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The most important court decisions of the month
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A Court Deems A Basic Insuring Agreement An Invalid “Escape” Clause
Underwriters of Interest Subscribing to Policy No. A15274001 v. ProBuilders Specialty Insurance Company
(Cal. Ct. App. 4th Dist., 1st. Div.) Filed October 23, 2015

Lloyd’s insured developers and the general contractor of two housing projects. ProBuilders Specialty Insurance Company insured the general contractor. Homeowners sued for alleged construction defects. Lloyd’s agreed to defend the entire case subject to a reservation of rights. ProBuilders declined defense participation because the basic insuring agreement on page 1 of its policy limited defense to cases where no other insurance providing a defense was available to the insured. The trial court granted summary judgment for ProBuilders. But the Court of Appeal reversed, holding that the policy’s basic insuring agreement (which the opinion characterized as an “other insurance” clause) was an “escape” clause that could not be enforced.

The Court of Appeal also held that ProBuilders’ contractor’s special conditions endorsement did not support summary judgment. The endorsement required Pacific Trades to secure written indemnity agreements from all contractors it hired for a project. Pacific Trades had used no written contracts at all for one of the projects. Overall, it secured written contracts for only 13 of the 40 contractors it hired. Although the endorsement made compliance a condition precedent before coverage could apply “to any claim in whole or in part based upon work performed by independent contractors,” the Court ruled that the endorsement would not preclude coverage as long as the complaint alleged negligence by Pacific Trades itself.

As early as 2009, Lloyd’s had challenged ProBuilders’ position on the defense, arguing that it had incurred far more than its fair share of attorney’s fees and expenses. By mid-2010, a settlement had been negotiated in the underlying case. And by October of 2010, a good faith settlement confirmation was entered. Although Lloyd’s filed suit more than two years after the good faith settlement confirmation, the Court held that Lambert v. Commonwealth Land Title Ins. Co., 53 Cal.3d 1072 (1991), tolled the two year statute of limitations, so that it did not start to run until a final judgment was entered. Lambert had held that “it is harsh to require an insured -- often a private homeowner -- to defend the underlying action, at the homeowner’s own expense, and simultaneously prosecute -- again at the homeowner’s own expense -- a separate action against the title company for failure to defend.” The opinion does not address that aspect of Lambert.

Attorney’s Fees Awarded To Both Sides Where Each Prevailed On Separate Causes Of Action
Sharif v. Mehusa
(Ct. App., 2nd Dist., Div. 5), filed October 14, 2015

Mahta Sharif sued her former employer Mehusa Inc. for unpaid overtime, unpaid wages, and California’s Equal Pay Act violation. The jury awarded $26,300 to Sharif for her Equal Pay Act claim and Mehusa prevailed on the overtime and wage claims. Both Mehusa and Sharif filed motions for attorney’s fees. The trial court awarded Sharif her fees under Labor Code section 1197.5(g). And it awarded Mehusa its fees and costs under Labor Code section 218.5. Sharif appealed, arguing that she was the sole prevailing party on a “practical level” because she had received a net monetary recovery. The Court of Appeal noted that whether a party prevailed on a practical level depended on “the extent to which each party has realized its litigation objectives.” It emphasized that since the jury found that the Mehusa owed Sharif nothing on her wage claim, that Mehusa realized its litigation objectives and was entitled to attorney’s fees. The Court explained that “providing that the prevailing party under one statute is entitled to fees, and that a different prevailing party under another statute is entitled to fees, the Legislature expressed an intent that there can be two different prevailing parties under separate statutes in the same action.” Ultimately, the Court of Appeal held that “when there are two fee shifting statutes in separate causes of action, there can be a prevailing party for one cause of action and a different prevailing party for the other cause of action.”

