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The most important court decisions of the Summer

Spring 2019

Arbitration Agreements May Apply Retroactively To Lawsuits Already Initiated


Salgado v. Carrows Restaurants, Inc.
(Cal. App. 2d Dist.), filed February 26, 2019

In early December 2016, Maureen Salgado signed an arbitration agreement with her employer, a Ventura Carrows restaurant. At the time, Carrows was not aware that Salgado had already initiated a lawsuit against it in November 2016, alleging discrimination and civil rights violations. Carrows filed a motion to compel arbitration. Salgado claimed that the agreement was not retroactive, relying on the language: “we will utilize the binding arbitration as the sole and exclusive means to resolve all disputes which may arise out of or be related in any way to my application for employment and or employment . . . .” Salgado argued the “may arise out of” only applied to future claims or disputes -- not lawsuits already initiated. The trial court agreed and denied Carrows’ motion. Carrows appealed. It argued that the agreement’s use of “or” after the “may arise out of” language expanded the agreement to include all disputes related to the signee’s employment. Carrows also emphasized that the agreement explicitly mandated arbitration for “any claim, dispute, and/or controversy” against her employer. The Court agreed, holding that the arbitration agreement applied retroactively to Salgado’s lawsuit.



 
 

Judgment Creditors May Recover On Judgments Secured Against The Insured In Actions “Based Upon Property Damage”

 
Insurance Co. of the State of Pennsylvania v. American Safety Indemnity Co.
(Cal. App. 2d Dist.), filed March 1, 2019

Insurance Company of the State of Pennsylvania (“ICSOP”) was the excess liability insurer for a home developer. A husband and wife bought one of the homes from the developer. American Safety Indemnity Company was the commercial general liability insurer for the subcontractor the developer hired to compact the soil on the property. When the homeowners noticed cracks in the walls and tiles on their property, they initiated an arbitration against the developer. The homeowners were awarded damages for the diminution in value upward of $1.1 million caused by the improper soil compaction. The developer was fully indemnified by its insurer and obtained a default judgment against the subcontractor. ICSOP sued subcontractor’s insurer American Safety to recover for the judgment. The trial court granted summary judgment for ICSOP, holding that the default judgment was recoverable. On appeal, the Court rejected American Safety’s argument that the default judgment was an award for “economic loss for diminution in property value,” rather than property damage, and therefore, not recoverable. The Court reasoned that the subcontractor’s faulty work had caused structural damage to the property. That was “property damage” -- even if it was valued in terms of the property’s reduced value. The actual damage was covered as property damage as the subcontractor’s insurance policy’s defined.



 

Indemnity Agreements Can Create Defense Obligations Similar To Liability Insurance Policies

 
Centex Homes v. R-Help Construction Co., Inc.
(Cal. App. 2d Dist.), filed March 11, 2019

Centex Homes contracted with R-Help Construction Company to install and inspect all utility boxes for a residential construction project in Thousand Oaks. The contract required R-Help to defend and indemnify Centex for all claims which in whole or in part arise out of or relate to R-Help’s work. The contract also required R-Help to obtain insurance for the contract. After a man fell on an unstable utility box, Centex and R-Help were named as defendants in a personal injury case. Southern California Edison was also sued for negligent management, maintenance, and inspection of the utility box. The injured party argued that R-Help, acting as Centex’s agent, and Centex were jointly and severally liable for his injuries. Centex filed a cross-complaint against R-Help for breach of contract, indemnity, and declaratory relief. Centex argued that the injured party’s allegation that the utility box was within the scope of work R-Help performed for it is alone sufficient to require R-Help to defend. Centex alleged R-Help breached its contract by failing to provide the required insurance. On the other hand, R-Help argued the utility box installation was not within its scope of work. The trial court found that R-Help was not obligated to defend Centex. On appeal, the court agreed with Centex -- finding a duty to defend. It held that installation was allegedly within the scope of R-Help’s work. Since there was an underlying tort action and a broad indemnity agreement, the Court applied the Crawford rule. It held that the duty to defend arose from the mere allegation in the underlying tort action that plaintiff’s injuries arose out of R-Help’s work, regardless of whether that allegation is ultimately established as meritorious. The Court rejected R-Help’s arguments that the indemnification agreement was adhesive and unconscionable.



 

Continued Employment May Constitute Acceptance Of Arbitration Agreement


Diaz v. Sohnen Enterprises
(Cal. App. 2d Dist.), filed April 10, 2019

Erika Diaz and other Sohnen Enterprises employees attended a meeting where the company advised it was adopting a new arbitration agreement. Sohnen articulated several times that even if an employee refused to sign the agreement, continued employment would be considered acceptance of the new agreement. A few weeks later, Diaz sued Sohnen for discrimination. In serving the complaint, Diaz included a letter indicating that she would not sign the arbitration agreement. But since Diaz continued her employment, Sohnen filed a motion to compel arbitration. The district court denied the motion, characterizing the arbitration agreement as “take-it-or-leave-it.” Sohnen appealed. The Court ruled it was Sohnen’s burden, as the party requesting arbitration, to prove a mutual agreement. The Court held Sohnen met this burden, through the agreement itself and also because it specifically advised Diaz her continued employment would constitute acceptance of the arbitration agreement.

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