Key Decisions

May 2014 – All Articles

(filed under: Key Decisions | May 18, 2014)

An Insurance Adjuster Can Be Sued

Bock v. Hansen
(Cal. Ct. of App., 1st Dist.), filed April 2, 2014, published April 2, 2014

KEY FACTS

Michael and Lorie Bock owned a house. A 41-foot long, 7,300 pound tree limb broke off from an oak tree in the Bocks’ yard and crashed into the chimney and through the living room window. The Bocks reported this to their property insurance company, Travelers Property and Casualty Insurance Company.

Travelers assigned Craig Hansen to adjust the loss. The Bocks alleged that Hansen’s first visit to the scene lasted no more than 15 minutes. During that visit, before Hansen took any pictures of the damage, he pushed several branches out of the living room window. When Mrs. Bock asked Hansen why he had not taken the pictures first, he ignored her, telling her to “clean up the mess.” Outside, Hansen also removed the limbs leaning against the chimney and the fence before taking any pictures.

Before leaving, Hansen wrote a check for $675.69. When Mrs. Bock said that the amount would not be enough to even clean up, let alone repair the damage, Hansen told her that cleanup was not covered under the policy and that she should contact “friends and family members with chainsaws” to clean up the limbs and the mess in the house and backyard. Relying on these statements, Mrs. Bock attempted to clean up the broken glass. In the process, she cut her hand.

Travelers refused the Bocks’ request to replace Hansen. The Bocks alleged that Hansen revised an estimate to attribute a false statement to the Bocks, conspired with an unlicensed contractor to create a false report, and engaged in various other misconduct.

Travelers denied coverage for the chimney damage allegedly based on an unlicensed contractor’s report, which said there was no evidence that the tree limb had hit the chimney.

The Bocks sued Travelers and Hansen, alleging negligent misrepresentation and intentional infliction of emotional distress. The trial court sustained Hansen’s demurrer without leave to amend, concluding that the Bocks “have presented no convincing argument for allowing these claims to stand against defendant Hansen in what is a contract based action.”

HOLDING & REASONING

The Court of Appeal reversed. It held that an insured could state a cause of action for negligent misrepresentation against an insurance adjuster and that the Bocks had adequately done so. It also held that an insured could state a cause of action against an insurance adjuster for intentional infliction of emotional distress. However, the Bocks had not adequately pleaded such a claim. Nonetheless, the court held that the trial court abused its discretion in denying leave to amend.

The court rejected Hansen’s argument that:

“Courts have held that agents and employees of insurance companies do not owe a duty to the insured; instead, any liability for their actions lies on the insurer so long as the agency was disclosed to the insured and the conduct took place within the course and scope of such agency.”

It held that the cases on which Hansen relied, Sanchez v. Lindsey Morden Claims Services, Inc., 72 Cal.App.4th 249 (1999) and Lippert v. Bailey, 241 Cal.App.2d 376 (1966), did not support that argument. The court explicitly held that Hansen owed the Bocks a duty not to misrepresent what their policy covered.

Mrs. Bock cut her hand when she tried to clean up the mess and Hansen had allegedly represented that clean up was not covered. Mrs. Bock had real damage proximately caused by her reliance on Hansen’s misrepresentation. Citing the Restatement of Torts, the court said: “one ‘who negligently gives false information to another is subject to liability for physical harm caused by action taken by the other in reasonable reliance upon such information.’”

The court also rejected Hansen’s argument he cannot be liable as an agent because he was acting in the course and scope of his employment. Citing Witkin, the court said:

“An agent or employee is always liable for his or her own torts, whether the principal is liable or not, and in spite of the fact that the agent acts in accordance with the principal’s directions…Similarly, an agent who commits an independent tort, such as fraud, remains liable despite the fact that the principal, by ratification, also becomes liable.”

The court next rejected Hansen’s argument that the Bocks could not state a cause of action for negligent misrepresentation because their reliance on his statement that their claim was not covered was unjustified. In this regard, Hansen argued: “An insured cannot justifiably rely on an adjuster’s representations about coverage when they contradict the express terms of the policy” and, “[h]ad [the Bocks] read the policy…they would have seen that Hansen’s alleged statements clearly were incorrect.” Of this, the court said: “We are nonplussed: not only does Hansen acknowledge his ‘clearly’ erroneous statement to the Bocks, but he then faults them for believing him. In any event, the argument has no merit.” (Emphasis added.)

As to the Bocks’ cause of action for intentional infliction of emotional distress, the court held that the Bocks had failed to allege facts showing extreme and outrageous conduct. However, it also held that the trial court should have given them leave to amend to try to do so.

