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Journal of Consumer Attorneys Associations for Southern California
INSURANCE From brokers and agents to the bad-faith trial
Is there is a magic word to open up the insurer’s policy limits?
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The Advocate Magazine â€” 5
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Volume 40, Number 6, JUNE 2013
Editor-in-Chief Jeffrey Ehrlich Associate Editors Joseph Barrett, Mary Bennett, Joan Kessler, James Kristy, Beverly Pine, Norman Pine, Rahul Ravipudi, Linda Rice, Ibiere Seck, Geraldine Weiss Editors-in-Chief Emeriti Kevin Meenan, William Daniels, Steven Stevens, Christine Spagnoli, Thomas Stolpman Publisher Managing Editor Richard Neubauer Cindy Cantu email@example.com firstname.lastname@example.org Copy Editor Art Director Eileen Goss David Knopf Consumer Attorneys Association of Los Angeles President Treasurer Lisa Maki Ricardo Echeverria President-Elect Secretary Geoffrey Wells Michael Arias First Vice President Immediate Past President Joseph Barrett Michael Alder Second Vice President Executive Director David Ring Stuart Zanville
Board of Governors Martin Aarons, Mike Armitage, Shehnaz Bhujwala, Todd Bloomfield, John Blumberg, Michael Cohen, Scott Corwin, Jeffrey Ehrlich, Mayra Fornos, Stuart Fraenkel, Scott Glovsky, Steve Goldberg, Jeff Greenman, Christa HaggaiRamey, Genie Harrison, Arash Homampour, Neville Johnson, Bill Karns, Aimee Kirby, James Kristy, Lawrence Lallande, Anthony Luti, Shawn McCann, Minh Nguyen, Linda Fermoyle Rice, David Rosen, Jeffrey Rudman, Ibiere Seck, Douglas Silverstein, Armen Tashjian, Kathryn Trepinski, Geraldine Weiss, Jeff Westerman, Ronnivashti Whitehead, Andrew Wright, Dan Zohar Orange County Trial Lawyers Association Secretary President Geraldine Ly Scott Cooper Treasurer President-Elect Casey Johnson
B. James Pantone
Second Vice President Vincent Howard Third Vice President
First Vice President Ted Wacker
H. Shaina Colover
Parliamentarian Jonathan Dwork Immediate Past President Executive Director Janet Thornton
Board of Directors Melinda S. Bell, Gregory G. Brown, Anthony W. Burton, Brent W. Caldwell, Cynthia A. Craig, Jerry N. Gans, Robert B. Gibson, Paul E. Lee, Kevin G. Liebeck, Christopher E. Purcell, Solange E. Ritchie, Sarah C. Serpa, Adina T. Stern, Douglas B. Vanderpool, Janice M. Vinci, Atticus N. Wegman Periodicals postage paid at Los Angeles, California. Copyright © 2013 by the Consumer Attorneys Association of Los Angeles. All rights reserved. Reproduction in whole or in part without written permission is prohibited.
ADVOCATE (ISSN 0199-1876) is published monthly at the subscription rate of $50 for 12 issues per year by the Consumer Attorneys Association of Los Angeles, 800 West Sixth Street, #700, Los Angeles, CA 90017 (213) 487-1212 Fax (213) 487-1224 www.caala.org
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c/o Neubauer & Associates, Inc. P.O. Box 2239 Oceanside, CA 92051 6 — The Advocate Magazine
14 What do we do with Du?
overlooked benefits of Coverage “P” in general 24 The liability policies
Have the courts resolved whether insurers must make settlement offers, or just respond to offers? Sharon Arkin
Coverage “P” affords coverage beyond physical injury and property damage, including privacy and disparagement claims. Kirk Pasich
36 HMO bad faith
Using legislative history to take on Martin v. PacifiCare. Carolina Rose and Jeffrey Ehrlich
ban on discretionary clauses in 50 California’s disability and life insurance
California Insurance Code section 10110.6: When it applies and how it stands up to ERISA preemption. Brent Brehm and Corrine Chandler
62 Winning punitive damages for insurance bad faith Your guide to the bad-faith trial from voir dire through closing statement. Ricardo Echeverria
74 “OPEN, Sesame!”
Is there a magic word to open up the insurer’s policy limits? The authors explore the nuances of litigation that can result in the lid being taken off the policy. Mark Algorri and Carolyn Tan
agent or insurance broker – what’s 80 Insurance in a name? Why it’s a distinction with a difference. Robert S. Gianelli and Jully C. Pae
California provide drivers’ licenses 85 Should regardless of immigration status?
The author suggests that driving privilege cards and provisional licenses, along with buying plenty of Uninsured Motorist Coverage, are the only logical methods of improving public safety. Barry P. Goldberg
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Submitting articles for publication: Check the annual editorial calendar at www.theadvocatemagazine.com to see when your legal topic would be most appropriate. Articles on time sensitive matters are welcome throughout the year, as are opinion columns, humor pieces, human-interest stories, lifestyle and personality features. Send your article as a WordPerfect or Word document attachment to e-mail: firstname.lastname@example.org. Please check the website for complete editorial requirements. Reprint permission: E-mail written request to Managing Editor Cindy Cantu: email@example.com
8 12 99 105
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Independent Cumis counsel: The second prong
Insurance strategies for mediation
When the insured is given the right to choose counsel and control its own defense. Kim Collins
A look at the fundamental insurance issues that arise at mediation. Edward Susolik
A BOUT THIS I SSUE Insurance: Coverage and bad faith Guidance from some of the best plaintffs’ insurance lawyers in Southern California.
Jeffrey Isaac Ehrlich
The Court funding crisis
Stuart Zanville Appellate Reports and cases in brief Recent cases of interest to members of the plaintiffs’ bar.
Jeffrey Isaac Ehrlich
D IRECTORY OF A DVERTISERS C ALENDAR OF E VENTS CAALA R ESOURCE C ENTER CAALA Webinar Library – Resources FREE for members Free educational Webinars are now available for FREE on demand at caala.org
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Consumer Attorneys Association of Los Angeles Shocking numbers and words that will make a difference.
106 107 108
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“Open, Sesame” was the magic phrase used by Ali Baba in the story Ali Baba and the Forty Thieves. The words opened the cave in which the forty thieves had hidden a treasure.
The Advocate Magazine — 7
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From the Editor
Jeffrey Isaac Ehrlich Editor-in-Chief
About this Issue Jeffrey Isaac Ehrlich Editor-in-Chief
Insurance: Coverage and bad faith Aboutthe best plaintiffs' insurance lawyers in Southern California Guidance from this Issue
This year we have a great insurance issue. In fact, we have so many articles Jeffrey Isaac that space is at a premium, so IEhrlich have to keep this “about this issue” column very short. My brevity should not be seen as an absence of gratitude to each of the authors for sharing their wisdom. Kirk Pasich once again contributed an article, this year on advertising-injury coverage. This is one of the least-understood kinds By Jeffrey Isaac Ehrlich of insurance coverage, but as Kirk points Editor-in-Chief out, it can be critical. His article is a great place to start. I have new authors this year. Mark Algorri and Carolyn Tan have written an article on the various ways that an insurer may “open up” a liability policy by failing to settle within policy limits. This can be the difference between a $15,000 recovery and multi-million dollar for your client. Also Kim Collins, a career defense lawyer, explains some of the finer points about when insurers must provide independent counsel for their insured because they lack a financial interest in the outcome of the underlying case. If you were to ask experienced plaintiffs (or defense) lawyers to name the
plaintiffs’ lawyers with the most knowledge about insurance, that list would likely include the following names: Rob Gianelli, Ed Susolik, Ricardo Echeverria, and Sharon Arkin. I have articles from each of them in this issue. Robert S. Gianelli and Jully C. Pae have written an article that canvasses California law on the often-confusing area of broker/agent liability. Sharon Arkin has written on the Ninth Circuit’s decisions in Du v. Allstate. Du I created something of a firestorm of controversy about whether an insurer had an affirmative duty to settle a case. Du II somewhat sidestepped the issue, but Sharon shows why you need to know about both decisions. Ricardo has written at what he is particularly adept – trying an insurance bad-faith case. His article is the next-best thing to second-chairing a trial with him. And Ed Susolik has written on what may be the most important issue of all to the plaintiff ’s practice – how to use insurance issues to leverage settlement in mediation. These articles would make for a good issue, but as they say on TV, “But wait, there is more.” Brent Brehm and Corinne Chandler have explained how California
law now forbids the use of “discretionary” clauses in life, disability, health, and accidental-death insurance policies, and how ERISA is likely to impact that legislation. Carolina Rose, an expert on California legislative history, has co-written an article with me concerning Health & Safety Code section 1371.25, which courts have construed to abolish vicarious liability for claims against HMOs. Carolina shows how, properly evaluated, the legislative history for that statute shows that the courts are getting it wrong. Finally, Barry Goldberg has written a very topical article on whether — from the standpoint of public safety and uninsured-motorist coverage — California should provide drivers licenses to undocumented immigrants.” My thanks go to each author. Writing good articles is hard work. So, too, is putting an issue of this magazine together. And every month Cindy Cantu, David Knopf, Eileen Goss, and often Rich Neubauer make it happen. I get the sexy title – “Editor in Chief.” And they do the hard work of making a bunch of articles into a magazine.
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10 â€” The Advocate Magazine
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From the Executive Director Stuart Zanville
Consumer Attorneys Association of Los Angeles
The Court funding crisis Shocking numbers and words that will make a difference I am not a numbers person, I prefer words. Maybe it’s because I was never good at math (it took me three tries to pass high school algebra), and I’ve always preferred verbal communication over statistics. But when it comes to the California Court funding crisis, there are some numbers I want to share with you: • $1.1 billion (Amount cut from the California’s Court budget since 2007) • $161 million (Amount cut from the L.A. County Superior Court budget since 2010) • 60 (Courthouses closed in California) • 10 (Courthouses closed in L.A. County) • 31 (California counties that have reduced the hours their Courts’ public windows are open) • 38 (California counties that have reduced their Courts’ self-help services) • 16 (California counties that have closed traffic court locations) • 4 (L.A. County courthouses that now hear landlord-tenant disputes) • 5 (L.A. County courthouses that now hear small claims cases) These are shocking numbers to anyone who believes in the Constitution and its guarantees of access to justice for all, not just the rich and powerful.
As the Court changes that were mandated by the budget cuts begin to take effect, one unavoidable and highly damaging consequence is delay. Justice delayed is justice denied and these days, a lot of justice is being denied in California. California Supreme Court Justice Gordon Liu recently said, “Civil suits are the bread and butter of our daily lives and delays will force people to find other ways to settle disputes.” In June of last year L.A. Superior Court Judge Mary Ann Murphy wrote in 12 — The Advocate Magazine
this magazine, “Further budget cuts may usher a return to master calendar, the calendar congestion of the 1970’s, 1980’s and early 1990’s and five years to trial.” She quoted from a Rand Institute for Civil Justice study that the long wait to trial caused a “profound crisis” that impeded access to justice in the Los Angeles Superior Court. “Frustrated litigants may accept a settlement rather than wait for an open courtroom and may lose faith in the court’s ability to resolve disputes.” Judge Murphy surmised, “Further budget cuts may cause the unthinkable – a return to the master calendar. Master calendar is a highly inefficient utilization of court resources that would likely cause a return to five years to trial.” Unfortunately, in the year since that article appeared and through no fault of the Court, Judge Murphy’s worst-case scenario has become the new normal. A recent report from the Trial Court Presiding Judges Advisory Committee quoted a representative of the L.A. Superior Court with powerful words about the impact of the delays that will be caused by the budget cuts: Delay is pernicious. It takes hold incrementally. There will be no catastrophe, only a slow and inexorable decline. Delay allows everyone to continue to pretend there is access to justice. Only after months or years of waiting will one litigant at a time realize how the system has failed. Courthouse doors are being closed and no amount of teeth-gnashing, handwringing or finger-pointing will change the reality that our Courts are in grave danger.
The power of words
What will make a difference are words. Words that must be spoken by Consumer Attorneys on behalf of the
people you stand up for every day. Words that must be heard by California’s lawmakers to better understand the importance of the Courts and the service Consumer Attorneys perform for Californians of all creeds, colors, religions and socioeconomic circumstances. Whether you are talking to your elected officials or to your friends and neighbors, educate them about what you do each day to create a safer California, and that public safety is at risk without Courts that are accessible. Explain that closing Courts hits especially hard at our state’s most vulnerable citizens; the less fortunate, the poor, veterans and the disabled. Be clear that this is not about the lawyers. The Courts and the civil justice system protect people from unsafe products, unsafe medicine, unfair business practices and negligent corporate conduct. Individuals, including corporate interests, must be held accountable when they do something wrong, harmful or illegal and the civil justice system levels the legal playing field and guarantees that ordinary people get a fair shake in court. As California’s revenues increase, the state has the money to repair the extensive damage done to our judicial system as a result of years of budget cuts. Two months ago the U.S. Congress passed emergency legislation that fixed delays at the nation’s airports caused by the sequestration furlough of air traffic controllers. The bill was passed in a matter of days after legislators were besieged with complaints from their constituents. The time for California’s legislature to act to address the impact of delays in the Courts is now, and now is the time for your voice to be heard. Contact me at firstname.lastname@example.org.
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Sharon J. Arkin
What do we do with Du? Are insurers required to offer settlements before the claimant asks? In June 2012, the initial published decision issued by the Ninth Circuit Court of Appeals in Du v. Allstate Ins. Co. (9th Cir. 2012) 681 F.3d 1118 (“Du I”) created a firestorm in the insurance industry. The decision issued after denial of rehearing in October 2012 (Du v. Allstate Ins. Co. (9th Cir. 2012) 697 F.3d 753 [“Du II”] spread the fire to the plaintiffs’ insurance bad-faith bar. The “central legal issue” the Ninth Circuit purported to address in Du I – and which it neatly dodged in Du II – was this: “Does an insurer have a duty, after liability of the insured has become reasonably clear, to attempt to effectuate a settlement in the absence of a demand from the claimant?” (Du I, at 1122.) In Du I, the court first discussed the general duty of good faith and fair dealing of an insurer to settle a third-party liability claim against its insured “within policy limits ‘when there is substantial likelihood of a recovery in excess of those limits,’” citing Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390. But, as the court went on to point out, the duty to settle has been commonly applied “to situations in which the insurer unreasonably rejects a settlement offer within policy limits. “ (Id., at 1123.) The Du I court, however, concluded that the duty applies more broadly and requires “an insurer to effectuate settlement when liability is reasonably clear, even in the absence of a settlement demand.” (Ibid.) Ultimately, despite its conclusion that such a duty existed, the Du I court held that the evidence in the trial court did not support giving the jury an instruction to that effect. Not surprisingly, the insurer sought rehearing of the decision. “Within days of the Ninth Circuit’s June 11, 2012 opinion, the court received dozens of amicus letters and briefs urging the court 14 — The Advocate Magazine
to grant rehearing or certify the case to the California Supreme Court.” (DiMugno & Glad, California Insurance Law Handbook, § 11:196, Comment.) In its October 2012 amended decision, the court noted that Du’s appeal raised the issue of whether the duty of good faith and fair dealing can be breached in the absence of a settlement demand by the third party, and briefly summarized the cases and arguments on either side of the issue. Ultimately, however, the court declined to resolve that legal question because it was unnecessary to do so in light of the fact that the insured did not present adequate evidence to support that claim in any event.
So what do we do with Du?
In both Du I and Du II, the Ninth Circuit identified a hotly contested issue in insurance bad-faith law: Does a liability insurance company have an affirmative duty to attempt to settle a third-party claim against its policyholder without a settlement demand from the third party? Du II does not give us a definitive answer. So, what do we do with that? Well, the first thing we don’t do is cite Du I. That decision was superseded by Du II and it is therefore unciteable. But that doesn’t mean that – as policyholders’ counsel – we can’t adapt the analysis applied by the Ninth Circuit in Du I. We can – and should.
Think before you leap
One caveat before going through the analysis: Make sure you have a strong case on the facts before you try to make this argument and especially before you try to appeal it. The old law-school maxim that “bad facts make bad law” is true – especially in the insurance badfaith context. Even when you have a great case on the facts, the insurance company will do its level best (meaning it
will do its worst) to argue that the company was “set up” and that the bad faith was all on the part of the policyholder and/or the third party. Making bad law for everyone else just to promote your own marginal case is a grave disservice to every other injured third party and, in the long run won’t help your client anyway. So think before you leap. Obviously, the best way to deal with the issue is to avoid it altogether. If you are counsel for the injured third party, provide all the relevant documentation and information the insurance company reasonably needs to assess its insured’s liability and your client’s damages and make a reasonable settlement offer. You can do it “early” in the case so long as you have a strong liability case and damages clearly in excess of the policy limits. Yes, by making a settlement offer, you take the risk that the insurance company will accept the offer and your client will not be able to “blow the lid on the policy.” But if you don’t provide the relevant information, you and your client are at far greater risk that the bad-faith case will go south on you and you will be left with nothing but the bill for the costs paid and the loss of months of litigation time on a case-to-nowhere that could have been spent on more productive litigation. If you are bad-faith counsel, you pretty much have to take the facts as they are and work with what you have. But that doesn’t mean you should take a run at every case. The trial and appellate courts – especially in these days of severe budget cuts – are looking for ways to get rid of cases and will not tolerate overreaching. Be smart with your time and the court’s resources and leave the marginal cases alone.
How do you make the argument?
The California Supreme Court has unequivocally established that the
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Du — continued
implied covenant of good faith and fair dealing in an insurance policy “obligates the insurance company, among other things, to make reasonable efforts to settle a third party’s lawsuit against the insured.” (PPG Industries, Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 312.) One of the primary reasons for the imposition of this duty on an insurer is the inherent conflict created by the circumstances: The policyholder wants the claim to settle within the policy limits in order to avoid personal liability; and the company wants to settle the claim for as little as possible. Without the duty of good faith as an incentive to settle within the policy limits, it would be in the company’s best interest to simply let the case go to trial and let the policy-
holder take the risk of an excess judgment, knowing that it would never pay more than the policy limit no matter what. (Merritt v Reserve Ins. Co. (1973) 34 Cal.App.4th 858, 874.) Thus, the insurance carrier “must conscientiously try to strike a balance between conflicting interests” and must assess the claim “both from its own point of view and from that of the assured.” (Ibid.) There is no question that the good faith duty to settle applies when a reasonable settlement demand within policy limits is made by the third party. (Johansen v. California State Auto. Ass’n inter-Ins. Bureau (1975) 15 Cal.3d 9, 16; Blue Ridge ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 498; Merritt, supra.) But merely responding to a settlement
demand from the third party, rather than initiating settlement efforts, ignores important statutory, regulatory and public policy obligations on the part of an insurance company to make affirmative efforts to resolve the litigation against its policyholder. First, nothing in the controlling Supreme Court decisions even impliedly justifies conditioning the duty to settle on receipt of a settlement demand from the third party. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 659-661; Crisci v. Security Ins. Co. of New Haven, Conn. (1967) 66 Cal.2d 425, 429; Johansen, at 16-17.) And that makes sense: While a settlement demand may crystallize the existence of the conflict in
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Du — continued
the mind of the company, the conflict itself manifestly exists irrespective of whether there is an actual demand. In assessing the policyholder’s risk, the insurer “must conduct itself as though it alone were liable for the entire amount of the judgment” (Johansen, at 16) and, as a practical reality “no rational defendant would sit back and allow a high exposure case to go to trial without at least attempting to settle simply because the plaintiff shows no interest in settling.” (DiMugno & Glad, California Insurance Law Handbook, § 11:196.) Second, statutory provisions also support the conclusion that a carrier cannot simply sit back and await a settlement demand. Insurance Code section 790.03(h)(5) expressly provides that a carrier has a duty to attempt in “good
18 — The Advocate Magazine
faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” A third-party claimant cannot base a claim on violation of that statutory mandate. But the violation of that statutory mandate is evidence of the insurance company’s unreasonable conduct in an action for breach of the duty of good faith by the policyholder or the policyholder’s assignee. (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1078; Rattan v. United Services Auto. Association (2000) 84 Cal.App.4th 715, 724.) Thus, the fact that the insurer failed to make any effort to attempt to settle the case in the absence of a specific settlement demand may be evidence of its breach of the duty of good faith. And that this is a justifiable basis for imposition of liability is supported
by the fact that the Judicial Council has crafted an approved jury instruction based on violations of section 790.03(h) to be used in bad-faith cases. (CACI 2337.) Third, several cases have confirmed the carrier’s duty to affirmatively attempt to settle a claim in which liability is reasonably clear, even in the absence of a settlement demand. In Pray v. Foremost Ins. Co. (9th Cir. 1985) 767 F.2d 1329, 1330, the Ninth Circuit specifically found that “[i]t is reasonably clear that California courts will interpret the California statute as imposing upon an insurance company the duty actively to investigate and attempt to settle a claim by making, and by accepting, reasonable settlement offers once
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Du — continued
liability has become reasonably clear.” (Emphasis added.) Although the direct enforceability of the mandates of section 790.03(h) is now precluded by Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287, such a violation is, as noted above, evidence of an insurer’s breach of the duty of good faith. More importantly, Pray supports the construction and interpretation of section 790.03(h)(5) as requiring an affirmative effort on the part of the carrier to make a settlement offer once liability is reasonably clear.
Boicourt v. Amex Assurance Co.
Boicourt v. Amex Assurance Co. (2000) 78 Cal.App.4th 1390 provides powerful support for the conclusion that a carrier has a duty to take affirmative action to settle a claim. In Boicourt, the injured third party requested disclosure from the carrier of its policyholder’s policy limits before filing suit. The carrier refused to disclose the limits, or even to contact its policyholder for permission to disclose the limits. Five months into the litigation, the carrier offered the $100,000 policy limits – which the third party refused. In the subsequent bad-faith case, the trial court granted summary judgment in favor of the carrier, ruling that because the injured third party never made a formal settlement offer, the carrier did not breach the covenant of good faith. The
appellate court rejected that conclusion and reversed the summary judgment. In discussing the issue, Boicourt tied its analysis to the fact by refusing to disclose the policy limits, the carrier hampered the ability of the third-party claimant to even make a reasonable settlement offer and the carrier’s blanket policy could be evidence of bad faith even in the absence of a settlement offer by the injured third party. The court expressly limited its holding by stating that the decision was not intended to “explore the degree to which the implied covenant of good faith and fair dealing imposes on a liability insurer a duty to be ‘proactive’ in settling cases.” (Id., at 1400.) But one thing the Boicourt opinion does is very strongly reject reliance on the decision in Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 877 for the proposition that a carrier can be in bad faith “only” if a reasonable settlement offer is made by the third party claimant and unreasonably rejected by the carrier. As Boicourt extensively demonstrates, Merritt’s discussion of the issue is dicta – and nothing more. (Boicourt, at 13951397.) Among other considerations in its rejection of Merritt’s dicta, Boicourt pointed out that Merritt “did not reject this basis of liability on the legal ground that an insurer need never ‘initiate settlement overtures,’ but on the particular facts of
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The simple reality is that this question will not be resolved unless and until the Supreme Court actually decides it. In the meantime, it’s a valid argument to make in the right factual setting. But, again, the best course of action is always to make a reasonable settlement offer within policy limits as early in the case as possible consistent with the availability of information needed by the carrier to make a reasonable determination. Sharon J. Arkin is the principal of The Arkin Law Firm. She has been certified by the California State Bar, Board of Legal Specialization as an appellate specialist since 2001. In 2011 Ms. Arkin received the CLAY award from California Lawyer magazine as an Appellate Attorney of the Year and in 2012 was named one of the Top 50 Women Attorneys in Southern California by Los Angeles Magazine. E-mail: email@example.com.
