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Musick Peeler’s Business Litigation Group represents clients in a wide variety of business and corporate litigation matters.

Recent Rulings Create Greater Inconsistency Among California Appellate Districts Regarding Application of “Faulty Workmanship” Exclusions to Construction Defect Cases

Two recent California appellate court opinions have interpreted “faulty workmanship” exclusions as they apply to construction defect lawsuits. These exclusions are standard ISO exclusions in commercial general liability policies that exclude coverage for property damage to: (1) “that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations” (exclusion j(5)); (2) “that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed

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California Court of Appeal Addresses Horizontal Exhaustion Applied to Excess Coverage

On August 31, 2017, the California Court of Appeal, Second Appellate District, issued its long awaited decision in Montrose Chemical Corp. of California v. Superior Court (Canadian Universal), Case No. B272387.  The issue before the Court concerned the sequence in which an insured may access its excess liability policies to respond to long tail environmental liabilities.

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TCPA Claims Not Covered as Violation of Right to Privacy Under Personal Injury Provision Where There Is No Publication To Third Parties

In Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, PA (June 2, 2017) 2017 WL 2405025, the District Court for the Northern District of California addressed the scope of coverage for lawsuits alleging violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”), under personal and advertising injury coverage for “oral or written publication, in any manner, of material that violates a person’s right of privacy” contained in a Commercial General Liability policy.

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California’s “Concurrent Proximate Cause” Doctrine Applies Only Where Multiple Causes Of An Injury Operate Wholly Independently Of Each Other

In Evanston Ins. Co. v. Atain Spec. Ins. Co. (May 26, 2017) 2017 WL 2311401, the United States District Court for the Northern District of California revisited the reach of California’s “concurrent proximate cause” doctrine, and reiterated it requires multiple causes of harm to be “completely independent” in order to trigger coverage.

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Rescission Was On California Courts’ Minds In May

Insurers rely on the information their insureds provide to evaluate risk and determine whether to issue insurance and at what price.  This basic premise is reflected in California Insurance Code section 332 which states: “Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”

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Ninth Circuit Holds That Diamond Heights Represents Controlling California Law On The Duty Of An Excess Insurer To Accept A Reasonable Settlement

In Teleflex Medical Inc. v. Nat’l. Union Fire Ins. Co. of Pittsburgh, PA (March 21, 2017) 2017 WL 1055586, the Ninth Circuit affirmed a jury verdict in a bad faith case against an excess insurer for rejecting a settlement approved by insured and primary insurer, and refusing to take over the insured’s defense.

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Ninth Circuit Affirms Lower Court’s Determination That Business Risk Exclusions Broadly Bar Coverage For General Contractor

General liability policies contain what are called “business risk” exclusions which generally exclude coverage for damage to: (1) “that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations”; and (2) “that particular part of any property that must be restored, repaired or replaced because Your Work was incorrectly performed on it.”  These exclusions have been interpreted by California courts to be an expression of a general principle of insurance law; that insurers are not warrantors of their insureds’ products.  (See, Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co.(1996) 45 Cal.App.4th 1, 110-111.)  Specifically, courts have repeatedly held that “the risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer.”  (Maryland Cas. Co. v. Reeder (1990) 221 Cal.App.3d 961, 972.)

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“Other Insurance” Clause Enforced Where Competing Clause Was Ambiguous

In St. Paul Fire and Marine Insurance Company v. Insurance Company of the State of Pennsylvania (N. D. Cal. March 7, 2017), 2017 WL 897437, the district court recently compared “other insurance” clauses in insurers’ excess policies and enforced a clear “excess” clause over a clause in another policy that conflicted with other language in that policy.

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California Court Rejects Excess Insurer’s Contribution Action, Holding That Indemnity Requires Proof Of Actual Coverage And Finding That Vertical Exhaustion Barred Claim

Contribution actions between insurers sometimes blur the distinct and different requirements for proving the duty to defend versus the duty to indemnify.  In the recent case of Advent, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 6 Cal.App.5th 443 (2016), the Sixth District of the California Court of Appeal issued a reminder that it is significantly more difficult to obtain contribution for indemnity than it is for defense.

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The Notice-Prejudice Rule In California: Is It A Fundamental Public Policy?

