The State Bar of California
Insurance Law Committee of the Business Law Section
APPELLATE LAW UPDATE
November 11, 2011
Submitted by H. Thomas Watson
Horvitz & Levy LLP
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SUPREME COURT: The California Supreme Court did not publish any recent insurance law opinions.
COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. Where an insurance policy states that the insurer has three years after the end of the policy period to complete an audit of the insured’s records in order to determine the final premium due, and the insurer completes that audit within the three-year period and timely submits a final bill to the insured, the statute of limitations on the insurer’s breach of contract claim seeking to recover unpaid premiums begins to run on the date the final bill is sent to the insured. (State Compensation Ins. Fund v. WallDesign Inc. (Oct. 20, 2011, G044354) __ Cal.App.4th __ [2011 WL 4978084] [Fourth Dist., Div. Three].)
2. Exclusion in a commercial vehicle policy for liability “resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered [vehicle]” is construed narrowly to apply only to property being loaded or unloaded from the covered vehicle, and therefore does not bar coverage for liability resulting from the negligent loading of an adjacent vehicle. (Palp, Inc. v. Williamsburg Nat. Ins. Co. (Oct. 27, 2011, G043956) __ Cal.App.4th __ [2011 WL 5088719] [Fourth Dist., Div. Three].)
Insurer provided commercial vehicle coverage for dump truck operated by its insured, which provided hauling services for a paving company. The paving company was a named additional insured under the policy. An employee of the paving company negligently operated an excavator while loading a third vehicle, damaging a dump truck that had already been loaded and injuring its driver. The injured driver and the physical damage insurer of the damaged dump truck sued the paving company (and its employee) to recover for the injuries and property damage. The insurer declined to defend or indemnify them based on an exclusion for liability “resulting from the movement of property by a mechanical device (other than a hand truck) unless the device is attached to the covered [vehicle].” In the ensuing lawsuit for declaratory relief, breach of contract, bad faith, contribution and indemnification, the trial court granted the insurer’s motion for summary judgment.
The Court of Appeal reversed, holding that a literal reading of the exclusion was inappropriate because “such a construction could lead to exclusion of coverage for the most random acts simply because a mechanical device that was moving property was involved.” Because the policy specifically mentioned both hand trucks and mechanical devices that were attached to the covered vehicle, the Court of Appeal reasoned that the exclusion should be construed narrowly to apply only when liability stems from the movement of property to or from the covered vehicle.
3. CIGA is not liable for an award of costs and interest to a claimant, even if the supplemental payment provision in the policy of the insolvent insurer whose obligations CIGA must pay covered those awards. Claims under supplemental payment provisions are linked to the insurer’s duty to defend its insured and may not be sought directly under Insurance Code section 11580, and therefore are not a “covered claim” that can be asserted against CIGA under Insurance Code section 1063.1, subdivision (c)(1)(A). (Clark v. California Ins. Guarantee Ass’n (Sept. 30, 2011, ordered published Oct. 28, 2011, G044171) __ Cal.App.4th __ [2011 WL 4528394] [Fourth Dist., Div. Three].)
4. Items seized by the police pursuant to a search warrant and later destroyed are not covered under the “theft” provision of a standard homeowner’s policy. (Barnett v. State Farm General Ins. Co. (Oct. 31, 2011,G043748) __ Cal.App.4th __ [2011 WL 5121064] [Fourth Dist., Div. Three].) The police executed a search warrant at the insured’s home, seizing “12 seven-foot tall marijuana plants, freezer bags containing a total of approximately five ounces of marijuana, and a tray with loose marijuana and rolling paper, which Barnett used for medicinal purposes.” The police later destroyed these items. The insured made a first party claim for coverage under the theft provision of his homeowner’s policy, and sued his insurer after it declined coverage. The trial court granted the insurer’s motion for summary judgment, and the insured appealed.
The Court of Appeal affirmed, holding that—regardless whether the warrant should have issued—the officer’s confiscation of the insured’s marijuana and related items pursuant to a facially valid warrant could not be construed as a “theft” within the meaning of the homeowner’s policy because no unlawful taking of property was ever intended.
5. There is no potential for coverage under an advertising injury provision for a lawsuit alleging that the insured copied its client’s product and then sold a competing product that injured its customer’s sales and professional reputation, since the complaint did not allege the misuse of any advertisement. (Oglio Entertainment Group, Inc. v. Hartford Cas. Ins. Co. (Nov. 1, 2011, B224156) __ Cal.App.4th __ [2011 WL 5142335] [Second Dist., Div. One].)
The insured was an independent music label that contracted with a performer to record an album of “lounge” music, with options to record two more similar albums.According to the performer’s subsequent complaint, the initial album was extremely successful, but the insured refused to record the next two albums unless the performer agreed to accept less than the contract provided as payment for his performance. When the performer refused, the insured hired two other artists to mimic the original performer’s unique style. The performer sued the insured for breach of contract, bad faith, violation of the right of publicity, and intentional interference with prospective economic advantage. The insured tendered its defense to its insurer, seeking coverage under the policy’s advertising injury provision, and then sued the insurer after it declined coverage.
The Court of Appeal affirmed the trial court’s order sustaining a demurrer, holding that the performer’s complaint alleged only that the insured had copied the performer’s product, not that the insured had copied the performer’s advertising idea or style. Accordingly, there was no potential for coverage under the advertising injury provision, which distinguished advertisement from the product being advertised.
6. Tort plaintiffs may recover for medical expenses gratuitously written off by health care providers. (Sanchez v. Strickland (Nov. 4, 2011, F060582) __ Cal.App.4th __ [2011 WL 5301773] [Fifth Dist.].)
NINTH CIRCUIT COURT OF APPEALS: The Ninth Circuit Court of Appeals did not publish any recent decisions regarding insurance law.