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the case before the court: There was no evidence at all to support the conjecture that ‘overtures’ might have been fruitful.” (Boicourt, at 1396, fn. 3; emphasis in original.) Thus, Boicourt provides strong support for the argument that Merritt – the case usually relied on by carriers to argue that they have no duty to make an offer – does not answer the question.
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To Kirk A. Pasich
The overlooked benefits of Coverage “P” in general liability policies Coverage “P” affords coverage beyond physical injury and property damage, including privacy and disparagement claims In 1966, Coverage “P” was introduced as a standard form endorsement for general liability insurance policies, adding coverage for claims alleging “personal injury.” (Farbstein & Stillman, Insurance for the Commission of Intentional Torts (1969) 20 Hastings L.J. 1219 (hereafter “Farbstein”).) Before then, personal injury coverage was not provided on a standard form basis. As one insurance industry publication explained: Coverage of liability for libel, slander, false arrest, detention, malicious prosecution, invasion of privacy, etc. has been written for many years under 24 — The Advocate Magazine
non-standard forms. . . . [D]ifferences in coverage and policy provisions are becoming less common. These latter endorsements have even established the quasi-official title of ‘Personal Injury Liability’ insurance for this type of coverage. (Fire Casualty & Surety Bulletin, Personal Injury Liability Coverage (second printing, May 1968) Public Liability, p.i-1.) The Personal Injury endorsement was adopted so that coverage would no longer be “confined to those damages resulting from ‘bodily injury or property damage.’” (Farbstein, at 1238.) When introduced, the
endorsement extended coverage to injury arising out of listed “offenses” beyond bodily injury and property damage. The two most important features of the endorsement are the unrestricted use of the term “injury” and the absence of any requirement that the loss be “caused by an occurrence.” Thus, coverage is afforded for any injury arising out of one of the scheduled torts, undoubtedly extending to all forms of general and special damages normally recoverable in actions predicated on these torts. (Id. at 1239.)
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Overlooked — continued
Over the years, the coverage morphed, becoming part of the standard ISO CGL form rather than an endorsement. Later versions of the policy began combining personal injury and advertising injury coverage into a single form. “Personal and advertising injury” coverage now typically obligates insurers to defend and indemnify their insureds against claims alleging injury arising out of specified “offenses.” These offenses typically include the “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services,” or that “violates a person’s right of privacy,” or “[i]infring[es] upon another’s copyright, trade dress or slogan” in an advertisement. (Commercial General Liability Coverage Form (ISO Properties, Inc. 2006) § V.14.) This coverage extends to a wide range of claims. For example, courts have recognized that personal-injury provisions afford coverage for privacy claims. In St. Paul Fire & Marine Insurance Co. v. Green Tree Financial Corp. (5th Cir. 2001) 249 F.3d 389, the court addressed coverage for claims that debt collectors contacted plaintiffs several times per week and threatened to inform
their employers of their delinquency. The insurer argued that it had no duty to defend because there was no specific allegation of an invasion of privacy and that the claim was for “unfair debt collection practices.” The court held that the insurer had a duty to defend, noting that the factual allegations “clearly support a cause of action for invasion of privacy.” (Id. at 394.) It explained that “because factual allegations may favor one cause of action over another does not alleviate an insurer’s duty to defend if the facts potentially state a cause of action covered under the policy.” (Ibid.)
Personal-injury coverage also provides broad protection for claims involving disparagement. Commentators have long said that personal-injury coverage for disparaging statements “appears to create coverage for a wide range of economic injuries,” including “interference with a prospective advantage,” “inducing a third person to breach a contract [and] . . . stealing his customers . . . or trade secrets, all [of which] may involve defamatory or disparaging utterances or the publication of private information.” (Farbstein, at 1240.)
For example, in Propis v. Fireman’s Fund Insurance Co. (1985) 492 N.Y.S.2d 228, the court considered allegations that the insured had interfered with the claimant’s business activities by “contacting and communicating with others” and that the insured maliciously interfered with the claimant’s new contract and induced a third party to discharge the claimant. The court held that the personal injury provisions provided coverage, stating: We note that the material published or uttered need not, to be the basis of a covered claim under [the personal injury provision], constitute a libel or slander or be legally defamatory or even allegedly false . . . [T]he definition of ‘Personal Injury’ lists the covered publications or utterances in the disjunctive, i.e., ‘of a libel and slander or of other disparaging or defaming material’ . . . It is enough if the insured has published or uttered ‘disparaging material’ – material which is derogatory or belittling. . . . (Id. at 737-38.) In Atlantic Mutual Insurance Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, the issue was whether certain
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Overlooked — continued
communications with customers of a competitor fell within personal injury coverage, thus triggering a duty to defend. The underlying complaint alleged that
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claim. The court of appeal held that the allegations in the underlying complaint “clearly allege a disparagement of [the other company] as well as its products.” (See also Sentex Sys., Inc. v. Hartford Accident & Indem. Co. (C.D. Cal. 1995) 882 F.Supp. 930 [allegation that insured made false or misleading statement about competitor or its products triggers duty to defend for claim of disparagement].) Personal-injury coverage also has been held to obligate insurers to defend antitrust lawsuits based on unsubstantiated allegations in otherwise uncovered claims. As the Ninth Circuit Court of Appeals explained: [In] Ruder & Finn v. Seaboard Sur. (1981) 52 N.Y.2d 663, 439 N.Y.S.2d 858, 422 N.E.2d 518 , . . . a New York court determined that an insurance company had a duty to defend its insured against an antitrust action that included an allegation of “false disparagement.” . . . The court rejected the insurer’s argument that “two solitary, unsubstantiated words” buried within a “completely unrelated federal antitrust cause of action, which was, itself, undisputedly not covered” could not trigger the duty to defend. (Pension Trust Fund for Operating Eng’rs v. Fed. Ins. Co. (9th Cir. 2002) 307 F.3d 944, 951 n.4.) Thus, even if the focus of the lawsuit appears to be on allegations or claims that are not covered, this does not mean that an insurer is excused from its duties to its insured. (See Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1084 [duty to defend even if uncovered claim “is the ‘dominant factor’ in [the] case”].) Another Ninth Circuit decision provides an example of how the duty to defend is triggered based on a similar notion of “two solitary, unsubstantiated words” buried in a complaint. In Manzarek v. St. Paul Fire & Insurance Co. (9th Cir. 2008) 519 F.3d 1025, 1031, Robby Krieger and Ray Manzarek, two of the founding members of The Doors, had been sued by John Densmore, the drummer of The Doors. Densmore
Overlooked continues 28 — The Advocate Magazine
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alleged that Krieger and Manzarek, who were touring as members of the band “The Doors of the 21st Century,” and their touring company, Doors Touring, Inc., were liable for infringing on The Doors name, trademark, and logo in conjunction with tours and marketing. Densmore also alleged, in a single paragraph in his 68-paragraph complaint, that he had suffered damage to his “reputation and stature” because the infringement caused people to believe “that he was not, and is not, an integral and respected part of The Doors band, or is one member who easily can be replaced by another drummer.” (Id. at 1033.)
Manzarek and Doors Touring notified their insurer, seeking coverage for
“advertising injury” (which included libel, slander, and disparagement) and “bodily injury” (which included mental anguish and emotional distress). The insurer denied coverage. It first contended that there was no coverage for the copyright infringement and related claims because the policy had an exclusion for claims arising in the “field of entertainment,” which applied to the publication and advertising of products and materials in media. (Id. at 1032.) The insurer next claimed that Densmore had not alleged “bodily injury.” The Ninth Circuit disagreed. It began by analyzing the duty to defend. It emphasized that, “‘Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured’s favor.’” (Id. at 1031.) The
court held that the field of entertainment exclusion did not apply. It pointed out that the exclusion would not apply, for example, if Manzarek and Doors Touring “began distributing ‘The Door’s Own’ line of salad dressing . . . because [they] would not necessarily publicize, distribute, exploit, exhibit, or advertise in media such as motion pictures.” (Id. at 1032-33.) It further noted that the exclusion also would not bar all coverage if they “began marketing a line of t-shirts or electric guitars with The Doors logo or [Jim] Morrison’s likeness on them.” (Id. at 1033.) It then held that the insurer had a duty to defend because the underlying complaint was “silent about what type of products and merchandise that Manzarek and [Doors Touring] produced
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Overlooked — continued
and marketed.” (Ibid.) This sufficed to trigger the defense duty. The Ninth Circuit next turned to the question of whether the policy’s “bodily injury” coverage obligated the insurer to defend. It rejected the insurer’s argument that there was no potential for “personal injury” coverage. It held that the allegations that Densmore’s “reputation and stature” had been damaged were “sufficient to raise the potential of an award of mental anguish or emotional distress damages,” even though the complaint contained no emotional distress cause of action and did not refer to emotional distress. A California Court of Appeal recently held that the alleged disparaging statement may be implied from the allegations triggering the duty to defend. (Travelers
Prop. & Cas. Co. of Am. v. Charlotte Russe Holding, Inc. (2012) 207 Cal.App.4th 969, 978 [“[t]he underlying claims may trigger a duty to defend if the conduct for which the policies provide coverage is charged by implication, as well as by direct accusation”].) Moreover, no cause of action for disparagement or trade libel is needed to trigger coverage. “In order to trigger personal injury coverage it is not essential that the underlying claims must be expressly phrased in terms of ‘disparagement’ or trade libel.” (Ibid.) In Travelers, the plaintiff alleged that the insured had damaged its brand by its sale of products at severely discounted prices. The insured sought coverage under the advertising injury provisions of the policy, which included coverage for “[o]ral, written, or electronic publication
of material that slanders or libels a person or organization or disparages a person’s or organization’s goods.” (Id. at 974.) Even though the complaint did not contain a single allegation regarding any statement by the insured, the court held that the insurer had a duty to defend. (Id. at 981.) In doing so, the court explained that the potential for coverage existed under the policy’s definition of “advertising injury” even though the plaintiff had neither asserted a cause of action for trade libel nor pled all of the elements of libel or defamation. (Id. at 979-80.) For coverage purposes, the alleged disparaging statement was implied in the allegation that the insured’s conduct had caused damage to the plaintiff ’s brand and the marketability and saleability of its products. As the court explained: [T]he allegation of disparagement may be implied. The question here, . . . therefore is not whether the underlying claims expressly allege that the [insured] parties disparaged [the claimant’s] products, but whether the allegations may be understood to accuse the [insured] parties of statements and conduct “that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services . . . . (Id. at 978-79.) The court also confirmed that it did not matter whether the underlying lawsuits involved a cause of action for trade libel. It acknowledged that even if the claim against the insureds ...could not be viable without alleging all of the elements of a trade libel cause of action, . . . [t]he insurer’s duty to defend is not conditioned on the sufficiency of the underlying pleading’s allegations of a cause of action; that is an issue for which the policy entitled the [insured parties] to an insurerfunded defense. (Id. at 979.) Finally, the court noted that consumers might be confused as to the origin, quality, and affiliation of the insureds’ products: [W]e cannot rule out the possibility that [the] pleadings could be understood
Overlooked continues 32 — The Advocate Magazine
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Overlooked — continued
to charge that the dramatic discounts at which the . . . products were being sold communicated to potential customers the implication — false, according to [the claimant] — that the products were not (or that the [insured] parties did not believe them to be) premium, high-end goods. (Id. at 980.) Therefore, the court concluded that an allegation of a disparaging statement was implied based on the underlying plaintiff ’s allegations regarding damage to its brand and the marketability of its products. Courts also have found that personal-injury coverage applies to a variety of claims alleging interference with interests attending to the possession or enjoyment of real property. (See, e.g., Fragomeno v. Ins. Co. of the West (1989) 207 Cal.App.3d
822, 828 [term “personal injury” obligates insurer to defend and indemnify for “any act constituting an invasion of the right of private occupancy which incurs tort liability”].) Indeed, courts have found coverage in a broad range of circumstances: • Battery made possible by trespass. (Hartford Accident & Indemnity Co. v. Krekeler (8th Cir. 1974) 491 F.2d 884.) • Conversion when repossession allegedly was accomplished by insured’s technically deficient entry onto premises. (Cincinnati Insurance. Co. v. Davis (1980) 265 S.E.2d 102.) • Enactment of zoning amendment limiting development. (Town of Stoddard v. Northern Security Insurance Co. (D.N.H. 1989) 718 F.Supp. 1062.) • Interference with quiet enjoyment and use of home from loud noise and unduly
bright night lighting. (Titan Holdings Syndicate, Inc. v. City of Keene (1st Cir. 1990) 898 F.2d 265.) • Race discrimination. (Gardner v. Romano (E.D. Wisc. 1988) 688 F.Supp. 489; Clinton v. Aetna Life & Casualty Co. (Conn. Super. Ct. 1991) 594 A.2d 1046.) • Trespass, nuisance, and CERCLA claims. (Martin-Marietta Corp. v. Superior Court (1995) 40 Cal.App.4th 1113.) Overlooking personal-injury coverage can result in insureds not obtaining a defense paid for by their insurers for claims that otherwise would be covered, and in less insurance money being available for possible settlements of claims. Kirk Pasich is a partner in the Los Angeles office of Dickstein Shapiro LLP. He is the Client Strategy Leader for the firm’s Insurance Coverage Group.
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© GERALD P. HAWKINS
HMO bad faith Using legislative history to take on Martin v. PacifiCare In 1995, the Legislature enacted Health and Safety Code section 1371.25, at the behest of the California Psychological Association (“CPA”). The stated purpose of the bill was to prevent health care service plans (HMOs), from including draconian “hold harmless” provisions in their contracts with the professionals who provide medical services 36 — The Advocate Magazine
to the HMOs’ subscribers (“providers”), forcing the providers to indemnify the HMOs for the HMOs’ wrongful denial of services. The statutory language is brief – only three sentences. Section 1371.25 says: A plan, any entity contracting with a plan, and providers are each responsible for their own acts or omissions, and
are not liable for the acts or omissions of, or the costs of defending, others. Any provision to the contrary in a contract with providers is void and unenforceable. Nothing in this section shall preclude a finding of liability on the part of a plan, any entity contracting with a plan, or a provider, based on the
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HMO — continued
doctrines of equitable indemnity, comparative negligence, contribution, or other statutory or common law bases for liability.
38 — The Advocate Magazine
For many years, the statute appeared to serve its stated purpose and to do little else. But over time, HMOs began to rely on it as a virtual immunity shield against
bad-faith claims against them. The HMOs argued that the statute eliminated all claims against them based on vicarious liability for the conduct of their providers. They claimed that if an entity they hired to make utilization-review decisions wrongfully refused to provide coverage, and a subscriber suffered injury, that subscriber had no claim against the HMO itself – only a claim against the provider. The only situation where HMOs claimed they could be held liable was if the subscriber appealed the providers’ decision to the HMO, and the HMO affirmed it. Plaintiffs argued that this approach stood the concept of insurance bad faith on its head. After all, it was the HMOs – not their contracted providers – who stood in contractual privity with the subscribers. California law was settled that the tort of bad faith followed the line of contractual privity. As a result, when an insurer denied a claim and was sued for bad faith, the claim had to be maintained against the insurer; not against the adjuster who the insurer hired to adjust the claim. This was the holding of Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566. And it was also well established that an insurer’s duty of good faith and fair dealing was non-delegable. (Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832.) Plaintiffs argued that the purpose of section 1371.25 was to outlaw the type of hold-harmless provisions that the CPA complained about, and the Legislature achieved that goal in an inelegant, but effective way. The first sentence of the statute, standing alone, did abolish the concept of vicarious liability for HMOs. The second sentence – which was the key provision – then outlawed all contracts with HMOs that were inconsistent with the principle. And then the third sentence operated as a saving clause, essentially re-establishing the basic principles of common-law liability: “Nothing in this sentence shall preclude a finding of liability on the part of a plan . . . based on the doctrines of equitable indemnity, comparative negligence, contribution, or other statutory or common law bases for liability.”
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The first published opinion to consider the issue was Watanabe v. California Physicians’ Service (2008) 169 Cal.App.4th 56.) The Watanabe court adopted the HMO’s view, finding that it was nonsensical to interpret the third sentence as reestablishing the liability that the first sentence abolished. But the Watanabe court refused to review the statute’s legislative history, finding that the statutory meaning was so clear on its face that there was no need to do so. In Martin v. PacifiCare of Cal. (2011) 198 Cal.App.4th 1390, the court did consider the statute’s legislative history, and it decided that it supported the Watanabe court’s construction of the statute. As a result, it affirmed a nonsuit in a bad-faith lawsuit and wrongful-death against PacifiCare arising out of the denial by its contracted provider, Bright Medical Group (“Bright”). The claim alleged that Bright refused to authorize the treatment that its subscriber, Elsie Martin, needed to treat a cerebral aneurysm. She had been referred to specialists at USC for care that Bright’s own doctors could not provide, but Bright needlessly sent her to those doctors anyway, delaying her care for months. Elsie’s aneurysm burst before she got the treatment she needed. Relying on Watanabe, the trial court granted nonsuit in favor of PacifiCare, finding that the only claim available to Elsie’s family was against Bright itself, not PacifiCare. (Full disclosure, one of the coauthors of this article, Jeff Ehrlich, was appellate counsel for the Martin family.) In this article, legislative history expert Carolina Rose has reviewed the Martin court’s legislative-history analysis, and concludes that the Martin court got it wrong. I will let Carolina take it from here.
The Martin Court
The Martin court did not correctly apply the legislative history and intent of Health and Safety Code section 1371.25 as added by Stats. 1995, Chapter 774, Sec. 2, Assembly Bill (AB) 1840 (Figueroa) when it reached this decision: We agree with Watanabe that section 1371.25’s plain language prevents a
health care service plan from being held vicariously liable for a medical provider’s acts or omissions. Our examination of section 1371.25’s legislative history further supports that conclusion. [Emphasis added. Martin, 198 Cal.App.4th at p.1392.] It is a confusing reality that an entity that is authorized under the Knox-Keene act to be a “provider” of medical health care services to patients can also contract with the health care service insurance plan to serve in a separate, strictly administrative manner as the plan’s contract agent to determine if medical services requested by one of the “provider’s” roster of licensed medical professionals made on behalf of an insured patient are medically necessary and should therefore be covered by the plan. Such gatekeepers of insurance coverage are known as medical utilization review (UR) contractors or agents. (UR services can also be provided by the plan itself or another entity who does not also provide medical health care services to the plan.) In Martin, Bright, the licensed “provider” of health care services for PacifiCare, was also PacifiCare’s UR agent. PacifiCare paid Bright extra just to do the UR. The patient harm at issue was caused by Bright in its capacity as the plan’s UR agent – not in its capacity as PacifiCare’s “provider” of medical health care services. Unfortunately, the Martin court attributed Bright’s UR decision to its “provider” status. As the court saw it, the application of 1371.25 was simple: (1) Bright was a licensed “provider” of medical services. (2) Bright’s UR decision to deny services to the patient caused the patient harm at issue. (3) Under a plain reading of section 1371.25, as supported by the legislative history, only Bright, the “provider,” was responsible for the harm caused by its UR “acts or omissions” – not the plan, PacifiCare. The legislative history of AB 1840 does not support this outcome. A detailed review of the extensive record reveals that the terms “providers … acts or omissions” adopted in the first sentence of section
1371.25 were only intended to apply to providers’ negligence or malpractice in the delivery of health care services. The history does not reveal that the 1995 Legislature intended to insulate plans, such as PacifiCare, from vicarious liability for harm caused by their UR agents, such as Bright, who also happen to be the plans’ medical service “provider.” Unfortunately, a detailed review of the key legislative records documenting these findings is not possible given the space constraints imposed for this article. Feel free to contact me for my unedited analysis. What follows is a brief outline of some of the major findings. PART 1. Key findings from the legislative history which contradict Martin. • The definition of “provider” in Health and Safety Code Section 1345 (i)’s harmonizes with the use of that term in section 1371.25. It only encompasses acts related to patient care, not UR acts. Strictly speaking, a “provider” of medical services is only obligated to act on behalf of a patient’s interests. As defined under Health and Safety Code section 1345 (i), a “provider” is “licensed by the state to deliver or furnish health care services” (emphasis added). In contrast, a plan’s UR contract agent is only obligated to act on behalf of a plan’s financial and insurance coverage interests. Such UR services are not embraced within the definition of “provider” under section 1345(i). Significantly, this definition was in existence in 1995 when section 1371.25 was added. The 1995 Legislature was aware of it under the principal of statutory construction that the Legislature is presumed to act in cognizance of existing law. (Sutherland Statutory Construction, Statutes and Statutory Construction (7th Ed. 2007) Vol. 2A, s.45:12 at pages 115-119.) Both the Watanabe and Martin courts failed to consider that the term “providers” in section 1371.25 was intended to harmonize with the definition of “provider” in 1345 (i). In effect, the “providers… acts or omissions” addressed in section 1371.25 were only JUNE 2013
The Advocate Magazine — 39
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HMO — continued
intended to apply to those occurring in the delivery of health care services for patients – not in the delivery of UR
services for the plan. As summarized below, this understanding is supported in the legislative history.
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• The sole purpose of section 1371.25 is to stop plans from shifting liability for harm caused by their UR decisions to their “providers” of medical services through insidious “hold harmless” agreements. Watanabe and Martin completely undermined this purpose. Martin acknowledged that the original purpose of section 1371.25 was to stop HMOs from forcing their “providers” of medical services to accept insidious “hold harmless” provisions in their contracts, thereby shifting the plans’ liability to their “providers” for harm caused by the plans’ UR decisions to delay or deny health care coverage. But the court found that this purpose was “broadened” during the amendment process to eliminate vicarious liability. (Martin, 198 Cal.App.4th at pp. 14031404.) Not true. The legislative history actually shows that the amendments were merely technical clarifications to assure that plans would not be liable for “providers… acts or omissions” relating to negligence or malpractice in the delivery of health care services. The history does not document an intent to insulate a plan from vicarious liability for harm caused by its UR agents, including agents who also happened to be the plan’s provider of medical services. 1. The Assembly Committee on Health’s early analysis set the tone at page 3 in two ways. (1) It incorporated the sponsor’s intent to require plans to be responsible for their acts, just as providers are responsible for their negligence or malpractice in the delivery of health care services. (2) It also pointed to the possibility of future amendments to clarify that intent. This bill would prohibit plans from including hold harmless provisions protecting the plans in contracts with providers. The sponsors feel that plans should be responsible for adverse results of their actions in the same manner as providers. Generally, there seems to be agreement with the intent of this provision
HMO continues 40 — The Advocate Magazine
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but disputes remain on the specific wording. In addition, a concern has been raised to insure that such language covering circumstances where the provider, not the plan, has denied services or otherwise committed wrongful acts. [Emphasis added.]
