California Insurance Law
2014 Year in Review
CALIFORNIA INSURANCE LAW
2014 YEAR IN REVIEW
2014
INTRODUCTION
The California appellate courts issued an unusual number and variety of insurance-related opinions in 2014. The
California Supreme Court issued an important and highly anticipated ruling on the scope of “product disparagement”
coverage, and the California Courts of Appeal and the Ninth Circuit issued several important decisions concerning
commercial general liability coverage, property coverage, auto insurance and bad faith. These cases included:
• A Ninth Circuit opinion interpreting the prior publication exclusion to eliminate coverage for advertising injury
arising out of “substantially similar” advertisements before and during the relevant policy period.
• A California Court of Appeal decision clarifying the settlement duties of third-party insurers in cases involving
multiple claimants and/or multiple insureds.
• A California Court of Appeal case addressing what constitutes “property damage” within the meaning of a
commercial general liability policy.
• Two California Court of Appeal cases addressing offsets and bad faith in the context of underinsured motorist
coverage.
• A California Court of Appeal case further reinforcing the trend in California courts holding that an “occurrence” does not include deliberate conduct by the insured, regardless of whether the insured expected or
intended the resulting harm.
The following report summarizes some of the most important insurance decisions issued by California courts in 2014.
Michael Topp
Sedgwick San Francisco
michael.topp@sedgwicklaw.com
415.627.1443
CALIFORNIA INSURANCE LAW
2014 YEAR IN REVIEW
NOTABLE CASES AND DECISIONS
General Liability Coverage
Advertising Injury – Product Disparagement
J Hartford Casualty Ins. Co. v. Swift Distribution, Inc.,
59 Cal.4th 277 (Jun. 12, 2014). The California
Supreme Court found CGL coverage inapplicable to
a competitor’s claim that the insured’s advertisements
promoted a product that resembled and had a similar
name to the competitor’s product; the court adopted
the rule that, in order to fall within coverage for publication of material that “disparages” another party’s
goods, products or services, a complaint must allege
that the insured made a false or misleading statement
that either expressly or by clear implication (1) specifically referred to the plaintiff’s product or business, and
(2) “clearly derogated” that product or business.
Advertising Injury – Prior Publication Exclusion
J Street Surfing LLC v. Great American E&S Ins. Co., 752
F.3d 853 (9th Cir. Jun. 10, 2014) (as amended by order
of Nov. 14, 2014, 2014 WL 5904922). The court
held that the prior publication exclusion precluded
coverage for advertisements during the policy period
that were substantially similar to pre-policy period
advertisements, even though the advertisements used a
slightly altered version of the term “street surfing,” and
that the advertisements were for different products.
Employment-Related Practices Exclusion
J Jon Davler Inc. v. Arch Ins. Co., 229 Cal.App.4th
1025 (Aug. 25, 2014). The court found that the
exclusion for personal and advertising injury arising
out of employment-related practices unambiguously
precluded coverage for employees’ claims of false
imprisonment in the workplace.
Professional Services Exclusion
J North Counties Engineering Inc. v. State Farm General
Ins. Co., 224 Cal.App.4th 902 (Mar. 13, 2014). The
court held that a professional services exclusion in an
engineering company’s CGL policy did not eliminate
a duty to defend, where the underlying complaint
alleged that the insured performed both construction
and engineering services on a dam; the court found
that any allegations of non-engineering services were
sufficient to give rise to a duty to defend, and that
claims file entries and a belated decision to defend
under a reservation of rights could be considered by
the court in determining whether a duty to defend
existed at the time the suit was tendered.
Auto Exclusion
J American States Ins. Co. v. Travelers Property Casualty
Co. of America, 223 Cal.App.4th 495 (Jan. 27, 2014).
A food truck was “mobile equipment” within the
meaning of an exception to a CGL policy’s auto exclusion, such that the CGL insurer had a duty to defend
and indemnify a suit for injuries from hot oil splashed
from the truck’s deep fryer during a collision.
Construction Defect Coverage
J Regional Steel Corp. v. Liberty Surplus Ins. Corp., 226
Cal.App.4th 1377 (May 16, 2014). The presence
of inadequate seismic tie hooks in a building, necessitating demolition and repair of affected areas, did
not qualify as “property damage” within the meaning
of a CGL policy. Therefore, the insurer had no duty
to defend, notwithstanding conclusory allegations of
property damage unconnected to the insured’s work;
the impaired property and “your product” exclusions
also applied.
Sexual Misconduct
J Baek v. Continental Casualty Co., 230 Cal.App. 4th
356 (Oct. 6, 2014). A massage therapist did not
qualify as an insured when sued for sexual assault;
the policy covered employees only while performing
duties related to the conduct of the named insured’s
business, and the therapist could not, as a matter of
law, have been acting in the scope of employment
when he fondled a client.
