Key Decisions

November 2013 – All Articles

(filed under: Key Decisions | November 20, 2013)

Opportunity to Settle a Requirement For Excess Verdict

Reid v. Mercury Insurance Company
(Cal. Ct. of App., 2d Dist.), filed October 7, 2013, published October 7, 2013

KEY FACTS

Zhi Yu Huang negligently caused a automobile collision involving several automobiles. The collision resulted in four claims against Huang.

Mercury Insurance Company insured Huang. The limits were $100,000 per person to a maximum of $300,000 per occurrence.

It quickly became clear that Huang was liable and at least one of the claimants, Paul Reid, had injuries that easily exceeded the applicable policy limits. Reid never demanded payment of the policy limits in settlement of his claims. Nor did he indicate that the claim could be settled within the policy limits.

Mercury never initiated settlement discussions with Reid.

Reid sued Huang and obtained a verdict of $5.9 million. Huang declared bankruptcy. The bankruptcy trustee assigned Huang’s rights against Mercury to Reid. Reid sued Mercury for breach of the implied covenant of good faith and fair dealing based on its failure to settle within the policy limits.

The trial court granted a summary judgment for Mercury, based on the fact that Reid had never demanded Huang’s policy limits in settlement of his claim or indicated he would settle for those limits.

HOLDING & REASONING

The Court of Appeal affirmed.

The court held that:

An insurer’s duty to settle is not precipitated solely by the likelihood of an excess judgment against the insured. In the absence of a settlement demand or any other manifestation the injured party is interested in settlement, when the insurer has done nothing to foreclose the possibility of settlement, we find there is no liability for bad faith failure to settle.

Although an insurer can be liable for failing to settle when it unreasonably fails to accept a settlement demand within the policy limits when there is a likelihood of a verdict in excess of those limits, and can be liable if it engages in conduct that forecloses the possibility of such a demand, debate continues as to whether an insurer must initiate settlement discussions or face potential liability for failing to do so.

The court distinguished Boicourt v. Amex Assurance Co., 78 Cal.App.4th 1390 (2000), where there was evidence that the insurer foreclosed the possibility of a demand within limits by refusing to disclose the policy limits or even ask the insured for permission to do so.

The court rejected Reid’s argument that Mercury had foreclosed a settlement demand by advising that it was still investigating the claim, had not yet determined liability and required complete medical records. It ruled that Mercury’s actions could not be construed as foreclosing a settlement demand. The court noted that unlike the insurer in Boicourt, Mercury, with Huang’s permission, disclosed the applicable policy limits.

ANALYSIS

According to the court, Reid retained an attorney who corresponded with Mercury, but did not make a settlement demand. Reid’s attorney believed Mercury would not settle for the policy limits.

Small nuances in the handling of large claims can make big differences in the final outcome. That is why many insurers offer the policy limits once excess liability appears likely.

 

There Was No Duty To Defend Until There Was A Claim For Damages

San Miguel Community Association v. State Farm General Insurance Company
(Cal. Ct. of App., 4th Dist.), filed October 1, 2013, published October 16, 2013

KEY FACTS

San Miguel Community Association members complained that the Association was not enforcing parking regulations as set forth in the CC&Rs. When the Association declined to act, the members demanded that the matter be referred to alternative dispute resolution. When that did not solve the problem, they filed suit.

The Association was insured under a State Farm liability insurance policy. State Farm’s policy covered “sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury” caused by an “occurrence.”

The policy defined an “occurrence” as either, “an accident . . . which result[s] in bodily injury or property damage,” or “the commission of an offense, or a series of similar or related offenses, which results in personal injury or advertising injury.” The policy defined “property damage” as: (1) “physical injury to or destruction of tangible property, including all resulting loss of use of that property…and (2) loss of use of tangible property that is not physically injured or destroyed, provided such loss of use is caused by physical injury to or destruction of other tangible property…”

State Farm agreed to “defend any claim or suit seeking damages payable under this policy even though the allegations of the suit may be groundless.” A “suit” was defined as “a civil proceeding in a court of law in which damages…to which this insurance applies are alleged,” and includes “an arbitration proceeding in which such damages are claimed” and “any other alternative dispute resolution proceeding in which such damages are claimed and to which you submit with our consent.”

When the Association received the demand for alternative dispute resolution, it tendered the demand to State Farm. When it was sued, it tendered the complaint. It also tendered a first and second amended complaint.

State Farm denied coverage for the claims asserted in the demand for alternative dispute resolution and the original and first amended complaints. The original complaint only sought injunctive relief, and the first amended complaint added only a cause of action for breach of fiduciary duty.

