California and Nevada courts, including federal district courts, issued several interesting coverage decisions this quarter. One that merits particular attention is a federal district court ruling in Nevada that allowed an insured pursuing a bad faith counterclaim to depose the insurer’s coverage counsel and obtain her unredacted work product despite the fact that the insurer had not formally raised advice of counsel as a defense. We hope you find our brief summaries of all the cases informative. Please take a moment to check out the list of educational seminars (at the bottom of this Newsletter) that our coverage attorneys can present to you or your group at no cost.

As always, if you or your group have any coverage questions we might answer, please do not hesitate to call.

Mark E. Hellenkamp
Partner, San Diego
619.819.2404
mhellenkamp@mpplaw.com

Excess Insurer Rejects Reasonable Settlement At Its Own Risk

The Ninth Circuit Court of Appeals held that an excess insurer that refused to consent to an insured’s settlement or take over the defense was liable for breach of contract and bad faith.

To read more, click HERE.

Nevada Federal Court Allows Discovery of Coverage Counsel’s Testimony and Unredacted Work Product Despite Insurer Not Formally Raising Advice of Counsel Defense

In a declaratory relief action in which a bad faith counterclaim had been asserted, a federal district court in Nevada granted the insured’s motion to compel the testimony of the insurer’s outside coverage counsel and an unredacated copy of her work product.  The insurer had not raised advice of counsel as a defense, but its claim adjuster testified that she made the decision to deny coverage in reliance on coverage counsel’s recommendation. 

To read more, click HERE.

Willful Misconduct Exclusion in Directors and Officers Policy Does Not Apply Until Appeals Have Been Exhausted

California’s Second District Court of Appeal held that when a policy expressly provides coverage for litigation expenses on appeal, an exclusion requiring repayment to the insurer upon a “final determination” of the insured’s culpability applies only after the insured’s direct appeals have been exhausted. 

To read more, click HERE.

Ninth Circuit Affirms Trial Verdict of Insurer’s Breach

In an unpublished decision, the Ninth Circuit Court of Appeals affirmed a trial verdict finding that an insurer breached its duty to defend, and evidence that the insurer failed to conduct a proper investigation supported denial of its motion for summary judgment on the issue of bad faith.

To read more, click HERE.

Regular Use of Employer’s Van Precludes Coverage under Automobile Policy

A California Court of Appeal found that the insured’s regular use of her employer’s vehicle precluded coverage under her auto policy.

To read more, click HERE.

Insurance Commissioner Has Authority to Regulate Replacement Cost Estimates

The California Supreme Court held that the Insurance Commissioner's regulation regarding replacement cost estimates for homeowners insurance was a proper exercise of the Commissioner’s authority.

To read more, click HERE.

Standard Property Damage Exclusions Bar Coverage for Damage to the General Contractor’s Project

The Ninth Circuit Court of Appeals issued an unpublished decision holding that property damage to a water project was the result of the insured general contractor’s defective work on the property and therefore barred by the standard property damage exclusions.

To read more, click HERE.

Insurer’s Negligent Failure to Accept a Settlement Offer is not A Bad Faith Breach of the Duty to Settle

In an unpublished decision, the Ninth Circuit held that an insurer’s negligent failure to timely accept a policy limits settlement demand did not constitute unreasonable conduct in violation of the implied duty to settle.

To read more, click HERE.

No Duty to Indemnify Where Insured Settled without Obtaining Insurer’s Prior Written Consent

In an unpublished decision, the Ninth Circuit affirmed a district court finding that an insurer owed no duty to indemnify because its insured entered into a settlement agreement without first obtaining the insurer’s written consent.

To read more, click HERE.

“Insured Versus Insured” Exclusion Bars Coverage for Claims by Receiver Against Bank Officers

In an unpublished decision, the Ninth Circuit concluded that claims brought by FDIC in its capacity as receiver for an insured bank against the bank’s former officers were not covered by the bank’s professional liability policy because of an exclusion barring claims brought by any receiver of the company.

To read more, click HERE.

Mold Exclusion That Purported to Release Insurer of Duty to Defend in a “Mixed” Action was Unenforceable

The District Court for the Northern District of California refused to apply a Mold Exclusion that attempted to preclude the duty to defend where even a portion of the claims against the insured alleged mold damage. 

To read more, click HERE.

Conspicuous and Clear Used Tire Exclusion was Enforceable

The District Court for the Eastern District of California held that a Used Tire Exclusion set forth on a separate page of the policy, and which was titled in all caps and bold font, and plainly stated there was no coverage for used tires sold by the insured, was conspicuous and clear.