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CALIFORNIA INSURANCE LAW
2014 YEAR IN REVIEW
Top Firm
Bad Faith
Duty to Settle
J Graciano v. Mercury General Corp., 231 Cal.App.4th
414 (Nov. 12, 2014). The court clarified that, in order
to trigger a claim for wrongful refusal to settle, the
insured or the claimant must show (1) that the terms
of the claimant’s settlement offer were clear enough
to have created an enforceable contract resolving all
claims had it been accepted by the insurer, (2) the
offer must have included the claims of all third party
claimants, (3) the settlement must have released all
insureds, and (4) the time for acceptance must have
allowed the insurer an adequate amount of time to
investigate and evaluate its insureds’ exposure; the
court further held that where a liability insurer timely
tenders its full policy limits, it has acted in good faith
as matter of law.
UIM Arbitration
J Maslo v. Ameriprise Auto and Home Insurance, 227 Cal.
App.4th 626 (Jun 27, 2014). The court held that a
complaint adequately stated a cause of action for bad
faith against an uninsured motorist’s insurer for unreasonably insisting on arbitration, despite the existence
of a genuine dispute about the amount of the insured’s
damages and that the arbitrator’s award was less than
the amount demanded by the insured.
Property Insurance
Water Damage – Causation
J Pyramid Technologies, Inc. v. Hartford Casualty Ins. Co.,
752 F.3d 807 (9th Cir. May 19, 2014). The court
concluded that summary judgment for an insurer
must be reversed as there were issues of fact concerning
whether corrosion, tarnish or discoloration of the
insured’s warehoused parts was proximately caused
by covered water damage. However, the court upheld
summary judgment for the insurer on the insured’s
business interruption claim, which was based solely
on an anticipated contract with a customer, where
the evidence that the contract would have come into
being was entirely speculative.
Replacement Cost Coverage
J Stephens & Stephens XII, LLC v. Fireman’s Fund Ins.
Co., 231 Cal.App.4th 1131 (Nov. 24, 2014). In
a suit for recovery of replacement cost under a first
party property policy, the court found that the insured
was entitled to a “conditional judgment” allowing for
recovery of replacement cost upon satisfaction of the
repair or replacement condition after trial.
Law360’s annual listing of the
100 U.S.-based law firms with
the largest insurance practices
ranks Sedgwick 12th, based
on the number of partners in
the insurance practice group
globally within the firm.
Subrogation
J KB Home Greater Los Angeles, Inc. v. Superior Court,
223 Cal.App.4th 1471 (Feb. 21, 2014). The court
held that an insurer’s subrogation action against a
builder was barred because the insurer did not give
the builder pre-repair notice of the defects, and
an opportunity to inspect and cure, as required by
the California Right to Repair Act, Civil Code § 895
et seq.
Auto Insurance
“Use” of Motor Vehicle
J Encompass Ins. Co. v. Coast National Ins. Co., 764 F.3d
981 (9th Cir. Aug. 13, 2014). The court held that a
bystander’s action in removing an injured passenger
from a vehicle following an accident was “using” the
vehicle with the permission of the owner, within
the California Insurance Code’s broad definition of
“use” of a motor vehicle as “operating, maintaining,
loading or unloading of a motor vehicle.”
Underinsured Motorist Coverage
J Elliot v. GEICO Indemnity Company, 231 Cal.
App.4th 789 (Nov. 19, 2014). The court held that a
provision reducing the amount payable under UIM
coverage by amounts “paid by or for all persons or
organizations liable for the injury” allowed an offset
for injuries suffered by the insured in a collision
with an intoxicated motorist, by the amount of the
insured’s recovery from the restaurant that served
alcohol to the intoxicated motorist.
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CALIFORNIA INSURANCE LAW
2014 YEAR IN REVIEW
Liability of Adjusters
J Bock v. Hansen, 225 Cal.App.4th 215 (Apr. 2, 2014).
The court held that an insured may assert tort claims
for negligent misrepresentation and intentional infliction of emotional distress against an adjuster employed
by a property insurer, despite the absence of a contractual relationship between the insured and the adjuster.
This case arose solely on the pleadings. The court did
not make a finding as to whether the insured’s claims
were meritorious, but it found that the plaintiff’s
complaint sufficiently stated the claims, such that the
plaintiff could proceed with its suit against the insurer.
Agents and Brokers
J Douglas v. Fidelity National Ins. Co., 229 Cal.App.4th
392 (Aug. 29, 2014). In a bad faith action for denial
of a fire claim due to misrepresentations in the policy
application, the court held that the existence of an
agency relationship between the insurer and a broker
was a question of fact for the jury; the mere fact that
the broker had limited binding authority did not
establish an agency relationship.
Homeowners Liability Insurance
J Upasani v. State Farm General Ins. Co., 227 Cal.
App.4th 509 (Jun. 6, 2014). The court held that
claims against insureds for conspiracy to aid child
abduction did not give rise to a potential for coverage,
because the conspiracy claims necessarily implicated
non-accidental conduct, and hence there was no
occurrence; court also determined that claims for
emotional distress did not seek damages for “bodily
injury” within the meaning of the policies.
Policy Interpretation – Additional Insureds
J Transport Ins. Co. v. Superior Court, 222 Cal.App.4th
1216 (Jan. 13, 2014). The court held that ambiguity
in an additional insured endorsement must be resolved
in accordance with the expectations of the purported
additional insured, not the named insured. Therefore,
the court found a previous ruling in which coverage
for the named insured did not preclude an excess /
umbrella insurer from asserting that it had no duty to
defend a purported additional insured.
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