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2. HMO concerns trigger amendments addressed in Martin. An “expansion” of the original purpose was not intended. Rather, concerns raised by Health Net, the California Association of HMOs (CAHMO) and Kaiser Permanente (“Kaiser”) ultimately resulted in amendments to assure that plans would not be vicariously liable for their providers’ negligence or malpractice in the delivery of health care services. This intent was embodied in the final version of 1371.25 that the Martin court misconstrued. • Health Net’s letter dated April 27, 1995, lobbies for a targeted amendment. It was aimed at making sure that plans would only be liable for harm caused by plans or their UR “agents” in their decisions to deny services. Health Net did not want to be liable for harm caused by providers’ negligence or malpractice in the delivery of health care services:
AB 1840 would prohibit contracts with providers from holding plans harmless from liability in cases where a denial of services resulted in harm to the patient. We agree with the intent of this provision, but the language should specify that a plan’s hold harmless provisions should not apply in cases where the plan or its agents, not the provider, has denied services. [Emphasis added.] Significantly, Health Net did not express concerns about providers who also wore the hat of a plan’s UR contractor. UR service denials by such entities would have fallen under the wide umbrella of “the plan’s… agents” addressed in its letter. Also, Health Net did not express the desire to amend the bill to insulate plans from harm caused by their agent’s UR service denials. On the contrary, it agreed that providers should be liable for such denials. • CAHMO’s letter of April 28, 1995, requested a “technical” amendment. It was intended to clarify the original intent of 1371.25 by insulating plans from providers’ negligence, malpractice etc. in the delivery of health care services. In substance, it proposed an amendment that would also take care of Health Net’s concern:
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Finally, the provisions prohibiting hold-harmless clauses requires technical amendments that CAHMO will propose to the sponsors. [Emphasis added.] CAHMO’s technical amendment was as follows: In contracts with health care providers, health care service plans and entities employed by plans for the purpose of reviewing claims for service shall not require providers to hold themselves the plan or other entity harmless from liability in cases in which a denial for of services by the plan or other entity resulted in harm to the patient. Nothing in this section may be construed to prohibit contractual provisions that require
the provider to hold the plan or other entity harmless from liability for negligence, malpractice or other tortious or wrongful acts committed by the provider. [Strikeouts (deletions) and italics (new language) are from the original.] They were merely “technical” because they were not intended to substantively alter the well-understood purpose of the original bill version which had been described in the Assembly Health Committee’s analysis as halting plans from engaging in their insidious “hold harmless” contract practices by requiring plans to be “responsible for adverse results of their actions in the same manner as providers” (page 3). These amendments were merely offered
to clarify that original intent which remained with the bill throughout its enactment; without expansion or broadening as Martin concluded. They were published in the May 16, and May 30, 1995, Assembly amendments to 1371.25. • CPA’s June 20, 1995, statement. The sponsor agreed that the May amendments “clarified that plans are not responsible for liability arising from malpractice by providers.” (Emphasis added.) • The Senate Committee on Insurance’s analysis. It clarified that the May amendment only applied to “provider negligence or malpractice.” Hold Harmless Provisions: Some plan contracts with providers propose
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HMO — continued
provisions to hold harmless plans from liability in cases where the plan has denied services and the patient has suffered harm. AB 1840 is intended to outlaw such provisions to ensure that plans are held responsible for the results of their medical decisions. Amendments have clarified that plans are not responsible for liability arising from provider negligence or malpractice. [Bold italics added.] • Kaiser weighed in on June 8, 1995. Nonetheless, Kaiser remained skeptical that it could avoid liability for non-Kaiser providers’ medical malpractice. Its objections resulted in the Senate’s August 21st amendments that the Martin court mis-
46 — The Advocate Magazine
construed. Notably, Kaiser did not express a concern involving harm caused by a service provider acting in the capacity of a UR agent. • The Senate Judiciary Committee’s analysis. It confirmed the original purpose of the bill without describing any socalled expansion. It also described the intent of the HMO amendments (page 3). The purposes of this bill are … [to] (2) limit the use by plans of “hold harmless” liability provisions. … CAHMO has worked with the sponsors and CMA on this ameliorative legislation to specify that health plans are not responsible for liability arising from provider negligence or malpractice just as
providers are not liable for the negligence of the health plan. (Emphasis added.) This analysis does not list any opponents to the bill under its “Opposition” category on page 5. Not Health Net, not CAHMO, not Kaiser. This means that all of their concerns had been resolved regarding potential plan liability for providers’ acts of medical negligence or malpractice. • Democrats did not sponsor and support a highly anti-consumer, pro-HMO bill. Martin’s interpretation of the legislative history necessarily embraces the frankly outlandish notion that Democratic legislators intended to enact a highly anti-consumer, pro-insurance plan bill.
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There can be no other way to describe the public policy impact of eliminating a plan’s vicarious liability for its agent’s UR decisions that result in patient harm. At minimum, such a major policy would have merited comment in the legislative history. Yet there is only silence on that subject. This strongly indicates that no such purpose was intended. Certainly such a purpose would not have been promoted by a Democratic legislator such as Assemblyperson Figueroa, the author of AB 1840. Nor would such a purpose have received the overwhelming support of the Democratic legislators who voted for the bill. AB 1840 did not receive a single “no” vote as it passed through the Senate or on the Assembly floor for the last vote on the final bill version. This would not have occurred if the intent assigned by the Martin court had actually been adopted by the Legislature. • The last sentence of 1371.25 was aimed at “preserving existing bases of liability.” The Martin court reaffirmed the Watanabe court’s rejection of the argument that the third sentence preserves liability theories otherwise barred by the statute’s first sentence: “We do not think that, having precluded the imposition of vicarious liability in the first and second sentences of section 1371.25, the Legislature intended to reimpose it by means of the third sentence. This would be an absurd result by any measure…” (Martin, 198 Cal.App.4th at p.1401.) However, as the above legislative history reveals, the Legislature did not intend to preclude imposition of vicarious liability in the first and second sentences. So there was no need to “reimpose it by means of the third sentence.” Also, the Senate Judiciary Committee’s analysis described the last sentence as “preserving existing bases of liability” (page 3). Martin overlooked this statement.
PART 2. A review of the legislative history records relied upon in Martin Needless to say, Martin did not take the above developments into account.
Instead it misapplied various records to support its understanding that the first sentence of 1371.25 abolished a plan’s vicarious liability for harm caused by its UR agent’s decisions. These were: (1) various Legislative Counsel’s Digests, (2) various amendments, (3) two committee analyses and (4) one enrolled bill report to the Governor. (Again, space constraints do not permit a thorough review here. A brief outline of the key findings follows.) (1) Legislative Counsel’s Digests. • A post enactment Legislative Counsel’s Digest of the final chaptered bill (Martin, supra, page 1402). It merely restated the provisions of the bill without elaboration as to their meaning. Also post enactment statements by any source take a back seat to the actual enactment era legislative history. • Dueling digests (Martin, at p.1403). Martin was impressed that Legislative Counsel’s post enactment description of the final version of 1371.25 contrasted so highly with its first digest of the original version of AB 1840. The court faulted the Martins’ reliance upon that earlier digest because it found that the original purpose had been “broadened” later in the Senate amendments. However, Martin failed to take into account the above developments which show that the original purpose had not been broadened, but had been merely “clarified” in a “technical” manner to address concerns raised by Health Net, CAHMO and Kaiser. (2) Martin’s review of the amendments (Martin, at pp. 1403-1404). Martin’s simple review of the bill’s evolution during the amendment process led to its conclusion that the original intent had been “expanded” or “broadened.” However, Martin failed to take into account the actual rationale or purpose for the amendments summarized above. Martin also relied upon the rejection of a September 8, 1995, amendment, noting that its provisions “would have returned the bill to its original purpose.” (Martin, supra, page 1403). Thus, it argued, “[w]hen the Legislature rejects language from a bill which was part of it when it was introduced, it
should be construed according to the final version.” Also, “[t]he rejection of a specific provision contained in an act as originally introduced is ‘most persuasive’ that the act should not be interpreted to include what was left out.” (Martin, at p.1403). The Court’s argument here is more than puzzling since it had already conceded that the bill retained its original purpose, which it believed had been “expanded” in the Senate as specified. Also, its focus on the rejection of the September 8, 1995, amendments does not work to overcome the extensive history documenting the reason for the final version of 1371.25 as summarized above. (3) Martin’s reliance upon two committee analyses. The court relied upon two Senate committee analyses to support its understanding that the Senate had “broadened” the bill’s original purpose to also “limit liability by making plans and providers liable for their own acts or omissions.” Inexplicably, Martin overlooked their plain meaning. • The Senate Insurance Committee’s analysis (Martin, 198 Cal.App.4th at p.1403). This analysis addressed the above described May amendments that were intended to resolve Health Net’s and CAHMO’s concerns about providers’ medical malpractice. Martin said: Section 1371.25’s purpose and language, however, expanded as the statute worked its way through the Legislature. The Senate broadened the section to limit liability by making plans and providers liable for their own acts or omissions only. A Senate Committee on Insurance report explained, “Amendments have clarified that plans are not responsible for liability arising from provider negligence or malpractice.” Oddly, the court’s chosen excerpt makes it plain that the amendments merely effected a “clarification” of the original intent, not a broadening of it. • The Senate Judiciary Committee’s analysis of the critical August 21, 1995, amendments (Martin, supra, page 1403). JUNE 2013
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The court compared it to the above Senate Committee on Insurance’s analysis: Similarly, a Senate Judiciary Committee report explains that section 1731.25 “specif[ies] that health plans are not responsible for liability arising from provider negligence or malpractice just as providers are not liable for the negligence of the health plan.” … That same report explains that section 1371.25’s purpose is to “provide that a health plan, and providers are each responsible for their own acts or omissions, and are not liable for the acts or omissions of, or the costs of defending, others. It would make void and unenforceable any provision to the contrary in a contract with providers. As summarized above, the referenced “provider negligence or malpractice” was only intended to encompass providers’ health care services for patients – not provider UR services for plans. Also, as mentioned earlier, it is singularly unhelpful to rely upon statements that merely repeat the terms of the statute without elaboration as to their meaning.
48 — The Advocate Magazine
(4) Martin’s reliance upon the Enrolled Bill Report by the Department of Corporations is misplaced. (Martin, at p.1404) The Department of Corporations submitted its Enrolled Bill Report to the Governor for consideration after the bill passed through the Legislature. Martin relied upon it because it raised an alarm about potential ill effects of 1371.25 on tort liability principles. However, as detailed below it was either ignored or contradicted. Martin said: Finally, the Enrolled Bill Report by the Department of Corporations acknowledged that the Legislature expanded section 1371.25 beyond its initial purpose to include provisions limiting liability for others’ acts or omissions. The report explained, “Although the bill provides that certain persons are not liable for others, this provision is inconsistent with the laws of agency and employment. For instance, existing law recognizes that principal parties are liable for the acts or omissions of agents.... [¶] The bill’s nonliability provisions may be interpreted by courts to exempt plans or providers from liability for the actions of persons acting on their behalf.” The report urged the Governor to veto the bill for these reasons, but the Governor nonetheless signed it. … As the Supreme Court explained [citation] … “[W]e have routinely found enrolled bill reports, prepared by a responsible agency contemporaneous with passage and before signing, instructive on matters of legislative intent. (Martin, 198 Cal.App.4th at p. 1404.) The Department of Health Services (DHS), however, weighed in with an opposite take on 1371.25 when it urged the Governor to sign the bill. Its enrolled bill report states: “The prohibition against HCSP [Heath Care Service Provider] contracts containing requirements that providers must indemnify or defend the acts or omissions of others, is reasonable and is consistent with tort law.” [Emphasis added.] Faced with the dueling DHS and DOC understandings, Governor Wilson
obviously opted to discount the DOC’s concerns when he approved the bill on October 11, 1995. Yet, Martin inappropriately seized upon the DOC’s concerns as representing the Legislature’s intent while ignoring the DHS’s statement completely. In conclusion, I recommend that a court that revisits the issues raised in Watanabe and Martin should, at minimum, undertake its own thorough review of the legislative history. It will find that the history strongly supports the understanding that the terms “providers… acts or omissions” in 1371.25 only apply to “acts or omissions” involving medical health care services to a patient – not to “acts or omissions” of a UR nature by a plan’s agent. Jeffrey Isaac Ehrlich is the principal of the Ehrlich Law Firm in Encino, California. He is a cum laude graduate of the Harvard Law School, is certified by the State Bar of California as an appellate specialist, is the Editor-in-Chief of the Advocate, and is a member of the CAALA Board of Governors. Carolina Rose, J.D. (Stanford, 1976), is owner and President of Legislative Research & Intent LLC (LRI) which has researched the history and intent of over 10,000 enactments for over 1500 clients since 1983 (formerly Legislative Research, Inc.). Previously, she worked for approximately 7 years in the California State Legislature where she was responsible for over 200 bills. Ms. Rose is a recognized expert in the reconstruction of California legislative, regulatory and constitutional history and has written expert witness opinions or provided testimony or consultations in over 100 cases at the administrative, trial and appellate levels. Her website offers complimentary online research and advocacy resources at www.lrihistory.com. She can be contacted at email@example.com.
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California’s ban on discretionary clauses in disability and life insurance policies California Insurance Code section 10110.6: When it applies and how it stands up to ERISA preemption Litigating an ERISA case is challenging and, at times, frustrating. One of the biggest challenges an individual claimant faces is when their adversary, the insurance company, has been granted “discretion” in the insurance policy governing the claim. The U.S. Supreme Court has acknowledged that discretionary clauses are features “highly prized” by insurers, meaning they will fight hard to retain discretionary language. (See Rush Prudential HMO, Inc. v. Moran (2002) 536 U.S. 355, 384.) The typical discretionary clause grants the insurer discretion to determine eligibility for benefits and to interpret the policy. In practice, this grant of discretion changes the standard of review at trial and affects the type of discovery that can be conducted. If there is a grant of discretion, a reviewing court will employ an “abuse of discretion” review at trial. It has been said that under this standard of review, a claim decision will not be overturned unless it is “illogical, implausible, or without support in inferences that may be drawn from the facts in the record.” (Salomaa v. Honda Long Term Disability Plan (9th Cir. 2011) 642 F.3d 666, 676.) It is not surprising that there are a number of cases which have held that the weighty burden of the abuse of discretion review required a finding for the insurer, although a de novo or non-deferential standard of review may have yielded a different result. (Brigham v. Sun Life of Canada (1st Cir. 2003) 317, F.3d 72, 85-86 (“[I]t seems counterintuitive that a paraplegic suffering serious muscle strain and pain, severely limited in his bodily functions, would not be deemed totally disabled,” but upholding the termination of disability benefits because the question was “not which side we believe is right….”); Curtis v. 50 — The Advocate Magazine
Kansas City Life Ins. Co. (W.D. Ky. 2011) 2011 WL 901992 *7 (“If the standard of review was de novo, the Court would be inclined to find for Plaintiff. However, that is not the applicable standard. The arbitrary and capricious standard and existing case law indicate to the Court that Plaintiff ’s claim should be denied. Although the Court does not necessarily like this result, the Court believes it has reached the correct decision applying the law applicable to this case.”).) A survey of cases performed in 2004 observed that consumers filing group disability lawsuits had a significantly lower chance of winning their case (28 percent versus 68 percent) when the insurance contract contained a valid discretionary clause.
National movement to eliminate discretion
In 2004, the National Association of Insurance Commissioners issued a Model Act banning the use of discretionary clauses in health policies. Later that year, the Model Act was amended to extend the ban to include disability policies. In advocating for the adoption, Commissioner Sandy Praeger of the Kansas Insurance Department described the effect of discretionary clauses: These clauses give considerable discretion to insurers to interpret the benefits and other terms of the policy and lead to court decisions favoring insurers unless the insured can show the decisions by the insurer were arbitrary and capricious. This is a huge burden for the insured…. Subsequent to the issuance of the Model Act, at least 16 states have enacted legislation, or issued insurance regulations, banning the inclusion of discretionary clauses in certain types of insurance policies.
California’s efforts on banning discretionary clauses
In 2004, California’s then Commissioner of Insurance, John Garamendi, issued a Notice of Withdrawal to all disability carriers selling policies within the state withdrawing approval of certain policy forms. The forms in question contained discretionary clauses, which Commissioner Garamendi had determined rendered the policies “unintelligible, uncertain...and likely to mislead.” Commissioner Garamendi also specified certain policy forms which could no longer be utilized in California unless the discretionary clauses were removed. Commissioner Garamendi’s actions were laudable, but had a shortlasting effect. This was because insurers subsequently settled with the Department of Insurance and, for various reasons, the Ninth Circuit has refused to enforce the Commissioner’s action as a state ban on the enforceability of discretionary clauses. (See Saffon v. Wells Fargo & Co. Long Term Disability Plan (9th Cir. 2008) 522 F.3d 863, 867; Stephan v. Unum Life Ins. Co. of America, (9th Cir. 2012) 697 F.3d 917, 924-28.) After similar legislation was vetoed in 2010, California enacted legislation banning discretionary clauses in life, disability, health, and accidental death insurance contracts (California’s Insurance Code includes health and accidental death insurance as part of disability insurance). Sponsored by Senator Ron Calderon (D-Montebello) and endorsed by Insurance Commissioner David Jones, California’s ban on discretionary clauses went into effect on January 1, 2012. This self-executing law regulating insurance was codified as California Insurance Code Section 10110.6. The statute
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applies to all disability and life insurance policies providing coverage to a California resident which were offered, issued, delivered, or renewed on or after January 1, 2012. In relevant part, section 10110.6 provides that a grant of discretion in any such policy is void and unenforceable: (a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or
review that are inconsistent with the laws of this state, that provision is void and unenforceable. (b) For purposes of this section, “renewed” means continued in force on or after the policy’s anniversary date. (c) For purposes of this section, the term “discretionary authority” means a policy provision that has the effect of conferring discretion on an insurer or other claim administrator to determine entitlement to benefits or interpret policy language that, in turn, could lead to a deferential standard of review by any reviewing court. As of the date of this article, the authors know of no court decision which has substantively applied or interpreted the provisions of section 10110.6. However, it is anticipated that the
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insurance industry will vigorously contest any attempt by the plaintiff ’s bar to enforce the statute and its resulting void of discretionary clauses in group insurance contracts. This article will identify the anticipated issues that one may face when attempting to change the standard of review based on section 10110.6.
Does section 10110.6 survive ERISA preemption?
It is widely known that ERISA contains a broad preemption provision, preempting “any and all State laws insofar as they may now or hereafter relate to any [covered] employee benefit plan.” (29 U.S.C. § 1144(a).) However, at the same time, ERISA contains a “saving clause,” exempting any state law that regulates insurance from the preemption provision
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of ERISA. (29 U.S.C. § 1144(b)(2)(A).) Accordingly, although ERISA plans are federally regulated and enforced in federal courts, the saving clause permits
states to dictate mandatory insurancepolicy provisions. (Rush Prudential HMO, Inc. v. Moran (2002) 536 U.S. 255, 364.)
The Ninth Circuit addressed the issue of whether a state law or practice banning discretionary clauses was “saved” from ERISA’s preemption provision in Standard Ins. Co. v. Morrison (9th Cir. 2009) 584 F.3d 837 cert. denied sub nom Standard Ins. Co. v. Lindeen (2010) 130 S.Ct. 3275. The court held that the Montana Insurance Commissioner’s practice of disapproving policy forms containing grants of discretion was saved from preemption because it was specifically directed to the insurance industry and affected the risk-pooling factors of the Montana insurance industry. Among other things, it was noted that the Montana practice of disapproving discretionary clauses affected the risk pooling because it would lead to a greater number of claims being paid, increasing the benefit of risk pooling for consumers. (Id. at 845.) Using a similar analysis, the Sixth Circuit has held that Michigan’s ban on discretionary clauses is not preempted by ERISA. (American Council of Life Insurers v. Ross (6th Cir. 2009) 558 F.3d 600, 606.)
OT BL L BR SYST LE
Does section 10110.6 apply to outof-state contracts?
Another tactic that insurers are expected to employ in an effort to avoid section 10110.6 is to claim that out-ofstate law, rather than California’s law banning discretion, should be applied. Often insurance policies specify a place where the policy was issued or delivered. In other jurisdictions, insurers have sought to avoid local bans on discretionary clauses by arguing that a policy “issued or delivered” in another state should not be subject to the local regulation or statute. (Curtis v. Hartford Life and Acc. Ins. Co. (N.D. Ill. 2012) 2012 WL 138608.) That argument is likely to be unsuccessful for insurers in California since the statute applies to policies which provide coverage to California residents. It can also be expected that insurers will rely upon, or start including, choiceof-law provisions in their contracts specifying a governing jurisdiction other than California. In the event that the policy says
Discretionary continues 56 — The Advocate Magazine
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it is governed by the laws of a state other than California, local courts will likely apply the Ninth Circuit’s choice-of-law
rules. This is an area that has not been extensively litigated and there is scant law in the Ninth Circuit governing
choice-of-law rules in the ERISA context. An older case, Wang v. Kagan (9th Cir. 1993) 990 F.2d 1126, suggests honoring a stated choice-of-law provision in a federal-question case unless the provision is unreasonable or fundamentally unfair. Generally speaking, this is consistent with the Restatement (Second) of Conflicts of Laws, which provides that courts should not honor the choice if the chosen state has no “substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice,” or application of the chosen state’s laws would contradict the policy of a state which has a “materially greater interest” than the chosen state in issue’s determination. (Restatement (Second) of Conflicts of Laws § 187(1) (1988).) Since California has legislated public policy to protect its citizens by banning discretionary clauses in insurance policies after January 1, 2012, it would appear that it has a materially greater interest in having its own laws govern the claims of its residents. Finally, in the event that choice-of law-becomes an issue, it is also important to research whether the selected state has also banned discretionary clauses. A number of jurisdictions have enacted regulations, statutes, or agency opinions banning discretionary clauses, making it possible that there may be no conflict.
What determines if the statute applies to your client’s policy?
The ban on discretionary clauses went into force on January 1, 2012. Therefore, from this date forward, discretionary clauses in life and disability insurance “offered, issued, delivered, or renewed” are rendered void and unenforceable. These first three are easy to determine: look at the applicable documents and if they are dated on or after January 1, 2012, there can be no discretion. The statute also provides helpful guidance on the meaning of the term “renewed.” This is defined as continued in force on or after the policy’s anniversary 58 — The Advocate Magazine
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date. Typically, the face page of the group contract will specify the anniversary date of the policy. This is the date that the terms of the policy may be modified or premiums can be adjusted. The anniversary date does not necessarily correspond with the date the insurance became effective. Common anniversary dates utilized in group policies that differ from the effective date are January 1st or July 1st of every year. In a policy that was offered, issued and delivered before January 1, 2012, with an anniversary date thereafter, the discretionary language is unaffected until the anniversary date.
Claim submitted before January 1, 2012
The date in which the claimant submitted the claim or the date of disability is immaterial. In ERISA cases, the Ninth Circuit has held that the controlling insurance document is the one that was in effect at the time the claimant’s cause of action accrued. (Grosz-Salomon v. Paul Revere Life Ins. Co. (9th Cir. 2001) 237 F.3d 1154, 1160-61.) An ERISA cause of action for a denial of benefits does not accrue until a claimant has exhausted his or her administrative remedies under the plan. Thus, if your client exhausted their administrative remedies after both January 1, 2012, and the policy’s anniversary date, you may still take advantage of section 10110.6 to argue
any discretionary language is rendered void and unenforceable.
Does applying section 10110.6 to an existing policy make it a retroactive statute? We have heard insurers argue that section 10110.6 cannot be applied to existing contracts because to do so would be an impermissible retroactive application of the statute. This argument ignores the fact that the statute expressly applies to renewals of policies after its effective date. If there had been any question regarding the viability of this provision, it was recently eliminated with the Ninth Circuit’s decision in Stephan, supra, 697 F.3d 917. The Stephan case involved the previously mentioned Notice of Withdrawal authored by Commissioner Garamendi in 2004. One insurer, Unum, subsequently entered into a settlement agreement with the Department of Insurance which banned the inclusion of discretionary clauses in “newly issued” policies. Unum’s settlement agreement mandated other policy changes to both “newly issued” and “renewed” policies. The Stephan court seized upon this distinction and held that the discretionary clause ban did not apply because plaintiff ’s policy was not newly issued, but rather was a renewed policy which was originally issued in 1999.
However, in doing so, the Stephan court also provided compelling language that would defeat any argument that section 10110.6 cannot be applied to policies renewed after its effective date. The court repeated the rule that insurance policies are governed by statutory and decisional law in effect at the time of issuance and renewal. The court stated that each renewal incorporates any changes in the law that occurred prior to the renewal. (Id. at 928.) Unfortunately for Mr. Stephan, the law in effect at the time of the latest renewal, which had occurred in 2007, did not include a ban on discretionary clauses. Fortunately for California insureds, after January 1, 2012, the law has been changed.
