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

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Employee's Personal Automobile Insurance Policy Does Not Cover "Non-Owned" Employer-Supplied Van

Javier Medina v. GEICO Indemnity Co.
(Ct. App. 5th Dist.), filed February 8, 2017

Leigh Anne Flores worked for Pacific Bell Telephone Company. She was given a van to use for work to transport company equipment and tools, as she was not permitted to use her own vehicle to do the transport. While Flores was working, she would drive her personal car to the Pacific Bell office, where she would pick-up the van to use for her workday. Flores did not take the van home overnight. Pacific Bell did not place any restrictions on Flores’ use of the van. On one occasion, while Flores was out of town for work, she drove the van to meet her daughter. On her way to meet her daughter, she got in a car accident and injured Javier Medina. Flores had a couple of glasses of wine over lunch that day and was allegedly intoxicated at the time of the accident. Medina sued Flores and Pacific Bell for his damages. The trial court found that Pacific Bell (who self-insured the van) was not vicariously liable for Flores’ actions because Flores was not acting in the course and scope of her employment when the accident occurred. Since Flores, however, was a permissive user of the van, Pacific Bell was liable for the $15,000 statutory limit. The parties later arbitrated the matter, and the arbitrator awarded Medina over half a million dollars in damages. Flores had a personal car insured through GEICO Indemnity Company. The GEICO policy covered “non-owned” vehicles “but not if the non-owned vehicle was ‘furnished for [her] regular use.’” GEICO refused to defend or indemnity Flores. Flores then assigned her rights against GEICO to Medina in exchange for a covenant not to execute. Medina then sued GEICO for breach of contract, bad faith, and declaratory relief. GEICO moved for summary judgment, arguing that there was no coverage under the policy because the van was given to Flores for her regular use. The trial court granted GEICO’s motion, finding no coverage as a non-owned auto since Flores had nearly unlimited use of the van. Medina appealed. He argued that the van was primarily furnished for Flores’ business use and at the time of the accident, she was on a personal errand. Medina argued that “the elements to consider in determining whether a car was furnished for regular use include time, place and manner of use, purpose or type of use, and restrictions on use. Primarily, the issue presents a question of fact which requires an interpretation of the language of the policy to the facts involved.” In turn, GEICO argued that Flores’ use of the van was “regular use” because she could use the van for whatever purpose she wanted. The Court of Appeal found that the “undisputed facts show Flores had the keys to the van, which was assigned to her exclusively, and she was authorized to use it for both business and personal purposes.” It held that the GEICO policy did not afford coverage for Medina’s injuries and therefore, the trial court properly granted GEICO’s summary judgment motion.

Policy Limits Not Open If An Insurer Unintentionally Fails To Accept A Settlement Offer Within Limits
Amy McDaniel v. Government Employees Insurance Company
(U.S. Ct. App. 9th Cir.), filed March 7, 2017

Amy McDaniel filed a wrongful death suit against Edward Murotani. GEICO insured Murotani. On August 7, 2009, McDaniel’s attorney extended a $100,000 policy limits settlement offer with a fifteen-day acceptance window. The parties agreed to extend the deadline to 10 days following the hand-delivery of responses to outstanding interrogatories. Responses were served. On September 1, 2009, GEICO’s attorney emailed the adjuster, noting that the response was due on or before September 11, 2009. E-mails and notes showed that the adjuster did not read the e-mail or attached demand, and did not know that the discovery responses had been served. So, when the adjuster tried to accept the offer on October 1, 2009, he did not know that the deadline for acceptance had already passed. The case went to trial, and a jury awarded McDaniel over $3 million dollars in damages against Murotani. Murotani assigned his rights against GEICO to McDaniel. McDaniel sued GIECO for breaching its implied duty to settle. A breach of the implied duty to settle has two elements: (1) the third party must have “made a reasonable offer to settle the claims against the insured for an amount within the policy limits;” and (2) the “insurer must have unreasonably failed to accept an otherwise reasonable offer within the time specified by the third party for acceptance.” The Ninth Circuit recognized that “when there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing of the claim is a settlement which can be made within those limits, a consideration in good faith of the insured’s interest requires the insurer to settle the claim.” It also warned that mere “errors by insurer in discharging its obligations to its insured does not necessarily make the insurer liable in tort for violating the covenant of good faith and fair dealing; to be liable in tort, the insurer’s conduct must also have been unreasonable.” Given this principle, “there is still room for an honest, innocent mistake.” However, a reasonable mistake can “trigger liability” where “an insurer rejects a settlement offer as a result of an erroneous belief as to the insured’s coverage under the insurance policy.” Accordingly, the Ninth Circuit found that GEICO was entitled to summary judgment because “no reasonable jury could conclude that GEICO unreasonably refused to settle.” It noted that “GEICO’s failure to accept McDaniel’s policy limits settlement offer” was “caused by negligence” since there was an absence of evidence that “GEICO intentionally allowed the September 6, 2009 deadline to lapse.” Therefore, the failure to accept the offer was not a “calculated gamble on which only its insured could lose.” The Ninth Circuit emphasized that “the implied duty to settle cannot be breached based on an insurer’s failure to ‘initiate settlement discussions, or offer its policy limits, as soon as an insured’s liability in excess of policy limits has become clear.’” Therefore, the Court concluded that GEICO was entitled to summary judgment on McDaniel’s breach of the implied duty to settle claim, “as no reasonable jury could conclude that GEICO ‘unreasonably failed to accept’ McDaniel’s settlement offer.” This case involved a policyholder who was fully protected, presumably having received a covenant-not-to-execute in return for an assignment of rights. Whether the unpublished decision would be the same in a case where the insurer’s negligence exposed the insured to financial ruin remains to be seen.

Automobile Service Advisors Do Not Fall Within Overtime Compensation Exemption Requirements
Navarro v. Encino Motorcars, LLC
(U.S. Ct. App. 9th Cir.), filed on January 9, 2017

Encino Motorcars sells and services Mercedes-Benz automobiles. Hector Navarro and four others worked as “service advisors” who were charged with greeting customers, listening to customer concerns, evaluating repair and maintenance needs, suggesting services, writing up estimates, and following up with customers. Navarro and others sued Encino Motorcars for failing to pay them overtime wages. The district court dismissed the claim. The Ninth Circuit reversed. The Fair Labor Standards Amendment exempted the following from the overtime-compensation requirement: (A) any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers; or (B) any salesman primarily engaged in selling trailers, boats, or aircraft, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling trailers, boats, or aircraft to ultimate purchasers. Later, the Department of Labor issued an opinion that service advisors were not exempt. After reviewing the plain language, legislative history, and the construction of the FLSA exemptions, the Ninth Circuit held: “First, we conclude that, under the most natural reading of the statute, Congress did not intend to exempt service advisors. Second, even if the text were ambiguous, the legislative history confirms that Congress intended to exempt only salesmen selling cars, partsmen servicing cars, and mechanics servicing cars. Congress did not intend to exempt service advisors.”


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In Our Community

Summary Judgment Affirmed Where Insurer Cancelled Policy Before Accident Occured
Mills v. AAA Northern California, Nevada, and Utah Insurance Exchange
(Ct. App., 3rd Dist.), filed on September 20, 2016

Misunderstanding Of Court-Ordered Restitution Clause Results in Bad Faith and Refusal to Settle
Barickman v. Mercury Casualty Co.
(Ct. App., 2d. Dist. Div. 7), filed on July 25, 2016
Our Dedicated Key Decisions Team! 

Roberta Winston
San Diego

Ann Johnston
S. F. Bay Area

David Ezra
Orange County
Orange County
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