Insurance Coverage: January 2013


There were no significant decisions of the Supreme Court related to coverage this past quarter. The Courts of Appeal have provided us with several more decisions on contribution and subrogation. The following are brief synopses of noteworthy insurance coverage decisions this past quarter. 

St. Paul v. Mt. West Ins. Co.
(2012) 210 Cal.App.4th 645

St. Paul Mercury, a general contractor’s insurer, sought equitable contribution from Mountain West, the insurer for a framing subcontractor, based on an additional insured endorsement in Mountain West’s policy. Mountain West refused the general contractor’s tender of defense, made through St. Paul Mercury. However, Mountain West also paid into the settlement of the underlying construction defect action on behalf of its named insured, the framing subcontractor. Mountain West unsuccessfully argued to the trial court that it participated in the defense of the general contractor by paying into the settlement. The Court of Appeal affirmed in part and reversed in part. The Court found that Mountain West owed a separate and independent duty to defend its additional insured general contractor despite its defense of the framing subcontractor.

Henderson v. Farmers Insurance
(2012) 210 Cal.App.4th 459

The Hendersons and other plaintiffs filed suit against Farmers Insurance and other insurers alleging that the entities collectively denied or underpaid valid property damage claims sustained in wildfires. At trial, Farmers moved for summary adjudication based on the claimants’ failure to submit sworn proofs of loss as required under their respective policies. Another basis for a motion against other plaintiffs was based upon the claimants’ nine-month delay in providing notice of loss combined with evidence of a home remodel causing substantial prejudice to Farmers. The Court of Appeal reversed. The Court applied the “notice-prejudice rule” and found that an insurer would have to show substantial prejudice because of delayed notice and that the proof of loss impaired the insurer’s ability to investigate and settle the claim.

Hartford Casualty v. Swift Distribution
(2012) 210 Cal.App.4th 915

Gary-Michael Dahl (“Dahl”) manufactured and sold the “Multi-Cart.” Swift Distribution (“Swift”) advertised a similar product named the “Ulti-Cart.” Dahl sued Swift alleging patent and trademark infringement, unfair competition, and misleading advertising. Swift had a policy with Hartford Casualty containing an “advertising injury” provision requiring a defense against claims that Swift’s advertisements disparaged another company’s products. Swift tendered defense to its insurer Hartford Casualty who refused to defend Swift. Hartford sought declaratory relief. The trial court granted Hartford’s motion for summary judgment. The Court of Appeal affirmed. The Court found that Swift’s advertisements did not expressly refer to Dahl’s products and did not disparage Dahl’s Multi-Cart product or business. There was no direct or express reference to Dahl’s products in Swift’s advertising, and there was no disparagement by implication. Therefore, no coverage or potential for coverage arose under the Hartford policy.

Carson v. Mercury Insurance
(2012) 210 Cal.App.4th 409

Carson’s vehicle was damaged in a collision with another car. She had a policy of insurance with Mercury that provided Mercury with the alternative to “repair, replace or pay for the owned automobile or part thereof, for loss caused by collision,” and there was an exclusion for “loss due to diminution in value of any motor vehicle repaired under coverages D or E.” Mercury chose to pay for repairs, and Carson chose the shop to make repairs. She sued Mercury for breach of contract and for bad faith, claiming Mercury should have taken into consideration the diminished stigma value of the vehicle. She also claimed at trial that the vehicle could not be repaired to its “pre-accident safe” condition. The Court of Appeal upheld the trial court ruling in Mercury’s favor. Mercury’s policy provided the option to repair or replace or pay actual cash value. It was Mercury’s option, so there was no breach of contract. Mercury could have been found to be in bad faith had Carson showed that her vehicle could not have been restored to its pre-accident condition, but the evidence introduced showed that it could have been. Although Carson argued that it had not been restored to pre-accident condition, this was irrelevant, since she chose the shop to make the repairs.

Hodjat v. State Farm
(2012) 211 Cal.App.4th 1

The Hodjats owned a used car business and purchased a damaged 2006 BMW M5 at auction. They insured the car with State Farm. The policy excluded coverage when any insured person “made false statements with the intent to conceal or misrepresent any material fact” related to a claim under the policy. The Hodjats reported the BMW stolen and State Farm conducted an investigation. The Hodjats submitted several statements regarding the theft and condition of the car. State Farm denied the claim and the Hodjats filed suit alleging breach of contract and bad faith. The trial court granted State Farm’s motion for summary judgment on the ground that the Hodjats made material representations regarding their theft claims during the investigation process. The Court of Appeal affirmed, finding that the Hodjats failed to cooperate with State Farm’s investigation when they failed to provide requested documentary evidence in support of their claims. In addition, every detail of the Hodjats’ claim was riddled with numerous and apparent misrepresentations and inconsistencies regarding the vehicle’s history and value. As such, summary judgment was warranted based upon the policy exclusion and there was no triable issue of fact about State Farm’s denial of the Hodjats’ claim.

Gemini Ins. v. Delos Ins.
(2012) 211 Cal.App.4th 719

A restaurant’s insurance policy included an additional insured endorsement for the landlord with respect to the landlord’s liability arising from the restaurant’s acts in the course of business on leased premises. The policy also had an exclusion for claims or suits between insureds. The tenant restaurant negligently caused a fire on the premises, damaging the landlord’s property. Gemini, the landlord’s insurer who paid the landlord’s claim, sought in subrogation reimbursement from Delos, the restaurant’s insurer. Gemini’s position was that the landlord was not an “insured” under the Delos policy. The trial court granted Gemini’s motion for summary judgment. The Court of Appeal affirmed. Based upon a review of the policy, the Court found that the landlord was an additional insured only when it faced liability arising from the tenant restaurant’s acts. Specifically, the landlord was an insured to protect it from vicarious liability for the negligent acts of any named insured. This did not exclude coverage for claims by the landlord against the tenant under the policy.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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