Even though the statute is self-executing, it can be expected that insurers will strongly contest the elimination of the highly prized discretionary clauses in insurance contracts. Any ERISA practitioner should be prepared to utilize all available tools to “level the playing field” and ensure a fair, de novo, review of their client’s claim. Securing the application of section 10110.6 is a large step in the right direction. Prior to asserting that 10110.6 controls, and engaging in the inevitable motion practice on the issue, review the above questions to help you evaluate whether this new law applies to your case. Brent Dorian Brehm litigates ERISA and bad-faith insurance cases at Kantor & Kantor. When not suing insurance companies, he enjoys cycling and cartography. Corinne Chandler has practiced law for over 30 years and has over 25 years of experience litigating life and disability disputes. Ms. Chandler’s current practice is devoted to representing insureds in actions involving life, disability and long-term care insurance benefits. She received a B.A. Degree from St. Mary’s College of Notre Dame, Indiana and her J.D. Degree from De Paul University, College of Law.
60 — The Advocate Magazine
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Winning punitive damages for bad faith A guide from voir dire through closing statement I’ve had the good fortune of trying a wide variety of cases over the years. I’ve tried everything from bad-faith cases, to personal injury, employment, medical malpractice, premises liability, etc. There is a fundamental difference when trying a negligence case versus an insurance badfaith case. In a negligence case, whatever the allegation is about what the defendant did wrong, they usually didn’t intend to cause the harm that occurred. But in a bad-faith case, you’re not saying that the company did something negligently. Rather, you’re coming into court saying that the company cheated your client; acted with malice, oppression and fraud. Simply put, this wasn’t just an “oops,” 62 — The Advocate Magazine
this was something far worse. It was something intentional. Recognizing this difference is the first step to presenting, and then winning, a punitive-damage award. There are a number of issues to cover in a badfaith case from voir dire and leading up to closing argument. But in this article, I’m just going to focus on dealing with the topic of punitive damages from the beginning of trial to the end.
You can never expect a jury to return with a punitive-damage verdict in a badfaith case unless you’ve prepared them to do so during voir dire. As with all issues
that you cover in voir dire, you want to get jurors to open up about how they really feel about the concept of punitive damages. Don’t be afraid to ask openended questions even if you might get answers that you weren’t hoping to get. Letting the jurors express themselves in their own words is the only way that you’ll truly get the honest answers you want. As my old college roommate used to say, “You have two ears and one mouth, so you should listen twice as much as you speak.” This is especially true during voir dire. Before getting to the jurors’ feelings about punitive damages, I like to build
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Task — continued
up to it by asking a series of questions like the following: Q: Mr. Jones, do you think that sometimes people simply make honest mistakes and really didn’t mean to cause harm? A: Sure, of course they do. We’re all human after all and humans make mistakes. Q: And do you think that sometimes people don’t just make mistakes, but they might do things with a bad motive to benefit themselves and in the process cause harm to others? A: I’m sure that happens too. Q: Do you think that sometimes, people do things to try to cheat other people out of money for their own benefit? A: Well, yeah, you hear about that all the time.
Q: Do you think that as a society we ought to treat those two types of conduct differently? In other words, conduct which is an honest mistake that causes harm versus dishonest conduct that causes harm? A: Sure, if the evidence proves that. I like to open up this dialogue with other jurors with questions like, “How do you feel about that?”; “What are your thoughts?”; “Do you agree or disagree?” etc. At this point, you’ll find that most people will agree with the basic concept that people can cause harm to others both honestly and dishonestly. You’ll also find that most people will agree with the notion that honest and dishonest conduct should be treated differently. Now you have prepared the jurors for a discussion about punitive damages. Inevitably, there will be some jurors who have heard or read about punitive
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damages and have negative feelings about it. For example, I’ve had more than one juror describe their understanding of punitive damages as “Isn’t that where the plaintiff gets a big windfall?” To help get jurors to understand the concept of punitive damages, I like to refer to them as “penalty damages” or “punishment damages.” I ask questions like: * “Ms. Smith, what do you think about a system that allows for civil penalty damages if the conduct was dishonest, and not just an honest mistake?” * “Mr. Jones, what do you think about a system that allows for civilly prosecuting dishonest conduct in cases like this?” * “Ms. Evans, do you think that we as a society should punish dishonest conduct? If so, why?”
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One of the things I’ve noticed in the past several years is that jurors, generally speaking, are more receptive to the concept of punitive damages. I’ve found this to be true even in conservative jurisdictions. I think the reason is because most jurors have heard about corruption cases where people have cheated other people out of money. I bring up examples like, Bernie Madoff, Charles Keating, Jeffrey Skilling, and Enron to get jurors thinking about it. Examples like these bring up the notion that sometimes greed causes people and/or corporations to do bad things and in the process cause harm to others. In a bad-faith case, the purpose of punitive damages is to punish and deter
dishonest conduct. Ultimately, the goal in voir dire is to have jurors who are open to awarding punitive damages if they find the evidence establishes dishonest conduct. The jury should also understand that the purpose of punitive damages is not to compensate, but to punish and deter.
We all know that opening statement is the time to tell your client’s story. It’s a time to showcase why the defendant’s conduct was wrong and to demonstrate the harm that your client suffered. After telling my client’s story and showcasing the bad conduct of the insurance company, I make it a point to explain that there
are two purposes to the case. The first purpose of the case is to compensate my client and to make up for the harm caused. I then talk about the damages that I intend to prove and the basis for those damages. But in a bad-faith case, you can’t stop there. I also talk about the second, and more important, purpose of the case: to make sure this conduct is punished and never repeated. In a bifurcated trial, I explain at the end of the opening statement that we will be looking for a finding of malice, oppression or fraud, so that the jury can get to the second phase to address what the appropriate punishment should be.
Cross-examination of the adjusters
The most important evidence you can develop in a bad-faith case is during the cross-examination of the claims adjusters. Cross-examination of the defendant’s witnesses is usually when the jurors are on the edge of their seats. This is especially true in bad-faith cases. In every bad-faith case there is a dispute about the amount of money paid on the claim. Sometimes there’s a dispute about coverage and nothing has been paid. Other times there is a valuation dispute and a claim of low-balling. Regardless, there is always that one final letter or e-mail from the adjuster that tells your client “We’re done! You get nothing more!” I like to cross-examine the adjuster with simple questions like the following: Q: Sir, when you adjust a claim, do you want your policy holder to believe you when you communicate with them? A: Of course. Q: Do you want your policyholder to feel that you’re telling them the truth? A: Sure. Q: Do you want your policyholder to have confidence in what you tell them? A: Yes, I do. Q: And, in this case, when you sent this letter telling my client that their claim was denied and would not be paid, what would have happened if my clients believed you? A: Well, I guess we wouldn’t be here.
• C • O U • C a • T
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Task — continued
E Q: Right, the claim would have been closed and no payment would have been made, correct? A: I believe that would be true. Now, these are pretty simple concepts that really can’t be disputed. After all, no adjuster is going to say that he/she does not want their policyholder to believe them. The reason I ask these questions is because if you get to the second phase, the jury will necessarily have found that the conduct was malicious, oppressive or fraudulent. During that time, you will be able to ask the jury the rhetorical question, “What would have happened if my client just believed and trusted their insurance company?” Well, the answer comes from the defendant’s own witnesses: your client would have been cheated out of money they deserved.
In order to get to a second, punitive damage phase, you will need to prove that the conduct constituted “malice, oppression, or fraud” in phase I. (See, CACI 3946.) In addition, you will also need to prove one of the following: 1. That the conduct constituting malice, oppression, or fraud was committed by one or more officers, directors, or managing agents of defendant who acted on behalf of the defendant; or 2. That the conduct constituting malice, oppression, or fraud was authorized by one or more officers, directors, or managing agents of defendants; or 3. That one or more officers, directors, or managing agents of defendant knew of the conduct constituting malice, oppression, or fraud and adopted or approved that conduct after it occurred.” Going into trial, you need to identify the witness or witnesses that have the managerial capacity to establish ratification. In most cases it is either the immediate supervisor of the adjuster or that person’s supervisor. Whoever the witness is, you need to establish ratification of the conduct in order to get to a second, punitive damage phase. On cross-examination of the supervisor, you will want to first establish that given his/her role in the company, he/she 68 — The Advocate Magazine
has managerial capacity. Once that is established, you need to confirm ratification and approval of the claim. I usually ask questions like the following: * “Sir, there is nothing that you thought the company did wrong in handling this claim, is that true?” * “As the supervisor, you approve of the manner in which this claim was handled?” * “In fact, this claim was handled in the manner in which the company strives to handle claims, is that true?” * “There were no changes made to the company’s claim-handling guidelines as a result of this claim, is that true?” * “Any other insured of this company could expect to receive the same treatment that my client received in this claim, is that true?” *”No one was reprimanded for work they did on this file, is that true?” These questions establish not only ratification but also pattern and practice. Inevitably, in phase I, the company and its witnesses will vigorously defend their conduct and stand behind it. Of course, if the jury finds that the same conduct was malicious, oppressive or fraudulent and there is a second phase, this testimony will be very helpful to address the amount of punitive damages the jury should award.
The phase II trial
Trying cases is kind of like being in a boxing match. You’re fighting every day and whether you think it’s going well or not, you just don’t know if you’re ahead or behind on the jury’s scoring card. That’s why, like a boxer, no matter if you’ve had a good or bad day in trial, you shake it off and go into the next day to fight again. But all of that changes when the jury has made a finding of malice, oppression or fraud and you find yourself now in phase II of the bifurcated trial. My partner and mentor, Mike Bidart, taught me early on that when you get to the second phase, you have to remember that the jury is on your side and has found, by clear and convincing evidence, that the insurance company’s conduct was
“despicable” or fraudulent. So, as Mike said to me, your demeanor needs to be like the heavyweight champion who is being interviewed after defending his title. You no longer need to be the aggressive fighter who is zealously arguing every issue. The jury has already found that the conduct is really bad, now it’s the time to calmly reason with the jury about what to do about it. I remind the jury that we are doing this collectively, on behalf of society, to make sure this bad conduct is both punished, and more importantly, not repeated. • Phase II opening statement Phase II is really a mini trial in itself. Accordingly, I always give a short opening statement before the beginning of the second phase. Contrary to a lot of other lawyers, I’m not big on thanking the jurors, even after they have ruled in my client’s favor on phase I. I’m not really sure why I don’t like it but maybe it’s because I’ve served on two juries myself and when the lawyer constantly thanked us during closing argument I just thought it was patronizing. So instead, I jump right into the purpose of the second phase. I will start off by saying something like this: Ladies & gentlemen, we have now completed phase I of this case with your verdict. As I stated, the purpose of the first phase was to compensate my client, and you’ve now done that. But we now leave my client, and the focus is now 100 percent on the defendant and its conduct. The purpose of this second, and most important, phase is to determine what we as a society are going to do about punishing this conduct, and making sure that it doesn’t happen again. And this is a very, very serious and solemn proceeding. You have found the conduct of this company to amount to malice, oppression and fraud by clear and convincing evidence. That is the highest form of misconduct you can find in a civil case like this so, as you can imagine, this is a very serious proceeding to determine the appropriate punishment for this conduct.
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Task — continued
I tell the jury that the only new evidence that they will hear is the financial condition of the insurance company. I explain that the second phase is so sacred that we are not even allowed to talk about the money the defendant has during phase I because we don’t want it to in any way influence their decision about whether the conduct was malicious, oppressive or fraudulent. Simply put, we wanted a pristine and objective finding from them about the conduct, which we now have. I usually finish the brief opening by letting the jury know that after they get the evidence of the worth of the insurance company, there will be closing arguments at which time I will be recommending an amount they should award to accomplish the purpose of punishment and deterrence. • Evidence of financial condition The only new evidence to present during the punitive-damage phase is of the company’s financial condition. Getting the financial information of an insurance company is very simple because they are required to lodge that information with the Department of Insurance (“DOI”). I usually will obtain certified copies of at least five years of the company’s financial statements filed with the DOI. Also, because the financial documents are certified by the DOI, they are self-authenticated. Usually, I will have retained a forensic economist to explain what the numbers in the financial documents mean to the jury. While there are many ways to evaluate the financial condition of the company, the most common way is to look at the company’s surplus. The documents obtained from the DOI will set forth the company’s assets, liabilities and surplus. Notably, the liability will list not only the actual losses paid but also reserved losses so that the remaining surplus is net of even potential claims the company has reserved for future payments. Once the financial condition evidence is presented, it is time for the final closing argument. • The phase II final closing While you know that the jury thinks the company’s conduct was really bad by 70 — The Advocate Magazine
the second phase, you don’t know what they are willing to do about it. It is your job as the trial lawyer to motivate the jury to “send a message”, not just to the defendant in your case, but also to the insurance industry as a whole. The starting point is to make sure you explain the purpose of punitive damages which is twofold: to punish & deter. Cite to the jury instruction as follows: The purposes of punitive damages are to punish a wrongdoer for the conduct that harmed the plaintiff and to discourage similar conduct in the future. (CACI 3949) It is important that the jury understand that punitive damages are designed to protect the public, which includes the members of the jury. One way to accomplish this task is to refer the jury back to the law. For example, in California, one powerful jury instruction is the following: The purpose of punitive damages is purely a public one. The public’s goal is to punish wrongdoing, and thereby protect itself from future misconduct, either by the same defendant or other potential wrongdoers. In determining the amount of punitive damages to be awarded, you are not to give any consideration as to how the punitive damages will be distributed. (Adams v. Murakami (1991) 54 Cal.3d 105, 110; Neal v. Farmers Ins. Group (1978) 21 Cal.3d 910, 928, fn 13) (emphasis added). Thus, in the punitive phase, portray your role as being one of a public servant. You are advancing the “public’s goal” which is, in part, to punish the defendant’s misconduct. Ultimately, the jury should understand that their punitive verdict will protect not just an individual or some special-interest group, but rather, will protect everyone from future abuses. The jury must understand the importance of their role of protecting the public in the punitive phase. It is important that the jury understand that they have the power to send a warning to the insurance industry that misconduct will not be tolerated by the public. The jury can do this by setting an
example of the defendant. Again, one way to accomplish this is to refer back to the jury instructions, such as the following from the United States Supreme Court: In addition to actual or compensatory damages which you have already awarded, the law authorizes the jury to make an award of punitive damages in order to punish the wrongdoer for its misconduct or to serve as an example or warning to others not to engage in such conduct. (TXO Production Corp. v. Alliance Resources Corp. (1993) 509 U.S. 443, 459, 463, emphasis added (“TXO”).) The punitive damages that the jury awards will not only send a message to the defendant on how it should do business in the future, but it will also serve as an example or a warning to other competing companies that the public will not tolerate such misconduct. Give the jury examples of warnings they see everyday: if a swimming pool is too shallow, it should have a warning; if a product is dangerous, it should have a warning; if a floor is slippery, it should have a warning, etc. Warnings like these must be prominently displayed in order to have an impact. In your case, the punitive damage award will serve as a warning to other insurance companies and so it must be a meaningful amount to be prominently displayed to the industry. I like to emphasize the second purpose of punitive damages which is deterrence. The jury’s verdict should not only deter future wrongdoing by the defendant, but also by the industry as a whole. Another effective jury instruction to establish this point is the following: The object of [punitive] damages is to deter the defendant and others from committing like offenses in the future. Therefore, the law recognizes that to in fact deter such conduct, may require a larger fine upon one of larger means than it would upon one of ordinary means under the same or similar circumstances. (TXO, 509 U.S. at p. 463, emphasis added).
See Task, Page 72
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Task — continued
Once the jury understands the “purely public” purpose of punitive damages, it is then time to turn to the amount of punitive damages to assess. The guidelines for the assessment of punitive damages include the following: 1.) how reprehensible was the conduct? 2.) is there a reasonable relationship between the amount of punitive damages and the harm? and 3.) in view of the financial condition of the defendant, what amount is necessary to punish and discourage future wrongful conduct? (See, CACI 3949) Naturally, the evidence under each of these guidelines will largely depend on the facts of a given case as to the reprehensibility of the conduct, the defendant’s financial condition, and the plaintiff ’s actual injury. These facts must be presented in evidence and then argued specifically to the jury. In addition to these general guidelines, there are other authorities that speak more specifically to the amount of punitive damages. Take the following jury instruction: In determining the amount of punitive damages to be assessed against a defendant, you may consider the following factors: One factor is the particular nature of the defendant’s conduct. Different acts may be of varying degrees of reprehensibility, and the more reprehensible the act, the greater the appropriate punishment. Another factor to be considered is the wealth of the defendant. The function of deterrence and punishment will have little effect if the wealth of the defendant allows it to absorb the award with little or no discomfort.” (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928) (emphasis added). These jury instructions convey credibility to your argument on the amount of punitive damages the jury should award. In other words, the jury should be told that the law requires a greater punitive damage award where the conduct is particularly reprehensible, and that the law requires that the amount the jury awards in punitive damage must cause some financial “discomfort”, in order to serve the public purpose of deterrence as discussed earlier. Naturally, determining 72 — The Advocate Magazine
what amount will cause the appropriate “discomfort” will depend on the financial condition of the defendant. This concept is further set forth in another jury instruction: The wealthier the wrongdoing defendant, the larger the award of punitive damages needs to be in order to accomplish the objectives of punishment and deterrence of such conduct in the future.” (Adams v. Murakami, (1991) 54 Cal.3d 105, 110) (emphasis added). When asking for an amount of punitive damages, I like to remind the jury that this corporate defendant must be treated the same as an individual in the eyes of the law. I refer to the following instruction: A corporation, ABC Insurance Company, is a party in this lawsuit. ABC Insurance Company is entitled to the same fair and impartial treatment that you would give to an individual. You must decide this case with the same fairness that you would use if you were deciding the case between individuals. (CACI 104) (emphasis added). When arguing this instruction I tell the jury that we all know what it means to treat the defendant the “same.” We don’t treat them any worse, but we don’t treat them any better either. We treat them the “same.” I ask the jury to consider that if instead of this insurance company that cheated my client out of money it was an individual who had a net worth of $100,000. What would they say? Well, it comes down to three things. First, we would say, “give the money back.” I remind the jury that the purpose of phase I was just that; to give the money back to my client. The second thing we would say to that individual is “you’re going to jail.” Why? Because people who cheat other people out of money go to jail. It’s called a white-collar crime. I tell the jury that we can’t put a corporation in jail so, at least to that extent, we really can’t treat them the same as an individual. The third and final thing we would say is that the individual must be punished with a penalty. Some penalty to
make sure the misconduct is not repeated. I explain that to an individual with a net worth of $100,000, a minor penalty of $5,000 or even $10,000 amounts to 5 percent to 10 percent of that person’s net worth. Yet, that same 5 percent or 10 percent is a much greater amount to an insurance company that has a net worth/surplus in the millions or even billions. But, equating what a reasonable punishment would be to an individual, to what it would be to the insurance company, is treating the insurance company the “same” as an individual. No better and no worse.
Getting a punitive-damage verdict in a bad-faith case is not an easy task. It requires a great deal of preparation and organized thought before trial. Hopefully, this article will help you in dealing with the issue of punitive damages during the trial of a bad-faith case from start to finish. Ricardo Echeverria is a partner with the law firm of Shernoff Bidart Echeverria Bentley LLP specializing in liability, property, and HMO cases within the firm’s HMO Litigation & Property/Casualty department. Ricardo Echeverria was the 2010 Consumer Attorneys of Los Angeles Trial Lawyer of the Year and was nominated for the award in 2006, 2007, 2008 and 2009. He was also a finalist for the Consumer Attorney of California’s Consumer Lawyer of the Year in 2007 and 2009. He also serves as the current Vice Chair of CAALA’s Education Committee. He has litigated a diverse variety of cases, including bad faith, construction defect, earthquake, wrongful death, personal injury and professional negligence against an insurance agent.
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“OPEN, Sesame!” Is there a magic word to open up the insurer’s policy limits? A look at the nuances of litigation that can result in the lid being taken off the policy. All personal injury lawyers will undoubtedly face the unfortunate case of signing up a client who has suffered astronomical damages, only to be disappointed with a defendant carrying minimal policy limits. Many assume nothing more can be done except to wait for the carrier to deliver the measly draft upon receipt of your demand letter. You are then left to explain to your client that the case has come to a bitter end and both of you walk away disappointed. Upon confirmation of a defendant’s policy limits, it is common practice to send a written, time-sensitive demand letter to the carrier, along with pertinent information, such as the accident investigation report, loss of earnings documents and medical records. If the carrier fails to accept your demand and you secure a judgment in excess of your offer, the carrier may be held accountable for the total judgment. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654.) Traditionally, the only hope of “opening” an inadequate policy, that is, obtaining more than the policy limits, is to wait for the carrier to mishandle the claim by unreasonably rejecting your demand and exposing its insured to excess liability. This surfaces during the underlying case, where the carrier either realizes its sins, or after your client receives an excess verdict against their insured. After an excess judgment has been rendered, the insured can assign his rights to your client in an exchange for a covenant not to execute, or even better, a stay of execution. Although it is rare for a carrier to overtly conduct itself in such a reckless manner, there are also more subtle ways for the carrier to open itself up to a 74 — The Advocate Magazine
potential bad-faith claim. Provided you define the parameters of negotiation and the terms of acceptance from the onset of the claim, you may be able to recover what your client deserves.
