Key Decisions

June 2013 – All Articles

(filed under: Key Decisions Archive | June 21, 2013)

Fire Sprinkler’s Absence Precluded Coverage

American Way Cellular, Inc. v. Travelers Property Casualty Company of America
(Cal. Ct. of App., 2d Dist.), filed May 30, 2013


Ali Sheibani owned American Way Cellular. Sheibani went to A & J Financial Insurance Services, a licensed insurance broker, for property insurance. A & J submitted the insurance application to USASIA Insurance Services, Inc., which was a Travelers agent.

The application had a box headed “FIRE PROTECTION (Sprinklers, Standpipes, CQ/Halon Systems).” The application indicated that American Way had “SMOKE DETECTORS/FIRE EXTING/SPRINKLERS.”

The policy Travelers issued had a “protective safeguards” endorsement: “As a condition of this insurance, you are required to maintain the protective devices or services listed…” The protective devices were listed as “Automatic Sprinkler System, including related supervisory services.” An exclusion said:

“We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you: a. Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or b. Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order. If part of an Automatic Sprinkler System is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification to us will not be necessary if you can restore full protection within 48 hours.”

American Way suffered a fire loss. Travelers advanced $250,000 and investigated the fire’s cause. During its investigation, Travelers learned that American Way did not have a fire sprinkler system. Based on this discovery and the “protective safeguards” endorsement, Travelers denied American Way’s claim and demanded reimbursement of the $250,000 advance.

The trial court ultimately granted summary judgment in Travelers’ favor.


The Court of Appeal affirmed.

The court held that the “protective safeguards” endorsement barred coverage. It rejected American Way’s argument that Travelers had a duty to inspect its premises to see if there were sprinklers and that by failing to do so, it could not rely on the endorsement.

The court held that Travelers had made a prima facia showing that A & J was not its agent and that American Way failed to raise a triable issue as to A & J’s status. The application’s incorrect reference to American Way’s sprinklers was not attributable to Travelers’ fault.


This case reiterates the potential importance of insurance applications. They are often carefully assessed after a claim. It would have been interesting to see how a reformation claim might have worked. If the insured had not made a “mistake” on the sprinklers, would the policy have been issued without the sprinkler exclusion, but with a higher premium?


Commercial Vendor Owed A Duty of Care

Pedeferri v. Seidner Enterprises
(Cal. Ct. of App., 2d Dist.), filed May 15, 2013


Jeremy White picked up dirt bikes from Bert’s Mega Mall, a motorsports dealership operated by defendants Seidner Enterprises LLC and RJS Financial. Bert’s employees had loaded and strapped down the bikes in the bed of White’s truck. At the time, White had “quite high” levels of marijuana in his blood.

As White drove at 74 miles-per-hour on a bumpy part of the freeway, he felt and saw the bikes “hopping around a little bit in the bed of the truck.” The bikes moved from side to side, as well as back and forth. White then heard a popping sound. He asked his passenger to look behind him at the truck’s bed. Then, without braking, White took his eyes off the road to glance back over his left shoulder, and then his right. As he did, White steered his truck slightly to the right, and into a vehicle parked on the side of the freeway.

The vehicle exploded in a fireball, killing its sole occupant, Parra. A police officer was standing nearby when the accident happened. The impact threw Police Officer Pedeferri 78 feet from where he was standing, paralyzing him from the armpits down.

Officer Pedeferri, his wife, and Parra’s mother and father sued White for negligence and wrongful death. They later added Bert’s as a defendant on the theory that Bert’s employees’ failure to secure the bikes had distracted White and caused the accident.

The jury awarded the plaintiffs $49.6 million, and found Bert’s to be 33% at fault.


The Court of Appeal held Bert’s owed the plaintiffs a duty to carefully load and secure the bikes in a way that would not distract the driver.

Bert’s could be deemed negligent for improperly loading and securing the dirt bikes in the back of White’s truck. However, to be liable to a particular plaintiff, Bert’s must owe that plaintiff a duty to act carefully. Whether a duty is owed is ultimately a question of policy.

