The Adjuster – March 2006

The Roth Report: Interpretation of term “Willfully” in Federal Fair Credit Reporting Act

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

​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.


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.


​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.


​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.


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.

The Roth Law Firm, APLC

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