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THE ADJUSTER - San Diego Insurance Adjusters
Association
March, 2006
This month we view a variety of recent insurance related
decisions ranging from who is an insured, to the continuing issue of
holocaust era insurance claims, to a twist in the interpretation of term
“willfully” in the Federal Fair Credit Reporting Act. And, yes, we would
not be complete without yet another Northridge earthquake case.
A GENERAL LIABILITY POLICY WHICH DID NOT INCLUDE AN
ORGANIZATION IN IT’S DEFINITION OF A “NATURAL PERSON” DID NOT PROVIDE
COVERAGE FOR AN ORGANIZATION. In Mirpad v. California Insurance
Guarantee Association (2005) 132 Cal.App.4th 1058, the Second District
Court of Appeal reversed a Los Angeles Superior Court’s entry of
judgment in favor of plaintiffs finding that the interpretation of
“natural person,” as referenced in the personal injury coverage of a CGL
policy, included organizations when considered in context in the policy
as a whole. Mirpad purchased a commercial building in Phoenix, Arizona.
One of the tenants was POS Systems, Inc. (“POS”). Mirpad hired Allred to
manage the building. Allred eventually notified POS that it was in
default under the terms of the lease and locked POS out of the premises.
POS sued Mirpad and Allred for wrongful eviction.Mirpad and Allred were
insured under a CGL policy issued by United Pacific Insurance Company.
The policy provided coverage for “those sums to which this insurance
applies, that the insured becomes legally obligated to pay as damages
because of personal injury.” “Personal injury” was defined as “injury
other than bodily injury, arising out of one or more of the following
offenses . . . (3) wrongful eviction from, wrongful entry into, or
invasions of the right of private occupancy of: (a) a room; (b) a
dwelling; or (c) premises; that a person occupies by or on behalf of its
owner, landlord or lessor[.]” The term person was not defined in the
policy.
Mirpad and Allred tendered to Union Pacific. The tender
was referred to the California Insurance Guarantee Association because
United Pacific was insolvent. CIGA denied the tender because the
policy’s personal injury coverage for wrongful eviction applied only
where the tenant was a “person,” as compared to an organization, and POS
was a corporation, not a person. The insureds filed an action for
declaratory relief. The trial court rejected CIGA’s argument finding for
plaintiffs. It relied on Insurance Code § 19 which defined the term
“person” to include organizations. The Court of Appeal reversed, citing
the rules of construction that words in a policy must be interpreted in
their ordinary and popular sense and in the context of the policy as a
whole. The court examined the use of the word “person” throughout the
policy which demonstrated that it is consistently referred only to
natural persons. Moreover, because the policy used the words “persons”
and “organizations” distinctly, they had to be must be accorded their
separate and distinct meanings. Even within the definition of “personal
injury” itself, the word “person” without the word “organization” is
used in connection with the offenses of wrongful eviction and invasion
of right of privacy; but the term “person or organization” is used with
respect to the defamation offenses.
YET ANOTHER SUIT FLOWING FROM THE NORTHRIDGE EARTHQUAKE.
In Doheny Park Terrace Homeowners Assoc. v. Truck Ins. Exch. (2005) 132
Cal.App.4th 1076, the Second District Court of Appeal reversed a
demurrer granted by the Los Angeles County Superior Court and held that,
while both the original and the revived limitations periods had expired,
plaintiff alleged sufficient facts against its insurer to raise the
application of the doctrine of equitable estoppel. Doheny Park Terrace
Homeowners Association suffered damage to its condominium complex during
the 1994 Northridge earthquake. Doheny submitted a claim to Truck
Insurance Exchange. Truck investigated the property, determined the
damage amount was less than the deductible, and denied the claim. Doheny
took no further action until February 2003, eight years later, at which
point it obtained an expert report concluding the damage was more
extensive and the amount exceeded the deductible. Doheny sued Truck and
Truck successfully demurred on the grounds the complaint was untimely
and did not establish a basis for equitable estoppel. The appellate
court reversed finding that, although the claim was technically time
barred, plaintiff plead sufficient facts to raise the bar of equitable
estoppel. The court first disposed of plaintiff’s “delayed discovery”
argument. Although the ordinary statute of limitations on breach of
contract is four years, when an insured has a property damage claim
under an insurance policy, there is a contractual limitation period
imposed by the policy. Under the Truck policy this was two years. Under
Insurance Code section 2071, the time runs from the inception of the
loss, meaning not necessarily when the damage took place but that time
when the damage reasonably should be known to the insured. Once any
damage becomes reasonably apparent, the time begins to run and the
insured must be diligent to determine the full extent of the damage.