After considering the various policy issues, the court declined to create an exemption for commercial vendors such as Bert’s.

The court next rejected Bert’s argument that it could not be liable because it did not have a “special relationship” with the plaintiffs. The court noted that the cases on which Bert’s relied involved nonfeasance, not malfeasance. Because Bert’s had undertaken to secure the bikes, its liability was based on malfeasance, not nonfeasance.

In addition, the court rejected Bert’s argument that White’s negligence and marijuana use were superseding causes of the accident. It was foreseeable that a driver might be impaired and, if so, as negligently securing cargo could foreseeably lead to an accident.

However, the court ruled that the trial court had erred in admitting certain evidence relating to White’s impairment from marijuana use. Based on this error, the court vacated the judgment and remanded.


This was obviously a high stakes case with some interesting legal issues. Drawing the line on duty remains a difficult challenge in many different factual scenarios.


Doctors Can Be Liable For Elder Abuse

Winn v. Pioneer Medical Group, Inc.
(Cal. Ct. of App., 2d Dist.), filed May 24, 2013


Beginning in 2000, Elizabeth M. Cox was under the medical care of doctors Emerico Csepanyi and James Chinuk Lee, who maintained offices at Pioneer Medical Group in Cerritos and Long Beach.

Despite evidence Cox was suffering diminished vascular flow in her leg and foot, the doctors failed to refer her to a vascular specialist over a two-year period during which her diminishing vascular flow worsened.

Cox was eventually admitted to the hospital, where emergency vascular surgery was performed, without success. A month later, Cox was re-admitted for a below-the-knee amputation of her right leg. Two months later, she underwent an above-the-knee amputation of her right leg. Seven months later, she was hospitalized with blood poisoning and died.

Cox’s children sued the doctors for elder abuse, based on their repeated decisions not to refer their mother to a vascular specialist.

The trial court dismissed the action based on its conclusion that the doctors could not be liable for elder abuse because they treated Cox as an outpatient, and liability for elder abuse “requires assumption of custodial obligations.”


The Court of Appeal reversed.

It held the elder abuse statute does not limit liability to health care providers with custodial obligations. The statute is not confined to health care providers who assume custodial obligations.

The court also held that the question of whether the doctors’ conduct was reckless rather than merely negligent was for a jury to decide.


This case helps to clarify the elder abuse statute’s reach with respect to health care providers.


Other Cases Of Interest

Insurance Code Section 533.5(b) Does Not Apply To Federal Prosecutions

Mt. Hawley Insurance Company v. Lopez
(Cal. Ct. of App., 2d Dist.), filed May 1, 2013

On January 6, 2010, the United States Attorney for the Central District of California filed a grand jury indictment charging Dr. Richard Lopez with criminal conspiracy, false statements and concealment, and falsification of records in conjunction with certain liver transplants.

Lopez tendered the defense of the matter to Mt. Hawley Insurance Company, the insurer of the hospital where he worked. Mt. Hawley sent Lopez a denial letter and filed a declaratory relief action. Mt. Hawley alleged that it had no duty to defend Lopez because of Insurance Code section 533.5(b), a “remuneration exclusion” or “personal profit exclusion,” and a “medical incident exclusion.”

Insurance Code section 533.5(b) precludes insurers from providing a defense for certain kinds of claims. It provides: “No policy of insurance shall provide, or be construed to provide, any duty to defend . . . any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to” California’s unfair competition law under Business and Professions Code sections 17200 and 17500, “in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel, notwithstanding whether the exclusion or exception regarding the duty to defend this type of claim is expressly stated in the policy.”

Lopez filed a motion for judgment on the pleadings on Mt. Hawley’s original complaint and a demurrer to Mt. Hawley’s first amended complaint. Lopez argued that section 533.5(b) did not preclude an insurer from providing a defense to federal criminal charges brought by the U.S. Attorney’s Office. The trial court denied his motions. It then granted a motion for summary judgment in favor of Mt. Hawley.

The Court of Appeal reversed.

