IMPORTANT
INFORMATION FOR INSURANCE COMPANIES
(Archives - continued)
Prior Coverage Determinations Discoverable
In Pfizer v.
Superior Court (1997) 97 CDOS 9030, the Court of Appeal held that in a coverage
dispute between an medical device manufacturer and its insurer over what must occur during
the policy period to trigger coverage, prior coverage determinations made by the insurer
concerning claims made by other medical device manufacturers was discoverable.
The Court held that
if the insurer had previously contended in some cases that coverage was triggered by the
date of injury and by the manifestation of injury in other cases, the mere fact that the
insurer had taken inconsistent legal positions was evidence that the insuring agreement
language in the policy was ambiguous and would be construed against the insurer.
The Court found that
no privacy rights were violated since the interrogatory only sought the names of the other
medical device manufacturers and not the patients', but limited the interrogatory to prior
coverage determinations made by the insurer concerning policies with policy periods in the
same time frame as the policy period in the instant case.
In summary, if an
insurer denies a claim, Pfizer v. Superior Court will be used to discover whether
the insurer ever provided benefits for a similar claim. If the insurer did make an
exception, that exception will be used to prove that the policy language excluding
coverage was ambiguous. It will be important for insurers to not make any exceptions
to its coverage decisions.
Delbert
C. Gee, December 1997
UM and PI Cases Joined
In Mercury Ins. v.
Superior Court (1997) 97 CDOS 9404, the Court of Appeal held that where an insured
files both a personal injury action and a uninsured motorist ("UM") claim, the
personal injury action and the UM claim can be consolidated for discovery purposes and for
a non-binding judicial arbitration, but that the arbitration award for the UM claim would
be binding as between the insured and his insurer since disputes over UM benefits are
arbitrated under Insurance Code section 11580.2 in any event.
Delbert
C. Gee, December 1997
No Reimbursement Offset For ERISA Plan
The Ninth Circuit recently held in
Standard Ins. Co. v. Saklad (97 CDOS 8389) that an ERISA fiduciary may not offset benefits
from another ERISA plan as reimbursement for the plan beneficiary's fraud.
In Standard Ins. v. Saklad, Saklad
made a total disability claim with the ERISA fiduciary for plan disability benefits.
Saklad settled his claim with the fiduciary for almost $200,000. In the
meantime, Saklad began working with another company and subsequently made a second total
disability claim with the new company's disability insurer who happened to be the same
ERISA fiduciary as the earlier plan. The fiduciary sought to offset the amount of
disability benefits owed under the second plan with the amount of the fraudulently
obtained benefits from the earlier plan.
The Ninth Circuit held that the
fiduciary could not set off payments to a beneficiary from a wholly separate source of
debt.
Delbert C. Gee,
November 1997
Court To Hear Spoilation Case
The Supreme Court agreed in November
1997 to hear the USAA v. Superior Court (Riley) case to determine whether an insurer could
be sued for bad faith and intentional spoliation of evidence in the same action. A
discussion of the earlier appellate court decision can be found in this web site under
"What's New in Insurance Bad Faith".
Delbert C. Gee,
November 1997
Insurer Has No Duty to Recommend Coverage Limits
In Fitzpatrick v. Hayes (97
CDOS 7416), the First District California Court of Appeal held that an insurer and its
agent had no duty to advise its insured of the availability of personal umbrella coverage
when the insured's underinsured motorist (UIM) coverage was later shown to be inadequate.
In Fitzpatrick, an insured sued after being badly injured in an accident by an
underinsured motorist because he had only $100,000 in UIM coverage and was not advised to
purchase a $1 million personal umbrella coverage. The Court held that the insurer and its
agent had no duty to volunteer that an insured should obtain more or different coverage,
unless:
1) the agent misrepresents the nature, extent or scope of coverage offered or provided,
2) the insured requests or inquires as to a particular type or extennt of coverage, or
3) the agent represents him or herself as an expert in the type of insurance sought by the
insured.
Delbert Gee, October 10, 1997
Plaintiff Can Consolidate Spoliation Claim Against
Insurer With Negligence Action Against Insured
In USAA v. Riley (1997) 97
CDOS 7953, a plaintiff in an auto accident case was allowed to consolidate his spoliation
claim against the insurer into the same lawsuit.
While defending its insured in the auto accident case, the insurer lost or destroyed
relevant video and paint evidence. The plaintiff filed suit for intentional and
negligent spoliation of evidence against the insurer and consolidated it with the accident
case.
The Fourth Appellate District held that the insurer was not prejudiced by the
consolidation, noting that the insured herself had not argued prejudice. The Court
also held that the insurer's spoliation were actions by the insured's agents and relevant
to the issue of her liability, and that the trial court could instruct the jury to
minimize any undue prejudice caused by their learning of the insured's insurance coverage.
