Wisconsin; some of these efforts have already failed to pass into law and a couple may bring sweeping changes.

For our readers who are involved in insuring public and private entities against sexual abuse claims, these are important developments that could impact the defense of and coverage for these types of claims.  The Sedgwick white paper provides a survey of the current law and legislation regarding the statute of limitations for claims arising from childhood sexual abuse.

 

 

California Appellate Court: No Liability for Bad Faith Failure to Settle Where Claimant Fails to Make a Settlement Demand on Insurer

Friday, October 11th, 2013

By David J. Grycz, Sedgwick Chicago

In Reid v. Mercury Insurance Co., __ Cal. Rptr. 3d ___, 2013 WL 5517979 (Cal. Ct. App. Oct. 7, 2013), the California Court of Appeals held that an insurer cannot be found liable for bad faith failure to settle within the policy limits absent a settlement demand from the claimant, or some other indication that the claimant desires to settle the claim for the policy limits.  In Reid, Mercury issued to its policyholder (“Huang”) an automobile insurance policy providing limits of $100,000 per person and $300,000 per accident.  In June 2007, Huang caused a multi-car accident in which the claimant sustained catastrophic injuries.  After the accident, the claimant’s son (“Reid”) and his attorney made inquiries with Mercury as to the policy limits, although Mercury initially responded by stating that it needed to consult with its policyholder before it could disclose the limits.  Mercury also requested from Reid an interview of the injured party, as well as authorizations to obtain medical records.  However, during these conversations, Reid never made a policy limits settlement demand on Mercury, nor did Reid or his attorney ever convey that they wanted to settle the mother’s claim for the policy limits.  Reid ultimately filed suit against Huang and obtained a $5.9 million verdict against her.  After obtaining Huang’s rights against Mercury, Reid filed suit against Mercury alleging bad faith failure to settle.  The trial court granted summary judgment to Mercury, finding that even for claims that are clearly in excess of the policy limits, an insurer has no duty to settle where it has not received a settlement offer from the claimant.

On appeal, the California Appellate Court affirmed, holding that an insurer’s duty to settle or initiate settlement discussions does not arise simply because there is the likelihood of an excess judgment against the insured.  The Appellate Court agreed with the trial court that neither Reid nor his attorney ever conveyed to Mercury that they would accept the policy limits to settle the claim.  Likewise, the court found that Mercury never took any actions during its interactions with Reid which would have foreclosed the possibility of settlement.  Interestingly, the court found that a bare request to know the policy limits does not constitute an “opportunity to settle.”  After reviewing the case law, the court found that California law does not require an insurer to initiate settlement discussions without first receiving an indication that the injured party is prepared to settle within the policy limits.  As such, because Mercury never received a settlement demand or clear indication of an intent to settle from the claimant, it did not act in bad faith.

The California Appellate Court’s decision demonstrates that an insurer will not be held liable for bad faith failure to settle a claim within the policy limits absent a settlement offer from the insured, or some other clear indication that the claimant desires to settle the matter for the policy limits.  However, if a claimant conveys to an insurer that it wants to settle the claim for the policy limits, even in the absence of a formal settlement offer, an insurer may want to initiate settlement discussions to protect its interests.

The Insurance Law Blog previously covered the issue of an insurer’s duty to settle.  In June 2012, we reported on  the Ninth Circuit’s holding in Du v. Allstate Ins. Co., 681 F.3d 1118 (9th Cir. 2012), amended and superseded,  697 F.3d 753 (9th Cir. 2012).

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