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The most important court decisions of the month
Welcome to Berger Kahn's monthly e-publication summarizing the most important California state and federal court decisions.

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No Insurance Benefits Owed To Lender After Full Credit Bid
Najah v. Scottsdale Insurance Company
(Ct. of App. 2d Dist.), filed September 30, 2014

Jamshid Najah and Mark Akhavain sold a commercial property to Ronald Shade and Orange Crest Realty Corporation pursuant to a promissory note secured with a second trust deed. The promissory note required that there would be “no remodeling or construction to the property” until the notes were paid in full. Shade and Orange Crest defaulted and the first trust deed holder foreclosed on the property. Orange Crest had a commercial general liability policy with Scottsdale Insurance, which protected the property against “vandalism.” Najah and Akhavain discovered severe damage and vandalism. Najah and Akhavain took an assignment of the first trust deed, then started foreclosure proceedings and eventually reacquired the property with a full credit bid. They made a claim to Scottsdale Insurance for pre-foreclosure damage. The Court held that a lienholder who acquired the property through a full credit bid (a bid equal to the unpaid debt) was “precluded for purposes of collecting its debt from later claiming that the property was actually worth less than the bid.” The Court also noted that “[b]ecause a mortgage debt is extinguished by a full credit bid, it is well established that a mortgagee who purchases an encumbered property at a foreclosure sale by making a full credit bid is not entitled to insurance proceeds payable for pre-foreclosure damage to the property.” In affirming the absence of coverage, the Court emphasized that full credit bids dissuaded other potential purchasers from trying to acquire the property.

Employee May Sue Department Of Insurance For Failing To Properly Review Disability Policy
Ellena v. Department of Insurance
(Ct. of App. 1st Dist.), filed October 1, 2014

Cassaundra Ellena filed a complaint against the Standard Insurance Company, Stancrop Financial Group, and the Department of Insurance (“DOI”) alleging that Standard failed to provide her disability benefits after she was diagnosed with lupus. Ellena alleged that the policy’s definition of disability was deceptive and violated California law since it allegedly required that Ellena must be “unable to perform ‘all occupations’” before she would qualify for benefits. Ellena argued that the proper total disability definition was one the DOI approved in a settlement agreement -- “a disability that renders one unable to perform with reasonable continuity the substantial and material acts necessary to pursue his or her usual occupation in the usual and customary way.” Ellena sought a writ of mandate to force the DOI to withdraw its approval of the disability definition. The trial court sustained the DOI’s demurrer without leave to amend. On appeal, the Court rejected the DOI’s argument that the petition was moot and held that the appeal was critical in “determining the proper oversight role of the commissioner and to deciding whether the DOI’s interpretation of the Insurance Code” was proper. The Court emphasized that the “commissioner has a mandatory duty to review all new policy forms that it approves for distribution.” Therefore, the commissioner was required to review the disability form prior to approving the policy and the trial court erred in finding that “Ellena failed to state a claim for mandamus against the DOI." 

One-Year Statute Of Limitations Applies To Intentional Torts Related To Doctor’s Professional Services
Larson v. UHS of Rancho Springs, Inc.
(Ct. of App. 4th Dist.), filed September 3, 2014

Wayne Larson first filed a complaint for medical negligence, professional negligence, battery and intentional infliction of emotional distress against the hospital and Dr. Richard Shuman, claiming that Shuman allegedly grabbed and twisted Larson’s arm, pried open his mouth, and lifted, pulled, pushed his face and head before his kidney stone surgery. Larson later amended his complaint to remove the negligence claims and removed any reference to the medical procedures he underwent. Larson claimed that everything happened “before his surgery.” The trial court sustained Shuman and UHS’ demurrers with leave to amend, holding that Larson “failed to allege sufficient facts to show he did not consent to Shuman’s conduct because the alleged injuries occurred as Shuman provided medical care.” Larson voluntarily dismissed his complaint without prejudice. Larson later filed another action limited to only the battery and intentional infliction of emotional distress causes of action and omitted that Shuman was the anesthesiologist on Larson’s surgery. UHS and Shuman demurrered, asking the court to take judicial notice of Larson’s prior complaints. The court sustained the demurrers without leave to amend because the complaint was untimely. On appeal, Larson argued that his claim should be subject to the two-year statute of limitations period. But the Court found that Larson was bound to the factual allegations in his earlier complaints. Therefore, because Larson alleged that Dr. Shuman’s conduct occurred while performing a pre-operative check-up and administering anesthesia, they were related to Dr. Shuman providing professional services and were subject to the professional negligence one-year statute of limitations.