Delbert Gee, September 1997
Insurer Entitled to Reimbursement for Defense of
Claims not Potentially Covered
In Buss v. Superior Court
(1997) 97 CDOS 5855, the California Supreme Court held that in cases where insurers are
asked to defend an insured from a liability action where some claims are covered, but
others are not even potentially covered,
1) an insurer may seek reimbursement for defense costs as
to claims that are not even potentially covered,
2) reimbursement is limited to those costs that can be
allocated solely to the defense of claims that are not even
potentially covered, and
3) the insurer may obtain reimbursement if it proves the
above by a preponderance of evidence.
In third party coverage cases where there may be claims that may not be even potentially
covered by the policy and an insurer wishes to seek reimbursement of some its costs from
its insureds, the insurer should quickly identify those litigation costs which are being
expended solely for the defense of potentially uncovered claims and separately record
those costs should those claims later be determined to be not even potentially covered by
the policy.
Delbert Gee, August 1997
Plan Reimbursement Remedy Limited Under ERISA
The Ninth Circuit Court of Appeal
recently held in FMC Medical Plan v. Owens 97 CDOS 6766 (9th Cir. 1997), that an
ERISA plan fiduciary could not sue under 29 USC 1132(a)(3) to recover benefits under a
reimbursement clause.
In FMC Medical Plan, a ERISA plan beneficiary was injured in an accident and the plan
provided benefits for health care services furnished to the beneficiary. Pursuant to
the terms of the health plan, the beneficiary agreed in writing to reimburse the plan upon
recovery of damages from a third party alleged to be responsible for his injuries.
The beneficiary recovered damages from a third party but refused to reimburse the
plan. The plan filed suit in federal court for "appropriate equitable
relief" under section 1132(a)(3) to recover the benefits provided.
The Ninth Circuit held that the plan's breach of contract claim to recover the benefits
provided was not "appropriate equitable relief" under section 1132(a)(3) and
dismissed the action for lack of subject matter jurisdiction.
Although ERISA preempts state regulatory laws and common law rules regulating
reimbursement rights relating to self-funded employee benefit plans under the 1990 Supreme
Court decision in FMC Corp. v. Holiday, the Ninth Circuit seems to suggest in FMC Medical
Plan v. Owens that ERISA plans seeking reimbursement have no remedy under ERISA in federal
court, but must file a breach of
contract action in state court.
Delbert Gee, September 1997
California Supreme Court Agrees to Determine if Comparative Bad Faith is a
Valid Affirmative Defense
The California Supreme Court has
agreed to hear Kransco v. American Empire Surplus Lines Ins. Co., in which a lower
appellate court had announced that a defendant in a bad case lawsuit may not assert
comparative bad faith on the part of the plaintiff. The decision of the court of appeal
was in conflict with another court of appeal decision, California Casualty Gen. Ins. Co.
v. Superior Court (1985) 173 CA.3d 274. Presumably the Supreme Court will now decide once
and for all the validity of an affirmative defense of comparative bad faith, and if
permitted, how such an affirmative defense may be applied by the trier of fact. It is
likely to be mid-1998 before the Supreme Court's decision will be final and available.
Brock Phillips, August 1997
Insurers May Be Sued For Violating Earthquake Insurance Act
The U.S. Court of Appeal for the
Ninth Circuit held in Jacobellis v. State Farm Fire and Cas. Co. (97 CDOS 5529)
that an insured may sue his insurer for violating the California Earthquake Insurance Act
by failing to offer earthquake coverage as required by the Act and recover damages. The
federal appeals court rejected the insurer's argument that the Act did not allow insureds
to sue them for alleged violations of the Act. The Court also held that the insured need
not show negligence by the insurer, but merely a violation of the Act to recover
damages.The decision by this federal court of appeal is not binding on state courts in
California, but is usually considered by state judges to be very persuasive. The state
courts in California have not yet ruled on whether an insured may sue for violations of
the California Earthquake Insurance Act.
Delbert Gee, July 1997
No Causal Link Needed Between Economic Loss
and Emotional Distress
In Clayton v. United Services
Auto. Asso. (97 CDOS 3392), an insurer was sued for bad faith refusal to settle an
underinsured motorist claim.
The Court of Appeal held that once the insured proves economic loss caused by the
insurer's failure to settle his UIM claim, the insured is entitled to recover for all
emotional distress caused by the insurer's bad faith conduct without proving any causal
link between his emotional distress and his economic loss.
The Court also rejected the insurer's argument that the insured may recover for emotional
distress only if it was "severe, substantial or enduring".
Delbert Gee, July 1997
Back to Table of Contents
