Winter 2004

The San Diego Defense Lawyers Update

INSURANCE LAW: Common sense rears its ugly head

James M. Roth, Esq., The Roth Law Firm

Common sense seems to have reared its ugly head. Recent decisions by the Appellate Courts have generally favored insurance carriers. It’s reassuring to know that good facts can make good law.

WORKERS’ COMPENSATION CARRIER HAD STANDING TO SUE A THIRD PARTY TORTFEASOR:

In Fremont Compensation Ins. Co. v. Sierra Pine, Ltd., (2004) 121 Cal.App.4th 389, the California Court of Appeal, Third Appellate District, held that under Labor Code §3852, a workers’ compensation insurer had standing to sue a third party tortfeasor despite the fact that the insurer had paid a death benefit to the worker’s former wife (they were divorced at the time of the worker’s death). The Workers Compensation Appeals Board (“WCAB”) ordered an insurer to pay death benefits to the former wife of an employee killed on the job. The insurer sued the third party tortfeasor to recoup the money under Labor Code §3852.

The trial court ruled that the insurer did not have a right to sue to recoup compensation benefits from the third party tortfeasor because §3852 subrogated the insurer to the rights of the former wife, and she had no standing to sue for wrongful death.

The trial court sustained a demurrer without leave to amend and the insurer appealed. Because the insurer could have sued to recoup benefits paid to the worker while alive and because recoupment actions survive a worker’s death (see Labor Code §3851), the fact compensation was paid as a death benefit, rather than vocational rehabilitation or medical benefits, makes no difference. To allow tortfeasors to escape liability due to the happenstance that the WCAB ordered benefits to be paid to someone who had no standing to file a wrongful death action would conflict with the letter and spirit of §3852.

LEAD CONTAMINATION IN A MUNICIPAL WATER SYSTEM IS “PROPERTY DAMAGE” WHEN THE DEFECTIVE COMPONENT PHYSICALLY INJURES SOME OTHER TANGIBLE PART OF THE LARGER SYSTEM OR THE SYSTEM AS A WHOLE:

In Watts Industries, Inc. v. Zurich American Ins. Co., (2004) 121 Cal.App.4th 1029, the California Court of Appeal, Second Appellate District, affirmed the trial court’s grant of an insured’s motion for summary judgment holding that its insurer owed a duty to defend a suit by municipalities seeking damages and injunctive relief for alleged lead contamination in their water systems. The court rejected the insurer’s contentions that no “property damage” was alleged, that the relief sought was purely prophylactic, and that coverage was excluded by the impaired property exclusion.

The insured owned a waterworks parts manufacturer which sold parts to municipalities for use in their water systems. The municipalities sued the insured alleging the parts wore out too quickly and caused lead to leach into the water supply. The municipalities also claimed defective parts at thousands of sites needed to be replaced. The court rejected the insurer’s contention that no “property damage” was alleged because the municipalities did not claim physical injury to other parts of the water systems.

The court noted incorporation of a defective component or product into a larger structure or system does not constitute “physical injury to tangible property,” unless the defective component physically injures some other tangible part of the larger system or the system as a whole. It further noted that where products or work containing hazardous materials are incorporated into other products or structures, other property is immediately physically injured at the moment incorporation occurs. Here, the municipalities alleged the defective parts were built into municipal water systems, leaching lead into water supplies and threatening public health and safety. Moreover, the parts were not easily removable, as they had to be dug up and replaced. The court concluded these allegations raised a sufficient prima facie showing of physical injury to tangible property.           

DOG BITE OCCURRING WHEN DOG ESCAPED FROM AUTOMOBILE WAS NOT “CAUSED BY AN ACCIDENT RESULTING FROM THE OWNERSHIP, MAINTENANCE OR USE OF” THE INSURED VEHICLE:

In State Farm Mut. Ins. Co. v. Grisham, (2004) 122 Cal.App.4th 563, the California Court of Appeal, Third Appellate District, affirmed the trial court’s decision that State Farm had no duty to defend or indemnify its insured under an auto liability policy against a dog bite claim because plaintiff’s injury was not “caused by an accident resulting from the ownership, maintenance or use of” the insured vehicle. The insured’s dog bit plaintiff’s leg after escaping from the insured’s parked pickup truck. The court recognized that California interprets the word “use” in auto liability policies to require “some minimal causal connection” between the use of the vehicle and the accident.

It applied the “predominating cause/substantial factor” test under which the use of the vehicle must contribute in some way to the injury beyond merely serving as the location of the injury. Something involving the vehicle’s operation, movement, maintenance, or its loading or unloading must be a contributing cause of the injury. Applying these principles, the court determined that plaintiff’s injury did not result from the use of the insured vehicle. The vehicle did not contribute to the injury beyond merely transporting the dog to a place near the injury site. Plaintiff ’s injury did not result from, or in the course of, the vehicle being operated, moved, maintained, loaded or unloaded. Plaintiff was bit 20 to 25 yards from the vehicle, well beyond any unloading zone or activity. The vehicle had also been parked for some time prior to the insured’s dog escaping and biting plaintiff.  

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.