APPELLATE LAW UPDATE
March 19, 2010
Submitted by H. Thomas Watson
Horvitz & Levy LLP
SUPREME COURT: The California Supreme Court granted review in the following two matters that may be of interest to attorneys practicing insurance law.
1. Supreme Court to decide whether plaintiffs may recover damages for the full amount of billed medical services or only the lower amounts actually paid by health insurers. (Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686, review granted Mar. 10, 2010, S179115.) In Howell v. Hamilton Meats & Provisions, Inc., the Court of Appeal held that, under the collateral source rule, a plaintiff with private health insurance may recover economic damages in a personal injury lawsuit the full amount of past medical expenses that her health care providers billed, but which neither the plaintiff nor her health care insurer is obligated to pay (because the providers had agreed in the health care contracts to accept—as payment in full—payments in an amount that is less than the amount the providers have billed.)
The Court of Appeal reasoned that limiting the plaintiff’s recovery to the amount the healthcare providers agreed to accept as payment in full would violate the collateral source rule. The Supreme Court previously approved the collateral source rule, which provides that “if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.” (Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6.)
The defendant filed a petition for review, raising the following three issues:
Issue 1: May a personal injury plaintiff recover as economic damages an amount exceeding what his or her private health insurance has paid and the relevant healthcare provider has accepted as payment in full for medical services?
Issue 2: Is a trial court authorized to hear a post-verdict motion to reduce a plaintiff’s past medical expenses award by the amount which it exceeds what a plaintiff’s health care insurer has paid, and medical providers have accepted, as payment in full?
Issue 3: Should the collateral source rule be abolished in California?
On March 10, 2010, the California Supreme court granted the petition for review, without limiting the issues to be decided. The Supreme Court’s web site states that the issues presented are:
“(1) Is the ‘negotiated rate differential’ (the difference between the full billed rate for medical care and the actual amount paid as negotiated between a medical provider and an insurer ) a collateral source benefit under the collateral source rule, which allows plaintiff to collect that amount as economic damages, or is the plaintiff limited in economic damages to the amount the medical provider accepts as payment?
“(2) Did the trial court err in this case when it permitted plaintiff to present the full billed amount of medical charges to the jury but then reduced the jury’s award of damages by the negotiated rate differential?”
2. Supreme Court to decide whether an insurer may enforce a provision in a fire policy stating that the intentional misconduct by “any insured” bars coverage for innocent co-insureds. (Century National Insurance Co. v. Garcia (Dec. 2, 2009, B209616) 2009 WL 4285796 [nonpub. opn.], review granted Mar. 10, 2010, S179252.)
Century’s fire insurance policy excluded coverage for losses caused intentionally by “any insured.” The Garcias’ son, an insured under the policy, intentionally burned their home. Century relied on the exclusion to deny the Garcias’ fire loss claim. The Garcias sued Century for breach of contract and bad faith. The Garcias contended that California’s standard form fire insurance policy (Ins. Code, §§ 2070, 2071) covers
innocent co-insureds for fire losses but that Century’s exclusion for losses caused intentionally by “any insured” unlawfully reduced that standard coverage. The trial court granted Century’s demurrer without leave to amend, and the Court of Appeal affirmed.
The California Supreme Court granted review. The court’s web site states: “This case presents the following issue: May an insurer enforce an exclusion clause in a fire insurance policy that denies coverage to innocent insureds for damages from a fire intentionally caused by a coinsured, or does such a clause impermissibly reduce coverage that is statutorily mandated?”
COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. In an equitable contribution action against an insurer that breached its duty to defend and indemnify, brought by one of several insurers that defended and indemnified the common insured, the insurer seeking contribution must prove that it paid more than its “fair share” of defense and indemnity costs and may not recover any amount that would result in it paying less than its fair share even if that means the breaching insurer will pay nothing. (Scottsdale Ins. Co. v. Century Surety Co. (Mar. 10, 2010, B204521) __ Cal. App.4th __ [2010 WL 797189] [Second Dist., Div. Three].)