If you believe you have an excess case on your hands, immediately send a letter of representation to the defendant’s carrier, demanding the disclosure of the policy limits within a reasonable amount of time, such as 15 days. If available, include the police report and any medical specials you have to date. Make it clear that upon receipt of the policylimits information, your client is prepared to make an offer capable of acceptance. The next move is theirs. Any unreasonable delay may provide you with ammunition to open the policy. Many carriers will ignore your request and stall with multiple letters stating that they are “evaluating your claim,” “need your client’s statement,” or “are awaiting a demand package.” Where liability is at issue, they will claim that they need further time to conduct an investigation. Hardly ever will they immediately disclose the limits and may assert, whether true or not, that their insured has not given them permission to release this information. The smart carrier will cooperate and provide the policy information or request an extension in which to comply. The carrier may later argue that Insurance Code section 791.13 and the holding in Griffith v. State Farm Mut. Auto Ins. Co. (1991) 230 Cal.App.3d 59, protects a policyholder’s privacy and prevents disclosure of the policy limits
absent the insured’s consent. However, if you have a policy-limits case, logic and case law dictate that the carrier’s duty to settle necessarily requires such disclosure if it, in fact, offers the policy. Even section 791.13(g) allows disclosure when “[o]therwise permitted or required by law.” Importantly, a standard liability policy gives the carrier the unfettered discretion to settle a case for policy limits, even without the insured’s consent (with the exception of professional-liability policies). The insurer is entitled to take control of the settlement negotiations and the insured is precluded from interfering. Not only is the insured’s consent unnecessary, it is “usually superfluous.” (Fiege v. Cooke (2004) 125 Cal.App.4th 1350, 1354.) If a settlement were dependent on the insured’s permission to disclose the limits, a carrier could indefinitely sit on its opportunity to settle, falsely blaming its insured for stalling. This would place the claims authority in the hands of a lay insured which we know is ludicrous on its face. If the insured continues to refuse disclosure, it is the carrier’s duty to keep the insured apprised of the situation and fully inform her of all relevant issues, including excess exposure. (See Heredia v. Farmers Insurance Exchange (1991) 228 Cal.App.3d 1345, 1360 (internal citations omitted.) Further, an insurer’s duties to its insured include the duty to promptly investigate and process a claim, and to attempt to effectuate a prompt and fair settlement. (Ins.Code, § 790.03 (h)). The implied covenant of good faith and fair
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dealing obligates the insurer to accept reasonable settlement demands within the policy limits whenever there is a substantial likelihood of a recovery in excess of the limits. (Comunale, supra, 50 Cal.2d at p. 659.) Where there is great risk of a recovery beyond the policy limits, and settlement within policy limits is the most reasonable choice, the insurer should settle the claim. The insurer must conduct itself as though it were liable for the entire amount of the judgment. (Crisci v. Security Ins. Co. of New Haven, Conn. (1967) 66 Cal.2d 425.) Therefore, a carrier’s right of settlement control, axiomatically, allows the disclosure of the policy limits if it is necessary to facilitate a policy-limits offer and subsequent settlement. This obligation to protect the insured by fulfilling its duty to settle should trump any privacy rights, and, in fact, is in accordance with the privacy clause in section 791.13(g). An even stronger case for bad-faith conduct is when the carrier has a “blanket rule” of refusing to contact its policyholders to determine whether they want their limits disclosed, thereby preventing them from ever giving permission. Such
was the case in Boicourt v. Amex Assurance Co. (2000) 78 Cal.App.4th 1390, which held that a blanket rule against pre-litigation disclosure creates a conflict of interest between the insurer and insured. The insured is left to worry about the uncertainty of litigation, while the insurer selfishly saves on administrative costs, and gains a tactical advantage by forcing the claimant to make pre-litigation offers “in the dark.” (Id. at p.1398.) If the carrier has this type of blanket rule which elevates its own interests above its insured, it may not even matter whether a formal settlement demand was made in order to pursue a bad-faith claim upon obtaining an excess verdict. (See id. at p. 1399.) If the carrier fails to disclose the limits within the requested time, or within a reasonable time period if further investigation is warranted, you should file suit and commence discovery. The carrier will be forced to formally disclose the limits in response to Form Interrogatory 4.1. (Superior Ins. Co. v. Superior Court (1951) 37 Cal.2d 749.) If indeed the limits are low relative to your damages and you have at least a plausible liability argument, you may still be able still reject a
belated policy-limits offer on the grounds that it missed its opportunity to settle pre-litigation. (Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d. 788, 798.) Therefore, your bad-faith claim will hinge on your assertion that the carrier’s failure to disclose the limits prevented your client from making an informed offer capable of acceptance. The merits of your claim will boil down to the following: • Did the insurer timely contact the insured to request disclosure of the limits? • Did the insurer sufficiently inform the insured of settlement discussions and the possible ramifications of not disclosing the limits? • Did the carrier have any rules or guidelines on pre-litigation disclosure of their insured’s limits or a general policy of not contacting the insured for permission to disclose the limits? This information will form the basis of your claim and will likely be found in the carrier’s claims file, manuals, training materials, and correspondence between the adjusters and insured, which you can obtain during discovery in the bad-faith suit.
The defense has an appellate department. Now, so do you. “When defense counsel threatens to appeal, just tell them you have to review the matter with your appellate department. Then call me.” “Steve has done our appellate and motion work for a decade. His batting average is well over 900.” Phil Michels, Michels & Watkins, CAALA Trial Lawyer of the Year (2003) • Member ABOTA
Steven B. Stevens Certified Specialist in Appellate Law, State Bar of California Board of Legal Specialization Certified in Medical Professional Liability Law • CAALA Appellate Lawyer of the Year (2001) 28 Years as Plaintiff ’s Counsel
Appeals • Writs • Law & Motion
310-474-3474 • SBStevens@TheStevensFirm.com 76 — The Advocate Magazine
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Drafting an offer-to-settle Another avenue for obtaining recovery above the policy limits is post-negotiation, when the carrierâ€™s draft and release do not comply with the terms of your demand letter. Therefore, your demand (or more appropriately termed â€œoffer-to-settleâ€?) should convey clear, but reasonable, deadlines and requirements which the carrier is capable of accepting, thereby initiating a settlement contract. An offer-to-settle and its acceptance by the carrier are governed by basic contract law. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (applying contract law to interpretation of release).) While the â€œmirror image ruleâ€? (requiring the acceptance to â€œmirrorâ€? the terms in the
offer) has been modified in the Uniform Commercial Code governing exchange of goods, it should fully apply in the insurance venue as between a carrier and third party under common-law contract principles. Therefore, if the carrier wishes to accept your clientâ€™s offer by way of the release, it must necessarily include acceptance of the reasonable terms set forth in the offer. If the carrier refuses to agree to those terms or issues a release that does not conform to your offer, their response is not an acceptance and you can later argue that they missed their settlement opportunity. A practical offer-to-settle should include the following terms:
â€˘ The settlement draft be made payable to only your client and law firm Most carriers have the nasty habit of including non-permissible payees on the settlement draft, such as private healthcare providers and spouses. They are not the claimants and it is reasonable for you to demand that the draft be payable only to your client and your firm, subject to the resolution of any mandatory liens. Inclusion of gratuitous payees stalls the negotiation of the draft by creating a dispute between the lienholder and your client. There will be a delay in obtaining the money because you must determine whether the payees have viable claims, and if they do, they will need to sign the check. The carrier strategically makes a
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float on the promised settlement funds through this delay. The one important caveat here, however, is that you must make sure that you have resolved any mandatory liens, such as those by the county, emergency room, Medicare, Medi-Cal, and worker’s compensation. In these cases, a carrier has the right to name a legitimate lienholder on the draft. (Coe v. State Farm Mutual Auto Ins. Co. 66 Cal.App.3d 981, 994 (carrier must include necessary lienholders in order to protect insured).) It may be more efficient and prudent to request the carrier to issue two drafts. If possible, you should negotiate these liens prior to settlement in order to minimize any delay. Alternatively, some carriers will agree to put a hold-harmless agreement
in the release, holding your client responsible for any outstanding liens. This is ideal in cases where you want the draft immediately, but have not yet negotiated the liens. Should the carrier send you the draft with gratuitous payees or better, refuse to remove a gratuitous payee from the draft upon your request, you may have a viable argument that your offer was rejected. • Release of only the insured(s) (and their agents, representatives, heirs, and assigns) Global release: The other dirty trick is issuing a global release. This effectively releases the world, not just the insured (and heirs, assigns, etc.). Although it may be easily missed upon a cursory reading,
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releasing “all others” can make the difference between a $15,000 case and a multi-million dollar recovery. [Note that this “global release” terminology differs from a valid “global settlement,” in which the insurer tenders the policy limits to multiple claimants, who can then apportion the funds amongst themselves.] The problem with a global release is that it cuts off claims against everyone else including other potential tortfeasors, which can cost you a bundle down the road. (Rodriguez v. Ono (2013) 212 Cal.App.4th 1020, 1027 (holding that a global release prevented plaintiffs from bringing an action against driver’s employer).) For example, although you may intend to release only the driver, allowing your client to sign a global release may cut off a viable and profitable products-liability claim or roadwaydesign case. Although it is not necessary to have a slam-dunk case against the other potential defendant, you should have at least a plausible tortfeasor to bolster your argument that your client was prejudiced by the global-release language. A carrier may send a global release for various reasons. In cases where there may be other potential tortfeasors, it is usually trying to prevent further defense costs incurred by possible future indemnity cross-complaints. However, if the carrier is worried about a later crosscomplaint popping up, it can still protect its insured by securing a good faith settlement barring later claims against the insured. (Code Civ Proc., § 877.6.) Consequently, it can be argued that the carrier has not acted reasonably because it has put its own interest in saving de minimis litigation costs ahead of protecting its insured. (Comunale, supra, 50 Cal.2d at p.659) (insurer must take into account the interest of the insured and give it at least as much consideration as it does to its own.) However, if the adjuster admits to making an inadvertent mistake, the court may revise the release. (Hess, supra, 27 Cal.4th at p. 524) (global release did not release third-party manufacturer where adjuster and attorney demonstrated mutual mistake).)
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• Conditional acceptance Finally, be on the lookout for a conditional acceptance of your client’s offer. This usually manifests itself through improper indemnity language. For instance, the release may require that your client indemnify the carrier for claims subsequently made by another tortfeasor involved in the case. Acceptance of this language by your client would render the settlement hollow. Further, as your client’s representative, you must read every release carefully. Do not assume that the release has been drafted in your client’s best interest. If your client signs a release and you later realize that the terms are not what you intended, a court may not always give you the benefit of the doubt. “[The parties’] ‘actual intent,’ for purposes of contract law, is that to which they manifested assent by executing the agreement.” (Rodriguez, supra, Cal.App.4th at p.1027.)
“acceptance” does not mirror the term of your offer, you do not have to settle. Tell the carrier the deal is off and continue litigating the underlying case until you force their hand into settling for something above the policy limits, or until you
get an actual judgment, presumably far exceeding the limits. If you get that winning excess judgment in the underlying case, you are ready to team up with the insured, discuss assignment, and pursue your bad-faith action.
The lesson here is that when an excess case graces your doorstep, you should timely request disclosure of the policy limits in order to give the carrier the opportunity to settle. The offer-tosettle letter should then clearly set forth specific, reasonable terms, such as the ones explained above. Upon receipt of the draft and release, if the carrier’s
Mark Algorri is the founder and managing partner of DeWitt Algorri & Algorri, in Pasadena, CA (www.daalaw.com). He specializes in catastrophic injury and insurance bad faith and has tried over 65 cases to jury verdict. Prior to law school, he managed rock bands, including Van Halen. He is a member of ABOTA. Carolyn Tan is a senior associate at DeWitt Algorri & Algorri and secondchairs trials with Mark Algorri. Ms. Tan attended UCLA for her undergraduate studies in psychology and English. She received her J.D. from Loyola Law School in 2009, where she served as a Production Editor for the Loyola International and Comparative Law Review. JUNE 2013
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Robert S. Gianelli
Jully C. Pae
What’s in a name? Insurance agent or insurance broker: A distinction with a difference Disputes often arise over whether a particular seller of insurance is an “agent” or a “broker.” The genesis of these disputes typically is found in an insurer’s denial of coverage for some claim made by the purchaser of the policy. If the insurer’s denial of coverage is determined to be correct, the inquiry inevitably turns to who can be held responsible and why for the uninsured loss? Attendant to these questions is what may become the bigger issue – can the insurer be held liable for an agent’s or broker’s negligence? 80 — The Advocate Magazine
The terms “agent” and “broker” are more descriptive of the conclusion one reaches about the status of the insurance seller after an examination of that person’s relationship with the insurer and the insured as well as the specifics of the insurance sale at issue. Some helpful guideposts are discussed below.
Agent or broker?
An “insurance agent” means “a person authorized, by and on behalf of an
insurer, to transact all classes of insurance other than life, disability, or health insurance, on behalf of an admitted insurance company.” (Ins. Code, § 31.) An “insurance broker” means “a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer. (Ins. Code, § 33.) The primary difference between the two is that an agent has the authority to bind an insurer to coverage because he typically acts on behalf of an insurer; a
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broker has no such authority, as he typically acts on behalf of the insured. (Marsh McLennan of Calif., Inc. v. City of Los Angeles (1976) 62 Cal.App.3d 108, 11718.) An agent has the authority to do any act that the insurer might do. (Preis v. American Indem. Co. (1990) 220 Cal.App.3d 752, 761.) Unless the insured is provided notice (actual or constructive) of any limits on authority, an agent may bind the insurer by any actions, representations, or promises that fall within the scope of the employment even if they violate any restrictions on the agent’s authority. (Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289, 298.) Thus, for example, an agent may bind the insurer to his interpretation of ambiguous policy terms (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 874) or to misrepresentations expanding coverage (Hartford Fire Ins. Co. (1987) 196 Cal.App.3d 1320, 1325). A broker’s primary obligation is to represent insureds during the application process and negotiate with insurance companies about the terms of coverage, including premiums. (Krumme v. Mercury Ins. Co. (2004) 123 Cal.App.4th 924, 929.) Because insurers are not liable for a broker’s misconduct, brokers must post and maintain a $10,000 bond, which will be used to resolve any disputes with insureds. (Ins. Code, §§ 1662, 1665.) A presumption of a seller as a broker is automatically rebutted upon a showing that there is a notice of appointment on file by an insurer and the individual has written authority to bind the insurer on the risk without prior approval. (Ins. Code, § 1623(c).) Even without a notice of appointment or written authority, a broker may be considered an agent based on the “totality of the circumstances.” (Id. at § 1623(d), (e).) While agents and brokers are legally distinct, in practice, these roles tend to merge to create a “dual” agency, where the seller represents both the insurer and the insured during the application process. In fact, for certain lines of insurance, such as automobile and homeowner’s
insurance, the license issued by the Commissioner of Insurance reference the licensee as a “broker-agent.” (Ins. Code, §§ 1625 [referencing property and casualty broker-agent licenses]; 1625.5 [referencing personal lines broker-agent].) A dual agency may arise where, for example, an agent appointed with numerous insurers chooses a particular insurer but in doing so also represents the insured’s interests. (Eddy v. Sharp (1988) 199 Cal.App.3d 858, 865.) An appointed agent may also be a dual agent where he holds himself out to the insured as an expert in the area of insurance for which a policy is sought. By touting his expertise, the agent assumes a special duty to the insured. (Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp. (1993) 12 Cal.App.4th 1249, 1257.) Often, both brokers and agents will present themselves as an “independent insurance agent.” Do not let the reference to “agent” fool you – you must look behind the label and determine whether, based on the individual’s statements and conduct, he was acting as an agent, a broker, or both. (Loehr v. Great Republic (1990) 226 Cal.App.3d 727, 734.)
Standard for agent liability
Even though, under general agency principles, an agent owes the insured a general duty to use reasonable care, diligence, and judgment in procuring the coverage requested, an agent’s violation of this duty does not give rise to personal liability. As a general rule, where an agent acts within the scope of his employment and discloses the agency relationship, he cannot be held personally liable for failing to obtain the requested coverage because such liability ultimately attaches to the insurer as the principal. (Lippert v. Bailey (1966) 241 Cal.App.2d 376, 382 [granting summary judgment for agents as insured knew of agency relationship]; see Lab. Code, § 2802.) Nor can an agent be held personally liable for failing to spontaneously recommend additional coverage, obtain additional, unrequested coverage, or
advise that such additional coverage is available. For example, in Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916, 927928, even though the insureds had worked with the State Farm agent for 20 years, they could not hold the agent personally liable for failing to recommend a “personal umbrella” policy that would cover damages above the uninsured motorist limits of their automobile insurance policy. The limitations on an agent’s duty, however, do not apply in three circumstances that give rise to a special duty. The first is where the agent affirmatively misrepresents the nature, extent, or scope of coverage, or fails to disclose a material fact regarding coverage. The second occurs when the insured requests a specific type or extent of (not just “adequate”) coverage. And the third circumstance arises when the agent either expressly agrees to assume additional duties or holds himself out as an expert in the particular area of insurance in which coverage is sought. (Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090, 1095-1098.) To illustrate, in Paper Savers, the insured purchased a “replacement cost coverage” endorsement based on the agent’s representations that, in the event of a total loss, the additional coverage would replace all the business equipment. After the business was completely destroyed by a fire and the benefits the insurer paid on the claim did not cover the cost of replacement, the insured sued the agent, claiming that he assumed a special duty based on misrepresentations and could be held personally liable. The court agreed and reversed the grant of summary judgment for the agent. (Id. at 1101; see also, Westrick v. State Farm Ins. (1982) 137 Cal.App.3d 685, 691-692 [reversing directed verdict for agent because his failure to disclose that auto policy did not cover six-wheel truck constituted a misrepresentation for which he could be held tortiously liable].) The same result obtained in Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, where the agent both JUNE 2013
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Name — continued
failed to obtain the personal injury coverage the insured had specifically requested and misrepresented that such coverage existed. After judgment was entered against the insured in a malicious prosecution case (which Truck Insurance had refused to defend), the insured sued the agent and Truck Insurance for indemnity. The court upheld the denial of the agent’s summary judgment motion because there were triable issues of fact as to whether the agent assumed a special duty and could be held personally liable. (Id. at 14621465.) Williams v. Hilb, Rogal & Hobbs Ins. Servs. of Calif. (2009) 177 Cal.App.4th 624 provides a good example of liability befalling an agent who claims specific expertise. There, the owners of Rhino Linings of Santa Fe Springs obtained a CGL policy from an agent who had touted her familiarity with the Rhino Linings dealerships and her expertise in obtaining coverage that met the business’s needs. After an employee got severely injured on the job, the insurer denied the insureds’ claim, advising that their CGL policy did not include workers’ compensation coverage. The Court of
Appeal affirmed the trial court’s conclusion that the evidence showed the agent had assumed (and breached) a special duty by touting her expertise. (Id. at 637.) A common argument the insurers made in Paper Savers, Butcher, and Williams is the general rule set forth in Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 157 – that an insured has a duty to read the policy and is bound by its clear and conspicuous terms. In each case, the court rejected this contention, finding that where an agent affirmatively misleads the insured as a result of his negligence, the Hadland rule does not apply. (Paper Savers, supra, 51 Cal.App.4th at 1101-1102; Butcher, supra, 77 Cal.App.4th at 1463; Williams, supra, 177 Cal.App.4th at 637-639.) Indeed, as the court in Paper Savers noted, the Hadland rule’s applicability appears limited to the interpretation-ofpolicy-terms context where the insured sues the insurer for coverage. (Id., 51 Cal.App.4th at 1102.)
Standard for broker liability
If the “independent insurance agent” turns out to be a broker and the
presumption of broker status is not rebutted, the broker may be held personally liable for an uninsured loss resulting from a breach of a duty owed to the insured. Liability cannot be imputed to the insurer. (Ins. Code, § 33.) But since many brokers have agency agreements with various insurers, more often than not, a broker will be a dual agent where liability may attach to the insurer. (See, e.g., Greenfield v. Insurance Inc. (1971) 19 Cal.App.3d 803 [brokerage firm had agency agreements with numerous insurers and was thus a dual agent]; Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp. (1993) 12 Cal.App.4th 1249 [insured sued both broker and insurer for uninsured loss].) While a broker represents the insured’s interests, the duties owed to the insured are not boundless. For instance, like an agent, a broker has no duty to spontaneously recommend adequate coverage or advise the insured about specific insurance matters. (Jones v. Grewe (1987) 189 Cal.App.3d 950, 954 [“The general duty of reasonable care which an insurance [broker] owes his client does not include the obligation to procure a policy affording the client complete liability
is not out of reach. Cook Collection Attorneys, PLC (877) 989 4730
www.cookcollectionattorneys.com David J. Cook, Principal Attorney Collecting judgments for California plaintiff attorneys since 1974. firstname.lastname@example.org 82 — The Advocate Magazine
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protection, as appellants seek to impose here.”]; Wallman v. Suddock (2011) 200 Cal.App.4th 1288, 1313-1315 [finding that broker had no duty to advise insureds to obtain excess coverage over existing and past primary policies that covered liability as insureds never disclosed need for such coverage].) And because a broker’s duties to an insured are limited to the procurement of the policy, brokers have no duty to notify insureds of an insurer’s insolvency (or change in financial condition) or that the policy has been cancelled. (Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Services West, Inc. (2012) 203 Cal.App.4th 1278, 1283 [no duty to notify of insurer’s insolvency]; Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1123 [no duty to notify of policy cancellation].) There are three circumstances in which a broker breaches the duties owed to an insured: (1) the broker misrepresents the nature, scope, or extent of coverage; (2) the insured requests a particular type or extent of coverage; and (3) where the broker either expressly agrees to assume additional duties or holds himself out as an expert. (Pacific Rim Mechanical Contractors, Inc., supra, 203
Cal.App.4th at p.1283.) In ascertaining whether a broker has breached a duty, courts consider additional factors such as the length of the relationship and whether the broker knew of the risks involved in the insured’s business. Thus, in Greenfield v. Insurance, Inc. (1971) 19 Cal.App.3d 803, 809-810, the court upheld the judgment against the broker because the record showed that the insured had relied on the broker for over a decade for his business insurance needs; the broker knew of the risks involved in the insured’s business if there were gaps in coverage; the insured had specifically requested that the policy cover the costs of any mechanical breakdown of the business’s equipment; and the broker had represented to the insured that such coverage was provided under the policy it had procured. Third Eye Blind, Inc. v. Near North Entertainment Ins. Servs. (2005) 127 Cal.App.4th 1311 presented the circumstance of a broker who was found liable for touting its expertise. There, the band, Third Eye Blind, obtained a CGL policy from the broker and was thereafter sued by a former band member for trademark infringement. After the insurer denied
the claim, citing the trademark infringement exclusion, the band sued both the broker and the insurer. The insurer ultimately settled with the band and covered the loss. The broker argued that, in light of the settlement, its liability for the loss was therefore precluded and the case should be dismissed. The court disagreed, finding that because the broker, which had touted its expertise, failed to “secure more direct, and certain, coverage,” it could be held liable for the attorneys’ fees the band had incurred in bringing the coverage action. (Id. at 1323, 1324.) Of note, there is no indication that the holding in Third Eye Blind is limited to brokers. If an agent, therefore, assumes a special duty to an insured or is a dual agent and the insurer ultimately covers the loss, the insured should try to recover from the agent all damages stemming from his negligence. Like agents, brokers also tend to raise the duty-to-read argument to avoid liability. This is no defense. “Absent some notice or warning, an insured should be able to rely on a [broker’s] representations of coverage without independently verifying the accuracy of those representations
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Name — continued
by examining the relevant policy provisions.” (Clement v. Smith (1993) 16 Cal.App.4th 39, 45.)
Insurer’s liability for agent’s misconduct Under respondeat superior, an insurer may be held vicariously liable for an agent’s misconduct committed during the course and scope of employment. (Desai v. Farmers Ins. Exch. (1996) 47 Cal.App.4th 1110, 1118.) Even if the insurer did not specifically authorize the agent’s acts, it may still be held liable if it ratifies those acts (e.g., by retaining the premiums). (R&B Auto Ctr., Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 344.) In Desai, the insured specifically requested that any earthquake, fire, and hazard policy provide 100 percent replacement cost coverage. The policy the agent obtained, however, contained no such coverage. The court held the insurer could be held liable under the theory of ratification (as well as ostensible authority) for the agent’s negligence in failing to provide the specifically requested coverage. (Desai, supra, 47 Cal.App.4th at 1119-1121.)
An insurer can, likewise, be held liable for its agent’s misrepresentations regarding coverage. In R&B Auto Center, the agents represented to the insured, a used car dealership, that the policy provided lemon-law coverage for used cars when, in reality, coverage only extended to new cars. After the insurer refused to defend the insured in a lawsuit brought by a customer, the insured sued the insurer and the agents for fraud, among other things. The Court of Appeal concluded that the insurer could be held vicariously liable for the agents’ misrepresentations. (Id. at 345-346.) Particularly interesting was the court’s statement that, upon remand, the insureds could assert a claim for reformation of the policy so that it provided lemon-law coverage for used cars. The insurer could then be held liable for breaching the contract as reformed. (Id. at 349, fn. 11.) Like agents and brokers, insurers commonly raise the insured’s duty to read as a defense. While several courts have held that a duty to read is no defense to an agent or broker’s misrepresentations (e.g., Paper Savers, supra;
Westrick, supra), some courts have held the opposite. In Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 1578, 1589, for instance, the court found the insured had unjustifiably relied on the agent’s representations because the policy’s clear and unambiguous terms contradicted the representations. But if the policy terms are neither clear nor unambiguous, the Hadland rule has no application. Robert Gianelli is a partner in the Los Angeles law firm of Gianelli & Morris, specializing in insurance-related class actions and insurance bad- faith cases. He has successfully prosecuted insurance-related class actions in state and federal courts. He also serves as a Contributing Editor for the Rutter Group publication California Practice Guide: Insurance Litigation. Jully Pae is an associate at Gianelli & Morris who specializes in representing aggrieved life, health, and disability policy owners in individual and class action lawsuits. She works on the firm’s bad-faith and UCL cases in both state and federal courts.
