|
The San Diego Defense
Lawyers Update
June, 2005
 Insurance
Law
James M.
Roth, The Roth Law Firm
With summer just around the corner, the
Courts are slowing down the decisions related to insurance. I believe
that this is occurring because we want to be outside to enjoy the nice
weather. Be that as it may, below is a picnic of newly created case law.
Announcements to customers and employees
of a decision to start a new company and a request for continued
patronage were not “advertising” activities within the meaning of a
general liability policy’s “advertising injury” coverage.
In Rombe Corp. v. Allied Ins. Co. (2005)
128 Cal.App.4th 482, the California Court of Appeal for the Fourth
Appellate District held that general business announcements to customers
and employees of a decision to start a new company and a request for
continued patronage were not “advertising” activities within the meaning
of a general liability policy’s “advertising injury” coverage.
Rombee was a franchisee of TRC Staffing
Services, a nationwide temporary employment agency. Rombe invited
customers and employees of its franchise to a breakfast meeting at a
hotel and announced that it would no longer be affiliated with TRC and
solicited those in attendance to become customers and employees of the
new agency. The breakfast meeting and plans were later reported in an
internet newsletter. TRC sued Rombe alleging breach of contract,
misappropriation of trade secrets, and unfair competition.
AMCO insured Rombe under a Premier
Businessowners Policy which provided coverage for “advertising injuries”
including slander or libel; violation of the right to privacy;
copyright, title or slogan infringement; misappropriation of advertising
ideas or style of doing business. The policy defined “advertisement” as
“a notice that is broadcast or published to the general public or
specific market segments about your
goods, products or services for
the purpose of attracting customers or supporters.”
AMCO denied Rombe’s tender of the TRC
suit. Rombe sued AMCO and cross-motions for summary judgment were filed.
The trial court ruled in favor of AMCO and the appellate court affirmed.
Rombe argued the breakfast it hosted, and the later internet report of
the breakfast and Rombe’s plans constituted the “‘use of another’s
advertising idea in your ‘advertisement’” within the meaning of the AMCO
policy. Rombe contended that the breakfast was arguably a form of
advertisement to “specific market segments.” The court of appeal
disagreed. It reasoned that the term “specific market segments” does not
relieve an insured of the burden of demonstrating that it was engaged in
relatively wide dissemination of its advertisements even if the
distribution was focused on recipients with particular characteristics
or interests.
With respect to the breakfast, the court
found that it did not involve the broad dissemination of information
required by the AMCO policy. As for the internet report, the court found
that while it might have been broadly disseminated, nothing in the
record indicated it involved any covered “advertising injury” offense.
Perhaps there would have been coverage if the ballroom doors were left
open so that the solicited would have reached a larger audience. Think
about that the next time you solicit a client.
Insurer has the right to rescind an
insurance policy based on an insurance applicant’s unintentional
misrepresentations.
In Mitchell v. United Natl. Ins. Co.
(2005) 127 Cal.App.4th 457, the California Court of Appeal for the
Second Appellate District affirmed the trial court’s order granting the
insurer’s motion for summary judgment, holding that an insurer has the
right to rescind an insurance policy based on an insurance applicant’s
unintentional misrepresentations based upon Insurance Code §§ 331 and
359.
James Mitchell, individually and on
behalf of the Mitchell Family Trust, submitted an insurance application
for fire insurance on a commercial building to Debra Messina, an
authorized under
writer for defendant United National
Insurance Company. The application included several misrepresentations.
A business associate of Mitchell, Carl Robinson, set fire to the
building and Mitchell submitted a claim to UNIC, which denied the claim,
citing Mitchell’s numerous misrepresentations on the insurance
application. Mitchell sued alleging that the misrepresentations were
immaterial and solely the fault of his brokers. Darn.