2. An insurer may require its insured to produce personal financial information where the insurer reasonably suspects a loss was caused by arson, and the insured’s failure to provide this financial information—even though based on advice of counsel—supports the insurer’s denial of claim based on the insured’s failure to cooperate. (Abdelhamid v. Fire Ins. Exchange (Feb. 22, 2010, C059098) __ Cal. App.4th __ [2010 WL 599329] [Third Dist.].)
3. Insurer who defended and indemnified a general contractor named as an additional insured in a subcontractor’s liability policy is subrogated to the general contractor’s right to seek express contractual indemnity from another subcontractor who negligently caused the loss and also breached its obligation to defend and indemnify the general contractor.(Interstate Fire & Cas. Ins. Co. v. Cleveland Wrecking Co. (2010) 182 Cal. App.4th 23 [First Dist., Div. Five].)
NINTH CIRCUIT: The Ninth Circuit Court of Appeals recently published the following decision that may be of interest to attorneys practicing insurance law:
1. An insurer may bring a subrogation claim against a third-party tortfeasor to recover policy benefits paid to its insured without first making the insured whole for the full value of an underinsured loss. An insured lacks standing to sue his insurer under the made-whole rule where the insured cannot prove the insurer’s subrogation recovery impaired the insured’s right to recover his uninsured loss from the third-party tortfeasor. (Chandler v. State Farm Mutual Automobile Ins. Co. (9th Cir. Mar. 17, 2010, No. 09-55123) __ F.3d __ [2010 WL 938113].)
APPELLATE LAW UPDATE
February 19, 2010
Submitted by H. Thomas Watson
Horvitz & Levy LLP
SUPREME COURT: The Supreme Court recently granted review of the following case that may be of interest to the attorneys practicing in the insurance law.
1. Issues presented review: (1) Can an insured bring a cause of action against its insurer under the Unfair Competition Law (Bus. & Prof. Code, § 17200) based on allegations that the insurer misrepresents and falsely advertises that it will promptly and properly pay covered claims when it has no intention of doing so? (2) Does Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 bar such an action? (Zhang v. Superior Court (California Capital Insurance) (2010) 178 Cal.App.4th 1081, review granted Feb. 10, 2010, S178342.)
Zhang sued her insurer for breach of contract, bad faith, and violation of the Unfair Competition Law (UCL). The trial court sustained the insurer’s demurrer to the UCL claim on the ground the “unfair” conduct alleged in the complaint was prohibited by Insurance Code section 790.03, and under Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 and Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, the plaintiff could not state a private right of action based on such conduct.
The Court of Appeal reversed, holding that “if a plaintiff expressly alleges conduct expressly prohibited by the UCL, such as fraudulent conduct likely to deceive the public [citation] or false advertising, there is simply no reason to apply Moradi- Shalal to prohibit the cause of action.” The court explained that the plaintiff’s allegations that the insurer “solicited her business through false advertising and false promises clearly justifies a claim under the UCL.”
The Zhang court disagreed with Textron, stating that it had misinterpreted the Supreme Court’s decision in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 185, and as a result “focused too narrowly on the ‘unfair’ prong of potential liability under the UCL.” According to the Zhang court, “while Cel-Tech limited the scope of ‘unfair’ in competitor UCL actions—that is, to conduct that was essentially anticompetitive in a traditional sense—it did not deal with consumer UCL cases.” Indeed, the Zhang court stated in dicta “that a strong case can be made for the proposition that the fact that specified acts—such as those involved in claims handling—might be prohibited by Insurance Code section 790.03 should not give an insurer a ‘free pass’ with respect to conduct that violates the UCL as well as that section.”
The Supreme Court granted the insurer’s petition for review.
COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. When a transportation company engages an independent contractor, who subcontracts with a third party who is then involved in an accident, the transportation company cannot be said to have “hired” the vehicles involved in the accident, and the parties responsible for the accident were not insureds under the transportation company’s policy. (American Intern. Underwriters Ins. v. American Guarantee and Liability Ins. (2010) 181 Cal.App.4th 616 [Sixth Dist.].)
