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Berger Kahn's quarterly e-publication 
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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Lack Of Excess Judgment Does Not Bar Excess Insurer's Equitable Subrogation Claim
 
Ace American Insurance Co. vs. Fireman's Fund Insurance Co.
(Ct. App., 2d Dist., Div. 4), filed on August 5, 2016

Film industry worker John Franco was seriously injured on a film set in a special effects accident. He sued his employer, Warner Brothers Entertainment, Inc. Warner Brothers had two insurance polices with Fireman’s Fund Insurance Company (with a $2 million dollar primary policy and a $3 million dollar umbrella policy). Above these policies, Warner Brothers had an excess insurance policy with Ace American Insurance Company with a $50 million dollar limit. Franco made settlement demands within Fireman Fund’s limits. Fireman’s Fund initially rejected the demands, but ended up agreeing to pay the limits to settle the lawsuit months later. But the total settlement amount substantially exceeded $5 million. As a result, Ace contributed the amounts in excess of Fireman’s Fund’s limits. Ace then sued Fireman’s Fund for equitable subrogation alleging that Fireman’s Fund had unreasonably rejected policy limit settlement offers and that as a result, the eventual settlement exceeded Fireman’s Fund’s limits. Fireman’s Fund demurred, arguing that the excess insurer’s rights were derived from the insured’s rights, and the excess insurer could only sue for equitable subrogation when the judgment exceeds the policy limits. Fireman’s Fund relied on RLI Ins. Co. v. CNA Casualty of California, which held that “[w]ithout an excess judgment, the primary insurer’s refusal to settle is not actionable.” In turn, Ace relied on Fortman v. Safeco Ins. Co., arguing, “an excess judgment was not a prerequisite to an equitable subrogation claim, as long as the excess insurer demonstrated that it actually paid an amount in excess of the primary insurer’s policy limits.” The trial court sustained Fireman’s Fund’s demurrer without leave to amend, holding that RLI was directly on point. The Court of Appeal reversed. It held, “an excess insurer which has settled and discharged the insured’s liability may recover from the primary insurer an amount in excess of the primary insurer’s policy limits if the excess insurer can prove the primary insurer’s unreasonable refusal to settle within its policy limits resulted in loss to the excess insurer in an amount in excess of the policy limits of the primary insurer it would not otherwise have had.” It noted that an excess judgment was not a required element for either equitable subrogation or bad faith “where the insured or excess insurer has actually contributed to an excess settlement, the plaintiff may allege that the primary insurer’s breach of the duty to accept reasonable settlement offers resulted in damages in the form of the excess settlement.”






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

While driving intoxicated, Timory McDaniel hit and seriously injured Laura Barickman and Shannon Mcinteer. McDaniel’s insurance company, Mercury Insurnace, offered to settle the claims for the policy limits of $15,000 each. A month after the offer, McDaniel was sentenced to 3 years in state prison and ordered to pay $165,000 in restitution. Barickman and Mcinteer agreed to accept the policy limits offer so long as Mercury agreed that the settlement agreement did not release the court-ordered restitution. Mercury thought Barickman and Mcinteer’s attorney wanted the full amount of restitution in addition to the $15,000 policy limit. Barickman and Mcinteer ultimately concluded that they would not wait any longer, and sued McDaniel. Barickman and Mcinteer ultimately settled the case with a stipulated judgment against McDaniel for $3 million dollars. McDaniel assigned her rights against Mercury to Barickman and Mcinteer in exchange for their agreement not to collect the judgment against her. Mercury paid each woman the $15,000 policy limit. Barickman and Mcinteer then filed a breach of contract and bad faith lawsuit against Mercury. They alleged that Mercury’s failure to make an offer without unacceptable terms and conditions and its unwillingness to reach a reasonable settlement exposed McDaniel to excess damages. The parties agreed to a trial by reference with a retired judge presiding. After the bench trial, the retired judge found that Mercury had acted in bad faith when it refused to accept the release language. However, he also noted that it was unnecessary for the release language to be included because the law was clear that a release in a civil case would not release a defendant from paying restitution ordered by a criminal court. Barickman and Mcinteer were awarded the amount of the judgment plus interest and costs. The Court of Appeal affirmed. It found that although Mercury did initially act in good faith by offering the policy limits, it dropped the ball and failed to do what it could to effect a settlement after Barickman and Mcinteer proposed different language for the agreement. The Court observed, “Mercury’s contrary position, if accepted, would mean an insurer that at one point acted in good faith during settlement negotiations has fully discharged its obligations under the implied covenant and has no further responsibility to make reasonable efforts to settle a third party’s lawsuit against its insured.”






