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The most important court decisions of the Summer

Summer 2018

Beware: Prejudicial Closing Arguments in Bad Faith Cases

Victaulic Co. v. American Home Assurance Co.
(Cal. App. 1st Dist., Div. 2), filed on February 26, 2018

Victaulic, a manufacturer of plumbing parts, sued its insurers after litigation for nine counts of product liability. After favorable summary judgments for duty to defend and duty to indemnify, the case went to jury trial for Victaulic’s claim of bad faith against its insurer. During the lengthy trial, a witness perjured herself, which was referenced repeatedly and dramatically during the five-hour closing argument, resulting in a $55M verdict for Victaulic against American Home Assurance for bad faith, attorneys’ fees and punitive damages. American Home appealed citing prejudicial language in the closing argument, including terms like “lied” and “despicable conduct” referring to the witness, but making it sound like American Home was being referred to, which was confusing and prejudicing to the jury. The First District Court of Appeal reversed the judgment, citing Veronese v. Lucasfilm’s precedent that closing arguments can be prejudicial and that without prejudice the court felt the ruling could have been different for American Home.


Negligent “Occurrences” Covered by General Liability

Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co.
(Cal. App. 9th Div.), filed June 4, 2018

After Ledesma and Meyer contracted with San Bernardino Unified School district to manage a construction project at a middle school, Ledesma hired an employee to manage the contract. A student at the middle school alleged the employee had sexually abused her and sued Ledesma for negligent hiring, retention, and supervision. Ledesma tendered the claim to its insurance, Liberty Surplus under the general liability policy provided coverage of what is referred to in the policy of an “occurrence.” Liberty was granted summary judgment by the trial court, reasoning that the negligent hiring was not the occurrence, the sexual abuse was the occurrence, and the bad hiring and supervision had happened prior to that. Ledesma argued that the hiring and retention were not the injury-causing acts, but the court was not moved by this argument. On appeal, Ledesma argued that the law was misapplied in this decision. The Appeals Court referred a certified question to the California Supreme Court regarding the definition of “occurrence,” and the California Supreme Court’s input encouraged coverage of the event by the insurer. The California Supreme Court cited the Delgado v. Interinsurance Exchange of Automobile Club of Southern California decision defining the word “accident” in a coverage policy to refer to the conduct of the insured and is a word meant to include many other insured incidents. The Court argued that lack of coverage would leave employers “without coverage for claims of negligence” in many circumstances that would be inconsistent with California law. The California Supreme Court found that the injury against the student could be considered an accident and should be covered under general liability.


Class Certification Upheld for "Independent Contractors" Using Martinez v. Combs’ ABC Test

Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County
(Cal. Sup. Ct.), filed on April 30, 2018

Charles Lee was one of two drivers for Dynamex Operations West, a nationwide package, and document delivery company, who sued for various wage claims and for unlawful business practices under section 17200, alleging misclassification of drivers as independent contractors rather than employees. He asserted that first, as an employee, and later, as an independent contractor, he had performed the same tasks, wore the same uniforms, had the same scheduling rules, was communicated within the same way, and was owed the wage and hour protections of an employee. The trial court granted class certification relying on the three alternative definitions of “employ” and “employer” from the applicable wage order and as described in Martinez v. Combs, 49 Cal.4th 35 (2010) which hold that “employ" or “employer” is defined as (a) to exercise control over the wages, hours or working conditions, (b) to suffer or permit to work, or (c) to engage and thus create a common law employment relationship (the “ABC” test). Id. at 64. Dynamex filed a writ petition contending that the (b) and (c) definitions should not be applied to determine whether a person is an employee or independent contractor. Dynamex contended that the (b) and (c) definitions only apply to determine whether the defendant is a joint-employer as was the issue in Martinez. It contended that the appropriate test for independent contractor status was that from S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). Dynamex’s argument was likely for strategic purposes because the Borello test is multifaceted with narrower questions which could cause commonality issues among the class members. The appellate court rejected Dynamex’s contention holding that neither the applicable wage order or Martinez supported Dynamex’s narrow view of the ABC test. In an 82-page decision, the California Supreme Court affirmed the appellate court’s certification order and the application of the ABC test to resolve the independent contractor versus employee issue (albeit with some caveats), citing the history of the employment law dating back to common law, and the protective purpose of the wage orders which set minimum standards for wages and working conditions.


FSLA Overtime Exemptions to Certain Auto Dealership Workers Include "Service Advisors"

Encino Motorcars, LLC v. Navarro
(U.S. Sup. Ct.) filed on January 17, 2018, decided on April 2, 2018

The service advisors at Encino Motorcars sued for backpay, alleging that they were due overtime for the number of hours worked. Before the lawsuit was filed, Congress had initially exempted all persons working at car dealerships from overtime, then issued an opinion letter saying that “service advisors” were exempt from overtime in most situations, but in 2011 it reversed course and issued a rule that excluded “service advisors” as “salespersons,” thereby entitling them to overtime. The service advisors sued to rely on this 2011 rule to claim that they were entitled to overtime. Despite the 2011 rule, the District Court agreed with Encino and dismissed the suit. The Ninth Circuit reversed the trial court, finding the statue ambiguous as to whether “service advisors” and deferred to the FLSA's 2011 rule under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). The Supreme Court vacated the Ninth Circuit’s decision holding that the 2011 rule was procedurally defective but remanded the case to the lower courts to decide if a service advisor was included in the exemption. On remand, the Ninth Circuit held that even without the 2011 rule, service advisors were not part of the car dealership exemption to overtime. Another appeal followed. The Supreme Court, rejecting the Ninth Circuit’s invocation of the principle that exemptions to overtime should be interpreted narrowly, held that service advisors were “obviously” salespersons and thus exempt from overtime under §213(b)(10)(A).


Good Fences Make Can Be "Invasion" Of Real Property

Albert v. Truck Ins. Exchange
(Cal. App. 2nd Dist., Div. 7), filed on May 15, 2018

When Shelly Albert put up a fence that allegedly obstructed her neighbor’s access to his undeveloped property, that neighbor sued. Albert tendered the complaint to her homeowner’s insurance and umbrella insurance, and both declined to provide a defense. Both the trial court and the appellate court found that there was no duty to defend under the homeowners insurance policy. Albert also sued her umbrella insurer. The trial court again found no duty to defend and granted the umbrella insurer’s summary judgment motion. Albert appealed, and this time, the appeal was successful. The appellate court reversed the judgment, saying that the claim was potentially covered under the umbrella policy, citing precedent suggesting that even “non-physical invasions” can be invasions of the right to private occupancy. The appellate court disagreed Sterling Builders v. United Nat. Ins. Co., 79 Call.App.4th 105 (2000), which had held that “occupancy” requires a physical invasion.


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