2. Insurance policy provision defining advertising injury as “oral or written publication of material that violates a person’s right of privacy” was not broad enough to include fax blasting (i.e. transmitting tens of thousands of unsolicited advertisements via facsimile to a number of parties). (State Farm General Ins. v. JT’s Frames, Inc. (2010) 181 Cal.App.4th 429 [Second Dist., Div. Four].)
3. Allegation that health plan systematically breached its healthcare contract by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders, even though those services were contractually covered, was sufficient to state a class action claim under the Unfair Competition Law. (Arce ex rel. v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471 [Second Dist., Div. Seven].) Andrew Arce, by and through his guardian ad litem, brought a class action under the Unfair Competition Law (“UCL”) (Bus. & Prof. Code § 17200 et seq.) against Kaiser, alleging that Kaiser breached its health plan contract and violated the Mental Health Parity Act by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders. The trial court sustained Kaiser’s demurrer to the UCL claim without leave to amend, based on the doctrine of judicial abstention and lack of commonality among class members.
The Court of Appeal reversed, on the ground there was a reasonable possibility that Arce could establish the requisite community of interest for a class action suit under the UCL. The allegation that Kaiser engaged in unlawful conduct under the UCL by denying coverage for diagnosis and treatment of autism spectrum disorders under the same terms and conditions applied to other medical conditions, in violation of the Mental Health Parity Act, stated a class action claim. The court further held that the resolution of the UCL claim would not require the court to make individualized determinations of medical necessity or to decide complex issues of economic policy, or other matters over which an administrative agency has exclusive jurisdiction.
4. Building a structure that encroaches onto another’s property is not an accident even if done in good-faith, but mistaken belief that one is legally entitled to build there. Insurer had no duty to defend homeowners in an encroachment action by owner of adjoining property where homeowner’s policy did not provide coverage for nonaccidental occurrences. Fire Ins. Exchange v. Superior Court (Bourguignon et al.) (2010) 181 Cal.App.4th 388 [Fourth Dist., Div. Two].)
Insureds renovated and rebuilt their home. Although the insureds believed that they had a valid easement from their neighbor pursuant to a “Lot Line Adjustment” submitted to the city where the property was located, the structure that they built encroached on their neighbor’s property. The insureds brought a quiet title action to which their neighbors cross-complained. The insureds then tendered their defense of the cross-complaint to their insurer. The insurer declined to defend on the grounds that the policy did not cover nonacccidental occurrences, and the homeowners’ action of building a structure at a specified location is not an accident, but an intentional act.
The insureds then sued their insurer for breach of the insurance contract and bad faith. The insurer moved for summary judgment, but the trial court denied the motion, ruling that there was a triable issue of fact whether the insureds’ intentional act of constructing their home could constitute an “accident” because they did not intend to encroach on the adjoining property. The insurer sought writ relief.
The Court of Appeal granted writ relief, directing the trial court to grant the insurer’s motion for summary judgment. The court held that the insurer had no duty to defend because the insureds’ actions were not accidental. The court reasoned that the construction was intentional and not an accident, even though the insureds acted under the mistaken belief that they had the right to build where they did. “An accident does not occur when the insured performs a deliberate act, unless some additional unexpected, independent, and unforeseen happening occurs that produces the damage.” Because the homeowners intended to build the house where they built it, the policy did not provide coverage. Justice Miller dissented on the grounds that a triable issue of fact existed as to whether the encroachment was an accident. According to the dissent, if the homeowners did not have the objective to encroach on the adjoining property, the encroachment was accidental.
Justice Miller dissented on the grounds that a triable issue of fact existed as to whether the encroachment was an accident. According to the dissent, if the homeowners did not have the objective to encroach on the adjoining property, the encroachment was accidental.
