INSURANCE LAW : What Every Practitioner Should Know

1. INSURANCE LAW: What Every Practitioner Should Know Presented By: Les Robertson, Esq. Robertson & Associates, APC. (619) 531-7000 Cheryl Dunn Soto, Esq. Dunn Soto Law, APC. (619) 537-9817 Disclaimer: This presentation is for informational purposes only. It should not be relied upon or construed as legal advice or as advice on how to proceed in any given situation. No attorney-client relationship is established by way of this presentation and the information provided herein may reflect the opinions of the presenters and does not reflect the opinions of the SDBCA.

2. FIRST PARTY INSURANCE COVERAGE • First Party Insurance Coverage – Coverage under which an insured (the first party) is paid by his or her insurer in the event of accident, injury or loss whether caused by the insured or another party. • Examples: Homeowners, Auto, Health, Disability, Business Property

3. THIRD PARTY INSURANCE COVERAGE • Third Party Insurance Coverage – Coverage that insures against civil liabilities to third parties arising from bodily injury, property damage or other wrongs due to the action or inaction of the insured. • Examples: Homeowners, Auto, Commercial General Liability, Directors And Officers (D&O), Errors And Omissions (E&O), Professional Liability, Excess Umbrella

4. PRIMARY EXCESS & UMBRELLA POLICIES • Primary Policy - Primary insurance is coverage under which liability attaches to the loss immediately upon the happening of the occurrence. (See Kaiser Cement and Gypsum Corp. v. Insurance Co. of the State of Pennsylvania (2013) 215 Cal.App.4th 210) • Excess Policy- Liability under an excess policy attaches only after all primary coverage has been exhausted. (See Id) • Primary insurance is exhausted when the primary insurer(s) pays its/their policy limits in settlement or to satisfy a judgment against the insured. • In the commercial liability context, defense fees and costs will not typically exhaust policy limits. Such payments are more likely to exhaust the limits on a D&O policy. • Umbrella Policy - Umbrella insurance provides coverage for claims that are not covered by the underlying primary insurance. An umbrella insurer “drops down‘ to provide primary coverage in those circumstances. A policy that provides both excess and umbrella insurance provides both excess and primary coverage. (Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 689; see Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 812-813)

5. THIRD PARTY POLICIES: CLAIMS MADE POLICIES v. OCCURRENCE POLICIES • Claims Made Policies/Claims Made and Reported Policies: Claims against the insured must be made within the policy period and, in some cases, reported to the insurer within the policy period or within a short time after the policy period expires • Example: The Underwriter will pay on behalf of the Insured Person loss from any claim first made against the Insured Person during the policy period; provided that such claim is reported to the Underwriter within 60 days of the expiration of the policy period. • Occurrence Policies: A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is made. • Example: This insurance applies to bodily injury and property damage only if the bodily injury or property damage occurs during the policy period

6. TENDERING AND REPORTING OF CLAIMS • What to Tender • Determining the correct policy under which to tender • When and to whom tender must/should be made

7. TENDERING AND REPORTING OF CLAIMS CONT’D • What to tender depends on type of policy involved • CGL/Auto Policies: Typically cover a “suit”, often defined as a civil proceeding in which monetary damages are sought • D&O/E&O/Professional Liability Policies: Typically cover a “Claim” against an “Insured” for a “Wrongful Act”. “Claim” is often defined to include: • A written (and possible oral) demand for monetary or non-monetary relief • A civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non-monetary or injunctive relief

8. TENDERING AND REPORTING OF CLAIMS CONT’D • Determining the Proper Policy Under Which to Tender: • Occurrence Policies: • Tender under the policy or policies in effect when the bodily injury, property damage or personal and advertising injury is alleged to have occurred and also when it may have occurred • Claims Made/Reported Policies: • Tender under the policy in effect when the “Claim” was “made.” Review the policy to determine when the Claim is deemed “made,” but generally this refers to when the insured first received notice of the Claim

9. TENDERING AND REPORTING OF CLAIMS CONT’D • When and Where to Tender the Claim: • Generally, tender immediately • Ensures compliance with any policy notice provisions • Protects against incurring pre-tender defense costs • Not covered due to the “no voluntary payments” provision • Generally not credited toward any self-insured retention or deductible • Review policy to see if it contains a notice provision. If so, tender per the provision. If not, tender to agent (not broker) is sufficient

10. AN INSURER’S DUTY TO DEFEND • Duty commences upon tender. (See Lambert v. Commonwealth Land Title Ins. Co., (1991) 53 Cal.3d 1072, 1077) • Unless the policy language is conspicuous, plain, and clear, an insurer cannot condition its duty to defend on satisfaction of a self-insured retention. (See Legacy Vulcan Corp. v. Superior Court(2010) 185 Cal. App. 4th 677, 696) • Self-Insured Retention v. Deductible • Duty terminates upon conclusion of underlying suit, when policy limits are exhausted or where investigation reveals no potential for coverage (See Lambert, supra, 53 Cal.3d at 1077)

11. AN INSURER’S DUTY TO DEFEND CONT’D • Determining an insurer’s duty to defend • Defense duty triggered when the claim against the insured is “potentially” covered by the policy or there is “any possibility” of coverage (See Gray v. Zurich Ins. Co.(1966) 65 Cal. 2d 263, 276-77, 419 P.2d 168, 177) • The duty to defend is based on the facts of the complaint and extrinsic evidence known by the insurer