On January 13, 2017, the Ninth Circuit certified the following two questions to the California Supreme Court:

1.   Is California’s common law notice-prejudice rule a fundamental public policy for the purposes of choice-of-law analysis?

and

2.   If the notice-prejudice rule is a fundamental public policy for the purpose of choice-of-law analysis, can a consent provision in a first-party claim insurance policy be interpreted as a notice provision such that the notice-prejudice rule applies?

(Pitzer College v. Indian Harbor Insurance Company (Jan. 13, 2017) 2017 WL128563 * 1.)

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Court Of Appeal Extends “Continuous And Progressive” Trigger Of Coverage To Find A Duty To Defend A Fire Damage Claim

Commercial general liability policies commonly cover liability for damages “because of” bodily injury or property damage that happens during the policy period.  A key is that the coverage does not extend to liability “for,” “due to” or “resulting from” property damage.  Rather, the coverage is for liability because of property damage or bodily injury that takes place while the policy is in effect.

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Federal District Court In California Enforces “Continuous And Progressive” Exclusion Based On Allegations That Damage Occurred From Date Of Construction

Ever since the California Supreme Court rejected a “manifestation of damage” trigger for insurance coverage and replaced it with a “continuous trigger of damage” in Montrose Chem. Corp. of California v. Admiral Ins. Co., 10 Cal.4th 645, 655 (1995), insurers have attempted to endorse and amend their policies to avoid the holding in Montrose.

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BREAKING NEWS: California Supreme Court To Weigh In On Excess Insurer’s Standing To Sue Primary Insurer For Bad Faith Failure To Settle When Excess Insurer Contributes To A Settlement On Behalf Of The Insured

As we have previously reported, there is a split of authority in the California Court of Appeal as to whether an excess insurer has standing to sue a primary insurer for failure to settle a case within its limits when the excess insurer contributes to a settlement on behalf of the insured.

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Liability Risk Retention Act Preempts Alaska Statute Prohibiting Insurers From Seeking Reimbursement of Defense Fees

In Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C. (Sept. 23, 2016) 2016 WL 5335036, Attorneys Liability Protection Society (ALPS), a risk retention group chartered in Montana, provided malpractice insurance coverage to an Alaskan law firm, Ingaldson Fitzgerald, P.C.  A former client sued Ingaldson relating to the withdrawing of fees and costs against a retainer, alleging claims for restitution, reimbursement, disgorgement and conversion.

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Insurer Held Liable For Excess Of Limits Judgment Despite The Insurer’s Policy Limits Settlement Offer

In Barickman v. Mercury Casualty Company (July 25, 2016) 2 Cal.App.5th 508, an auto insurer which offered its full policy limits of $15,000 per person/$30,000 per accident to the two pedestrians injured when the intoxicated insured ran a red light and struck the claimants in a cross-walk was nonetheless held liable for a $3 million stipulated judgment against the insured.  The issue in the case was whether the insurer’s rejection of a modification to the settlement agreement requested by the claimants’ counsel was reasonable.

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SLAPP Happy: A String of Cases Addressing California’s Anti-SLAPP Statute

“SLAPP” is an acronym for “strategic lawsuit against public participation.”  (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 57.)   SLAPP suits are lawsuits that seek damages for making public statements and thus arguably designed to intimidate or silence parties.  Like many states, California has an “anti-SLAPP statute” (Code of Civil Procedure §425.16) that allows a defendant to seek an early dismissal of a SLAPP suit.  California’s anti-SLAPP statute states that “a cause of action against a person arising from any act of that person in furtherance of that person’s right of petition or free speech…shall be subject to a special motion to strike, unless the Court determines…there is a probability that the plaintiff would prevail on the claim.”

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Ace American Insurance Company v. Fireman’s Fund Insurance Company, 2016 WL 4156686 (August 5, 2016): Primed for Review by the California Supreme Court

A few months ago, we highlighted a split of authority in California on whether an excess insurer can settle a case the primary insurer failed to settle within primary limits and pursue an equitable subrogation action against the primary insurer for the amount paid in excess of the primary limits.  (November 18, 2015, When May An Excess Liability Insurer Sue A Primary Insurer For Failing To Settle A Claim.

