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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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Intentional Tree Trimming Excluded From Coverage
Albert v. Mid-Century Insurance Company
(Ct. App., 2d Dist., Div. 8), filed April 28, 2015

Shelly Albert sued Mid-Century Insurance Company for bad faith after Mid-Century refused to defend her in a lawsuit brought by her neighbor, Henri Baccouche. Baccouche alleged that Albert damaged his property when she built an encroaching fence and pruned nine olive trees on Baccouche’s property. Albert believed the fence was on her property. She also thought that the olive trees were on her property. In fact, she had trimmed the trees year after year without any complaint from Baccouche. Mid-Century declined Albert’s defense because the lawsuit did not involve an accident or “occurrence.” Mid-Century and Albert filed cross summary judgment motions. The conduct giving rise to the claims was intentional. The trial court granted Mid-Century’s summary judgment motion. The Court of Appeal affirmed. The Court emphasized that in the coverage context, “accident” referred to “the conduct of the insured for which liability is sought to be imposed on the insured.” Since Albert admitted that she hired a contractor to trim the trees, and there were no facts suggesting “some unforeseen accident (such as the slip of the chainsaw) caused the damage to the trees,” there was no accident. Therefore, summary judgment was proper.

Stress Caused By Supervisor Is Not A Disability Under FEHA
Higgins-Williams v. Sutter Medical Foundation
(Ct. App., 3rd Dist.), filed May 26, 2015

Michaelin Higgins-Williams worked as a clinical assistant for Sutter Medical Foundation’s Shared Service Department. Higgins-Williams was diagnosed with adjustment disorder and anxiety after she expressed stress from interactions with human resources and her manager. She went on stress-related disability leave. When she returned, she received negative performance evaluations and believed she was being singled out. After alleging her manager grabbed her arm and yelled at her, Higgins-Williams went out on disability leave for a second time. Higgins-Williams later asked to return to work with light duty. Sutter asked that Higgins-Williams provide information confirming that she would be able to return to her prior position following her leave, noting that the information to date had not supported the conclusion that her leave would help her return to her position. In response, Higgins-Williams’ doctor said she would not be able to return to work and requested an additional leave. Sutter terminated Higgins-Williams. Higgins-Williams filed a lawsuit, claiming that Sutter had discriminated against her for her disability and failed to prevent the discrimination. The trial court granted Sutter’s summary judgment motion. The Court of Appeal affirmed, emphasizing that an “employee’s inability to work under a particular supervisor because of anxiety and stress related to the supervisor’s standard oversight of the employee’s job performance does not constitute a disability under FEHA.” The Court also found that Sutter had a legitimate reason for terminating Higgins-Williams. Higgins-Williams produced e-mails from Sutter’s in-house disability coordinator first commenting that Higgins-Williams’ disability could be fraudulent and then another e-mail stating that Higgins-Williams did not need to take a longer stress-related leave than the coordinator. But the Court held that this evidence was purely speculative and not enough to raise an issue of fact.

Defense Costs Allocation Premature When Insured’s Potential Liability Is Unknown
Centex Homes v. St. Paul Fire and Marine Insurance Company
(Ct. App., 4th Dist., Div. 2), filed May 22, 2015