5. Insurer owes no duty to defend under coverage for advertising injury where complaint alleges no claim for an injurious statement that expressly or implicitly referred to insured. (Total Call Intern., Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161 [Second Dist., Div. Four].)
6. Insurer is entitled to rescission as a matter of law where insured failed to disclose material information about her medical condition and treatment on her application; evidence that insured lacked any intent to defraud failed to create a triable issue of material fact. (Nieto v. Blue Shield of California Life & Health Ins. Co.(2010) 181 Cal.App.4th 60 [Second Dist., Div. Two].) The insured failed to disclose information about her medical condition and treatment on a health insurance application she submitted to her healthcare insurer. Upon learning that the insured had made misrepresentations on her application, the insurer rescinded her policy. The insured then filed a complaint against insurer, asserting claims for breach of contract, breach of implied covenant of good faith, declaratory relief, and violation of Business and Professional Code section 17200. The trial court granted summary judgment for the insurer, ruling that the undisputed evidence established fraud or deceit justifying rescission of the policy.
The Court of Appeal affirmed. The undisputed evidence established that the insured made material misrepresentations and omissions on the application regarding her medical condition and treatment. The court held that the insurer had no duty under Insurance Code section 10384 to conduct further inquiries during the underwriting process to ascertain the truthfulness of appellant’s representations before it issued the policy. The undisputed facts established that the insurer’s underwriting process included the appropriate steps to ensure the accuracy and completeness of insured’s application, including contacting the insured’s doctors to obtain information missing from her application.
7. Payments by general contractor, whom subcontractors were contractually required to add to their general liability policies as an additional insured, did not satisfy the subcontractors’ self- insured retention where subcontractors’ policies defined “you” to mean the named insured and specified that “it is a condition precedent to our liability that you make actual payment…until you have paid” the self-insured retention amount, and further stated “Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self- insured retention.” (Forecast Homes, Inc. v. Steadfast Ins. Co. (Jan. 12, 2010, G040876) ___ Cal.App.4th ___ [2010 WL 95091] [Fourth Dist., Div. Three].)
Housing developers, Forecast Homes, Inc., and K. Hovnanian Forecast Homes, Inc. (“Forecast”), appealed from the judgment entered in its declaratory relief action in favor of Steadfast Insurance Company (“Steadfast”). Forecast contractually requiredall its subcontractors to defend and hold it harmless against any liability arising out of the subcontractors’ work. Subcontractors were required to add Forecast to their general liability insurance policies as an additional insured. Several subcontractors obtained their required insurance coverage from Steadfast, who later refused to indemnify Forecast when a lawsuit was filed by several homeowners against Forecast for construction defects. Steadfast maintained the subcontractors did not pay the policy’s self-insured retention (SIR), which was a precondition for coverage. It argued only the named insured, not Forecast, could satisfy the policy’s SIR and trigger coverage. The trial court agreed and concluded the policies were unambiguous, not against public policy, and not illusory.
The Court of Appeal affirmed, holding that the policy language was clear and unambiguous. The subcontractors’ policies defined “you” to mean the named insured and specified that “it is a condition precedent to our liability that you make actual payment…until you have paid” the SIR amount. The policy further stated “Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention.” The court held that it was unambiguous that payments by general contractor, whom subcontractors were contractually required toadd to their general liability policies as an additional insured, did not satisfy the SIR. The Court also found that the policies were not illusory and did not violate public policy.
8. Insurer must notify its insured claimant of the contractual limitations provisions that may apply to the claim, regardless whether the insured is represented by counsel. (Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175 [Second Dist., Div. Three].) Superior Dispatch, Inc. (“Superior”), submitted a claim to Insurance Company of New York (“Inscorp”), which was denied via letter. The denial letter did not include a notification to insured of a one-year contractual limitations period contained with insurer’s policy. Superior then retained counsel, who sent a letter challenging the denial of the claim. Inscorp then sent a second letter in response, which again did not refer to the policy’s one-year contractual limitations period.