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California Supreme Court Allows Post-Verdict Brandt Fee Award To Be Used In Analyzing Constitutionality of Punitive Damages Award

In Nickerson v. Stonebridge Life Ins. Co., 203 Cal.Rptr. 3d 23, 16 Cal. Daily Op. Serv. 6028 (June 9, 2016), the California Supreme Court reversed an appellate court decision and held that a post-verdict award of compensatory damages should be included in calculating the proper size of a punitive damages award, even though the jury had not been advised of those damages at the time it reached its verdict.  The decision required the Court to navigate the case law imposing constitutional limits on the size of punitive damages awards and California case law allowing the recovery of attorneys’ fees as compensatory damages in insurance bad faith cases, as originally set forth in Brandt v. Superior Court, 37 Cal.3d 813 (1985).

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New California Rule Governing Demurrers

In California, as an initial pleading, a party may file a demurrer challenging the legal sufficiency of a complaint, cross-complaint or answer.  In the past, scheduled hearings on demurrers were routinely vacated at the last minute when an amended pleading was filed prior to the hearing date.  Even if the plaintiffs did not voluntarily amend before the hearing, trial courts repeatedly allowed leave to amend when sustaining demurrers.  In combination with institutional delays created by reduced funding of the California trial courts, these practices had a tendency to create lengthy delays in resolving the pleadings and putting the case “at issue.”

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Excess “Follow Form” Policy Does Not Cover Underinsured Motorist Claim Covered By Underlying Policy

Uninsured motorist (“UM”) and underinsured motorist (“UIM”) coverages “are strictly ‘first party’ coverages because the insurer’s duty is to compensate its own insured for his or her losses, rather than to indemnify against liability claims from others,” according to the Court of Appeal in Haering v. Topa Insurance Company, 244 Cal.App.4th 725 (2016)(italics in original).

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Intellectual Property Exclusion In CGL Policy Precludes Coverage For “Implied Disparagement” Claim

The United States Court of Appeals for the Ninth Circuit upheld a District Court’s entry of summary judgment in an advertising injury case based on an intellectual property exclusion.  The Ninth Circuit affirmed the ruling that an intellectual property exclusion precluded a defense obligation in a trademark infringement action even where the factual allegations were sufficient to support a potentially covered claim for implied disparagement.  Keating Dental Arts Inc. v. Hartford Cas. Ins. Co. (9th Cir., Dec. 24, 2015) 2015 WL 9460142.

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New California Law Affecting Insurance Companies Which Have Exclusive Agreements With Court Reporters Or Guidelines Requiring Use Of A Particular Court Reporting Service

Effective January 1, 2016, when a notice of deposition is served in a lawsuit pending in California state court, the noticing party must disclose (1) the existence of any agreement between the noticing party or third party financing the litigation with a specific court reporter or court reporting service for any service beyond the noticed deposition, or (2) the existence of any requirement imposed by the party or third party financing the litigation that the attorney use a particular court reporter or court reporting service.

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Ninth Circuit Finds No Duty To Defend Against Suit With “Non-Existent” Risks

Summaries of the principles of the duty to defend lawsuits often note that the merits of the underlying action are irrelevant.[1]  The duty extends even to seemingly frivolous claims if they could potentially result in covered liability.  Example:  a cause of action barred on its face by the statute of limitations would still trigger a defense if it otherwise might be covered.  In that case, the insured still would be required to appear and raise the affirmative defense to secure a dismissal.  Accordingly, an insurer could not deny a defense on the ground that its investigation shows the plaintiff could not prove up the claim asserted.

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California Insurance Law: Issues On The Horizon For 2016

The following insurance issues are likely to be decided in 2016 by the California Supreme Court and the United States Court of Appeals for the Ninth Circuit.

Brandt Fees: In Nickerson v. Stonebridge Life Ins. Co., Case No. S213873, the California Supreme Court is considering the following issue: Is an award of attorney fees under Brandt v. Superior Court (1985) 37 Cal.3d 813 properly included as compensatory damages for purposes of calculating the ratio between punitive and compensatory damages where the fees are awarded by the jury, but excluded from compensatory damages when they are awarded by the trial court after the jury has rendered its verdict?

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