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Barry P. Goldberg
Should California provide drivers’ licenses regardless of immigration status? A public safety and uninsured-motorist coverage perspective As Congress begins examining the illegal immigration issue, there is almost no controversy larger and more volatile in California. A majority oppose licensing illegal immigrants with “driving privilege cards” or provisional licenses because it may ease the path towards citizenship
and create a draw for increased illegal immigration. Regardless of whether one sides with various liberal immigration policies or stricter (yet seldom enforced) guidelines, it is now inescapable that illegal immigration is a major public safety concern on our roadways.
Illegal immigrants cannot obtain a California driver’s license and therefore cannot obtain liability insurance. So, more than a million unlicensed drivers hit the roads anyway in order to get to work without the slightest training and without regard for California’s JUNE 2013
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California — continued
Compulsory Financial Responsibility Law. As a direct result, Californians are at a substantial risk every time they leave their homes for being hit by illegal, unlicensed and uninsured motorists. The statistics can no longer be ignored. When the “never been licensed” drivers are added to the regular pool of uninsured motorists, it is estimated that almost 1 in 5 drivers in California is uninsured, in some areas the numbers jump to well over 1 in 2. Over 50 percent of all hit and run accidents involve an uninsured driver. The most recent Department of Motor Vehicle study confirmed some of our worst fears – illegal, unlicensed and uninsured are three times more likely to be involved in fatal accidents. A 2011 study by the American Automobile Association (“AAA”) found that unlicensed drivers were nine times more likely to leave the scene of a fatal crash. It is only logical – if there is no “certification” or licensing process, there will be drivers on our highways that have neither taken a written nor driving test, let alone have received so-called mandatory driver’s training. Forget for a moment whether or not these illegal drivers passed a test. We are talking about people who may not be able to read road signs, know and understand the rules of the road, or even how to operate their vehicles. Assuming these
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illegal drivers are minimally competent to drive, it is not a stretch to also conclude that these drivers are part of an economically challenged class. They are far more likely to be working long hours, driving late at night, and operating substandard vehicles. These “illegal” vehicles may well have inoperable lights, worn brakes and other safety problems.
With no ability to obtain a driver’s license, there is simply no incentive to comply with much of the other safety infrastructure in place to teach drivers, test drivers and obtain insurance. In California, the premise that “driving is a privilege not a right” has been replaced with “driving is a civil rights issue.” Everyone knows that in Los Angeles, you need to drive to survive. Technically, in order to drive in the State of California, one must be a legal citizen of the United States or legally residing or visiting the United States. Driving without a license is a punishable offense under California Vehicle Code section 12500, subd.(a), officially making it a crime to be an unlicensed driver. The California Compulsory Financial Responsibility Law requires every driver and every owner of a motor vehicle to maintain financial responsibility (minimum liability coverage) at all times. Unfortunately, these laws have been and continue to be ignored in the name of “fairness” in order to make way for motoristendangering unlicensed drivers. In 1994, the California Legislature concluded that; “There are over 1 million drivers operating automobiles in California having never been issued a license (Legislative Findings, 1994).” It is now estimated that that number has doubled to 2 million drivers operating automobiles in California having never been issued a license! A 2008 AAA study found that one in five fatal crashes in Los Angeles involved an unlicensed driver. Consider that as of 2012, the DMV has upped that number to one in three fatal crashes involved an unlicensed driver. This is a staggering increase in a very short period of time. There is no program or plan in place to
slow this pace or solve this terrible threat to our California families, friends and neighbors. California is only one of three states out of 50 where traffic fatalities are actually increasing. Back in 1994 the Legislature realized that driving without a license was causing death and destruction at rates far higher than licensed drivers. Recognizing the danger to public safety, the California legislature passed a strict law to get these drivers off the road: Vehicle Code section 14607.4. Its Legislative Findings stated: (f) It is necessary and appropriate to take additional steps to prevent unlicensed drivers from driving/ including the civil forfeiture of vehicles used by unlicensed drivers. The state has a critical interest in enforcing its traffic laws and in keeping unlicensed drivers from illegally driving. Seizing the vehicles used by unlicensed drivers serves a significant governmental and public interest/namely the protection of the health/safety/and welfare of Californians from the harm of unlicensed drivers/who are involved in a disproportionate number of traffic incidents/and the avoidance of the associated destruction and damage to lives and property.
The significant number of impounded vehicles has become a “political hot potato.” Typically, the vehicles were held for 30 days and were released upon showing a valid identification, an auto insurance policy, payment of storage charges and no previous citations for unlicensed driving. In March 2011, Los Angeles Police Chief Charlie Beck, with support from numerous political supporters ranging from the assembly to Mayor Villaraigosa, decided that it was unfair to impound cars of unlicensed drivers who never had a license before. The Los Angeles Times recently reported that the LAPD impounded 39 percent less vehicles in 2012. This is obviously an attempt to make illegal immigrants “more welcome” in California and allow them the opportunity to work here.
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It is obvious that the police chief would like to see every driver in his jurisdiction licensed. Not only would this streamline the administration of justice, but it would increase the skill and safety level of the current illegal driving pool. It is chilling that Chief Beck and our political representatives appear willing to risk public safety and horrendous personal losses in order to influence a change in public policy towards licensing illegal immigrants. Make no mistake about it –that is exactly what is happening in California. Since unlicensed drivers are proven to be an epidemic in not only Los Angeles, but California, the installation and enforced utilization of driving-privilege cards and provisional licenses are the only logical method of improving public safety. Public safety would be increased through these methods as long as law enforcement would follow the laws and get unsafe drivers off our roads once and for all. Unlicensed drivers would basically become licensed and monitored, decreasing the likelihood of erratic driving and life threatening behavior. In addition, this combination of licensing and enforcement would require acquisition of automobile liability insurance. This is an essential element in protecting the public and in encouraging safe driving. Moreover, by insisting that drivers obtain liability insurance and by enforcing that requirement, it is consistent with California’s Compulsory Financial Responsibility Law. North Carolina is set to implement driving-privilege cards over protest from both tough-on-immigration advocates and from immigration-amnesty supporters. Again, one side argues that this is a “de facto” legalization of immigration and smoothes the way for those here illegally to side-step legal immigration procedures. On the other hand, immigration supporters complain that the new cards unfairly identify illegal immigrants as marked “without legal status.” Further, the cards provide the government with the illegal immigrants’ exact address and location for future deportation. California will be watching
North Carolina’s experience with critical interest. For the time being, this new driving reality creates a departure from California’s Compulsory Financial Responsibility Law – every driver and every owner of a motor vehicle is not required to maintain financial responsibility (liability coverage) at all times. The genesis of California’s automobile insurance structure really took flight back in 1959 under similar circumstances with the enactment of Insurance Code section 11580.2 (“The UninsuredMotorist Statute”). The UninsuredMotorist Statute was really required by the motoring public due to the high incidences of uninsured drivers who caused severe accidents and injuries. Without insurance and without sufficient personal assets, victims were left without adequate recourse. Before 1959, California motorists were free to choose to carry liability insurance – or not. In fact, California’s Financial Responsibility Law requiring liability insurance did not come into effect until 1974. The parallels to 1959 and today are obvious – high incidences of uninsured drivers who caused severe accidents and injuries. California drivers must accept that accidents with unlicensed and uninsured drivers are likely to occur and increase in number. While death and mayhem on the roadways will never be acceptable, every
effort should be made to make certain that sufficient Uninsured Motorist coverage is purchased and maintained by all California drivers. With the “newly realized” catastrophic risk which has developed over the last couple of years, dropping Uninsured Motorist coverage should not be an option. Further, it must be anticipated that a high percentage of accidents will involve uninsured motorists. Therefore, California drivers should “self insure” to the extent that they would for their own liability coverage. The immigration question is complex and beyond the scope of this analysis. However, from a public-safety standpoint, Californians should not risk the lives of their own family and friends to illegal, unlicensed and uninsured drivers. The installation and enforced utilization of drivingprivilege cards and provisional licenses are the only logical method of improving public safety. This can be accomplished consistent with California’s automobile insurance infrastructure and The Compulsory Financial Responsibility Law. Barry P. Goldberg is a trial lawyer in his 29th year practicing in Woodland Hills, California. He has handled hundreds of Uninsured and Underinsured Motorist cases and is a frequent author and lecturer on the topic. His article, “The Strange Case of the UM/UIM Arbitration,” was published in the Advocate in August 2011.
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Independent Cumis counsel: The second prong When the insured is given the right to choose counsel and control its defense Under the standard insuring agreement, a liability insurer has a contractual obligation to defend its insured where the factual allegations of the complaint against its insured potentially trigger indemnity under the policy. The insurer is given the right to choose counsel and control defense. There are two separate situations where the law requires the insurer to relinquish control of defense and pay for the insured’s choice of counsel. The first is codified in California Civil Code section 2860. This conflict involves a third-party suit where multiple theories are pled and the conduct of the insured is the focus of both liability and insurance indemnity and the insurer has issued a Reservation of Rights letter. The second prong of the law governing independent counsel requires the insurer to relinquish control and pay for the insured’s choice of counsel when the insurer has “no economic motive” in the outcome of the case. When the insurer’s Reservation of Rights eliminates its economic interest in the third-party suit, the insurer’s desire to exclusively control defense must yield to its contractual obligation to give its policy-holder a full and vigorous defense. This “second prong” that requires independent counsel is founded in Supreme Court decisions and was not superseded by the California Civil Code section 2860, the so-called “Cumis” statute. The recent increase in manuscript policies and hand-drafted endorsements, particularly in construction, brings this important issue to the fore. In 1964, the California Supreme Court in Tomerlin v. Canadian Indemnity Company, (1964) 61 Cal.2d 638 set forth the legal basis for independent counsel. The case involved the classic conflict of “willful” versus “negligent” conduct relating to an alleged assault by the insured. The insured hired its own counsel to join in the defense with the insurer’s counsel. Before trial began, the insurer’s counsel 88 — The Advocate Magazine
told the independent counsel that the Reservation was now moot. Independent counsel withdrew in reliance. Even though the trial proceeded only on willful theories of conduct, the insured was told coverage was available. The Court held the insurer was estopped to rely on its Reservation for the uncovered judgment, and ordered reimbursement of independent counsel’s fees. The reimbursement of fees was based on the Court’s finding of two inherent conflicts, separately stated: Similarly, in cases involving multiple claims against the insured, some of which fall within the policy coverage and some of which do not, the insurer may be subject to substantial temptation to shape its defense so as to place the risk of loss entirely upon the insured. (Cf. O’Morrow v. Borad, (1946) 27 Cal.2d 794, 798.) Moreover, since defendant here had previously denied all liability under the policy, its sole economic motive of prosecuting a vigorous defense had been eliminated. (Tomerlin, Id. at p. 647). A like duty must arise in the instant case in which potential conflict stemmed not only from the multiple theories of the Villines complaint and the propriety of settlement, but from the total absence in defendant of any economic interest in the outcome of the suit. (Tomerlin, Id. at p. 647). Defendant argues, however, that Best’s withdrawal caused plaintiff no detriment because in any event defendant retained the right, under the policy, to conduct the defense. Defendant’s contention rests upon the erroneous assumption that it could exclusively control the case even though it lacked an economic interest in its outcome. In actions in which the insurer lacks an economic motive for a vigorous defense of the insured, or in which the insurer and insured have conflicting
interests, the insurer may not compel the insured to surrender control of the litigation. (Tomerlin, Id. at p. 648). In 1971, the appellate court in Executive Aviation, Inc. v. National Ins. Underwriters, (1971) 16 Cal.App.3d 799, addressed the extent of the insurer’s obligation under a conflict of interest created by a Reservation of Rights. It held the defense attorney should be selected by the insured and paid for by the insurer. The court stated representation by two different attorneys promotes and protects the interests of each, guarantees adequate representation and removes the deleterious effect of the conflict placed upon a single attorney attempting to represent both the insurer and the insured’s interests. The facts of Executive Aviation involved a policy of airplane insurance with an endorsement requiring the pilot to be commercially licensed if the accident occurred during a commercial flight. The insured said the flight was a private sales demonstration, but the insurer reserved its rights to disclaim all coverage if found to be a commercial flight. The insurer was required to relinquish control of defense and pay independent counsel selected by the insured. The coverage issue was not determined in the underlying wrongful-death suit resulting from the accident, but in a separate declaratory relief action. We hold, therefore, that in a conflict of interest situation, the insurer’s desire to exclusively control the defense must yield to its obligation to defend its policy holder. Accordingly, the insurer’s obligation to defend extends to paying the reasonable value of the legal services and costs performed by independent counsel, selected by the insured. While an insurer may be dismayed at having to pay the cost of two attorneys for one action, we
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are cognizant that the necessity for this action stems from its failure to provide with any degree of clarity for this conflict of interest contingency in drafting the terms of its contract. (Executive Aviation, at p. 810). The Ninth Circuit addressed the issue of independent counsel in Previews, Inc. v. California Union Ins. Co. (9th Cir. 1981) 640 F.2d 1026 applying California law. The case involved a class action against the insured and the insurer reserved rights that each member of the class was subject to a single “claim” deductible under its endorsement. As is common, the insurer had not defined the word “claim” in its deductible. Even though the coverage reservation would not be decided in the defense of the underlying action, the Ninth Circuit found a conflict in the insurer’s complete lack of economic motive under the reservation of rights. California law provides that in a conflict of interest situation, the insurer’s desire to control exclusively the defense must yield to its obligation to defend the policyholder. Accordingly, the insurer’s obligation to defend extends to paying the reasonable value of the legal services and costs performed by independent counsel selected by the insured. (See Executive Aviation, Inc. v. National Ins. Underwriters (1st Dist. 1971) 16 Cal.App.3d 799, 810; Outboard Marine Corp v. Liberty Mutual Ins. Co. (7th Cir. 1976) 536 F.2d 730, 737 applying California Law). (See also, Tomerlin v. Canadian Indemnity Company, (1964) 61 Cal.2d. 638 (where insurer lacks an economic motive for vigorous defense of the insured or where there is a conflict of interest, the insurer may not compel the insured to surrender control of the litigation). (Previews, Inc. v. California Union Ins. Co. (9th Cir 1981) 640 F.2d 1026, 1028.) In 1984, San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc., (1984) 162 Cal.App.3d 358 exploded out of the Fourth Appellate District and changed the face of insurance defense thereafter. At the time I was in charge of one of the largest coverage/bad-faith departments in California, the Haight
firm, and there I was called upon to lecture and otherwise guide the insurance industry through this very broadly written opinion on independent counsel. The author of the Cumis case, Judge Gamer, was sitting by assignment. The case was a broadside against large independent firms with multiple insurance clients: “Insurance companies hire relatively few lawyers and concentrate their business. A lawyer who does not look out for the Carrier’s best interest might soon find himself out of work.” (Cumis, Id. at p. 364). Now an insured is represented by “law divisions” of the insurer or boutique firms servicing but one insurer-client. The Cumis case was by its facts a classic conflict situation. The insurer’s reservation of rights on multiple theories involved wrongful misconduct. The Cumis opinion left the plaintiff ’s bar with the belief and position that any reservation, or speculative set of facts, would require independent counsel. The issue of the scope of independent counsel in the “multiple theory” conflict case was not clarified until 1987 when the Legislature defined and set guidelines for its application to independent counsel. (See Cal. Civ. Code, § 2860). Civil Code section 2860, sometimes referred to as the “Cumis” statute, was never intended to address all possible conflicts or to preclude judicial determination concerning the insured’s right to independent counsel. (See Gafton, Inc. v. Ponsor & Assoc., (2002) 98 Cal.App.4th 1388, 1421). It is important to note the Cumis case itself cited both Tomerlin and Executive Aviation for the understanding that a conflict can stem from both “multiple theories” and lack of “economic motive.” (Cumis, Id. at p. 369). The Cumis court stated that payment of independent counsel was implicit in the Tomerlin opinion: “If the insurer must pay for the cost of defense and, when a conflict exists, the insured may have control of the defense if he wishes, it follows the insurer must pay for such defense conducted by independent counsel” (Cumis, Id. at p. 369). Over the years the California Supreme Court has clarified many issues.
In general, the Court has strongly backed the right of the insurer to draft its contract and not have speculative ambiguity serve as a basis for independent counsel. The Court has also taken the view, in my opinion, that settlement is the primary object or goal in insurance contract interpretation. Settlement is not thwarted by independent counsel. The insurer is not prevented from exercising its contractual right to settle as it deems expedient. (See Western Polymer Technology, Inc. v. Reliance Ins. Co., (1995), 32 Cal.App. 14, 22.) When the insurer’s reservation of its rights effectively eliminates economic motive, the desire to prosecute the action on behalf of the insured is affected. When two counsel are participating in settlement issues, the settlement process is, in fact, facilitated. (See Cal. Civ. Code, § 2860(f), Novak v. Low, Ball & Lynch, (1991) 77 Cal.App.4th 278.) When no economic motive rests with the insurer to prosecute a vigorous defense for its insured, only inherent conflict and unnecessary tension can be the result. The insured may wish to move quickly so a problem or issue does not get out of hand, while the insurer has no economic motive to settle. The insured may wish a vigorous defense, but the insurer’s hired counsel may be told to put a tight lid on defense expenses. I am not an expert on the ethical issues relating to the Rules of Professional Conduct. However, as an insurance expert, I know that after issuance of a reservation of rights letter that effectively eliminates economic motive in the insurer to defend or settle a case, the insurer may be required to relinquish control of defense and pay for the insured’s choice of counsel. Kim Collins of Auburn, California is a trial expert in the standard of care/coverage bad-faith lawsuits. He founded the bad faith/coverage department at the Haight firm growing to over twenty attorneys. He was the founder of Attorney Insurance Mutual for large firm E&O insurance, writing the policy and handling the underwriting and claims as a board member. JUNE 2013
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Insurance strategies for mediation and settlement A look at the fundamental insurance issues that arise at mediation Insurance is the engine that drives the settlement. In 95 percent of the mediations I have participated in over the years, insurance coverage, bad faith, duty to defend and insurance-defense issues are frequently the catalysts for settlement. The bottom line is that insurance controls the settlement dynamic, and the ultimate decisions regarding the timing and amount of settlements are almost always made by insurance companies. In light of these undisputed facts, one would imagine that all plaintiffs’ attorneys would be experts on insurance coverage principles. After all, if insurance companies are ultimately paying your mortgage or childrens’ college fund, one should understand how insurance works. However, in my experience, most plaintiffs’ lawyers do not have anywhere near the level of expertise they should have in order to meaningfully negotiate with insurance companies at mediation. Ultimately, a plaintiffs’ lawyer with an extensive understanding of insurance law and insurance principles is an extremely powerful negotiator. A significant factor in settlement at mediation is understanding the psychology of insurance carriers. Further, in many circumstances, insurance coverage issues will make or break a settlement. Being able to specifically address insurance coverage issues – perhaps even by way of a separate mediation brief on insurance issues – can be dispositive to settlement. This article will survey and summarize some of the fundamental insurance issues that arise at mediation and impact on settlement of personal-injury cases. Further, this article will provide specific advice and strategies for dealing with common insurance issues. It is my hope that the article will provide a roadmap for plaintiffs’ lawyers to settle more cases at mediation. 90 — The Advocate Magazine
Timing of mediation
The first issue is when is the best time to conduct mediation and try to settle cases involving insurance companies. Every plaintiff ’s attorney dreams of the “early mediation,” that settles a case with minimal effort. But it is extremely rare for an insurance company to ever pay top money for settlement without going through the litigation process. In light of this reality, in order to have a meaningful mediation yielding maximum value, the mediation should, in virtually every case, be held at the later stages of litigation. Insurance adjusters deal with facts, not potentialities. Most carriers will not provide a true bottom line until they have completed all discovery and have conducted an analysis of the experts on the other side. If your case does have experts, the most meaningful mediations are those where the actual expert’s reports are prepared and attached to the mediation brief. Even if those experts have not yet been deposed, if their opinions are set in stone and are communicated to the other side, the carrier will know what that expert witness will say at trial and can adjust its analysis of the case accordingly. Conversely, if a mediation is held too early, the mediation brief will merely consist of arguments and contentions and will not be able to incorporate factual evidence and documents. That will not be persuasive to the line adjuster or even supervisor, who must always justify the payment of money with detailed analysis, frequently with reports from defense counsel and defense experts. The adjuster must “paper the file” or their judgment in paying a settlement will be later questioned. In addition, the carrier and defense counsel must put the plaintiff ’s lawyer and plaintiff “through the paces.” There
is no free lunch for plaintiffs. Moreover, many plaintiffs and their counsel get impatient or even give up during the lengthy litigation process. Insurance companies understand this psychology, and seek to exploit it. Ultimately, however, it is fundamental that “trial dates settle cases.” Savvy trial judges know this, and will frequently manifest it in denying motions to continue trial. This principle is borne out by the many settlements that are literally achieved on the “courthouse steps,” or on the eve of trial. A pending date with 12 jurors puts enormous pressure on both parties. Plaintiffs suddenly get very realistic in their expectations. Insurance carriers revert to the true, inner self – being risk averse and conservative. A corollary to this fundamental rule is that the most effective way to achieve settlement is if plaintiff ’s counsel has extensive trial experience. One of the key questions that an insurance company will ask is whether the plaintiff ’s lawyer or law firm has a track record of conducting actual trials in front of a jury. If the plaintiff ’s lawyer or firm lacks a track record of jury trials, the defense insurer will feel no fear or pressure of an adverse trial outcome, and the case may not settle. Settlement is a powerful weapon in the arsenal of the trial lawyer. It is one of the true ironies of litigation that the best settlements come from the lawyer who is an expert at trials and has prepared his case for trial. The trial lawyer who prepares his case for trial is the lawyer who gets the best settlements.
Choosing the right mediator
Once the decision is made to go to mediation, it is critical to choose the right mediator. There are many excellent mediators in California. There are very few mediators, however, who have significant insurance expertise.
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In my experience, it is highly preferable to select a mediator with extensive insurance experience and understanding, as well as expertise in the particular area of law at issue in the mediation. There are many reasons for this. However, one need go no further than a reading of this article. Given the prevalence of insurance issues that permeate mediation and the settlement process, it would be truly ironic if the one person who is to effectuate and facilitate such settlement was a novice in insurance issues. Such a neutral will be unpersuasive when dealing with the insurance company because he or she is unable to communicate effectively with the carrier or its counsel. Accordingly, a plaintiff â€™s lawyer should conduct significant due diligence and make sure that the mediator being selected has extensive insurance backgrounds and experience.
The mediation brief
Many lawyers fundamentally misunderstand and fail to appreciate the critical
power of the mediation brief to the settlement process. Specifically, the mediation brief is the one chance that plaintiff counsel has of communicating directly with the decision makers at the insurance company prior to trial. Such communication is unfiltered by anything that the defense lawyer can do. Success in mediation is based on leverage. Leverage is acquired through information that is conveyed to the other side. The most powerful and effective way to convey that information is through a detailed, thorough and persuasive mediation brief. Without a powerful and persuasive mediation brief, you will never be able to maximize your settlement results. A successful mediation brief has numerous procedural and substantive requirements. â€˘ Procedural considerations With respect to procedure, there are a number of critical procedural factors. First, it is critically important to serve the mediation brief on the insur-
ance company and the defense well before the mediation. One week before the mediation is the absolute minimum. Two weeks or more is the optimal time. The reason is simple. If you want your brief to be persuasive and to be considered by the decision-makers for the opposing party, you must give them sufficient time to read, analyze, critique and digest your brief. Further, the more significant your case, the busier are the individuals on the other side who will be considering your arguments. Therefore, you must consider the frequently busy schedules of the decision-makers on the other side. There is no worse mistake than walking in on the day of mediation and handing a brief to the mediator and the other side. Your brief will fall on deaf ears. Second, your mediation brief must have a highly professional appearance. It sends a strong message to the other side about your level of competence and attention to detail. You are trying to
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impress upon the other side that you will be a powerful force and opponent at trial. A brief full of misspellings, unpersuasive arguments or incomplete thoughts sends exactly the wrong message. Conversely, a persuasive, well-edited and highly polished mediation brief sends a message to the other side that your approach at trial will be equally powerful. Even matters such as formatting and copying are important in communicating your message of strength. Rather than using staples or fasteners, I will frequently use spiral binding or other sophisticated printing techniques to bind the brief in order to give the document the most professional look possible.