Employer’s Liability Insurer Has No Duty To Defend Massage Therapist Accused Of Sexual Assault
Baek v. Continental Casualty Co.
(Ct. of App. 2nd Dist.), filed October 6, 2014

Heaven Massage and Wellness Center (“HMWC”) massage therapist Luiz Baek was accused of sexually assaulting a client during a massage. The client alleged that during a massage, Baek “touched, fondled, rubbed, grabbed and squeezed [her] breasts, buttocks, inner thighs and genitals” all while making inappropriate noises of “sexual pleasure.” Baek alleged that HMWC’s insurer Continental Casualty Company had a duty to defend and indemnify him under the policy. Continental denied the claim because the professional services exclusion applied and excluded bodily injury “caused by the rendering or failure to render professional service.” Continental demurrered, and the trial court sustained the demurrer, finding that Continental did not owe Baek a defense under the policy. On appeal, the Court first rejected Continental’s argument that Baek was not an insured under the policy. But, the Court held that although HMWC’s business “created the opportunity for the sexual assault,” the “assault was not done at HMWC’s request or for its benefit.” Therefore, the assault could not have occurred “within the scope of [Baek]’s employment” or “while performing duties related to HMWC’s business.” Ultimately, the Court upheld the trial court’s dismissal of the case.

Employer Not Liable For Negligent Driving Where The Employee’s Use Of His Car Did Not Benefit The Employer
Lobo v. Tamco
(Ct. of App. 4th Dist.), filed September 10, 2014

San Bernardino County deputy sheriff Daniel Lobo was killed when Tamco employee Luis Del Rosario left Tamco’s premises for the day and crashed into Deputy Lobo’s motorcycle. The jury found that Del Rosario had not been acting in the course and scope of his employment at the time of the accident and entered a judgment in Tamco’s favor. On appeal, the Court noted that the going and coming rule held that employers were generally exempt from “liability for tortious acts committed by employees while on their way to and from work because employees are said to be outside of the course and scope of employment during their daily commute.” The Court also noted that a “well-known exception to the going-and-coming rule arises where the use of the car gives some incidental benefit to the employer.” Trial testimony confirmed that Del Rosario sometimes used his personal vehicle for client visits. But the Court stated that “the benefit Tamco derived was too incidental to warrant application of the doctrine of vicarious liability” and affirmed the trial court’s judgment.

Employment Arbitration Agreement Does Not Include Class Arbitration
Network Capital Funding v. Papke
(Ct. of App. 4th Dist.), filed October 9, 2014

Erik Papke signed an arbitration agreement with Network Capital that required that Papke “utilize binding arbitration to resolve all disputes that may arise out of or be related to [his] employment in any way.” Papke served a demand for class arbitration on Network Capital on his behalf and on behalf of similarly situated Network Capital current and former employees for wage and hour and unfair competition law claims. Network Capital responded that the agreement did not authorize class arbitration and insisted that the trial court -- and not the arbitrator -- resolve the issue. On the other hand, Papke argued that the agreement’s broad language required an arbitrator to make the determination. The trial court held that the agreement only addressed Papke’s personal claims, but did not address class members. On appeal, the Court emphasized that since that the “Agreement’s express terms do not mention class arbitration nor do they submit arbitrability questions to the arbitrator for resolution,” the trial court properly determined that it was to decide class arbitration questions. To allow the arbitrator to decide this issue “threatens the consensual nature of arbitration and the rule that parties may be compelled to arbitrate only those issues they agreed to arbitrate.” Ultimately, the Court decided that the agreement was silent as to class arbitration and since Papke failed to present any extrinsic evidence that the parties intended to agree to class arbitration, the trial court “properly determined that the Arbitration Agreement did not authorize class arbitration.”  



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Orange County

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S. F. Bay Area

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