ANALYSIS

This is a potentially significant case because it may re-open the door to actions against insurance adjusters, even if only for negligent misrepresentation.

The court allowed a cause of action when the adjuster allegedly misrepresented the policy coverages. The court does not seem to be saying that a policyholder can sue just because the adjuster made a misrepresentation. The misrepresentation has to cause the insured to justifiably rely and suffer damage as a result of the reliance. If the insured disagrees with the adjuster and just sues, there is unlikely to be reliance or damage from such reliance. But, if the insured does rely, the insured now may have recourse.

 

Uncertain Employee Status May Trigger Duty To Defend Injury Claim

Global Hawk Insurance Company v. Le
(Cal. Ct. of App., 1st Dist.), filed April 14, 2014, published April 14, 2014

KEY FACTS

Jerry Le was a truck driver. V&H Trucking hired him for a single job, paying him $1,100. V&H told him there would be no benefits, no taxes withheld, no social security withheld and that he would receive a 1099 at the end of the year. The job entailed Le and a co-driver hauling goods from Los Angeles to New York, then to Georgia, then back to New York, then back to Los Angeles.

Traveling back to Los Angeles, Le was asleep in the sleeper section when the co-driver crashed. Le was seriously injured.

After the accident, V&H refused to pay Le the lump sum promised, telling him that he did not finish the trip. V&H also told Le that he was not an employee, and would not be eligible for worker’s compensation.

Le sued V&H and its owners for his injuries. V&H tendered defense to Global Hawk Insurance Company, which insured V&H under a commercial auto truckers liability insurance policy.

The Global Hawk policy provided:

Exclusions:

This insurance does not apply to any of the following: [¶] . . . [¶]

3. Workers Compensation
Any obligation for which the “insured” or the “insured’s” insurer may be held liable under any worker’s compensation, disability benefits of unemployment compensation law or any similar law.

4. Employee Indemnification and Employer’s Liability

“Bodily injury” to:

(a) An “employee” of the “insured” arising out of and in the course of:

(1) Employment by the “insured”, . . . [¶] . . . [¶]

(b) The spouse, child, parent, brother or sister of that “employee” as a consequence of Paragraph a above.

This exclusion applies:

(1) Whether the “insured” may be liable as an employer or in any other capacity; and

(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

The definitions section contained the following pertaining to the term “employee”:

F. “Employee” includes a “leased worker.” “Employee” does not include a “temporary worker.” [¶] . . . [¶]

I. “Leased worker” means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. “Leased worker” does not include a “temporary worker.” [¶] . . . [¶]

R. “Temporary worker” means a person who is furnished to you to substitute for a permanent “employee” on leave or to meet seasonal or short-term workload conditions.”

Global Hawk refused to defend V&H. After Le obtained a default judgment, Global Hawk filed a declaratory relief action, contending that Le’s injuries were excluded from coverage because he was an employee. Global Hawk moved for summary judgment, which the trial court granted:

HOLDING & REASONING

The Court of Appeal reversed.

The court framed the issue as “whether Le’s injuries are undisputedly excluded from coverage under the Golden Hawk policy because he was an employee of V&H and/or eligible for worker’s compensation.” It then found that given the undisputed facts of the case, there was a triable issue as to whether Le was V&H’s employee. Since there was a triable issue as to Le’s status, there was a triable issue as to whether Le’s injuries were covered or excluded. As a result, Global Hawk was not entitled to a summary judgment.

The court rejected Global Hawk’s arguments that by virtue of certain federal regulations and the language of a mandatory policy endorsement, Le was an “employee.” The court noted that the undisputed facts did not establish that the endorsement was attached to the policy issued to V&H and that there was evidence that it wasn’t. It also noted that cases made drivers employees to extend trucking company liability, not to limit their liability to drivers or to excuse their insurers from compensating drivers.

ANALYSIS

An insurer has a duty to defend its insured in any action in which there is a potential for an award of covered damages. Since there was a triable issue as to Le’s status, there was a potential for an award of covered damages. Thus, Global Hawk arguably had a duty to defend V&H.

 

Other Cases Of Interest

A Real Estate Salesperson Had A Fiduciary Duty

Horiike v. Coldwell Banker Residential Brokerage Company
(Cal. Ct. of App., 2d Dist.), filed April 9, 2014, published April 9, 2014

Chris Cortazzo was a salesperson for Coldwell Banker Residential Brokerage Company. Residential property owners in Malibu engaged Cortazzo to sell their property.