The Going-And-Coming Rule Applies When An Employee Uses Their Own Vehicle As A Matter Of Convenience
 
Jorge v. Culinary Institute of America
(Ct. App. 1st Dist., 2d Div.), filed on September 16, 2016

Leopoldo Jorge, Jr. was injured when he was hit by a car driven by Almir Da Fonseca. Da Fonseca was a chef instructor at the Culinary Institute of America. At the time of the accident, Da Fonseca was driving his own car home from work. Da Fonseca used his own personal vehicle to commute to campus. The Institute did not pay him for his commuting time. It did not require that he have his car available during the day, and the Institute did not have any requirements pertaining to personal vehicle use. In addition to teaching classes, De Fonseca did consulting projects and research for the Institute. These activities required travel. The Institute promoted the additional work that Da Fonseca was doing. The jury found the Institute liable for Jorge’s injuries based on the respondent superior theory. The Institute moved for judgment notwithstanding the verdict, arguing that there was no evidence that supported the jury’s finding that Da Fonseca was acting in the scope of his employment at the time of the accident. The Institute argued that there was no evidence to support the “required vehicle” exception to the “going and coming” rule so it could not be vicariously liable for Da Foseca’s negligent conduct when he was commuting. The trial court denied the motion. The Court of Appeal reversed. The Court recognized the Going and Coming Rule: an employee’s commute “to and from work is ordinarily considered outside the scope of employment so that the employer is not liable for [the employee’s] torts” committed during the employee’s commute. The required vehicle exception to the going and coming rule can apply if an employer requires employees to bring their car to work. When an employer requires an employee to bring their car to work, the commute would come within the course of his employment. The Court recognized that there as no evidence that Da Fonseca was required to use his car for work purposes. There was also no evidence that he needed to use his car or have it available during his work day. It further recognized that simply carrying employer-owned tools would not render the commute within the course and scope of employment.






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

AAA Northern California, Nevada, and Utah Insurance Exchange (AAA) insured Jeff and Denise Fields, and their daughter Krystal Fields. The policy allowed AAA to cancel the policy for any reason California permitted by mailing a notice to the Fieldses no less than 20 days prior to the cancellation date. The Fieldses’ son (who was not an insured on the policy) hit a parked car while he was driving a car insured under the policy. AAA renewed the policy, but asked for additional information to either exclude the son from the policy or add him as an insured. The Fieldses did not reply. AAA then sent a notice that it was cancelling the policy based on their refusal not to provide necessary information to underwrite the policy. The Fieldses still did not respond. Later, Krsytal Fields and her passenger, Trent Mills, were injured in a car accident while Krystal was driving. An uninsured motorist drove the other car. Mills suffered severe cognitive impairments and was in a coma for 6 weeks. Mills sued. Krystal tried to tender the claim to AAA, but it was denied because the policy was not in effect at the time of the accident. The Court found in favor of Krystal, but granted a default judgment against the driver of the uninsured vehicle in excess of $127 million dollars. Mills requested uninsured motorist benefits from AAA and demanded that the claim be arbitrated. AAA denied the demand because the policy was canceled. The Fieldses and Mills sued AAA. AAA filed for summary judgment. The plaintiffs argued that the AAA had not lawfully canceled the policy because the request for information was not a “reasonable written request” and AAA had not established that there had been a substantial increase in the hazard insured against. The trial court found in AAA’s favor. Mills appealed. The Court of Appeal affirmed. It found that the letter sent to the Fieldses was “was a reasonable written request for information necessary to underwrite or classify AAA’s risk.” It further found that “there are no statutory or regulatory requirements imposed on the written request for information except that it be reasonable, and Mills has not alleged AAA’s written request somehow violated the terms of AAA’s policy with the Fieldses.”

 

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In Our Community

The Genuine Issue Defense Exists If The Insurer's Denial Was Based On A Genuine Disputed And The Insurer Establishes That It Reasonably Investigated
Paslay v. State Farm General Insurance Company
(Ct. App. 2d Dist., Div. 4), filed June 27, 2016



Attorneys Who Occasionally Act As Private Judges Should Adhere To Disclosure Requirements
Hayward v. Superior Court
(Ct. App. 1st Dist., Div. 2), filed August 3, 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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