The State Bar of California
Insurance Law Committee of the Business Law Section
APPELLATE LAW UPDATE
May 18, 2011
Submitted by H. Thomas Watson
Horvitz & Levy LLP
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SUPREME COURT: The California Supreme Court did not publish any recent decisions regarding insurance law.
COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law:
1. Insured attorneys who defend themselves while their insurer evaluates coverage and duty to defend issues cannot recover the value of their legal services as contract or tort damages. (Richards v. Sequoia Ins. Co. (April 28, 2011, ordered published May 10, 2011, A127784) __ Cal.App.4th __ [2011 WL 1615407 [First Dist., Div. Three].)
2. Insurance brokers cannot be liable to their clients for breach of fiduciary duty since they are not fiduciaries. (Workmen’s Auto Ins. Co. v. Guy Carpenter & Co., Inc. (May 4, 2011, B211660) __ Cal.App.4th __ [2011 WL 1663068] [Second Dist., Div. Two].)
The plaintiff was an insurer that had hired a broker to obtain reinsurance. The insurer alleged that the broker breached its fiduciary duty by failing to secure the best available reinsurance and by inflating its commissions. The trial court sustained a demurrer to the breach of fiduciary duty claim.
The Court of Appeal affirmed, noting a conflict between agency law and insurance law. An agent is generally a fiduciary of its principal. Nonetheless, cases have held that, with limited exceptions, insurance brokers are not fiduciaries and that their duties are limited to the exercise of reasonable care. The Court of Appeal refused to depart from this case law, reasoning that doing so would cause uncertainty on key issues such as whether brokers have affirmative duties to advise clients regarding insurance and whether brokers may enter into dual agency relationships.
3. Public agency self-insurance risk pools under joint powers agreements are not “insurers” or “insurance pools” for purposes of Insurance Code section 1063.1, subdivision (c)(5), which bars such insurance entities from bringing subrogation actions insureds of insolvent carriers. (Fort Bragg Unified School Dist. v. Solano County Roofing, Inc. (April 27, 2011, A127186, A127189, A127244) __ Cal.App.4th __ [2011 WL 1568263] [First Dist., Div. One].)
NINTH CIRCUIT COURT OF APPEALS: The Ninth Circuit Court of Appeals did not publish any recent decisions regarding insurance law.