In the case of Bodell v. Walbrook Ins. Co., 119 F.3d 1411 (9th Cir. 1997), the Ninth Circuit Court of Appeals held that section 533.5(b) applies to criminal actions brought by the four listed state and local agencies but does not apply to criminal actions brought by federal prosecutors.

The court agreed with the Ninth Circuit. Therefore, the insurer, which had agreed to provide its insureds with a defense in “a criminal proceeding …commenced by the return of an indictment…even if the allegations are groundless, false or fraudulent,” could not avoid its contractual duty to defend an insured against federal criminal charges by relying on section 533.5(b).


An Insured Lacked Standing To Sue

Schwartz v. Provident Life And Accident Insurance Company
(Cal. Ct. of App., 1st Dist.), filed May 21, 2013

Provident Life and Accident Insurance Company and related companies sell disability insurance that provides monetary benefits to individuals who, due to injury or illness, are unable to work in their chosen occupations.

Rick Schwartz was insured under a policy he purchased in 1988. Schwartz, a certified public accountant, chose the policy because he believed it was a good idea to “lock in a good premium” at a young age with a “non-cancelable, guaranteed renewable” policy. Schwartz pays a fixed monthly premium of $371.44 in exchange for the insurer’s promise to pay a monthly benefit of $11,220 in the event of disability. Schwartz understood that his insurer would pay him the full benefits due under the policy if he became disabled, but would pay him no benefits and would retain the full amount of premiums paid if he did not become disabled. Schwartz has never become disabled and never filed a claim for benefits.

In October 2005, the Commissioner of the California Department of Insurance entered into a settlement agreement with Provident Life resolving allegations that it and related companies had wrongly denied benefits to some insureds that had filed claims for benefits.

Later that month, Schwartz sued Provident Life on behalf of insureds that had not been denied benefits and therefore received no direct benefits from the settlement agreement. Schwartz alleged that the insurers operated a “systematic scheme” from 1994 to 2005 to deny and terminate legitimate disability claims by policyholders. Schwartz, and the purported class he represents, claimed injury from the alleged deceptive scheme despite no claim for and no denial of benefits.

Schwartz also sought a writ of mandate to compel the commissioner to reopen his investigation and to accord relief to policyholders who, like Schwartz, had not been denied benefits. Schwartz stated several causes of action against the insurers, including a claim that their alleged deceptive claims handling practices violated the Unfair Competition Laws.

The trial court granted summary judgment against Schwartz. It found that because he and the class he represented had never made a claim nor been denied benefits, he lacked standing to bring an Unfair Competition claim.

The Court of Appeal affirmed. It noted: “Schwartz has failed to raise a material triable issue of fact that he suffered economic injury of any kind. Schwartz paid a fixed premium for a promise of disability coverage that was never denied. He did not lose money or property by the alleged wrongful denial of benefits to other policy holders using unfair claim practices that are now enjoined by the commissioner.”


Non-Exempt Tasks Make An Assistant “Manager” Non-Exempt

Heyen v. Safeway Inc.
(Cal. Ct. of App., 2d Dist.), filed May 23, 2013

Linda Heyen worked as an assistant manager for Safeway Inc. After Safeway terminated her employment, Heyen sued it to recover unpaid overtime pay. Heyen asserted that Safeway should have classified her as a “non-exempt” employee because she regularly spent more than 50 percent of her work hours doing “non-exempt” tasks, such as bagging groceries and stocking shelves.

An advisory jury and the trial court agreed with Heyen and awarded her overtime pay of $26,184.60, plus interest.

Safeway appealed. It asserted that the trial court failed to properly account for hours Heyen spent simultaneously performing exempt and non-exempt tasks — i.e., “actively… manag[ing] the store while also concurrently performing some checking and bagging of customer grocery purchases.” Safeway argued that, consistent with federal law, the trial court should have classified as “exempt” all hours during which Heyen simultaneously performed exempt and non-exempt tasks.

The Court of Appeal affirmed. It concluded that Safeway’s analysis and argument was inconsistent with California law. The trial court did not err in finding that Heyen was primarily engaged in non-exempt activities.