Corona homeowners sued Centex Homes for construction defect claims. St. Paul Fire & Marine Insurance Company and St. Paul Mercury Insurance Company (“Travelers”) insured one of the subcontractors, Oak Leaf Landscape. Centex was an additional insured on Oak Leaf’s Travelers’ policy. Centex tendered its defense to Travelers. Travelers accepted the defense, subject to a reservation of rights. Centex later filed a contribution action against the other subcontractors for fees that Centex incurred in defending the homeowners’ claims. Centex argued that Travelers was obligated to defend and indemnify Centex and it had breached its duty by issuing a reservation of rights. Centex also argued that it needed independent counsel. It reasoned that Travelers’ appointed defense counsel created a conflict of interest with Centex because Travelers wanted to limit the scope of its coverage to the work of its named insured, Oak Leaf. Travelers demurred, arguing that Centex had not alleged any specific facts showing that Travelers was manipulating the defense to entitle Centex to independent counsel. It also pointed out that the allocation of fees and defense costs was premature. The trial court agreed and sustained the demurrer. The Court of Appeal affirmed, finding that Centex’s claims were “all anticipatory, not actual or ripe” since it was still “unknown whether Oak Leaf’s work caused the property damage claimed by the Corona Homeowners.” The Court held that there were not enough facts to offer any declaration regarding the parties’ rights. The Court of Appeal also upheld the trial court’s decision not to require independent counsel, noting that a “reservation of rights by an insurer does not necessarily constitute a conflict of interest requiring the insurer to provide independent counsel.” The Court of Appeal warned that a conflict “must be ‘significant, not merely theoretical, actual, not merely potential.’” The Court also emphasized that the an “insurer has the right to control a defense.”


Homeowner May Sue Insurer For Mudslide Damage Resulting From Wildfire
Stankova v. Metropolitan Property and Casualty Insurance Company
(Ct. App. 9th Cir), filed May 29, 2015

Magda Stankova and Victor Nikolaev owned a home and garage in Alpine, Arizona, insured under a homeowner’s policy with Metropolitan Property and Casualty Insurance Company. A massive wildfire consumed Stankova’s detached garage, but did not reach the house. One month after the wildfire, a mudslide and runoff water destroyed the Stankova house. The Metropolitan policy covered “direct loss caused by fire but excluded coverage for loss caused by either water damage or earth movement, including mudslides.” Metropolitan covered the loss to the garage, but denied the claim since the damage was caused by floodwater and earth movement which were “explicitly excluded from coverage under the policy.” Stankova argued that the fire was the actual and proximate cause of the loss. Stankova and Metropolitan filed cross summary judgment motions. The District Court granted Metropolitan’s motion. On appeal, the Ninth Circuit applied Arizona law to decide whether “the mudslide that damaged Stankova’s house was ‘directly’ caused by fire.” The Ninth Circuit determined that it was possible that the fire directly caused Stankova’s loss in an “‘unbroken sequence and connection between’ the wildfire and destruction of the house.” Stankova produced evidence that “no mudslide or flooding had ever occurred on the property before, that wildfires commonly cause mudslides as a result of deforestation and erosion, and that the rains were not unusually heavy that year.” Therefore, the Ninth Circuit found that there was a triable issue of fact as to whether the fire directly caused the destruction of the home, reversing the District Court’s grant of summary judgment.

Employment Agreement’s Exclusive Forum Selection Clause Violated California Compensation Public Policy
Verdugo v. Alliantgroup
(Ct. App. 4th Dist., Div. 3), filed May 28, 2015

Rachel Verdugo worked as an Associate Director for Alliantgroup in its Irvine, California office. Verdugo worked mainly in the California office and had minimal contact with the Texas corporate office. Verdugo signed an Employment Agreement that required that jurisdiction over disputes would remain in Harris County, Texas. The Agreement also required that the sole venue for litigating disputes would also be in Texas. Verdugo filed a class action lawsuit for various wage and hour claims. Alliantgroup moved to stay or dismiss the action based on the forum selection clause. The trial court granted the motion and stayed the action, enforcing the forum selection clause. The Court of Appeal reversed. On appeal, the Court emphasized that contractual forum clauses were acceptable, so long as their “enforcement would not be unreasonable.” The Court cautioned that it would not defer to the selected forum if to “do so would substantially diminish the rights of California residents in a way that violates our state’s public policy.” Verdugo’s claims were primarily statutory rights under California’s Labor Code and the California Legislature had previously declared that those rights could not be contravened or set aside by a private agreement. The Court found that it would be against public policy to enforce the Employment Agreement’s forum selection clause because it would essentially “waive the unwaivable wage and hour protections the Labor Code provides to all California employees.”



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