Insurance Law 101 PowerPoint - Robertson & Associates, APC

Report
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.

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

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

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, 812813)

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

What to Tender

Determining the correct policy under which to tender

When and to whom tender must/should be made

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 nonmonetary relief
 A civil, criminal, administrative, regulatory or arbitration
proceeding for monetary, non-monetary or injunctive relief

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

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

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)

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

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)

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)

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

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 insurer in 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)

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

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.

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)

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