Superior filed a complaint. Inscorp successfully moved for summary judgment based on a one year contractual limitations provision in the insurance policy. The trial court ruled that Inscorp’s failure to notify Superior of the provision did not estop it from asserting the provision because Superior was represented by counsel. Superior appealed.
The Court of Appeal affirmed the trial court’s granting of summary judgment, on the grounds that undisputed evidence of material misrepresentation made in the application for insurance invalidated the policy. However, the court disagreed with the trial court’s ruling on the contractual limitations issue, holding that section 2695.4, subdivision (a) requires an insurer to notify its insured claimant of contractual limitations provisions and other policy provisions that may apply to a claim, regardless whether the insured is represented by counsel. An insurer’s failure to notify its insured of a contractual limitations provision estops it from relying on the provision if the insured had no actual knowledge of the provision and the insured’s failure to discover the provision by other means was reasonable. The fact that Superior retained counsel does not establish as a matter of law that the Superior’s reliance on Inscorp’s nondisclosure was unreasonable.
9. Commercial general liability insurance policy provision excluding coverage for bodily injury damages caused by insured’s “products” and “completed operations” barred coverage for damages arising from insured’s inspection services, which were a work related “completed operation,” regardless of whether those inspection services were related to a product. (Baker v. National Interstate Ins. Co. (2009) 180 Cal.App.4th 1319 [Second Dist., Div. Eight].)
Four Winds Day Camp, Inc. (“Four Winds”) operated a school bus business primarily involved in transporting children, but which also performed inspection and mechanical services for school bus vehicles. American National Fire Insurance Company (“American”), issued Four Winds a one-year commercial general liability policy which included a “products-completed operations hazard” exclusion, excluding bodily injury and property damage that occurred away from insured’s premises and that arose out of “your product” or “your work.”
In July 2000, Four Winds sold one of its school buses to La Shaun Clemmons. A few months later, Clemmons hired Four Winds to perform the required maintenance on the bus. In April 2001, Clemmons was fatally injured as a result of an accident in which the driver’s seat of the bus broke loose from the floor, ejecting her through the front windshield.
Clemmons’ heirs filed a wrongful death action against Four Winds, alleging various claims, including that Four Winds “negligently and carelessly repaired, serviced, and maintained the bus by replacing bolts securing the driver’s seat with bolts of inadequate size, strength, and/or number. . .”. Four Winds tendered its defense to American, but American denied the tender based on the “products-completed operations hazard” exclusion in the policy. After a bench trial, the trial court entered a judgment of $9 million plus costs and interest against Four Winds based on the negligence claim.
Four Winds then assigned its rights under the policy to Clemmons’ heirs, who filed an action against American for breach of insurance contract and breach of implied covenant of good faith. American moved for summary judgment on the basis that the policy did not provide coverage. The trial court denied the motion, ruling that the exclusion in the policy applied only to product liability related claims, not to claims for negligent maintenance or inspection services, and a triable issue of fact existed as to whether Four Winds’ inspection and maintenance services were independent of the sale of the bus. The trial court then empanelled a jury to determine only this triable issue, and the jury concluded that the services were independent of the sale. The trial court issued a statement decision ruling that the “products-completed operations” exclusion in the policy did not apply, American had breached its contract with Four Winds, and Clemmons’ heirs were entitled to collect the full amount of the judgment from American. American appealed.
The Court of Appeal reversed the trial court’s judgment, holding that the policy did not provide coverage for the underlying claims for damages arising from Four Winds’ negligent inspection and maintenance of the bus sold to Clemmons. The policy defined the “Products-completed operations hazard” to include “all ‘bodily injury’ and ‘property damage’ . . .arising out of ‘your product’ or ‘your work’ . . .” By employing the disjunctive conjunction “or” between the “your product” and “your work,” the policy advised insured that it did not provide coverage for claims arising from either its “products,” once they were out of insured’s possession, or from its “work,” once that work was completed and out to use away from the premises. The court also concluded that the inspection services performed by Four Winds fit within the definition of “work” provided in the policy.