To read more, click HERE.

Financial Services Exclusion and Insurance Code Section 533 Bar Coverage for Fraudulent Mortgage Modification Program

A California federal district court held that no personal and advertising injury coverage was available to the insured for an underlying action alleging a mortgage modification scam because the policy’s financial services exclusion unambiguously barred coverage for the management and administration of mortgage plans.  Insurance Code section 533 also applied.

To read more, click HERE.

Motion to Set Aside Default in Declaratory Relief Action Denied Where Insured’s Culpable Conduct Led to Default

The District Court for the Eastern District of California held that the insured’s claim that it was too busy to respond to the complaint for declaratory relief due to the complex nature of the underlying litigation is not excusable neglect and will not serve as a basis to set aside a default.

To read more, click HERE.

Remand Required in Bad Faith Case Seeking Punitive Damages Where Insurer Argued that the Plaintiff Had Incurred $55,000 in Medical Expenses

A Nevada federal district court remanded a bad faith case removed to federal court under diversity jurisdiction by an insurer, finding that the removing insurer had not established the $75,000 jurisdictional minimum, despite that the complaint alleged bad faith, punitive damages and attorney’s fees and the plaintiff had apparently incurred medical expenses of some $55,000.

To read more, click HERE.

Insurer’s Motion for Judgment on the Pleadings was Denied Because Its Refusal to Accept a Policy Limits Settlement Demand was not Objectively Reasonable

A Nevada federal district court denied an insurer’s motion for judgment on the pleadings, holding that a refusal to accept a policy limits settlement demand on a claim that was likely to exceed the policy’s limits and included a full release of all claims was not objectively reasonable.

To read more, click HERE.

The presentations below are made by members of the Insurance Practice Group. If you have any interest in holding such presentations for your company, please contact the presenter.

Recent Presentations

On February 9, Doug Wood co-presented "Investigating Potential Arson Claims” for the Property & Liability Research Bureau (PLRB). Doug presented with Ulises Castellon of Fire Cause Analysis.

On March 7, Doug Wood co-presented “Anatomy of an Arson - Sex, Drugs and Rock & Roll” at the Combined Claims Conference (CCC). Doug presented with Ulises Castellon and Capital Insurance Group Regional Property Claims Manager Juliet Schade.

During the CCC, Doug was also interviewed on-camera by Claims Journal about "Bad Faith Nightmares - 3 Bad Faith Trends and How to Avoid Them." To view the video and the companion article, click HERE.

On March 26 & 27 Doug co-presented "Adjuster as Witness: Seven Deadly Sins" at the PLRB National Claims Conference. Doug co-presented with Ulises Castellon.

On April 13, Doug presented "Navigating the SIU Minefield" at the AFA/NCFIA (Anti-Fraud Alliance / Northern California Fraud Investigators Association).

Upcoming Presentations

On April 27, Pam Palmer will moderate a panel titled  "Discovery and the Extra-Contractual Suit" at the ABA Tort Trial & Insurance Practice Section Conference in Chicago, Illinois.

On May 17, Doug Wood will present "The Seven Deadly Sins of Adjuster Testimony” to a group of invited clients and prospective clients in Vista, California.

From June 14-16, Doug Wood will present "Fire and Explosion Investigations that Sizzle” at the PLRB Western Regional in Riverside, California.

Publications

This year Doug authored five updates to CEB treatise “Property Insurance: Law & Litigation” Chapters (2 of which he originally co-authored and 3 of which he's taken over updating). 

This year he authored the annual update for the following Chapters that he co-authored in 2015 (and updated in 2016):
- Chapter 3, "Insurable Interest"
- Chapter 4, "Insuring Secured Lenders and Lienholders"

Doug also authored the updates to the following additional Chapters in 2016 and 2017:
- Chapter 7, "Business Interruption and Other Business Coverages"
- Chapter 8, "Causation and Common Exclusions"
- Chapter 12, "Calculating Liability: Measure of Indemnity"

Doug was recently asked by CEB to lead a team of his selection in updating the “Origin & Cause of Fire” Chapter he originally co-authored in 2014 (and has updated since in the CEB treatise “Scientific Evidence and Expert Testimony”).

The presentations below are made by members of the Insurance Practice Group. If you have any interest in holding such presentations for your company, please contact the presenter.

Newsletter Contributors

Mark E. Hellenkamp
Micah M. Hoffman
John S. Na
David M. Plouff
Douglas K. Wood

For more information on the Insurance Coverage Practice Group, please visit our website.

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