Doheny had sufficient knowledge of potential damage at the time of the
earthquake and should have filed within the two year period. There was
also no basis for equitable tolling of the limitations period. Although
the limitations period is tolled during the time the claim is being
considered by the insurer, the tolling period ends upon the insurer’s
unconditional denial of the claim in writing. The court found Truck’s
letter advising that the damage was less than the deductible constituted
such an unequivocal denial, even though the letter did not actually use
the words “deny” or “denial.” However, the court found Doheny pled
sufficient facts to raise the doctrine of equitable estoppel. The court
noted that an insurer may be estopped from asserting a policy provision
limiting the time to sue if the insured reasonably relied on the
insurer’s representations as to the amount of damage. This is a factual
issue and will depend on questions including the insured’s knowledge and
expertise, the adjuster’s knowledge and qualifications, and the
insured’s diligence in ascertaining extent of damages. Doheny alleged
that it was untrained in assessing damage and reasonably relied upon
Truck’s expertise and representations that the damage did not exceed the
deductible. It further alleged that it had no reason to believe the
damage was more extensive until years after the damage occurred. The
court remanded the matter to determine whether plaintiff could prove
these facts and justify the eight year delay in filing suit.
HOLOCAUST ERA INSURANCE CLAIMS ARE SUBJECT TO FEDERAL
PREEMPTION. In Steinberg v. International Commission on Holocaust Era
Insurance Claims (2005) 133 Cal.App.4th 689, the Second District Court
of Appeal held that Code of Civil Procedure § 354.5, enacted to permit
California residents to bring claims arising out of Holocaust era
insurance policies, is preempted by the foreign policy of the United
States. Plaintiffs were holocaust survivors and heirs who filed a class
action lawsuit against the International Commission on Holocaust Era
Insurance Claims following the denial of claims for insurance benefits
from Assicuazioni Generali. The ICHEIC filed a motion to quash on the
ground that California courts could not exercise personal jurisdiction
and a demurrer on the ground that the parties’ disputes were preempted
by federal foreign policy. The ICHEIC argued that federal foreign policy
favors settlement of Holocaust insurance claims under the ICHEIC’s
processes and that Section 354.5, which permitted litigation, conflicted
with this federal policy. The trial court granted the motion to quash
and sustained the demurrer without leave to amend. Plaintiffs appealed.
The Court of Appeal affirmed, holding that a state may not enforce a
statute, in this case Section 354.5, which interferes with a specific
interest of the federal government. The specific interest need not be
expressly set forth in an official agreement such as a treaty or
executive agreement but, rather, may be reflected in official agreements
and statements by the executive branch. The appellate court determined
that if the plaintiffs’ lawsuit were allowed to proceed, it would
undermine the federal policy that the ICHEIC provides the exclusive
forum for resolution of Holocaust era insurance claims.
INTERPRETATION OF TERM “WILLFULLY” IN FEDERAL FAIR CREDIT
REPORTING ACT. In Reynolds v. Hartford Financial Services Group, Inc.
___ F.3d ___, 2006 WL 171920, 06 Cal. Daily Op. Serv. 689, 2006 Daily
Journal D.A.R. 973, 9th Cir. (Or.), Jan 25, 2006. the United States
Court of Appeal for the Ninth Circuit amended an earlier opinion issued
on October 3, 2005 regarding the meaning of the term “willfully” as used
in connection with the Fair Credit Reporting Act (“FCRA”) 15 U.S.C. §
1681n. Section 1681n of the FCRA provides that “[a]ny person who
willfully fails to comply with any requirement imposed under this title
with respect to any consumer is liable to that consumer” for actual or
statutory damages, punitive damages, and reasonable attorney’s fees.
Having previously held that a company which knowingly and intentionally
performs an act that violates FCRA will be liable for “willfully”
violating consumers’ rights, the Ninth Circuit’s amended opinion further
concluded that an insurer’s reliance on implausible interpretations of
the law from its counsel can constitute “reckless disregard,” which also
amounts to a willful violation of the FCRA. In a footnote, the Ninth
Circuit recognized that while consulting with attorneys may be evidence
of lack of willfulness, it is not dispositive. It reasoned that
attorneys who provide an implausible legal opinion that purports to
relieve the insurers of their “clear statutory responsibilities” will
not automatically avoid a charge of reckless disregard.
James M. Roth is a
shareholder in The Roth Law Firm. Mr. Roth’s practice includes
representing TPAs and insurance carriers in coverage, SIU,
extra-contractual liability, and third party defense matters. Please
submit any questions or comments for future columns to Mr. Roth at
TheRothLawFirm.com. |