There Is No Liability For Providing Alcohol

Rybicki v. Carlson
(Cal. Ct. of App., 2d Dist.), filed May 22, 2013

Garrett Shoemaker hosted a party where several guests were drinking. Guests drank alcohol that Shoemaker provided and alcohol the guests had purchased.

After the party, several guests got into a car and one of them was driving. At around 7:15 a.m., they hit Adam Rybicki who was riding his bicycle. At the time, the car was driving on the wrong side of the road. Rybicki was seriously injured.

Rybicki and his wife sued the guests and Shoemaker.

Several non-driving guests successfully demurred to the complaint. Furnishing alcohol to a person who drives negligently and injures another is not a proximate cause of an injury resulting from its consumption.


Attorneys Are Not Required To Report Child Abuse

Elijah W. v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed May 8, 2013

Elijah W. was the subject of a wardship petition. To assist in the preparation of his defense to the petition, Elijah W. sought the appointment of Dr. Catherine Scarf, a psychologist. Elijah W. sought the appointment of Dr. Scarf rather than a member of the Superior Court’s Juvenile Competency to Stand Trial (JCST) panel because members of the panel had informed Elijah W.’s counsel that if, in the course of their work, they discovered any evidence of child abuse or neglect they would report that to the appropriate authorities as required by the Child Abuse and Neglect Reporting Act (CANRA) (Pen. Code section 11164, et seq.).

The trial court denied Elijah W.’s request.

The Court of Appeal held this was an error.

A lawyer is obligated to preserve the confidentiality of client information. As a narrow exception to this duty, a lawyer may, but is not required to, reveal confidential information relating to the representation of a client to the extent that the lawyer reasonably believes the disclosure is necessary to prevent a criminal act likely to result in death or substantial bodily harm. An expert engaged to assist the lawyer in his representation of a client is similarly obligated to maintain the confidentiality of client communications obtained in the course of accomplishing the purpose for which the lawyer was consulted.

Under the Child Abuse and Neglect Reporting Act (CANRA), psychiatrists, psychologists, clinical social workers and other mental health professionals are “mandated reporters” and, as such, have an affirmative duty to report suspected child abuse or neglect to a child protective agency or other appropriate authority. Failure to report suspected abuse is a misdemeanor. The duty to report is not excused or barred by the psychotherapist-patient privilege of Evidence Code section 1014. Lawyers, however, are not mandated reporters.

In view of what seemed to be contradictory requirements and in the absence of clear legislative guidance, the appellate court declined to read into CANRA a reporting requirement that contravened established law on confidentiality and privilege governing defense experts and potentially jeopardized a criminal defendant’s right to a fair trial.

If all of the panel members were willing to report suspicions of abuse or neglect, then Elijah W. was entitled to an expert who was not on the panel and would maintain confidentiality.


Authorizing Someone To Accept Service Is Not Enough To Compel Trial Attendance

Target National Bank v. Rocha
(Sup. Ct. of Santa Clara, App. Div.), filed May 22, 2013

Target National Bank sued Lucy Rocha for breach of contract and common counts.

Based on Code of Civil Procedure section 98, Target filed a declaration in lieu of live testimony at trial. After arguments by the parties, the trial court admitted the declaration into evidence. No other evidence was presented at trial.

Based on the declaration, the trial court entered judgment for Target in the amount of $7,788.30.

Rocha appealed. She asserted that the trial court erred in admitting the declaration.

The Appellate Division of the Superior Court reversed. It concluded that Target had not complied with the requirements for admission of the declaration.

Section 98 provides, in relevant part:

A party may, in lieu of presenting direct testimony, offer the prepared testimony of relevant witnesses in the form of affidavits or declarations under penalty of perjury. The prepared testimony may include, but need not be limited to, the opinions of expert witnesses, and testimony which authenticates documentary evidence. To the extent the contents of the prepared testimony would have been admissible were the witness to testify orally thereto, the prepared testimony shall be received as evidence in the case, provided that either of the following applies:

(a) A copy has been served on the party against whom it is offered at least 30 days prior to the trial, together with a current address of the affiant that is within 150 miles of the place of trial, and the affiant is available for service of process at that place for a reasonable period of time, during the 20 days immediately prior to trial.