UNIC filed a motion for summary judgment
based on California Insurance Code §§ 331 and 359. Section 331 states:
“Concealment, whether intentional or unintentional, entitles the injured
party to rescind insurance.” Section 359 provides: “If a representation
is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time the
representation becomes false.” The trial court granted United’s motion
for summary judgment and the appellate court affirmed relying on
Messina’s declaration stating that had she known the truth, she would
have underwritten the policy differently, or rejected the application
altogether. Mitchell argued that Insurance Code §§ 2070 and 2071
controlled over §§ 331 and 359. Section 2070 requires all fire insurance
policies to be on the standard form set forth in section 2071 which
states that rescission of a policy based on the insured’s
misrepresentation requires that the statement “have been knowingly and
willfully made with the intent (express or implied) of deceiving the
insurer.” The court of appeal rejected Mitchell’s argument, finding that
nothing in §§ 2070 and 2071 prevents the application of §§ 331 and 359
to fire insurance policies, noting that such policies usually insure
more than just fire. This, of course, brings to mind the axiom: Don’t
play with matches or you will get burnt.
Court Issues Confusing Discovery Ruling
Which Makes Sense after You Think about it for a While.
In Catholic Mutual Relief Society v.
Superior Court (2005) 128 Cal.App.4th 879, the California Court of
Appeal for the Second Appellate District issued a peremptory writ of
mandate directing the
trial court to vacate an order denying a
non-party insurer’s motion to quash deposition subpoenas aimed at
obtaining documents concerning the insurer’s financial condition,
including its reserve and reinsurance information. The plaintiffs sought
this information in order to determine whether the insurer could meet
its coverage obligations to the insured-defendant which, plaintiffs
argued, would facilitate settlement discussions.
The appellate court determined that the
information was not relevant, admissible, or likely to lead to the
discovery of admissible evidence under California Code of Civil
Procedure Section 2017(a) and was not related to the “existence and
contents” of the defendant’s insurance which is discoverable under
Section 2017(b). This is from LA. What do you expect?
A Weather Conditions Clause Specifically
Excluded Damage Caused by a Rain-induced Landslide Which Was Within the
Risks Excluded by the Weather Conditions Clause.
In Julian v. Hartford Underwriters Ins.
Co. (2005) 35 Cal.4th 747, the California Supreme Court enforced a
“weather conditions clause” relied on by Hartford to deny a first party
claim over the insureds’ objection that the clause violated the
efficient proximate cause doctrine. In this case, a rain-induced
landslide caused damage to plaintiffs’ home. Hartford denied coverage
for all but a minor part of the damage citing the policy’s exclusions
for earth movement and weather conditions that “contribute in any way
with” another excluded cause to produce a loss (the “weather conditions
clause”).
It was undisputed that Hartford covered
losses caused by weather conditions that did not join with another
excluded cause. Hartford filed a motion for summary judgment on the
ground that its denial was appropriate because the efficient proximate
cause of plaintiffs’ loss, the rain-induced landslide, was excluded
under the weather conditions clause. The trial court granted the motion
and the appellate court affirmed. The appellate court’s decision
conflicted with another appellate decision which
found that the weather conditions
cause violated Insurance Code Section 530, which codified the efficient
proximate cause doctrine.
The California Supreme Court granted
review to resolve the dispute over the validity of the weather
conditions clause. The efficient proximate cause doctrine holds that
when a loss is caused by a combination of covered and specifically
excluded risks, the loss is covered if the covered risk was the
efficient proximate cause of the loss, but the loss is not covered if
the covered risk was only a remote cause of the loss, or the excluded
risk was the efficient proximate cause. An insurer cannot contract
around the efficient proximate cause doctrine with an exclusion.
Plaintiffs argued that Hartford
attempted to avoid the efficient proximate cause doctrine because rain,
a covered risk, was the efficient proximate cause of their loss. The
Court disagreed. It found that the weather conditions clause
specifically excluded damage caused by a rain-induced landslide which
was within the risks excluded by the weather conditions clause (weather
in combination with another excluded risk).
The Supremes:
On May 11, 2005, the California Supreme
Court granted review and removed from publication Essex Ins. Co. v. Five
Star Dye House, Inc. (2004) 125 Cal.App.4th 1569, a decision in which
the Second District Court of Appeal held that an insured may assign its
right to recover as damages attorney fees incurred in obtaining the
benefits of an insurance policy that were denied as a result of the
insurers bad faith. I discussed this case in the April 2005 edition of
The Adjuster.
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. |