Hiroshi Horiike wanted to buy a home. He was working with a broker, Chizuko Namba, a Coldwell Banker employee. Namba saw Cortazzo’s listing for the Malibu property and arranged for Cortazzo to show the property to Horiike.

Horiike bought the property, but discovered it was far smaller than what he had been told. As a result, he sued Cortazzo and Caldwell Banker for intentional and negligent misrepresentation, breach of fiduciary duty, unfair business practices in violation of Business and Professions Code section 17200, and false advertising in violation of Business and Professions Code section 17500.

The trial court granted a nonsuit on the fiduciary duty claim. It determined that a salesperson who listed the property did not have a fiduciary duty to a buyer. The trial court also instructed the jury that Coldwell Banker had no liability for breach of fiduciary duty based on Cortazzo’s acts.

The jury returned a defense verdict on the remaining causes of action.

The Court of Appeal reversed and remanded. It held that the salesperson, Cortazzo, had a fiduciary duty equivalent to the duty owed by the broker, Coldwell Banker. The trial court incorrectly granted the nonsuit and erroneously instructed the jury.

When a broker is the dual agent of both the buyer and the seller in a real property transaction, as was the case with the particular transaction since both salespersons were Coldwell Banker employees, the salespersons acting under the broker have the same fiduciary duty to the buyer and the seller as the broker.

 

The Statute Of Limitations Did Not Bar Action

Arroyo v. Plosay
(Cal. Ct. of App., 2d Dist.), filed April 2, 2014, published April 2, 2014

On July 26, 2010, Maria de Jesus Arroyo was taken by ambulance to White Memorial Hospital where Dr. John J. Plosay treated her for cardiac arrest, acute myocardial infarction, and hypertension. Shortly after arrival, she was pronounced dead. She was then taken to the hospital’s morgue.

When workers for the mortuary selected by the family came to pick up Maria’s body, they found it lying face down in the hospital morgue. Maria’s nose was broken and her face had suffered lacerations and contusions – injuries that had not been present when she arrived at the hospital or when her relatives viewed her body after the declaration of death. The workers informed the family of the injuries to Maria’s remains. The family sued the hospital for having mutilated Maria’s body. On January 20, 2012, the family voluntarily dismissed that action.

On May 3, 2012, the family filed a new lawsuit, naming the hospital and Dr. Plosay. It contained causes of action for medical negligence and wrongful death. These causes of action were premised on the theory that during discovery in the mutilation action, an expert, relying on deposition testimony, declarations of the hospital personnel, and Maria’s medical records, opined that Maria’s remains were not disfigured after death. Rather, according to the expert, Maria had been prematurely declared dead by Dr. Plosay and the hospital staff, put in the morgue freezer while still alive, “eventually woke up” due to the extreme cold, and damaged her face and turned herself face down as she struggled unsuccessfully to escape her frozen tomb.

The family asserted a third cause of action for negligence against the hospital for mutilating Maria’s body after her death.

To avoid the statute of limitations, the family alleged that they did not discover that Maria had been frozen alive until the expert gave his opinion on December 8, 2011, and could not have discovered that fact earlier by the exercise of reasonable diligence.

The hospital filed a demurrer. The trial court sustained the demurrer without leave to amend. It ruled that the one-year limitation period of Code of Civil Procedure section 340.5, applicable to actions for professional negligence against a health care provider, applied to all claims and commenced on or about July 26, 2010, the date the family learned of Maria’s death and the disfiguring injuries to her face. Therefore, the trial court ruled the family’s filing of a second action on May 3, 2012, was untimely. By stipulation, the ruling applied to the claims against Dr. Plosay.

The Court of Appeal reversed.

The appellate court ruled that the family’s allegations did not show, as a matter of law, that the one-year limitation period of section 340.5 for the medical negligence and wrongful death claims began running on July 26, 2010.

First, the “injury” that the family then reasonably suspected was not the same “injury” as that underlying the medical negligence and wrongful death claims. Second, the facts alleged did not permit the conclusion, as a matter of law, that a reasonable investigation of all potential causes of the injury family suspected at the time of Maria’s death would have uncovered the factual basis for the negligence and wrongful death claims before December 8, 2011, the date the family’s expert in the first action rendered his opinion. Therefore, the trial court erred in sustaining the hospital’s demurrer to these two causes of action premised on medical negligence.

