Insurance Coverage: June 2012


Pacific Rim Mech. Cont. Inc. v. Aon Risk Ins. Services West, Inc.
(2012) 203 Cal.App.4th 1278

Before the work was completed on a construction project, the Illinois Department of Insurance issued an order of conservation against Legion, which had OCIP coverage. Legion became insolvent and was liquidated. Construction defect litigation against the developer and its subcontractors commenced seven years later. A subcontractor, Pacific Rim, cross-complained against the developer and its broker Aon for failing to advise of the discontinuation of the required coverage. The Court of Appeals affirmed the trial court in sustaining Aon’s demurrer to the cross-complaint upon the basis that it was not a party to the contract and Pacific Rim was not its client. The Court of Appeals believed that imposing such a duty upon the broker would fundamentally alter the nature and corresponding duties of insurance broker and increase the costs of insurance.

Axis Surplus Insurance Company v. Glenco Insurance Ltd.
(April 2012) Court of Appeal, Fourth District

Pacifica Point L.P. was insured by Axis Surplus Insurance Company for general liability and by Glenco Insurance Ltd which had a $250,000 SIR. When construction defect litigation commenced against Pacifica, Axis defended Pacifica but Glenco only monitored the litigation. Axis settled for $1,000,000 including the SIR, and filed an action for equitable contribution against Glenco. The Court of Appeals found that Axis only needs to show the potential for coverage under Glenco’s policy on a contribution claim and the burden then shifts to Glenco to prove there was no actual coverage under its policy. The court further noted that an equitable contribution claim was not based on contract, but instead on equitable principles, and Glenco was aware of the underlying action, and subject to the SIR it would have had a duty to defend and indemnify Pacifica.

Global Hawk Insurance Company v. Century-National Insurance Company
(February 29, 2012) Court of Appeal, First District

Global Hawk denied coverage of a claim under a commercial policy because the involved vehicle was not listed on its schedule, although Global Hawk had issued an MCS-90 endorsement that obligated Global Hawk to provide coverage under certain conditions for all of its insured’s vehicles. Third-party claimant Padilla subsequently filed a claim for uninsured motorist benefits under his employer’s insurance issued by Century-National Insurance Company. Century-National paid the claim up to its policy limits of $100,000. In subsequent litigation, the appellate court affirmed Century-National’s right to reimbursement from Global Hawk, finding that the MCS-90 endorsement required Global Hawk to provide coverage for the accident, and that Century-National was entitled to subrogation against persons responsible for Padilla’s injuries.


Eric E. Ortega v. Topa Insurance Company, et al.
(May 24, 2012) Court of Appeal, Third District

Plaintiff Ortega had a restricted policy of automobile insurance in which the insurer, defendant Topa Insurance Company (Topa), provided two tiers of physical damage coverage, paying all of the reasonable costs incurred at the insurer’s ‟preferred repair facility” or “PRF,” but only 80 percent of the reasonable costs incurred at an unapproved repair facility selected by the insured. The application stated the restrictions in separately boxed sections and bold letters and requested certification of the restrictions. Ortega took his vehicle to a PRF and filed a class action after non-OEM parts were used. The Court of Appeals found that under Insurance Code Section 758.5(d), an insurance carrier may have the above limited or “tiered” coverage so long as the same is “prominently disclosed”, as they were here, and the insurer still pays 100% of repairs with the preferred repair shop.

Donald DeWitt v. Monterey Insurance Company, et al.
(March 13, 2012) Court of Appeal, Fourth District

After an injury at a New Year’s Eve party, a defendant whom plaintiff claimed was the “on-site property manager,” Mr. DeWitt sued the building owner’s carrier, Monterey Insurance Company for for breach of contract and breach of the covenant of good faith. DeWitt alleged that Monterey’s failure to defend him and to accept a reasonable settlement offer had resulted in damages. DeWitt succeeded on a motion for summary adjudication to establish that Monterey had owed him a duty to defend in the underlying action and that there was “a possibility of coverage” under the policy. However, the Court of Appeal noted that in the absence of actual coverage for a claim, a carrier could not be found liable for failing to accept a third party’s settlement offer. Here, Dewitt had not established that the carrier had either assumed its defense, or alternatively, that there was a duty to indemnify. Without a determination that the claim was actually covered, the court properly refused to give jury instruction CACI 2334 on the carrier’s refusal to accept the settlement offer, which only applied to allow a finding of bad faith where there was actual coverage of a claim.

California Paving & Grading Co. v. Lincoln General Ins. Co.
(2012) ___ Cal.App.4th ___

California Paving & Grading Co., Inc. appealed a judgment of dismissal following the sustaining without leave of a demurrer brought by Lincoln General Insurance Company (Lincoln) to Paving’s second amended complaint seeking recovery on a payment bond. The Court of Appeals found that the characterization of the nature of the contract determines whether this action is governed by Civil Code section 3097 (preliminary 20-day notice for private work) or by section 3098 (preliminary 20-day notice for public work). The nature of the contract also determines whether Paving’s lawsuit is governed by the limitations period applicable to an action on a public works payment bonds (§ 3249), or by a longer limitations period. Here, the Court of Appeals concluded that the work constituted a “work of improvement contracted for by a public entity” pursuant to a master development contract with City of Los Angeles, even though the Paving’s work was with a private developer, and therefore amounted to a public work within the meaning of section 3100.


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