When serving the brief on the other side, you should make multiple copies for the service. If you go through the expense of putting together a highly polished mediation brief and merely allow the other side to make their own photocopies, you’ll be eliminating much of the “shock and awe” effect of receiving an expensively bound brief. Estimate the number of parties, counsel and insurance carriers on the other side; make multiple copies, and have them delivered by hand to counsel. For example, a simple rule is to make ten copies of the mediation brief for opposing counsel so they can in turn be delivered to the relevant decision-makers. Remember, this is your opportunity to
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have an “ex parte” communication with the insurance adjuster on the other side. Given that they will be personally reviewing your work, it pays to put your best foot forward by preparing a professional copy of the mediation brief, as opposed to having defense counsel’s photocopy department make rough copies. • Substantive considerations The extensive amount of time you spend preparing such a brief will pay dividends many times over if the brief is successful in persuading the other side to adjust their settlement position in a meaningful manner. By way of example, in a recent case, our office spent over six weeks writing a brief in a personal injury case. That brief ended up containing 82 pages of text, plus 300 pages of exhibits. The case ultimately settled in seven figures. I am absolutely certain that our 82page mediation brief, when compared to the 11-page brief prepared by the defense, made a huge impression on the insurance companies on the other side and motivated their decision to settle the case at top value. Equally important, substantively, are the facts and information one shares with the opposing party. First and foremost, the concept of a “confidential” mediation brief is completely contrary to meaningful mediation. Defendants are especially fond of submitting confidential mediation briefs. In my opinion, that is a fundamental mistake. It is obviously impossible to motivate a plaintiff to lower its demands based on weakness and shortcomings in its case if the defense does not share such an analysis with plaintiff. It is almost as if those defendants have no desire to settle. From my perspective, the most fruitful way to a successful mediation result is to share your best and most persuasive arguments with the other side. The only exception is if you truly have some strong and powerful facts or arguments (such as a damaging sub rosa tape) that the other side is not yet aware of. In that case, I would encourage a separate, confidential mediation brief discussing such issues. For example, in a recent multi-million dollar insurance bad-faith case, we
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obtained information through private investigation that the claim adjuster who had committed the bad faith in question was formerly an attorney who had been disbarred for fraud and perjury. Along similar lines, too many mediation briefs are long on argument, contention and hyperbole, but short on actual facts. Insurance adjusters have a builtin BS detector built up over years and decades of handling claims. You must overcome that inherent skepticism. A powerful mediation brief should also systematically set forth all evidence and documents in the case. Furthermore, factual assertions and legal arguments in the brief should be supported by specific reference to an appendix of exhibits. If there are evidentiary issues relating to such evidence, these issues should be addressed in the brief in order to persuade the other side that the evidence will indeed be presented to the jury. One of the most difficult aspects of any mediation is proper evaluation of the settlement value of a case. Perhaps the most powerful tools for determining settlement value are verdicts and settle-
ments from similar cases. A good mediation brief will include a detailed analysis of related verdicts and settlements from other similar cases, together with copies of the actual verdict and settlement forms. Those related verdicts and settlements will remove some of the guesswork from estimating the settlement value of a case. More importantly, it will emphasize to the risk-averse insurance company some of the worst downsides of not settling the case and going to trial.
Fundamental insurance issues
There are many critical insurance issues that may face a plaintiff ’s attorney at a mediation, especially in high-value cases where there are multiple defendants and multiple policies. While it is difficult to address all such possibilities, here are some of the key issues for plaintiff ’s lawyers. In cases involving a continuous loss that has occurred over a number of years, it is important to make sure that all insurers that insured the defendant from the time the loss began have been given notice of the claim, because
California applies the “continuous injury” trigger of coverage, in the context of a third-party liability policy, “bodily injury” or “property damage” that is continuous or progressively deteriorating so that such “bodily injury” or “property damage” is potentially covered by all policies in effect during the period when the injury or damage occurred. (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 685-689.) Under the “all sums’ rule adopted in Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 55-57, an insurer on the risk when continuous or progressively deteriorating property damage or bodily injury first manifests itself is required to indemnify the insured for the whole of the ensuing damage or injury. Recently, in State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 202, the Supreme Court held that absent an antistacking provision in the policy or a statute that forbids stacking, policy limits can be stacked. It is important to get copies of all of the defendant’s potentially applicable policies for all potentially applicable
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policy years, and not just the most recent policy, because there may have been significant changes that have been made in coverage, even if the policies have been issued by the same insurer. For instance, many insurers have recently eliminated coverage for attorney’s fees awarded against the insured by excluding attorney’s fees from the definition of “costs” under the supplementary payments provision of their general liability policies, but earlier applicable policies may still cover such fees. In cases involving intentional acts by an insured which would not be covered because of an intentional acts exclusion or Insurance Code section 533, it is important to emphasize the separate liability of innocent co-insureds in light of the holding in Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 319, that under a policy containing a “separate insurance” clause, each insured’s coverage should be analyzed separately. If there are excess/umbrella policies involved, it is important to determine what underlying policies need to be exhausted in order for each excess/ umbrella policy to come into play. The “horizontal exhaustion” rule requires all primary insurance to be exhausted before an excess insurer must drop down to defend an insured, including in cases of continuing loss. The “vertical exhaustion” rule allows an insured to seek coverage from an excess insurer as long as the specific underlying insurance policy or policies identified in the excess have been exhausted. Under California law, unless the excess insurance describes the underlying insurance policy and only agrees to cover a claim when that specific underlying insurance policy is exhausted, the horizontal exhaustion rule applies and all primary insurance must be exhausted before an excess insurer must drop down to defend an insured, especially in cases of continuing loss. (Padilla Construction Co., Inc. v. Transportation Ins. Co. (2007) 150 Cal.App.4th 984, 986987.) If one or more of the defendants is an additional insured on another defendant’s policy, there may be issues arising
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out of trying to settle out only the named insured or only the additional insured. The insurance company cannot settle out one insured without obtaining a release of the other insured, without the other insured’s consent. (See, American Medical International, Inc. v. National Union Fire Ins. Co. of Pittsburgh (9th Cir. 2001) 244 F.3d 715, 720-721.) One way to settle out only the named insured or only the additional insured is to try to get the insurance company, with the consent of both the named insured and the additional insured, to offer a portion of the policy limits to settle out the named insured or additional insured. Most professional liability policies have “burning limits,” i.e., limits that are eroded by defense fees and costs. This means that by the time the parties are at mediation, the remaining limits of the defendant’s “burning limits” policy will be less than stated policy limits, and a policy limits demand would have to be less than the stated policy limits. One way to make a policy limits demand on a “burning limits” policy is to demand the remaining limits of the policy, as long as the amount of the remaining limits is over a specified amount. Some “burning limits” policies also provide additional excess “burning limits” coverage for defense fees and costs incurred by the insured. Depending on the exact terms of the policy, it could be argued that as
long as defense fees and costs are less than the excess “burning limits” coverage for defense fees and costs, the full amount of the primary limits is available. Some “burning limits” policies also provide additional coverage for attorney’s fees and costs awarded against the insured. If plaintiff is entitled to attorney’s fees and costs, plaintiff should consider making a demand for the primary limits plus an additional amount based on the fees and costs that plaintiff could recover.
A Structured Settlement requires careful planning and experience.
Using insurance bad-faith principles
The “golden ticket” for settlement of cases which involve an insurance company is the threat of extra-contractual liability, or bad faith. Being able to “pop the top off the policy” is every plaintiff lawyer’s dream, and every insurance company’s nightmare. The following are some of the critical principles that govern bad faith in the context of settlement discussions. California insurance law requires an insurer owes a good-faith duty to initiate settlement discussions. (See, Garner v. American Mut. Liab. Ins. Co. (1973) 31 Cal.App.3d 848; Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 689; and Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 906.) In fact, California Insurance Code section 790(h)(5) requires insurers to attempt “in good
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faith to effectuate . . . settlements of claims in which liability has become reasonably clear.” Section 790(h)(5) imposes a duty on the insurer to actively attempt to settle a claim by making, and by accepting, reasonable settlement offers once liability has become reasonably clear. (Pray By & Through Pray v. Foremost Ins. Co. (9th Cir. 1985) 767 F.2d 1329, 1330.) An insurer has an implied duty to accept reasonable settlement demands on covered claims within the policy limits. (Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 40.) In deciding whether or not to settle a claim, the insurer must take into account the interests of the insured. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658-661.) In other words, an insurer that breaches its duty of reasonable settlement is liable for all of the insured’s damages proximately caused by the breach, regardless of policy limits. (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 725 (citing PPG Industries, Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 315 and Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d at p. 661.)
The only thing an insurer can consider in determining the reasonableness of a settlement demand is “whether, in light of the victim’s injuries and the probable liability of the insured, the ultimate judgment is likely to exceed the settlement offer.” (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 16.) An insurer’s good faith but incorrect belief there is no coverage is not a defense to liability for its refusal to accept a reasonable settlement demand. (Id., at 15-16.) Even though the case law talks of an insurer’s liability breach of the duty of reasonable settlement, which would imply that the insurer has to have acted in breach of the implied covenant of good faith and fair dealing, an insurer may be liable for the full amount of the judgment based on breach of contract. (See Archdale v. American Internat. Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 468.) Thus, in light of these black-letter principles, the most powerful strategy that a plaintiff can follow at mediation is to make a policy-limits settlement demand. A plaintiff must make sure that the carrier has all the facts and informa-
tion to reasonably consider such a policylimits demand, and the demand must be kept open a reasonable time, but if the carrier fails to reasonably settle a case within policy limits, it may be exposed to bad-faith liability. The process of obtaining an assignment of bad-faith rights is outside the scope of this article; the reader should consult a learned treatise, such as the Rutter Guide on Insurance Litigation for the practice and procedure of effectuating such an assignment. One final important point to remember is that the mediation privilege is very broad. Thus, in order to guarantee that policy-limits settlement demands are admissible in a later bad-faith trial, make sure that such settlement communications are formally made (in writing) outside of the mediation context as well.
Intra-insurance bad faith
In cases involving multiple insurers and multiple layers of coverage, there may be an obstinate insurer that refuses to offer its policy limits, even though insurers higher up on the coverage ladder may want to offer their limits. In such a case, it often helps to point out to
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the recalcitrant insurer the potential consequences of refusing to offer its policy limits. For example, a primary insurer faces the prospect of being liable for the full amount of any judgment. A primary insurer has a good-faith duty to take into account the interests of the excess insurer equally with its own and must conduct the defense of an action, including settlement negotiations, so as not to expose the excess insurer to unwarranted liability. (Diamond Heights Homeowners Assn v. National American Ins. Co. (1991) 227 Cal.App.3d 563, 579.) Upon paying an excess judgment, the excess insurer is equitably subrogated to the insured’s rights and remedies against the primary insurer. (Fireman’s Fund Ins. Co. v. Maryland Cas. Co. (1994) 21 Cal.App.4th 1586, 1601; see also Continental Cas. Co. v. Royal Ins. Co. (1990) 219 Cal.App.3d 111, 117.) If the primary insurer unreasonably refused to settle within its policy limits, the excess insurer may recover from the primary insurer the full amount of any judgment against the insured that the excess insurer is compelled to pay, regardless of the primary insurer’s policy limits. (Northwestern Mut. Ins. Co. v. Farmers Ins. Group (1978) 76 Cal.App.3d 1031, 1050; see also Highlands Ins. Co. v. Continental Cas. Co. (9th Cir. 1995) 64 F3d 514, 518.) Since an excess insurer that refuses to offer its policy limits may be liable for any judgment in excess of its limits, that excess insurer should be liable to the higher layer excess insurers. (See, Kelley v. British Commercial Ins. Co. (1963) 221 Cal.App.2d 554, 563).
Dealing with denial of coverage
I will frequently mediate cases with insurance companies after they have denied coverage for a claim, and I have taken aggressive steps in obtaining a default judgment or assignment of badfaith rights. In those circumstances, I have maximum leverage against the carrier in mediation, assuming the underlying PI case is significant and the coverage issues are strong. The following are some of the principles involved when the carrier denies coverage.
If the defendant’s insurer has denied coverage, it may be worthwhile to either settle with the defendant by agreeing to a stipulated judgment, with a covenant not to execute and an assignment of the insured’s claims against the insurer, or obtain a default judgment against the defendant and then try to get an assignment. After obtaining the stipulated judgment or default judgment and assuming the policy in question is one that is subject to the judgment creditor statute, which all policies covering bodily injury and property damage are, the plaintiff could bring an action against the insurer as a judgment creditor under Insurance Code section 11580(b)(2) and as an assignee of any claims assigned by the insured.
An advantage of obtaining a stipulated judgment, with a covenant not to execute and an assignment of the insured’s claims against the insurer, as opposed to obtaining a default judgment, is that the plaintiff can negotiate the assignment from the insured as part of the settlement. An advantage of obtaining a default judgment, with a covenant not to execute is that if plaintiff can get an assignment from the insured, the plaintiff could rely on Amato v. Mercury Casualty Co. (1997) 53 Cal.App.4th 825, 833, to argue that the insurer is liable for the full amount of the default judgment as damages caused by the insurer’s bad faith denial of coverage, regardless of whether there is
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coverage for the judgment under the policy. In obtaining an assignment of rights from the insured, the plaintiff should consider the fact that the right to attorney’s fees and costs incurred in obtaining coverage is assignable, but claims for punitive damages and emotional distress damages are not. A partial assignment of the insured’s assignable rights would allow the insured to keep the claims for punitive damages and emotional distress damages. Plaintiff ’s counsel could then seek a conflict waiver and represent both the insured and the plaintiff in one suit against the insured. A possible complication that could arise in the case of a default judgment is that the insurer could seek to set aside the default and default judgment and move to intervene.
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As explained above, virtually every settlement of litigation involves insurance and insurance issues. A plaintiff ’s lawyer with an extensive understanding of insurance law and insurance principles is an extremely powerful negotiator. I hope that this article was able to provide some insight and advice on some of the fundamental insurance issues that arise at mediation and impact on settlement of personal injury cases.
Define your case.
Edward Susolik is the partner in charge of the insurance department at Callahan & Blaine. He specializes in complex insurance litigation, and has filed over 1000 insurance bad-faith lawsuits during his career. In addition, he is an adjunct professor at USC Law School, and can be reached at firstname.lastname@example.org. Callahan & Blaine’s Web site is found at www.callahan-law.com.
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From the Editor Jeffrey Isaac Ehrlich Editor-in-Chief
Appellate About Reports and cases in brief
this Issue of interest to members of the plaintiffs’ bar Recent cases Jeffrey Isaac Ehrlich
Standard Fire Editor-in-Chief Ins. v. Knowles
(2013) __ U.S. __, 133 S.Ct. 1345 (U.S. Supreme) Who needs to know about this case? Lawyers bringing class-action lawsuits trying to avoid removal to federal court under the Class Action Fairness Act (“CAFA”) by limiting the amount in controversy to less than $5 million. Jeffrey Isaac Ehrlich Why it’s important: Holds that this tactic is not effective in keeping class actions out of federal court. Synopsis: CAFA gives federal district courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million By Jeffrey Isaac Ehrlich in sum or value, 28 U.S.C. § 1332(d)(2), (d)(5), andEditor-in-Chief provides that to determine whether a matter exceeds that amount the “claims of the individual class members must be aggregated.” (§ 1332(d)(6).) To avoid removal under CAFA, some plaintiffs were agreeing in their complaints that their recovery would not exceed $5 million. Some circuits had expressly held that this approach would preclude removal under CAFA. (Rolwing v. Nestle Holdings, Inc. (8th Cir. 2012) 666 F.3d 1069, 1072 [“a binding stipulation limiting damages sought to an amount not exceeding $5 million can be used to defeat CAFA jurisdiction”.]) The Ninth Circuit appeared to follow this rule. (See, e.g., Lowdermilk v. U.S. Bank National Ass’n (9th Cir. 2007) 479 F.3d 994, 999, n 5.) In Standard Fire Ins., a unanimous U.S. Supreme Court abrogated Rolwing and held that a class plaintiff ’s stipulation that the amount of the class’s damages would not exceed $5 million is binding only on the class representative – and not on the unnamed class members. “[A] plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.” Because the pre-trial stipulation does not bind anyone but the class representative,
About this Issue
it is not effective to reduce the value of the putative class’s claims, and cannot be used to defeat removal under CAFA.
US Airways v. McCutcheon (2013) __ U.S.__, 133 S.Ct. 1537 (U.S. Supreme) Who needs to know about this case? Lawyers handling personal-injury cases for clients who have health insurance. Why it’s important. Holds that if the insurance was subject to ERISA (which most health coverage is), and the plan contains a reimbursement provision, that provision has to be enforced as written, and cannot be modified by equitable defenses. Such defenses can, however, be used as “gap fillers” to interpret ambiguous provisions. Synopsis: McCutcheon, a U.S. Airways employee, was injured in a car accident with a third party. The U.S. Airways health plan paid $66,866 in medical costs. The plan contained the following reimbursement provision: “If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, ... [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise.” McCutcheon settled the case against the third party for $110,000, and paid his attorney a 40 percent contingency fee. Hence he netted $66,000. US Airways sought reimbursement of the entire amount of its costs. When McCutcheon refused to pay, the plan filed suit against him under § 502(a)(3) of ERISA, seeking “appropriate equitable relief.” McCutcheon defended with two equitable defenses – the “made whole” rule, arguing that the plan had no right
to reimbursement before he had been made whole for all his damages; and the common-fund doctrine, arguing that the plan’s reimbursement had to be reduced to reflect the amount of the attorney’s fees incurred to produce the settlement. The district court ruled in favor of the plan; the Third Circuit reversed based on the equitable defenses, and the U.S. Supreme Court reversed. The Court held that the equitable made-whole rule could not trump the language of the plan, which conferred a reimbursement right on the plan. But because the plan was silent on about how the costs of recovery would be paid, the common-fund rule would be used as a rule of “interpretation” to fill that interpretive gap. The Court made clear, however, that if plans included language that addressed the way costs of recovery would be addressed, that language would control. It also noted that if plans sought to avoid the common-fund rule, it would lead subscribers to decline to enforce their rights, forcing the plans to attempt to collect.
Corenbaum v. Lampkin (2013) __ Cal.App.4th __ (2d Distr., Div. 3.) Who needs to know about this case? Lawyers handling personal-injury claims where the client’s medical bills have been paid by insurance. Why it’s important. Addresses several questions left open by Howell v. Hamilton Meats concerning the use of the “billed” amount for healthcare expenses when an insurer has paid a lower negotiated amount – including whether experts can rely on such amounts. (Nope.) Synopsis: Corenbaum and Carter were injured when a vehicle driven by Lampkin collided with the taxi they were riding in. At trial, the jury awarded Corenbaum $1.8 million, and Carter JUNE 2013
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$1.4 million in compensatory damages. Although their medical expenses were paid by health insurance, at trial the jury was presented with the full “billed” amount of the medical bills, not the discounted amount that the providers had agreed to accept from the insurer as full payment. Lampkin filed a post-trial motion to reduce the compensatory damages based on the discounted medical bills, but the trial court did not rule on it before its jurisdiction to deal with posttrial motions expired. Howell was decided after the verdict. On appeal, Lampkin raised a number of issues relating to the admission of the full billed amount of the bills. The Court of Appeal ruled on those issues as follows: 1. Evidence of the full billed amount is not relevant to the amount of past medical expenses. The court held that the reasoning of Howell ultimately leads to the result that, where medical providers agree to accept a discount from their full billed amount as full payment for their services, evidence of the full amount billed is not relevant for any purpose concerning the plaintiff ’s past medical expenses. But the evidence of the amount that the providers have agreed to accept is admissible, as long as the source of the payment is not presented to the jury (and satisfies other rules of evidence). 2. Evidence of the full billed amount for past medical services is not relevant to the determination of the damages for future medical expenses. While Howell did not reach this issue, and seemed to leave open the possibility that the full amount of billed expenses might be relevant to other issues, including future medical expenses, the reasoning the Supreme Court relied on in Howell precludes this type of use. The Howell court held that the full billed amount of past medical expenses “is not an accurate measure of the value of medical services” in light of the way the market for medical services functions. Accordingly, the amount billed is not relevant and therefore not admissible. 3. Experts cannot rely on the full billed amount to offer an opinion on
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future medical expenses. Since the amount of expenses billed has no relevance to the value of those services, it is not information that experts can rely on to formulate opinions that may be presented to the jury. (Ed. note – the opinion does not however, say that experts must assume that a plaintiff will continue to have insurance that will cover future medical expenses at the same discounted rate as the past expenses; only that the undiscounted amount of the past expenses is not relevant to future expenses.) The court held that the admission of the full billed amount was prejudicial error that could not be cured with a postjudgment reduction. It ordered a new trial on the amount of compensatory damages.
Hernandez v. Amcord, Inc.
(2013) __ Cal.App.4th __ (2d Dist. Div. 1.) Who needs to know about this case? (1) lawyers who handle asbestos cases; (2) lawyers who rely on medical evidence for causation issues; (3) lawyers in cases where there is evidence that the defendant lobbied a regulator (which shows the defendant’s knowledge of the harmfulness of its conduct) Synopsis: The family of Arnulfo Hernandez filed a wrongful-death action after he died of mesothelioma. At trial, the family introduced the testimony of Richard Lemen, Ph.D., an epidemiologist – a field of medicine that is the study of disease patterns and populations. He testified that an epidemiologist studies what causes disease, and then uses that information to implement disease prevention. He opined that a worker who poured a 94-lb sack of asbestoscontaining gun plastic cement would be at risk of developing mesothelioma if the asbestos fibers were respirable and airborne. The family also introduced the testimony of Richard Kradin, M.D., who testified that based on Mr. Hernandez’s exposure at work to various asbestoscontaining products, including the defendant’s plastic gun cement, that it was his opinion to a reasonable degree of medical probability that Mr.
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Appellate — continued
Hernandez’s mesothelioma was caused by asbestos.” The trial court granted the defendant’s nonsuit motion, finding that because Dr. Lemen was not an M.D., he could not offer an opinion on causation, and that Dr. Kradin failed to offer an opinion that the defendant’s product was a substantial factor in causing the decedent’s illness. Reversed. In asbestos cases, causation is a twopart inquiry. Plaintiff must first set forth sufficient evidence to show some threshold exposure to the defendants’ asbestoscontaining product. Second, plaintiff must establish to a reasonable medical probability that exposure to the defendant’s product was a substantial factor in bringing about the injury. The court held that the plaintiff ’s evidence met this standard. The evidence showed that Mr. Hernandez used the defendant’s product “lots of times” and the product was packaged in 94-lb sacks, which would create substantial dust when they bag was cut open and when the contents were dumped in a mixer. Testimony from Dr. Lemen was admissible to satisfy the second factor, even though he was not an M.D. “Qualifications other than a license to practice medicine may qualify a witness to offer a medical opinion.” Collectively, the testimony of plaintiff ’s witnesses was sufficient to allow the jury to find that exposure to defendant’s product was a substantial factor in causing the decedent’s asbestos-related disease. No recitation of specific words or phrases is necessary to establish causation. At trial, the plaintiffs sought to introduce evidence that defendant had lobbied Cal.OSHA for an exemption to the 1975 statutory provisions banning asbestos-spray construction products. Plaintiffs argued that this evidence was relevant to show that defendant negligently took steps to continue to sell a product that it knew was dangerous. The trial court excluded the evidence of lobbying under the Noerr-Pennington doctrine, which shields defendants from liability based on their legitimate right to petition government officials. This was error, because the Noerr-Pennington 102 — The Advocate Magazine
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Bankruptcy doctrine is not a rule of evidence; it is a liability shield. This means that a corporation’s petitioning government officials may not itself form the basis of liability – but that petitioning activity may be admissible if otherwise relevant to show the purpose and character of other actions by the corporation.