12. AN INSURER’S DUTY TO DEFEND CONT’D • Extent of insurer’s defense obligations • Extends to the Entire Lawsuit (i.e., to both potentially covered and uncovered claims) (Buss v. Superior Court(1997) 16 Cal. 4th 35, 48) • Insurer may seek reimbursement of amounts incurred solely in the defense and/or settlement of uncovered claims, if it specifically reserves its right to do so. (Buss, supra, 16 Cal. 4th at 61; Blue Ridge v. Jacobsen (2001) 25 Cal.4th 489.) • Coverage for Prosecuting a Counterclaim? • Generally, there is no coverage for prosecuting a counterclaim. • However, if fees and costs incurred in the prosecution of a counterclaim are “inextricably linked” to the defense of a potentially covered claim, the insurer must pay such fees and costs. (State v. Pacific Indemnity Co.(1998) 63 Cal. App. 4th 1535)

13. DEFENSE COUNSEL: PANEL COUNSEL V. INDEPENDENT COUNSEL • Panel Counsel: Selected by insurer; Tri-Partite Attorney-Client Relationship • Independent (“Cumis”) Counsel: • Selected by insured • Only has attorney-client relationship with insured • Right hinges on a reservation by insurer on a coverage issue which can be controlled by defense counsel retained by the insurer (See Cal. Civ. Code section 2860(b)) • Independent counsel’s duties to the insurer are set forth in Cal. Civ. Code § 2860 • Insurer need only pay the rates actually paid by the insurer “to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.” (Cal. Civ. Code section 2860(c)) • Delaying a decision to defend, or reversing a coverage denial after a period of time has passed, may result in the insurer losing the ability to assign its own defense counsel and control the defense of the insured. (See Travelers Property Cas. Co. v. Centex Homes (N.D. Cal. 2012) 2012 WL 1657121)

14. REIMBURSEMENT POLICIES • Promise to pay Loss (defined to include reasonable and necessary attorney’s fees) the insured pays or becomes legally obligated to pay • Insured selects counsel and controls the defense • Timing of Reimbursement • Depending on the policy language, the insurer may or may not have a duty to pay defense costs as they are incurred. (See Gon v. First State Ins. Co. (9th Cir. 1989) 871 F.2d 863, 868) • Scope of defense cost coverage

15. KEY POLICY CONDITIONS WITH WHICH THE INSURED MUST COMPLY • Tendering / Reporting (See above) • No Voluntary Payments: The insured cannot voluntarily make payments without the insurer’s consent. (See Jamestown Builders, Inc. v. Gen. Star Indem. Co. (1999)77 Cal. App. 4th 341, 346 [“California law enforces such no-voluntary-payments provisions in the absence of economic necessity, insurer breach, or other extraordinary circumstances.”]) • Cooperation: Insured must cooperate with insurerin the investigation, settlement or defense of the claim or suit. Insurer’s performance excused only if its ability to provide a defense is substantially prejudiced by the insured’s conduct. (See Truck Ins. Exch. v. Unigard Ins. Co.(2000) 79 Cal. App. 4th 966, 976)

16. STATUTE OF LIMITATIONS FOR INSURER’S BREACH OF INSURING AGREEMENT • Breach of Contact • Typically 4-year statute of limitations; title insurance policies have a 2-year statute of limitations. Compare Cal. Code of Civ. Proc. Sections 337(1) and 339(1): • “[T]he insured's cause of action accrues at the latest upon the date of unconditional denial.” (State Farm Fire & Cas. Co. v. Superior Court, (1989) 210 Cal. App. 3d 604, 609) • A cause of action for refusal to defend accrues when the insurer refuses to defend but is tolled until the conclusion of the underlying action. (Lambert v. Commonwealth Land Title Ins. Co. (1991) 53 Cal. 3d 1072, 1077) • Bad Faith (Tort) • Typically 2-Year statute of limitations • Internal limitations periods • Typically found in first-party policies

17. THE ROLE OF INSURANCE COMPANIES IN SETTLEMENT • Insurer’s duty to settle arises from its interrelated duty to defend. (PPG Indus., Inc. v. Transamerica Ins. Co.(1999) 20 Cal. 4th 310, 321) • A defending insurer breaches its duty to its insured when it fails to accept a reasonable settlement offer. (Johansen v. California State Auto. Assn. Inter-Ins. Bureau(1975) 15 Cal. 3d 9, 19) • An insured cannot settle around a defending insurer (See Safeco Ins. Co. v. Superior Court(1999) 71 Cal. App. 4th 782, 787) and cannot settle without insurer’s consent. • An insured cannot impair the insurer’s subrogation rights or other right to recovery • Note: to recover bad faith damages for failure to settle, the policy must actually (not potentially) cover the claim that was settled.

18. THE ROLE OF INSURANCE COMPANIES IN SETTLEMENT CONT’D • Where an insurer breaches its duty to defend, the insured may make a reasonable settlement of the claim and then maintain an action against the insurer to recover the amount of the settlement or assign its bad faith cause of action to the claimant. • Isaacson v. California Ins. Guarantee Assn.(1988) 44 Cal. 3d 775, 791 (explaining insured may reasonably settle claim and maintain action against insurer to recover settlement amount where insurer breaches duty to defend) • Comunale v. Traders & Gen. Ins. Co.(1958) 50 Cal. 2d 654, 661 (explaining cause of action for damages based on insurer’s wrongful failure to settle is assignable, whether sounding in tort or contract) • Cal. Ins. Code section 11580(b)(2)