10. 2006 amendments to the insurance regulations properly permit a consumer group to recover advocacy fees from an insurer that files a rate application, even where no hearing on the filing is convened. (Association of California Ins. Companies v. Steve Poizner, et al. (2009) 180 Cal.App.4th 1029 [Second Dist., Div. One].) In 2006, the Department of Insurance adopted regulations permitting consumer interest interveners to obtain compensation for participation in the administrative rate-setting process where an order or decision is issued by the Insurance Commissioner on a rate setting application without a formal hearing.
A group of insurer associations filed a petition for peremptory writ of mandate and complaint for declaratory and injunctive relief, claiming that because the amended regulations permit an award of compensation without a formal rate hearing, the regulations conflict with Insurance Code sections 1861.05 and 1861.10. The trial court upheld the regulations, denying the insurer associations’ petition and request for declaratory and injunctive relief. The insurer associations appealed.
The Court of Appeal affirmed the trial court’s judgment, concluding that the regulations are consistent with the governing statutes. The court rejected the insurer associations’ argument that Insurance Code sections 1861.05 and 1861.10 allow consumers to obtain compensation with public hearings on rate applications, but not in connection with other parts of the administrative rate-setting process where no public rate hearing is ordered by the Insurance Commissioner. The court instead held that the amended regulations allow compensation for participation in the rate-setting process beginning with the submission of a petition for a hearing or the Insurance Commissioner’s notice of a rate hearing, even if there is no public hearing. The court further held that the amended regulations were valid because they were consistent with Proposition 103, which contemplates public participation and intervention in the rate-review process.
11. In a loss appraisal proceeding, the disclosure and disqualification procedures under Section 1281.9 of the Arbitration Act apply only to the jointly proposed umpire, not to the “competent and disinterested” appraisers unilaterally designated by the parties. (Mahnke v. Superior Court (2009) 180 Cal.App.4th 565 [Second Dist., Div. Seven].)
In a loss appraisal proceeding, Peter and Patricia Mahnke, and their insurer, California FAIR Plan Association (“CFPA”), both appointed appraisers. Both appraisers sent disclosure statements to the opposing side. While CFPA’s appraiser declared that he had no financial interest in the outcome of the appraisal, the Mahnkes’ appraiser disclosed that he was currently engaged as a construction expert for another client of the law firm representing the Mahnkes. CFPA then demanded that the Mahnkes withdraw their appraiser based on his concurrent association with another party represented by insureds’ counsel, and filed a petition with the court seeking to disqualify him. The court granted the motion to disqualify, and the Mahnkes appealed.
The Court of Appeal held that party-selected appraisers are to be treated differently from jointly-selected arbitrators. The text of Section 1281.9 of the Arbitration Act, as amended in 2001, imposes disclosure requirements only on a “proposed neutral arbitrator.” The term “proposed neutral arbitrator” is defined in section 1280 (d) as one “who is (1) selected jointly by the parties or by the arbitrators selected by the parties or (2) appointed by the court when the parties or the arbitrators selected by the parties fail to select an arbitrator who was to be jointly selected by them.” In light of the express statutory language, the disclosure requirements in section 1281.9 do not apply to any arbitrator other than the jointly selected, or court appointed neutral arbitrator.
Even absent the requirements of Section 1281.9, an appraiser may be disqualified when “such an impression is created in the eyes of the hypothetical reasonable person.” Here, the court concluded that based on the facts at hand, a reasonable member of the public would not doubt the impartiality of the Mahnkes’ appraiser.
12. The regulatory and enforcement authority of the California Department of Managed Health Care over managed health care service plans, pursuant to Knox-Keene Health Care Service Plan Act of 1975, does not preclude the city attorney from pursuing unfair competition and false advertising claims against such plans. (Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237 [Second Dist., Div. One].)