Precertification Discovery Cannot Be Used To Find Legitimate Class Representative
CVS Pharmacy, Inc. v. Superior Court
(Ct. App. 3rd Dist.), filed September 15, 2015, ordered published on October 15, 2015

Charlene Deluca filed a class action complaint against CVS Pharmacy, challenging its corporate policy of automatically terminating employees who did not work any hours for 45 days. Deluca claimed that the policy discriminated against qualified individuals with disabilities. But Deluca was not disabled and she had not been terminated under the policy. CVS demurred, arguing that Deluca did not have standing. The trial court sustained CVS’s demurrer and dismissed Deluca without leave to amend. The trial court, however, granted 90 days’ leave to amend for Deluca to find a substitute plaintiff. The trial court also granted Deluca’s motion to compel discovery of the names and contact information of current and former CVS employees. CVS filed a writ petition to challenge the trial court’s ruling. The Court of Appeal found that the trial court abused its discretion. It first emphasized that Deluca was never a class member. The Court also noted that there had been no evidence that “Deluca had any reason to believe she was a victim of the alleged termination policy when she filed suit.” The actual terminated employees could pursue claims to vindicate their own rights and recover monetary damages. Since Deluca was not a member of the class, “the potential for abuse far outweighs any conceivable benefit to the class.”

UCLA Not Liable For Unforeseeable Attack On Student
Regents of the University of California v. Superior Court
(Ct. App. 2nd Dist.), filed October 7, 2015

UCLA student Katherine Rosen suffered severe injuries when Damon Thompson attacked her during a chemistry laboratory. Thompson had been treated months before the attack for schizophrenia disorder, including auditory hallucinations and paranoid thinking. Rosen filed a lawsuit against the Regents of the University and UCLA employees (“UCLA”), alleging that UCLA was negligent in failing to adopt reasonable measures to protect Rosen from Thompson’s foreseeable violent conduct. UCLA moved for summary judgment, claiming that public universities did not have a “legal duty to protect adult students from third party criminal conduct.” The trial court denied the motion, holding that Rosen was owed a duty of care because she was both a student and a business invitee on the campus property. The trial court also noted that there were triable issues of fact as to whether UCLA voluntarily assumed a duty to protect Rosen when it provided mental health treatment to Thompson. UCLA filed a writ petition. The Court of Appeal rejected the trial court’s findings, and granted the writ petition. First, it held that in contrast to an elementary and secondary schools, “institutions of higher education have no duty to their adult students to protect them against the criminal acts of third persons.” Then, the Court emphasized that “a public college or university may not be held liable as a property owner for injuries caused by third party criminal conduct that is unrelated to any physical condition on the property.” Rosen’s negligent undertaking doctrine claim also failed because Rosen did not provide any “evidence that she was harmed because she detrimentally relied on UCLA’s student safety measures.” The Court found there was no evidence that UCLA’s psychologist was aware that Thompson was intended physical violence so she did not have a duty to warn. The Court also rejected Rosen’s newly offered liability theories. It held that Rosen did not produce any evidence that there was an implied contract between her and UCLA that “included any term that gave rise to a duty to protect.” Finally, Rosen failed “to establish there is a triable issue of fact whether UCLA owed a duty to protect based on statutes requiring employers to address credible threats of violence in the workplace.”


Class Action Waiver Invalid When Federal Arbitration Act Does Not Apply To Arbitration Agreementfont>
Garrido v. Air Liquide Industrial U.S. LP
(Ct. App. 2nd Dist., Div. 2), filed October 26, 2015

Mario Garrido entered into an agreement with his employer Air Liquide Industrial U.S. LP which provided that the parties would arbitrate any disputes arising out of Garrido’s employment. The agreement also prohibited class arbitration. Garrido was fired and filed a class action complaint, alleging various Labor Code violations and unfair business practices. Air Liquide moved to compel arbitration. But the trial court denied the motion, finding that the class waiver provisions were improper. On appeal, the Court affirmed the trial court’s order. It found that the Federal Arbitration Act did not apply because it specifically exempted contracts with truck drivers since they “engaged in foreign or interstate commerce.” The Court of Appeal found that four-factor test under Gentry would apply: “[1] the modest size of the potential individual recovery, [2] the potential for retaliation against members of the class, [3] the fact that absent members of the class may be ill informed about their rights, and [4] other real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration.” The Court of Appeal confirmed that the class action waiver was unenforceable since it met the four-factor test: [1] the likely recovery was a modest at $11,000; [2] there was a potential for retaliation since Air Liquide frequently made their truck drivers feel like their jobs were in danger; [3] Air Liquide made no effort to inform the truck drivers about their rights; and [4] that proving each individual claim would be inefficient. Therefore, the Court of Appeal held that the trial court “correctly found that a class proceeding . . . would be a significantly more effective way of allowing employees to vindicate their statutory rights.” 



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David Ezra
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