As to the cause of action for negligence for mutilating Maria’s body, the court concluded that section 340.5 provided the applicable limitation period. It reasoned that facts subject to judicial notice established that placing Maria’s remains in the hospital morgue fell within the definition of professional negligence. Since section 340.5 is not limited to actions for injury caused to a patient, but rather applies to actions for injury by any party whose injury was a foreseeable result of the alleged professional negligence, it applied to the negligent mutilation claim.

Because the family filed the new lawsuit more than one year after it knew of or reasonably suspected their injury, the negligence claim was time barred.

 

A “High-Low” Arbitration Agreement Was Binding

Horath v. Hess
(Cal. Ct. of App., 4th Dist.), filed April 10, 2014, published April 10, 2014

Elsie Horath was injured when John Hess’ car hit her car from behind. Horath filed a personal injury action against Hess. Their attorneys entered into a written stipulation to submit the dispute to an arbitrator for private binding arbitration. The stipulation included a floor of $44,000 and a cap of $100,000 on any award.

The arbitrator found Hess liable and awarded Horath $329,644.61 in damages. He then awarded her costs of $36,882.61. The total arbitration award was $366,527.22.

Horath filed a petition to confirm the award to $366,527.22. Hess filed a motion to limit the judgment to $100,000, citing the stipulation’s award limitations. Horath opposed the motion, arguing it was, in effect, a motion to “correct” the award and, as such, was not timely filed within the 100-day limit under Code of Civil Procedure sections 1288 and 1288.2.

The trial court issued an order granting Horath’s petition to confirm the award and denying Hess’s motion. The court stated Hess’ motion to vacate or correct the award was not filed within the 100-day limit under section 1288.

Hess then filed a motion for relief, arguing again that the stipulation limited Horath to recovering $100,000. The court denied that motion, finding Hess had not shown grounds for relief.

Hess next filed a motion for acknowledgment of satisfaction of judgment. In it, he argued that he had paid Horath $100,000 plus costs and was therefore entitled to an acknowledgment of full satisfaction pursuant to the stipulation and Code of Civil Procedure section 724.050. He stated he was not challenging the award or the judgment, but was instead seeking to enforce the terms of the stipulation pursuant to which Horath had agreed to accept $100,000 plus costs, regardless of the arbitration award or judgment. He further stated that his motion did not seek reconsideration of the trial court’s prior rulings.

Horath opposed the motion, arguing Hess’ attempts to vacate or correct the award had already been decided by the court in its prior rulings. She argued section 724.050 was not a proper procedural vehicle for Hess to collaterally attack the award and judgment and, in any event, she did not accept Hess’ tender of $100,000 plus costs as full satisfaction of the judgment. Horath also sought an award of attorney’s fees for opposing Hess’ motion. The trial court denied Hess’ motion. It awarded Horath $5,000 for attorney’s fees pursuant to section 724.080.

The Court of Appeal affirmed the judgment but reversed the trial court’s ruling on Hess’ post-judgment motions and remanded for further proceedings. It ruled that Hess was entitled to an order declaring that he had satisfied the judgment.

The court reasoned that the stipulation provided that Horath would accept a maximum of $100,000 plus costs and did not contain any language requiring Hess, to enforce the “high-low” provision, to file a motion to vacate or correct the arbitration award or respond to a petition to confirm the award.

In short, Hess could not challenge the award or judgment, but Horath had to accept Hess’ $100,000 payment.

 

Attorney’s Fees Were Recoverable In Enforcing a Judgment

Rosen v. LegacyQuest
(Cal. Ct. of App., 1st Dist.), filed March 21, 2014, published April 8, 2014

Stephanie and Michael Rosen obtained a significant judgment against Christopher Cook and LegacyQuest for breach of contract. Cook and LegacyQuest appealed the judgment. They obtained a stay of execution by posting an undertaking by personal sureties. After the appellate court dismissed Cook and LegacyQuest’s appeal at their request, Cook and LegacyQuest, and then their sureties, failed to pay the judgment. Upon motion by Stephanie to enforce the undertaking, the trial court entered judgment against the sureties. The sureties appealed, and the appellate court affirmed. Stephanie then filed a motion for costs and attorney’s fees incurred in enforcing the judgment against the sureties. The trial court awarded costs, but denied fees.

The Court of Appeal reversed and remanded with directions to award reasonable attorney’s fees, including those fees she incurred in appealing the trial court’s denial of her motion for fees.

