Insurance Coverage: October 2012

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This past quarter brought us the long-awaited decision from the California Supreme Court on stacking of insurance policies. The Supreme Court has ruled that stacking of limits on successive policies is permitted on continuous loss cases, as long as there is no anti-stacking provision in the policy itself. Such provisions already exist in many construction related policies, and should now become more prevalent. The following are brief synopses of the Supreme Court’s decision in State of California v. Continental Ins. Co. (the stacking case) along with other noteworthy insurance coverage decisions this past quarter.

State of California v. Continental Insurance Company
(2012) ____ Cal.4th ____


The State of California sought to recover from its liability insurers the amount a federal court had ordered it to pay for the clean-up of the Stringfellow hazardous waste site. The trial involved six insurers who had issued the State an Excess Corporate General Liability Policy, covering a two or three-year policy period. This involved long term exposure through multiple policies, and as the Court noted, it is often “virtually impossible” for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods. There was no dispute that all the policies were triggered. The biggest issue decided by the Supreme Court was whether the insured would be entitled to “stack” the policy limits for multiple years, or whether only one limit would be available. Here, there was no language in the policy forbidding stacking of limits. The Supreme Court repudiated the ruling of FMC Corp. v Plaisted & Companies (1998) 61 Cal.App.4th 1132, which had said that in this situation, the insured was entitled to one policy limit only, with each carrier being jointly and severally liable for that limit. The Supreme Court emphasized that the insured had paid premiums for each year, and was entitled to the limits from each year. 


Axis Surplus Ins. Co. v. Reinoso
(2012) 204 Cal.App.4th 1214


Defendant and appellant Linda Reinoso and her husband, Edgar Reinoso, owned and managed about 15 rental properties in the City of Palmdale, including J-3 Apartments, a 48-unit residential property they purchased in 2003. They had been involved in owning rentals for over 30 years. In the five years before the suit, Edgar had been prosecuted twice for charges concerning deficiencies at other properties. While Edgar was more involved in the day-to-day management of the various properties, including J-3, Linda had paid the bills for the J-3 Apartments. In January of 2005, the tenants of J-3 Apartments brought an action alleging habitability deficiencies against the Reinosos. Their carrier, Axis Surplus, defended under a reservation of rights. The action settled for just over $3,000,000 with Axis contributing $2,162,500. Axis then brought an action to recover settlement and defense costs from its insureds. The Court of Appeal held that Linda was not covered by the Axis policy for any of the damages that were settled by Axis. First, it noted that intended, deliberate, and anticipated consequences of acts are not included within the policy. Secondly, under a subjective standard, there was sufficient evidence that Linda was aware of the conditions at the J-3 Apartments. Thus she was not an innocent insured, and that she expected the tenants to suffer injuries.


Travelers Property Cas. Co. of America v. Charlotte Russe Holding, Inc., et al.
(2012) 207 Cal.App.4th 969


Personal injury coverage under most CGL policies provides coverage for claims alleging injury arising out of oral or written publications that slander, libel or disparage a person’s or organization’s goods, products or services. This case considered whether the allegations of an underlying complaint had to rise to the level of trade libel to merit coverage. The Court of Appeal held that the disparagement of the plaintiff’s goods alone, without an actual false statement, was sufficient to trigger coverage. The language of the policy spoke of trade libel or disparagement, so one or the other was sufficient.


Entin v. Superior Court
(2012) 208 Cal.App.4th 770

Allen Entin was an OB/GYN physician. In 1991, he purchased a disability income policy and an “overhead expense” policy from Provident Life and Accident Insurance Company. Both policies defined the term “totally disabled” to mean “(1) [the insured is] not able to perform the substantial and material duties of [his] occupation; and [¶] (2) [the insured is] receiving care by a [p]hysician which is appropriate for the condition causing the disability.” Entin filed a claim alleging his migraine headaches rendered him incapable from performing his occupation. Provident reviewed the claim and began paying benefits. Provident had Entin examined, and came to the conclusion Entin was not disabled within the meaning of the policy. It filed a declaratory relief action. It pled that it would continue to pay benefits until the outcome of the case, and would not attempt to recoup any sums. The trial court ruled that Entin did not have a right to a trial by jury “in light of the fact that payments [under the policies] are ongoing.” The trial court ruled that the issue was not interpretation of the contract language, but instead a factual dispute over disability, and thus Entin was entitled to a right to a jury trial.


Yan Fang Du, et al. v. Allstate Insurance Company, et al.
681 F.3d 1118 (2012)

Yang Fang Du and three others were in a car struck by Allstate’s insured, Joon Hak Kim. Liability was clearly adverse to Kim. Allstate’s policy provided liability coverage of $100,000 per person and $300,000 aggregate for all persons injured. Over several months, Allstate was in contact with numerous lawyers who at different times were representing Du. No information was provided about the nature or extent of the four persons’ injuries until June of 2006, when Du’s attorney submitted a global demand of $300,000 for all four plaintiffs, indicating that Du’s bills were in excess of $108,000, and that the other three plaintiffs had medical bills from $6,600 to $13,808. The carrier indicated that it needed more information on the other three plaintiffs’ injuries to evaluate the global settlement demand, and suggested settling Du’s claim individually. The attorney rejected this suggestion, and demanded the entire $300,000 be paid. In August of 2006, the attorney rejected the offer of $100,000 individually for Du as “too little too late.”

California courts are unclear on whether an insurer may be liable for bad faith unreasonable failure to settle a claim when no demand was ever made by the plaintiff. However, here the Ninth Circuit Court of Appeals held that under California law, an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand. Nevertheless, the Court held that the carrier had acted as quickly as it could under the circumstances here where, although liability was clear, the nature of the damages was not.