(b) The statement is in the form of all or part of a deposition in the case, and the party against whom it is offered had an opportunity to participate in the deposition.

Target’s problem was that its declarant was not available for service of process. Although she provided an address within 150 miles and had authorized someone there to accept service of a subpoena on her behalf, that was insufficient. According to the court, authorizing someone to accept service of a subpoena is not sufficient to meet the requirement of being available for the service of the subpoena.


When A Court Reporter Charges Too Much For Deposition Transcripts, The Remedy Is To Ask The Court To Set The Rate – Not To Sue The Reporter

The Las Canoas Company v. Kramer
(Cal. Ct. of App., 2d Dist.), filed May 7, 2013

Las Canoas was a defendant in a construction defects case. However, it was not brought into the case until after 57 depositions had been taken. Its attorney requested the court reporter to provide copies of the depositions. The court reporter quoted a rate of $2 per page, bringing the cost to about $16,000. Las Canoas offered to pay a $30 flat rate in exchange for a computer disc containing uncertified copies of the transcripts and exhibits. The court reporter did not agree. Las Canoas later purchased copies of three depositions at the rate of $2 per page, at a cost of about $1,200. It did not challenge the court reporter’s rate in the particular action.

About four years later, Las Canoas sued the court reporter. It alleges that it was entitled to copies at a reasonable rate pursuant to Code of Civil Procedure section 2025.510(c), and that the court reporter’s rates were “unlawful” and “unfair” within the meaning of Business and Professions Code section 17200, et seq. Las Canoas sought restitution for excessive fees and an injunction to impose one of four limits on the court reporter’s future rate for copies furnished to non-noticing parties. It also requests costs of suit and attorney fees under the private attorney general doctrine.

The trial court sustained the court reporter’s demurrer without leave to amend.

The Court of Appeal affirmed.

A trial court has statutory authority to determine the “reasonable rate” a court reporter may charge a “non-noticing party” for copies of deposition transcripts in a pending action. However, a non-noticing party who does not move for such an order in the pending action may not bring a subsequent action to obtain restitution for “unreasonable” copy charges or obtain injunctive relief setting a “reasonable rate” to be charged by that court reporter in all future actions.


A Cost Bill Was Timely

Nevis Homes, LLC v. CW Roofing, Inc.
(Cal. Ct. of App., 2d Dist.), filed May 15, 2013

A homeowners’ association brought a construction defect action against Nevis Homes, LLC and other defendants. Nevis cross-complained against CW Roofing, Inc. (“CWRI”) and Daniel Suh, doing business as CW Roofing Co., among others.

The homeowners’ association settled with Nevis and Nevis settled with Suh and other cross‑defendants. The settlement agreement stated: “Each of the SETTLING PARTIES acknowledge and agree that each of them is to bear his, her, or its own costs.” The settlement agreement did not name CWRI as one of the “settling parties” nor did anyone sign the agreement on CWRI’s behalf. The agreement did provide, however, that “the release of [CWRI] by Defendants is a condition and material term of this settlement.”

After the “settling parties” signed the settlement agreement, Nevis dismissed its cross-complaint with prejudice as to all the cross-defendants including CWRI. Nevis mailed a written notice of entry of dismissal to CWRI on July 14, 2011. CWRI filed a cost bill on August 2, 2011. This was 19 days after Nevis mailed the notice of entry of dismissal.

Nevis moved to strike CWRI’s cost bill on the ground that it was untimely under California Rules of Court, rule 3.1700(a). That rule requires the cost bill to be filed within 15 days after the date of service of a written notice of entry of dismissal.

The trial court granted the motion to tax costs in its entirety. The court denied the parties’ motion for sanctions.

The Court of Appeal held that if a written notice of judgment or dismissal is served by mail within the State of California, the time for filing a memorandum of costs is extended by five days. Thus CWRI’s cost bill was timely.