 

Attorney’s Fees Were Not Recoverable In Enforcing a Judgment

Gray1 CPB, LLC v. SCC Acquisitions, Inc.
(Cal. Ct. of App., 4th Dist.), filed April 9, 2014, published April 9, 2014

Gray1 CPB, LLC, obtained a judgment against SCC Acquisitions and Bruce Elieff. Gray1 incurred more than $3 million in attorney’s fees to enforce its judgment. The fees were largely incurred in litigating a separate action against Elieff to untangle what Gray1 asserted were a number of fraudulent transactions resulting in the placement of fraudulent liens on Elieff’s real property as part of a scheme to insulate Elieff’s properties from the judgment.

Almost two years after Gray1 obtained the judgment, SCC Acquisitions and Elieff paid the outstanding judgment and accrued interest with a cashier’s check.

Gray1 did not immediately cash the check. It held onto the check long enough for its attorneys to file a motion for post-judgment costs, including attorney’s fees. Once deposited, the issuing bank honored the check.

The trial court denied Gray1’s motion because Gray1 made the motion only after it had accepted payment of the judgment. The trial court relied on Code of Civil Procedure section 685.080(a).

The Court of Appeal affirmed.

The court held that Gray1 had the right to reject the cashier’s check and to demand that the judgment be paid in cash. However, when Gray1 accepted the check, it had the same effect as if Gray1 had received cash. Thus, at the time Gray1 made its motion for attorney’s fees, the judgment had been satisfied. Section 685.080(a) precluded Gray1 from recovering attorney’s fees incurred in enforcing the judgment.

The court noted that Gray1 could have rejected the cashier’s check and demanded cash, and then, while SCC Acquisitions was gathering the cash, Gray1 could have filed a motion for fees. It held that such a motion would have been timely.

In addition, Gray1 could have filed one or more interim motions for fees rather than waiting until SCC Acquisitions tendered the check.

 

A Rent Increase Was Permissible

1300 N. Curson Investors, LLC v. Drumea
(Cal. Ct. of App., 2d Dist.), filed April 4, 2014, published April 4, 2014

Cecilia Drumea and her mother, Elena Drumea, lived in an apartment building that was subject to rent control. The rent was $850 per month. However, the building owner made Cecilia the resident manager. As compensation, she was not required to pay rent.

The day before 1300 N. Curson Investors, LLC bought the building, the building owner terminated Cecilia’s services as the resident manager. Then, when 1300 N. Curson Investors bought the building, it gave her notice that her rent was being raised to $1,552.03. This figure was based on the $850 rent plus all of the annual adjustments permitted under the Los Angeles Rent Control Ordinance that had accrued over the years Cecilia was manager.

Cecilia and her mother refused to pay $1,552.03 and the new owner filed suit. In the ensuing appeal, the court held that the new owner had the right to raise the rent to $1,552.03. However, it held that Cecilia and her mother needed to pay that figure only from the date its opinion became final and that if they failed to do so, the owner could file an unlawful detainer action against them.

 

Res Judicata Precluded Suit

DKN Holdings LLC v. Faerber
(Cal. Ct. of App., 4th Dist.), filed April 9, 2014, published April 25, 2014

Wade Faerber, Mathew Neel, and Roy Caputo agreed to lease retail space in a shopping center from the center’s co-owners and lessees, DKN and CDFT Limited Partnership. They intended to operate a fitness club in the space. The parties signed a “Standard Retail/Multi-Tenant Lease-Net” lease with a 10-year term. Section 48 of the lease provides that “multiple parties” signing the lease as lessors or lessees “shall have joint and several responsibility” to comply with its terms.

The fitness club failed.

Caputo sued DKN seeking to rescind or cancel the lease and for money damages based on fraud and breach of fiduciary duty. DKN and CDFT filed a cross-complaint for unpaid rent against Caputo, Faerber and Neel.

DKN and CDFT served Caputo, but not Faerber or Neel. Following a court trial, Caputo was denied any relief on his complaint, and DKN and CDFT were awarded over $2.8 million in money damages against Caputo. Faerber and Neel were dismissed as unserved cross-defendants following the entry of the judgment against Caputo.

DKN and CDFT did not move to add Faerber or Neel to the judgment against Caputo as additional judgment debtors.

When Caputo did not satisfy the judgment, DKN and CDFT sued Faerber and Neel seeking the same money damages that DKN was awarded against Caputo in the prior action.

The trial court sustained a demurrer to the complaint based on its conclusion that DKN and CDFT could not recover against Faerber or Neel as they had already recovered against Caputo.

The Court of Appeal affirmed. It ruled that because of the judgment against Caputo, an action against Faerber and Neel for monies due under the lease was barred by the claim preclusion aspect of the res judicata doctrine.