Arbitration

Boghos v. Certain Underwriters at Lloyd’s of London
(California, July 18, 2005)

Ruling: This case considered the effect and enforceability of an arbitration clause in a contract for disability insurance. The Supreme Court reversed the lower court and remanded the case for further proceedings. The insured had contended that the arbitration clause was unenforceable because it required him to pay costs he would not have had to pay were he suing in court. The court, in reaching its decision that the insured was required to arbitrate, stated that “[a] reasonable person reading the application and policy would understand that it would be required to arbitrate all disputes arising under the policy” (i.e. contract and tort claims).

Bad Faith

Machan v. Unum Life Insurance Com-pany of America
(Utah, June 17, 2005)

Ruling: In this opinion, the Utah Supreme Court address two insurance law questions certified to it by the United States District Court for the District of Utah.

The first question concerned the availability and scope of consequential damages in a first-party claim for breach of the express terms of an insurance contract. The second question asked whether an insured has a private right of action to enforce Utah Code §31A-26-301, which requires timely payment of claims. The court held that plaintiffs may seek consequential damages when claiming breach of the express terms of an insurance contract; however, the court noted that the scope of consequential damages available will differ from those available for breach of the implied covenant of good faith and fair dealing to the extent that the damages caused by breach of the express terms are limited by the language of the contract and the nature of the breach itself in relation to the insured’s reasonable expectations.

Second, the Court held that an insured had no private right of action in 2000 to enforce Utah Code §31A-26-301 against an insurer.

Fire and First Party

TRB Investments, Inc. v. Fireman’s Fund Insurance Company
(California Court of Appeals, 5th District, July 15, 2005)

Ruling: The issue on this appeal was whether a renovation to an existing commercial building falls under the “under construction” exception to the vacancy exclusion of a property insurance policy. The court held that the term “under construction” does not encompass the types of renovations being performed. Specifically, the court held that renovations to an existing building are not within the exception to the vacancy exclusion.

Fraud and Misrepresentation

Cutter & Buck, Inc. v. Genesis Insurance Company
(9th Circuit Court of Appeals, Washington, Aug. 1, 2005)

Ruling: The court held that material misrepresentations known to the director or officer who signed the application are imputed to innocent director and officers. In reaching its decision, the court rejected the argument that the severability provision in the policy required the insurer to cover all directors and officers who did not have personal knowledge of the material misrepresentation. Further, the court held that the insurer did not waive the right to rescind the insurance contract.

Limits

Garamendi v. Mission Insurance Company
(California Court of Appeals, 2nd District, July 18, 2005)

Ruling: The Insurance Commissioner of the State of California, as liquidator for the Mission Insurance Company, was presented with a claim by an insured that had settled environmental litigation claims against it and in this litigation was seeking a share of the proceeds from the Commissioner. The Commissioner denied the claim in part on the grounds that there were two occurrences and that Mission’s liability did not attach until a $1.5 million threshold was reached for each occurrence.

The court held that the Commissioner misread Mission’s policy and noted that Mission’s liability attached after the primary and first excess carrier paid or became liable to pay a total of $1.5 million, no matter how many occurrences took place in the policy year. Specifically, the Commissioner was held to have ignored annual aggregate language in the policy.

Miscellaneous

Scottsdale Insurance Company v. MV Transportation
(California, July 25, 2005)

Ruling: The issue on this appeal was whether an insurer that had properly reserved its rights could obtain reimbursement of its expenses of defending its insurer against a third-party lawsuit where it was determined, as a matter of law, that the policy never afforded any potential for coverage and there was not duty to defend. The court held “yes.” In reaching its decision, the court discussed at length its prior holding in Buss v. Superior Court, 16 Cal. 4th 35 (1997).

Reynolds v. Hartford Financial Services Group, Inc.
(9th Circuit Court of Appeals, Oregon, Aug. 4, 2005)

Ruling: At issue on this appeal was whether the adverse action notice requirement under the Fair Credit Report Act applies to the rate first charge in an initial policy of insurance. The court answered the question in the affirmative and noted that such a notice must be given whenever a higher rate is charged because of credit information it obtains whether it is an initial, extension or renewal policy.

City of La Mesa v. California Joint Powers Insurance Authority
(California Court of Appeals, 2nd District, July 18, 2005)

Ruling: The California Joint Powers Insurance Authority was organized by the member public entities. The joint powers agreed to provided a self-insuring pool as an alternative to insurance. The plaintiff/City was a member of the group from 1987 to 2002. The action involved a claim to recover the City’s “equity account.” The court affirmed summary judgment in favor of the JPIA holding that the City was not entitled to the return of its equity account because the provision contained in the joint powers authority agreement “may provide” that the withdrawing City was not entitled to return of contribution.

Goldberg Segalla (www.goldbergsegalla.com)
counsels and represents individuals and busi-

nesses in specialized areas of civil litigation, con-
tractual and extra-contractual disputes and reg-

ulatory matters before state and federal agencies.

Kevin T. Merriman can be reached at kmerri-
man@goldbergsegalla.com.

Topics California Carriers