The Los Angeles city attorney filed a lawsuit against Blue Cross and Blue Cross Insurance (collectively “Blue Cross”), alleging claims under the Unfair Competition Law (“UCL”) (Bus. & Prof. Code § 17200 et seq.) and the false advertising law (“FAL”) (id. § 17500 et seq.), all relating to practices involving post claims underwriting. Blue Cross is a managed health care service plan subject to the Knox-Keene Act and regulated by the Department of Managed Health Care (“DMHC”). Blue Cross moved to strike certain allegations and demurred to the complaint on multiple grounds, including: (1) the city attorney’s UCL and FAL claims are barred by the DMHC’s exclusive regulatory and enforcement powers, (2) the trial court should abstain from deciding the claims in the complaint because the case would require the court to assume general regulatory powers over the healthcare industry, and (3) the claims should dismissed or stayed under the doctrine of primary jurisdiction. The trial court overruled the demurrer and Blue Cross filed a petition seeking a writ of mandate.
The Court of Appeal denied the writ petition, holding that the DMHC’s regulatory and enforcement authority does not preclude the city attorney from pursuing the UCL and FAL claims. The UCL and FAL give the city attorney express statutory authority to file suit on behalf of the People. Moreover, existing case law establishes that the city has authority to sue under the UCL for violation of the Knox Keene Act, unless there is a statute that expressly precludes the city attorney from doing so. Because no such statutory authority was cited, the city attorney has standing to pursue the UCL and FAL claims against Blue Cross. The Court further held that the trial court did not abuse its discretion in declining to abstain or apply the primary jurisdiction doctrine.
13. An “omnibus clause” may make a person or entity that is potentially liable under the peculiar risk doctrine an “insured” and thereby entitled to a defense pursuant to the insurance policy. (American States Ins. Co. v. Progressive Casualty Ins. Co. (2009) 180 Cal.App.4th 18 [Third Dist.].)
14. Purchaser of damaged property at an execution sale was not entitled to any insurance proceeds that were owed due to a “lender’s loss payable” provision in judgment debtor’s insurance policy or any surplus funds arising out of the double payment of debt secured by the property sold. (Washington Mutual Bank v. Jacoby (2009) 180 Cal.App.4th 639 [Second Dist., Div. Eight].) 15. Under the “collateral source” rule, a personal injury plaintiff is entitled to recover the billed costs of medical services provided by a health care provider, even though the health care provider has accepted less than the amount under plaintiff’s health care insurance as full payment of the services rendered. (Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686 [Fourth Dist., Div. One].)
15. Under the “collateral source” rule, a personal injury plaintiff is entitled to recover the billed costs of medical services provided by a health care provider, even though the health care provider has accepted less than the amount under plaintiff’s health care insurance as full payment of the services rendered. (Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686 [Fourth Dist., Div. One].)
Insured, Rebecca Howell, sustained medical injuries when her vehicle was struck by a vehicle driven by Hamilton Meats’ employee (“Hamilton”). At the time of the accident, the Howell had private health care insurance through insurer, PacifiCare, that agreed to indemnify her for any medical charges covered by her health plan in exchange for her premium payments. PacifiCare, as a regular part of its business practice, entered into contractual agreements with hospitals and other health care providers, to satisfy any bills incurred by its plan members who obtained care from these providers.
Before Howell received any medical treatment, she executed written agreements in which she agreed to be financially responsible for all charges for the medical services provided to her. Howell then underwent several surgeries, for which the full amount of her medical bills totaled $189,978.63. Pursuant to PacifiCare’s agreements with the medical providers, PacifiCare then paid $59,691.73 as payment in full for the services provided to Howell.
Howell sued Hamilton to recover her past medical expenses, and a jury awarded her $189,978.63. Hamilton filed a motion to reduce the special verdict for past medical expenses, by $130,286.90 (i.e. from $189, 978.63 to $59,691.73). The trial court granted the motion to reduce the special verdict, concluding that a reduction of verdict to reflect the amount the medical providers accepted as payment in full of the medical bills did not violate the collateral source doctrine. Howell appealed.