Short(er) takes Sanctions, frivolous appeals: Kleveland v. Seigel & Wolensky, LLP (2013) __ Cal.App.4th __ (4th Dist., Div. 1.) Scott Leach challenged the way that Kleveland handled a trust, as trustee. His probate action spawned two prior appeals. In appeal 1, the court affirmed the trial court’s ruling that Leach’s petition to remove Kleveland as trustee was filed in bad faith, and for an improper purpose. In appeal 2, the court affirmed the trial court’s approval of an accounting and plan to distribute trust assets. Kleveland then sued Leach and his attorneys, Seigel & Wolensky, for malicious prosecution arising out of the prior probate litigation. The attorney defendants filed an anti-SLAPP action, which the trial court denied, finding that Kleveland was likely to prevail on the merits. The attorneys appealed the denial. The Court
of Appeal affirmed the denial, and sanctioned the attorneys for filing a frivolous appeal. The Court found that opening brief for the attorneys omitted critical facts – such as the prior finding that Leach’s probate action had been determined to have been filed in bad faith and for an improper purpose. The court found that the attorney defendants also misrepresented the record, and ignored established case law without explanation or justification. Because the appeal of the denial of the anti-SLAPP motion indisputably had no merit, and any reasonable attorney would agree that the appeal was “totally and completely without merit,” the court sanctioned the attorney defendants, ordering them to pay Kleveland’s attorney’s fees of $52,727, as well as a sanction to the court of $8,500. Civil Rights, Unruh Act, HIV status, discrimination: Maureen K v. Tuschka (2013) __ Cal.App.4th __ (2d Dist., Div. 6.) Plaintiff was HIV positive. Because she had experienced severe side effects, she had stopped taking her anti-retroviral medication, under the supervision of the doctor treating her for HIV condition. She needed treatment to repair an umbilical hernia. Minutes before surgery, the anesthesiologist noted that she was HIV positive and not taking anti-viral
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Appellate — continued from Previous Page medications. He refused to proceed with the surgery and plaintiff was turned away. She sued him for violating the Unruh Act, which prohibits discrimination against individuals with disabilities, including their HIV status. At trial, the court submitted the issue of whether the plaintiff was disabled for the purposes of the Unruh Act to the jury, which returned a verdict in favor of the anesthesiologist. Reversed. Under the statutory framework, people with HIV are considered disabled as a matter of law. There was no issue in this regard to present to the jury. The court explained, “No medical doctor should have liability for refusing to perform a procedure that he or she believes will harm the patient. That is not what happened here. Here, an HIV-positive patient was denied medically necessary surgery because an anesthesiologist unreasonably feared for his own safety and that of the operating room staff. That denial was based on her HIVpositive status and was a violation of the Unruh Civil Rights Act.” Jeffrey Isaac Ehrlich is the principal of the Ehrlich Law Firm, with offices in Encino and Claremont, California. He is a cum laude graduate of the Harvard Law School, a certified appellate specialist by the California Board of Legal Specialization, and a member of the CAALA Board of Governors. His practice emphasizes appellate support for the Southern California trial bar and insurance bad-faith litigation. He is the editor-in-chief of Advocate magazine and a contributing author of the Rutter Group’s Insurance Litigation practice guide.
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From the President Scott Cooper
Orange County Trial Lawyers Association
Join in the fight against MICRA Support “38 is too late” Last month, I mentioned that my attention had recently been drawn to anniversaries and milestones in light of the fact that OCTLA turned fifty this year. Perhaps predictably, another anniversary caught my eye this month: A 38th anniversary. Why would anyone focus on a 38th anniversary? After all, as momentous occasions go, 38 is about as meaningless as it gets. At 38, you’re usually just waiting for (or perhaps dreading) the big 4-0. So, what’s the deal with 38? Well, it turns out that this is year will mark the 38th anniversary of the passage of one of the most unfair laws in California history. Thirty-eight years ago – in 1975 – the California Legislature passed, and then-Governor Jerry Brown signed, the Medical Injury Compensation Reform act, or MICRA as we all know it. As just about everyone reading this magazine knows, MICRA, among other things, capped the amount of non-economic damages for medical malpractice cases at $250,000. In 1975, California’s minimum wage was $2, a gallon of gas cost 57 cents, and a first-class postage stamp would set you back only 10 cents. You don’t need to be an economist to know that the cost –the dollar value – of everything has risen dramatically with inflation since 1975. The value of everything, that is, except the value of human life as defined by California law. Adjusted just for inflation, that $250,000 in 1975 is the equivalent of approximately $1.08 million today. Yet, the MICRA cap remains $250,000. Why is that? While you can surmise how it might be politically difficult to abolish the cap entirely, surely any reasonable person would agree that the cap should at least keep up with inflation so that the law would mean the same today as when it was passed. Unfortunately, reason and logic sometimes do not carry the day in Sacramento. In order to prevent any modification of MICRA, the insurance
industry is using the same sort of scare tactics and unsupported rhetoric they used to pass it in 1975 and have been using ever since to thwart any attempts at repeal or reform. As was recently announced, however, “38 is too late.” On May 2, CAOC and other consumer rights, patient safety and health groups held a press conference announcing a push to reform MICRA this year. The coalition has set up a Web site: www.38istoolate.com, and a Facebook page: www.facebook.com/38IsTooLate. These sites contain persuasive factual data that (1) debunk the many pro-MICRA myths peddled over the years, and (2) provide powerful evidence of the inherent injustice of MICRA.
Perhaps more importantly, the Web sites contain stories and photos. These are the heartbreaking accounts and pictures of over 35 medical malpractice victims and their families who have been harmed by MICRA (more are being added regularly). Some have had jury verdicts overridden by this 1975 law that nullifies what 12 Californians think someone’s injury or life is worth. Many others cannot even get to a courthouse because attorneys cannot take these costly cases in light of the cap on the potential recovery. I’m sure many of you have had to give potential clients this terrible news, and the reaction is almost always the same, regardless of the person’s political persuasion – disbelief and then anger that such an unjust law is on the books. This universal reaction is why it is so important to get beyond the numbers and tell the stories of these victims. We need those who have not been victims of MICRA to understand the devastation it can cause and also to realize that it could happen to them or their family. Unfortunately, it sometimes takes a personal tragedy before people realize the inequity of the law and how it harms the most vulnerable among
us. Personal stories are one of the best ways to bring home this reality and get people past the misleading sound bites used by the other side. So, what can you do? Get involved in any way you can. At a minimum, if you’re on Facebook, you can “like” the 38 Is Too Late Facebook page. It takes less than 30 seconds, and people in the Capitol pay attention to this type of social media metric. (As of this writing, the page has over 7,100 likes.) There’s also a page on the 38 Is Too Late Web site where you can sign your name on a message to the Governor (www.38istoolate.com/act/). You can also point your friends, family and clients (current and former) to these pages and ask them to do the same. The politicians need to know that there’s a groundswell of support for this movement. Finally, if you know of a victim of malpractice who was also victimized by MICRA, send that person’s story and photo to J.G. Preston (email@example.com) and Eric Bailey (firstname.lastname@example.org) at CAOC so that it can be considered for the collection of stories that will hopefully turn the tide in this war that has dragged on far too long. Please get involved even if you don’t handle medical malpractice cases. You should do this, first, because it’s simply the right thing to do for a cause that is just. You should also do it because this fight is about more than just MICRA and med mal cases – it’s about the core of what you do as a trial lawyer. The opponents will use every dirty misrepresentation in their playbook, including (as we’ve already seen in the first attack ad after 38 Is Too Late was launched) – cartoons of trial lawyers as filthy, greedy pigs lining up at the money trough (literally). So, we’re fighting not just for the medical malpractice victims, but for our core beliefs and our continuing ability to do what is right in representing our clients. Now is the time. Thirty-eight is indeed too late. JUNE 2013
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Advertiser’s Index Contents Index Advertiser’s
ADR Providers Carrington, R.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . .100 Daniels, Jack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 DiCaro Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Fields ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 First Mediation Corp - Jeffrey Krivis . . . . . . . . . . . . . .66 Gage, Sandy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Graver, Darryl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Jossen, Sanford Law Office . . . . . . . . . . . . . . . . . . .102 Judicate West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Mehta, Steven G. Mediation . . . . . . . . . . . . . . . . . . .42 Pasadena Mediation Group . . . . . . . . . . . . . . . . . . . .97 PMA Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . .96 Announcements and Career Opportunities CAALA Membership . . . . . . . . . . . . . . . . . . . . . . . . . .71 CAALA PAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 CAALA Vegas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Jury Verdict Alert . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 Attorneys – Appeals Bader, Donna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 Ehrlich Law Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Steven B. Stevens . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Expert Witnesses – Medical Forensic Autopsy Services . . . . . . . . . . . . . . . . . . . . .95 Graboff, Dr. Steven . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Luckett, Karen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 Roughan & Associates at LINC, Inc. . . . . . . . . . . . . .37 Expert Witnesses - Technical & Damages Feldman, Phillip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Financial Services California Attorney Lending . . . . . . . . . . . . . . . . . . . .77 CPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 EPS Settlements Group . . . . . . . . . . . . . . . . . . . . . . . .26 Farber, Patrick (Struct. Settlemnts) . . .Inside Front Cover Fast Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Fund Capital America . . . . . . . . . . . . . . . . . . . . . . . . .27 Lawsuit Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 RD Legal Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Ringler & Associates – Michael Zea . . . . . . . . . . . .104 Summit Structured Settlements . . . . . . . . . . . . . . . . . .95 The James Street Group (Structured Settlements) . . .79
Graphics/Presentations/Video CVisualEvidence LLC . . . . . . . . . . . . . . . . . . . . . . . . . .31 Court Graphix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Executive Presentations . . . . . . . . . . . . . . . . . . . . . . . . .7 Attorneys - Accepting Referrals Bailey Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 High Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Banifsheh, Danesh & Javid, PC . . . . . . . . . . . . . . .22-23 Juris Productions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Bisnar | Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Verdict Videos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Bronstein, Peter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 VaheandVache.com . . . . . . . . . . . . . . . . . . . . . . . . . .21 Cheong Denove Rowell Bennett & Karns . . . . . . . . . .65 Cook, David . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82-83 Insurance Programs Dordick Law Offices . . . . . . . . . . . . . . . . . . . . . . .54-55 Lawyers Mutual Insurance Company . . . . . . . . . . . . .51 Edzant, Barry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Lawyer’s Pacific Insurance . . . . . . . . . . . . . . . . . . . . .15 Engstrom, Lipscomb & Lack . . . . . . . . . . . . . . . . . . . .29 Narver Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Galipo, Dale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Girardi | Keese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Investigators Greene Broillet & Wheeler . . . . . . . . . . . . . . . . . . . . . .1 Hudson Investigations . . . . . . . . . . . . . . . . . . . . . . . . .52 Hodes Milman Liebeck Mosier . . . . . . . . . . . . . . . . .38 Shoreline Investigations . . . . . . . . . . . . . . . . . . . . . .101 Kesluk & Silverstein . . . . . . . . . . . . . . . . . . . . . . . . . . .78 Tristar Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Law Offices of Lisa Maki . . . . . . . . . . . . . . . . . . . . . .45 Makarem & Associates . . . . . . . . . . . . . . . . . . . . . . . .25 Legal Nurse Consultants McNicholas & McNicholas . . . . . . . . . . . . . . . . . . . . .9 Cross, Kathy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87 Metzger Law Group . . . . . . . . . . . . . . . . . . . . . . . . . .57 Michels & Watkins . . . . . . . . . . . . . . .Inside Back Cover Legal Research Nemecek & Cole . . . . . . . . . . . . . . . . . . . . . . . . . . . .64 Quo Jure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94 Panish Shea & Boyle . . . . . . . . . . . . . . . . . .Back Cover Richard Harris Law Firm . . . . . . . . . . . . . . . . . . . . . . . .4 Legal Support Services Rizio & Nelson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 4 Corners Deposition Summaries . . . . . . . . . . . . . . . . .8 Shernoff Bidart Echeverria Bentley LLP . . . . . . . . . . . .19 USA Express Legal & Investigative Services . . . . . . .93 Shook & Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Taylor & Ring, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Medical & Dental Service Providers The Traut Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Buena Vista Pharmacy . . . . . . . . . . . . . . . . . . . . . . . .49 Vartazarian Law Firm . . . . . . . . . . . . . . . . . . . . . . . . .28 Doctors on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Glendale Surgery Center . . . . . . . . . . . . . . . . . . . . . .43 Injury Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Court Reporters Atkinson Baker Court Reporting . . . . . . . . . . . . . . . . .46 Landmark Imaging . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Kusar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Massihi, Allen, DPM . . . . . . . . . . . . . . . . . . . . . . . . . .16 Personal Court Reporters . . . . . . . . . . . . . . . . . . . . . .94 North Valley Eye Medical Group . . . . . . . . . . . . . .101 Parehjan & Vartzar Chiropractic, Inc. . . . . . . . . . . . .34 Power Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Defense Medical Exam Observation Advantage Representatives . . . . . . . . . . . . . . . . . . .100 Haiby, Michael . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Organizations PRIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 CAOC – PAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
106 — The Advocate Magazine
ASSOCIATION OF LOS ANGELES
Consumer Attorneys Association of LA CAALA 800 West Sixth Street,#700 Consumer Attorneys A L A Los Angeles, CA 90017 CAALA (213) 487-1212 Consumer Attorneys www.caala.org A L A SSOCIATION OF
July 10, 2013 Trying Cases Under the New Court Consolidation Plan 6:00pm - 8:15pm CAALA Conference Center Downtown Los Angeles
August 29, 2013 - September 1, 2013 CAALA Vegas Convention The Wynn Las Vegas Board & Committee Meetings Executive Committee – CAALA Offices Downtown Los Angeles, 6:00pm June 6, July 11, Aug 1 Board of Governors – CAALA Offices Downtown Los Angeles, 6:00pm June 20, July 18 Education Committee – CAALA Offices Downtown Los Angeles, 5:00pm June 20, July 18 New Lawyers Committee - CAALA Offices Downtown Los Angeles, 6:00pm June 18, July 16 Orange County Trial Lawyers Assn. 25602 Alicia Parkway, #403 Laguna Hills, CA 92653 (949) 916-9577 www.octla.org June 27, 2013 Confidential Settlements 6:00 - 8:00pm Tustin Ranch Golf Club 12442 Tustin Ranch Road Tustin July 25, 2013 How to spot a potential cross-over in your PI case 6:00 - 8:00pm Tustin Ranch Golf Club 12442 Tustin Ranch Road, Tustin September 8, 2013 Bench v. Bar Softball Game & Picnic Game Time 11:00am Picnic Lunch 12:30 -2:00pm Grant Howald Field & Park 3000 Fifth Avenue Corona Del Mar
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CAALA Resource Center
CAALA Webinar Library – Resources FREE for Members
The Consumer Attorneys Association of Los Angeles was pleased to offer several FREE educational webinars this year. If you missed them, they are now available On-Demand at your convenience 24/7 for FREE as well. Please visit the Legal Education Center on the CAALA Web site and click on the “On-Demand Programs” tab; then browse for these free program titles under the “Event Date” tab:
April 10, 2013 Looking Over Your Shoulder: Common Injuries, Treatment Options and Effective Claim Handling • Anatomical Examination of the Shoulder: Bones to Muscles and Tendons • Congenital and Developmental Conditions that Affect the Shoulder Joint and its Function • Fractures and Dislocations: Humerus, Scapula, Glenoid, Coracoid, February 13, 2013 Acromion and Clavicle How to Use PowerPoint – Advice from Bruce Broillet • Understanding Changes: New Injuries and Exacerbations of Existing The program will focus on taking advantage of PowerPoint and effec- Conditions tively utilizing it during openings, closings, and during examination of • Treatment Choices: Conservative and Medical to Radical and witnesses. It will cover dangers and pitfalls that occur with Reconstructive Surgery PowerPoint, getting certain PowerPoint™ presentations admitted into • Results: Common Positive and Negative Prognostic Indicators for the evidence, recovering costs associated with creating presentations, and Near and Long Term some of the technology used to easily and cost effectively integrate deposition testimony and other video into a PowerPoint presentation. May 22, 2013 Using iPads for Trial Presentations March 13, 2013 • Essential Accessories: Cases, Keyboards, Stylus, VGA connector, ChargeCard, Apple TV Business for New Lawyers • Starting Your Practice: Naming your firm; organizing your firm; estab- • Remote Access to Your Computer: Applications, LogMeIn, Benefits and lishing your office; renting office space; office furniture and equipment Drawbacks • Finances: Choosing a bank; General account; Client Trust Account; • Applications for Lawyers: Note-taking, Creating and Editing Documents, PDFs, Dropbox, Find my iPhone, Dictating, Scanner, Research and Legal Accounting software; Outside financial services; Business loans • Budgeting: Establishing a budget; setting reasonable goals; monthly Reference Materials • Trial Applications: TranscriptPad, TrialPad, iJury, Jury Star, Jury Tracker, and annual reviews; meeting with your CPA Exhibits • Insurance: Property; General Liability; Professional Liability • Office Automation: Computer systems; phones; copiers, printers, • Books and Resources Regarding iPads and Applications and more; essential software; case organizing tools, e.g., Case Map • Tricks: Multi-Task Bar, Keyboard • Professional Outside Services: Online legal research services; deposition reporting services; court reporting services; attorney services; copying services; medical records retrieval New CAALA Affiliate Vendors Our Affiliate Vendors are an excellent resource to help improve your practice. They provide goods or services specifically for plaintiff trial lawyers. Please support our Affiliate Vendors by contacting them for your business needs and projects.
Downtown Physical Therapy & Pilates Studio 626 Wilshire Blvd., Ste. 460 Los Angeles, CA 90017 (213) 689-1679 Contact: Ann Bass E-mail: email@example.com Web site: downtownpt.com
LawCash 245 Main Street, Suite 313 Venice, CA 90291 (718) 875-0605 Contact: Jonathan Mitzman E-mail: firstname.lastname@example.org Web site: lawcash.net
Glen-Park 24/7 Home Care 1220 S. Mariposa Street Glendale, CA 91205 (818) 844-0775 Contact: Paola Mata E-mail: email@example.com Web site: glenpark247homecare.com
Lifeforce Sportsmedicine Chiropractic, Inc 78435 Singing Palms Drive La Quinta, CA 92253 (310) 592-5479 Contact: Jon D. Franks E-mail: firstname.lastname@example.org
Marrick Medical Finance P.O. Box 461061 Denver, CO 80246 (303) 981-5463 Contact: Natalie Little Email: email@example.com Web site: marrickmedical.com
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From the President Lisa Maki
Consumer Attorneys Association of Los Angeles
A message for pet and animal lovers Sharing your stories about special pets Sweet or Savory? Potato or Potatoe? Nature vs. Nurture? Dog Person or Cat Person? Sitting Bull stated, “[i]t is through this mysterious power that we too have our being, and we therefore yield to our neighbors, even to our animal neighbors, the same right as ourselves to inhabit this vast land.” Let’s add a little more confusion to the discussion: “In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effective have prevailed.” Charles Darwin said that. If you want a friend, get a dog, she says, quoting Gordon Gekko. Or a cat or any living non-human creature for that matter, and love it to death. Even if you are a trial attorney, because most of them I know have, love and help animals. As trial attorneys, we are constantly under a tremendous amount of stress and anxiety. By nature, it’s an adversarial profession. We all need a way to relax and be comforted at the end of the day. It’s amazing how many CAALA members have shared stories with me about how much their pets have given them that comfort. To me, pets are magical. They can add so much to your life.
Getting through the hard times
This column is for all the pet and animal lovers out there in our CAALA community. I’ve been a huge animal lover since I was a child and wanted to share some of my favorite stories about how these special animals helped me get through some of the most challenging times in my life. “One day, I was sitting on a log,” I told my parents when I was five-years old, “and this little cat came up to me, and I brought her home.” This began a series of many four- and two-legged animal family members. I am owned by two cats, four large dogs, two rabbits and 12 chickens (I think four are roosters). I will not name them all, but would like to note a few: Scooper Bar Jay the most incredible Quarter Horse in the world, and my best friend; Timu, my Labrador who got me
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through a divorce and into a new life; Nibble, my hamster that was paralyzed by my sister’s hamster, Fat Apricot, during a fight. (That taught me that life was not fair. He died in a shoe box on top of the refrigerator when I was at piano lessons with Mrs. Gerber. That was also not fair.); Grey Foot was a rabbit killed by the neighbor’s dog. (My sister and I never spoke to them again.); Levon, the goose my sister brought home for the summer that used to wake my mom and dad and everyone else when I would try to sneak in late at home during high school. Grrr.
A tale of two cats
Two more true cat stories: During law school, I told my boyfriend as we sat in our little guest house that I really wanted a tabby kitten, and I’d name it Ira because that was my favorite name. Two minutes later a small tabby kitten appeared at our back door, a stray of course which I named Ira, but really? Yes, really. Ira got cancer. When I was supposed to be studying for the bar, I was taking him back and forth to the vet. He died. He was one of the best cats I’ve ever had. A few months later I visited my sister who worked at a vet clinic. They had blood donor cats there. One of them was white and had spots that made him look like a cow. So I went home to my boyfriend in the little guest house and started talking about how I really wanted to get Cow, the cat, and that I was ready after Ira, and if I could only have him. The next day, I opened the guest house door and saw a flash of white. Hmmm. I got home from bar review and saw it again and realized it was a small cat. I put some turkey out on the porch. The next day the turkey was gone. I did this again the next day and again the food was gone. In a day or so, he let me pet him. It was a kitten version of Cow the cat that I met at my sister’s work. I slowly tamed him. He started coming up the steps, day by day. He finally let me touch him a little. He then started to peek his little head in the door to the guest house, and I would leave it open during
the day. Cow became part of my family, and one of the best cats in the world. He was fierce and could climb chain link fences and hide from the owls and hawks and coyotes in Malibu. I loved him. Cow got super fat in a healthy way and snuggly. He got me through the bar and starting a business. Eventually we had to move to another place. I didn’t want to live where we ended up, but that’s another story. My sister visited, and I decided to finally get some “adult” furniture for the new place. We left but I couldn’t find Cow to bring him in. We looked around and around. Oh well, we decided, I left him out sometimes. Driving down the street I saw some shiny colorful rocks on top of a black plastic garbage bag. I stopped the car. My sister and I got out and we walked over. There was a note on top that said, “Here lies the most majestic cat I’ve ever seen.” It was Cow. He had been literally ripped in half, running from the coyotes, eyes open. Some incredible spirit I never met covered him up with dignity and grace.
We lost Peter yesterday. He was a tiny bunny – one of the two rabbits mentioned above. He was a little deformed, never able to eat enough despite hand feedings every four hours by myself and friends and my wonderful neighbors. He only weighed a little over a pound. He was loved. I cried and thought about the prince and the fox in The Little Prince by Antoine de Saint-Exupéry: “Goodbye,” he said. “Goodbye,” said the fox. “And now here is my secret, a very simple secret: It is only with the heart that one can see rightly; what is essential is invisible to the eye.” Thank you, Peter. If you are lucky enough to have a pet that gives you the unconditional love, comfort and support we all need, please share a photo with us. E-mail your pet photos to Cindy Cantu (owned by Gigi the tuxedo cat): firstname.lastname@example.org. We plan to create a “Pet Corner” page on the CAALA Web site.
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