APPELLATE LAW UPDATE
March 2, 2011
Submitted by H. Thomas Watson
Horvitz & Levy LLP
SUPREME COURT: The California Supreme Court recently published one insurance law decision.
1. Fire policy exclusion for losses caused by the intentional act of “any” insured cannot be enforced to deny coverage to innocent coinsured. (Century-National Ins. Co. v. Garcia (Feb. 17, 2011, S179252) __ Cal.4th ___ [2011 WL 537627].)
In Century-National Insurance Co. v. Garcia, the California Supreme Court issued a unanimous opinion holding that a policy provision excluding coverage for fire losses caused by the intentional act of “any” insured cannot be enforced to deny coverage to an innocent coinsured, i.e., a coinsured who neither directed nor participated in setting the fire.
The court explained that Insurance Code sections 2070 and 2071 prescribe a standard form of fire policy for use in California. Insurers may vary the form only if their policies provide fire coverage that is substantially equivalent to or more favorable to the insured than the fire coverage afforded by the form policy.
The form policy incorporates a statutory exclusion for losses resulting from a willful act by “the” insured (Ins. Code, § 533), but that exclusion is not triggered by the willful act of “any” insured. Other exclusionary provisions in the form policy likewise are tied to “the” insured rather than “any” insured. The statutory form thus reflects “the Legislature’s intent to ensure coverage on a several basis and protect the ability of innocent insureds to recover for their fire losses despite neglectful or intentional acts of a coinsured.” As a result, “an insurance clause purporting to exclude coverage for an innocent insured based on the intentional acts of a coinsured impermissibly reduces statutorily mandated coverage and is unenforceable to that extent.”
The Supreme Court noted that because its decision involved a fire policy subject to sections 2070 and 2071, the decision “should not be read as necessarily affecting the validity of clauses that deny coverage for the intentional acts of ‘any’ insured in other contexts.”
COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. Counsel for insurer in UIM arbitration proceedings may properly seek to discover evidence of insurance fraud. (State Farm Mut. Automobile Ins. Co. v. Lee (Jan. 31, 2011, ordered published Feb. 28, 2011, C062380) __ Cal.App.4th __ [2011 WL 288306].)
2. Collateral source rule does not permit an injured plaintiff to recover medical expense damages in the amount billed by her medical provider if her health insurer paid less. (Cabrera v. E. Rojas Properties, Inc. (Feb. 8,2011, ordered published Feb. 24, 2011, B216445) __ Cal.App.4th __ [2011 WL 653641].)
The Court of Appeal published yet another opinion on a much-litigated issue that is presently pending before the California Supreme Court. In Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686, review granted March 10, 2010,S179115, the Supreme Court will decide whether, under the collateral source rule, a plaintiff in a personal injury action may recover as economic damages the full amount her health care providers billed for their services even though the providers agreed to accept as payment in full much smaller amounts paid by the plaintiff’s health insurer.
The Court of Appeal’s Cabrera opinion answers that question in the negative, holding that, notwithstanding the collateral source rule, it is appropriate to reduce a plaintiff’s medical expense damages “from the amount billed by her medical provider to the amount paid by her private medical insurer.”
3. Where an automobile policy gives the insurer the option to repair a damaged automobile, the insurer satisfies its policy obligation by agreeing to make the repairs and the insurer’s policy obligation is excused if the insured refuses to allow repairs. However, an insurer may be liable in bad faith for pursuing a subrogation action against a third party to recover the cost of repairs made without the insured’s authorization. (Hibbs v. Allstate Ins. Co. (Feb. 24, 2011, B215812) __ Cal.App.4th __ [2011 WL 653490].) The insureds’ parked van was damaged when another vehicle collided into it. One of the insureds signed authorizations to have the insurer’s repair facility dismantle the van in order to estimate the cost of repairs and to make the repairs. The insurance policy gave the insurer the option to make repairs, and the insurer authorized the repair facility to repair the van. However, the insured then objected to the repairs, demanding the van to be declared a total loss. The repair facility repaired the van, and then sold it at a lien auction to recover its storage fees after the insuredsrefused to take delivery of it. The insureds sued the insurer for bad faith and related causes of action, and the trial court granted summary judgment for the insurer.
The Court of Appeal affirmed in part and reversed in part. First, the court held that the insureds’ written repair authorization executed before preparation of the written repair estimate required by Business and Professions Code section 9884.9 was void, and no alleged oral repair authorization by the insureds could satisfy the section 9884.9 requirements. However, the insureds had no right under the policy to demand payment of the repair cost, since the policy authorized the insurer to make repairs at its election. An insurer cannot act in bad faith by electing to make repairs, as authorized by the policy, and the insureds’ refusal to authorize those repairs excusesthe insurer’s obligation under the policy to repair the vehicle.
The court further held, however, that the insurer could be liable for bad faith by prosecuting a subrogation action to recover the cost of repairs from the third-party whose negligence damaged the insureds’ vehicle. An insurer has no subrogation rights where the insured has not consented to the repairs, and the insurer’s pursuit of the subrogation claim harmed the insureds because the third party would have a right to set off amounts paid to the insurer against any claims brought by the insureds.
4. Under Insurance Code section 10350.11, health insurers may contractually extend the limitations period for tort claims arising out their policies, and when this is done the policy language is interpreted in favor of the insured under contract law principles. (Blue Shield of Cal. Life & Health Ins. Co. v. Superior Court (Kawakita) (Feb. 9, 2011, B225632) __ Cal.App.4th __ [2011 WL 431162].)
NINTH CIRCUIT COURT OF APPEALS: The Ninth Circuit published the following decisions that may be of interest to attorneys practicing insurance law:
1. Because California law requires strict compliance with a pilot warranty provision in an aviation insurance policy, there is no coverage where the insured only substantially complies with the pilot warranty provision. (Trishan Air, Inc. v. Federal Ins. Co. (Feb. 16, 2011, No. 09-55317) __ F.3d __ [2011 WL 540532].)