Insurance Companies Must Show "Substantial Prejudice" to Deny Claims for a Failure to Comply With the Proof of Loss RequirementNovember 08, 2012 Scott Calvert
Following the August 2009 Station Fire, the lawsuits of over 1,440 policyholders filed against Fire Insurance Exchange (“FIE”) and related insurers were consolidated into one case – Henderson v. Farmers Group, Inc., __ Cal.App.4th __, 2012 Cal. App. LEXIS 1108 (October 24, 2012). In this case, the California Court of Appeal, Second Appellate District, issued an interesting opinion addressing several important issues.
In the consolidated lawsuit, the policyholders alleged that FIE improperly denied their claims by asserting either that: (1) the policyholders did not submit sworn proof of loss as required by the fire insurance policies, or (2) that the policyholders submitted delayed notice of loss. The policyholders asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing (bad faith) and unfair business practices under section 17200. Given the large number of policyholders, five plaintiffs were selected as representative of the other policyholders and had their claims litigated, while the lawsuits of the other policyholders were stayed.
California Homeowner's Insurer Not Required To Pay Extended Repair Limits Until Homeowner Shows Proof of RepairMarch 17, 2011 Eric Schindler
Under standard homeowner insurance policies the insurer is typically required to pay only the “actual cash value” of a loss—i.e., the fair (depreciated) market value—unless and until the insured actually incurs repair costs in excess of the actual cash value to repair the home. In Kelly Minich, et al. v. Allstate Insurance Company, __ Cal.App.4th __, 2011 Cal.App. LEXIS 270 (March 11, 2011) (Minich), a California appellate court recently rejected a homeowner’s creative interpretation of its Allstate homeowner’s insurance policy to get extended repair or replacement cost policy limits without regard to actually repairing or replacing the fire-damaged home.
In Minich Allstate issues a homeowner’s insurance policy to Kelly and Debbie Minich. A fire destroys the Minichs’ home. The policy requires Allstate to pay the Minichs the “actual cash value” of their home up to the $129,840 policy limit. An extended policy limits endorsement requires Allstate to pay up to 150% of the policy limit in excess of the actual cash value if the Minichs actually repair or replace the home.
Allstate pays the $129,840 policy limit, less the $250 deductible, within 2 weeks of the fire. Allstate refuses to pay the $64,920 extended limit until the Minichs demonstrate to Allstate 15 months after the fire that they in fact are rebuilding the home.
Provision Excluding Insurance Coverage For Wrongful Acts of a Coinsured Limited By California Supreme CourtFebruary 22, 2011 Scott Koller
California Insurance Code section 533 provides that an insurer is not liable for a loss caused by the willful act of an insured. This is consistent with California’s public policy of denying coverage for intentional acts of wrongdoing. However, when there is more than one insured, this policy can lead to inequitable results. Case in point is the situation presented in Century National Insurance Company v. Garcia, 2011 Cal. LEXIS 1392 (decided February 17, 2011).
In Century, Jesus Garcia, Sr.’s home was damaged when his adult son intentionally started a fire in his bedroom. Garcia Sr. subsequently submitted a claim under his homeowner’s insurance policy issued by Century National Insurance Company (“Century”). Although Garcia was the named insured, his wife and son also qualified as an insured under the policy. Century denied the claim on the grounds that the damage was caused by an intentional wrongful act by an insured. Garcia challenged the denial arguing that the Insurance Code does not bar “innocent insureds” from recovering despite a co-insured’s wrongful acts. At trial, the state court granted Century’s demurrer and Garcia appealed.
Writing for a unanimous court, Justice Baxter agreed with Garcia and held that the policy provision which precluded coverage was invalid. To reconcile this result with section 533, the Court relied on Insurance Code section 2070 which states: “All fire polices . . . shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy . . . provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.” In other words, fire insurance policies in California must provide coverage that is at least as good as the coverage outlined by section 2071’s standard form provisions. Now here is where it gets a little tricky.
When multiple insurers share the same defense obligation, the defense costs are typically allocated equally. When an insurance company refuses to defend, those insurers which do contribute to the defense may seek contribution from the insurer(s) that do not. Scottsdale Insurance Co. v. Century Surety Co., __ Cal. App. 4th ___ (March 10, 2010) addresses such a situation.
In this case, Scottsdale Insurance Company (“Scottsdale”) brought suit against Century Surety Company (Century) seeking equitable contribution based on Century’s failure to participate in the defense of 17 common insureds in hundreds of actions in which Scottsdale, along with at least one other insurer, shared the costs of the defense of those insured parties. Scottsdale also sought equitable contribution with respect to indemnity of the common insureds in those underlying actions in which Scottsdale (and at least one other insurer) had paid amounts to settle the actions.
Three principal defenses were raised. In the unpublished portion of the opinion, the court discusses two of them and concludes that the trial court correctly decided both. Century argued that it was not required to defend or indemnify three of the common insureds because Century’s insurance policies did not provide coverage of the insureds for the actions alleged against them. Specifically, Century relied on a policy exclusion intended to exclude from coverage any action arising out of work which had been completed by the insured prior to the effective date of the policy (the prior work exclusion). The trial court concluded that Century’s prior work exclusion was not conspicuous, plain, and clear, and refused to enforce it. Century was therefore required to share equitably in the costs of the defense and indemnification of the common insureds, despite the presence of this exclusion.