The Court of Appeal reversed and remanded, holding that the trial court’s order violated the collateral source doctrine by limiting Howell’s recovery for past medical expenses to the amount that PacifiCare paid to her medical providers. The court reasoned that Howell incurred a form of personal financial liability when she executed the written agreements with the medical providers, in which she agreed to be financially liable for all charges for medical services provided to her. The court classified the negotiated rate differential ($130,286.90) as a collateral source benefit, within the meaning of the collateral source rule, because it was conferred upon her as a direct result of her own thrift and foresight in procuring private health care insurance, wholly independent of Hamilton, and therefore it could not be used as a basis for reducing the tort feasor’s liability.
16. Insurance policy that barred coverage for “any property damage arising out of land subsidence for any reason whatsoever” did not cover damage caused by a landslide that occurred as a result of the city’s negligent maintenance of its water system. The plain language of the exclusion applied to any causes, man-made, or other-wise. (City of Carlsbad v. Insurance Co. of State of Pennsylvania (2009) 180 Cal.App.4th 176 [Fourth Dist, Div. One].)
NINTH CIRCUIT: The Ninth Circuit Court of Appeals recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. Arbitration panel that met in closed sessions and limited the evidence that it would review did not violate the Federal Arbitration Act (FAA) because it provided parties with a fundamentally fair arbitration process, and the award rested on a plausible interpretation of the arbitration documents. (United States Life Ins. Co. v. Superior National Ins. Co. (9th Cir. 2010) 591 F.3d 1167.)
The Ninth Circuit affirmed the district court’s decision upholding an arbitration panel’s award against reinsurer, U.S. Life, in favor of Superior National Insurance Companies in Liquidation (“SNICIL”). In this case, U.S. Life had agreed to reinsure the workers’ compensation risks insured by five California insurers, referred to as SNICIL, who later declared bankruptcy—thereby requiring the California Insurance Guarantee Association to take over payment of the claims. The reinsurance contract contained an arbitration provision, and the arbitration panel issued an award requiring U.S. Life to (1) pay all bills submitted before a certain date, with interest, and (2) disgorge of unjust enrichment gained through earnings.
U.S. Life challenged the arbitration panel’s award as violative of the Federal Arbitration Act. Specifically, U.S. Life claimed that the arbitration award should be vacated because: (1) by closing the meeting of the panel with the reviewers, the panel refused to hear pertinent and material evidence regarding the appropriateness of SNICIL’s claim handling, (2) U.S. Life was unable to respond to evidence presented against it by reviewers, and therefore the panel’s ex parte meeting and cross- examination limitation constituted a 9 U.S.C. § 10(a)(3) misbehavior, prejudicing U.S. Life, and (3) the panel exceeded its authority by requiring U.S. Life to pay all bills submitted before a certain date, along with interest. The district court upheld the arbitration award and Ninth Circuit affirmed. In affirming the district court’s decision, the Court of Appeals held that “the arbitration process provided the parties with a fundamentally fair arbitration and the arbitration award rested on a plausible interpretation of the governing arbitration documents.” The court further stated that “ …perhaps [U.S. Life did not enjoy a perfect hearing; but it did receive a fair hearing.” The court also determined that the panel did not exceed its broad authority to fashion appropriate remedies when it determined that disgorgement of profits was an appropriate remedy for U.S. Life’s delay in payment.
The district court upheld the arbitration award and Ninth Circuit affirmed. In affirming the district court’s decision, the Court of Appeals held that “the arbitration process provided the parties with a fundamentally fair arbitration and the arbitration award rested on a plausible interpretation of the governing arbitration documents.” The court further stated that “ …perhaps [U.S. Life did not enjoy a perfect hearing; but it did receive a fair hearing.” The court also determined that the panel did not exceed its broad authority to fashion appropriate remedies when it determined that disgorgement of profits was an appropriate remedy for U.S. Life’s delay in payment.