State Farm did accept coverage for the claims asserted in the second amended complaint because it contained a claim for monetary damage in addition to claims for equitable relief. However, State Farm declined to reimburse the Association for legal fees it incurred in resisting claims prior to the tender of the second amended complaint.

The Association sued State Farm. The trial court granted State Farm’s motion for summary judgment based on its conclusion that there had been no duty to defend before the second amended complaint against the Association.

HOLDING & REASONING

The Court of Appeal affirmed. The court framed the question before it, and answered it as follows:

When an insurance company issues a liability policy, agreeing to indemnify its insured against a third party claim for damages covered under the policy, and to defend the insured against any such claim, does the insurer have a duty to defend the insured against a third party lawsuit seeking injunctive relief but no compensatory damages? Answer: No. The third party’s failure to seek compensatory damages against the insured means the dispute is not a claim for damages under the policy. The insurer’s defense obligation requires it to provide the insured with a defense against a claim seeking damages potentially payable under the policy, not to defend the insured’s honor or otherwise assist it in resolving a nonmonetary dispute.

The court explained:

In the abstract, it is irrelevant that the third party might have suffered harm that could give rise to a claim for damages covered under the insured’s policy. What matters is whether the third party has sought to recover damages from the insured. It is only when the third party does that, that it has made a claim which triggers even potential coverage under a liability policy. That did not occur here until the third party plaintiffs amended their pleading to include a claim for compensatory damages.

There is a duty to defend whenever there is a potential for an award of covered damages. However, the court found there was no potential for a covered judgment until the second amended complaint asserted damages claims.

The court rejected the Association’s argument that a claim for damages should be implied from the allegations of the original and first amended complaints. It reasoned that case law does not establish a rule that insurers must infer the existence of additional allegations not actually included within the underlying third party complaint, merely because it is aware those additional claims might have been plausibly included.

The court said:

In effect, [the Association] is asserting that because the third party plaintiffs in the underlying case purportedly sustained some actual damage as a result of [the Association’s] alleged wrongs – albeit in an amount that plaintiffs’ own attorney characterized as “de minimus” – and thus could have sought recovery of those damages from [the Association] in earlier pleadings, State Farm was obligated to infer they had actually done so. We reject the assertion.

ANALYSIS

Courts will not imply damages that are not specifically pled and speculation as to unpled claims cannot create potential coverage. But if the alleged facts support a covered theory of liability, courts typically find a duty to defend.

 

Liability For Negligent Supervision Resulting In An Auto Accident Was Subject To The Auto Exclusion

Farmers Insurance Exchange v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed October 1, 2013, published October 28, 2013

KEY FACTS

Jose and Sara Bautista had a two-year-old granddaughter named Valerie. Sara was responsible for watching and caring for Valerie. Sara routinely allowed the grandchildren to greet Jose when he drove home from work. On August 17, 2007, Sara negligently failed to supervise Valerie and as a result, Valerie exited the house to greet Jose and was hit and killed by Jose’s vehicle as he entered the driveway.

At the time, the Bautistas had a homeowners’ policy with policy limits of $300,000 per occurrence and an automobile policy with limits of $30,000 per person, to a maximum of $60,000 per occurrence.

The homeowners’ policy excluded bodily injury that “results from the ownership, maintenance, use, loading or unloading of…motor vehicles…” It also excluded bodily injury to residents of the Bautistas household.

Valerie’s parents sued the Bautistas and obtained a $300,000 judgment.Farmers’ declaratory relief complaint sought an adjudication that the homeowners’ policy did not apply. Valerie’s parents cross-complained for bad faith.

The trial court denied Farmers’ summary judgment motion, ruling that the homeowners’ policy exlcusion did not apply.

HOLDING & REASONING

The Court of Appeal issued a writ of mandate directing the trial court to grant Farmers’ motion. It concluded that the “motor vehicle” exclusion barred coverage.

The court analyzed State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal.3d 94 (1973) to determine whether Sara’s liability was dependent or independent of the ownership, maintenance or use of a motor vehicle.

In Partridge, the insured and several friends were hunting rabbits from his vehicle. The gun had been modified to have a “hair trigger.” During the expedition, the insured pulled off the road. This jarred the pistol, causing it to fire. The bullet hit and seriously injured the claimant, one of his passengers.

The insurer argued the claim was covered under the insured’s automobile policy, but not his homeowner’s policy. It reasoned the ultimate injuries arose out of the vehicle’s use which the homeowner’s policy specifically excluded.

The California Supreme Court held that both the automobile and homeowner’s policies afforded coverage. It held there were two independent negligent acts. One act of negligence was driving off the road; the other was modifying the trigger. The court held the insured’s liability for the negligent act of modifying the trigger was not a liability arising out of the ownership, maintenance or use of a motor vehicle even though the gun would not have discharged had the insured not driven off the roadway.

Cases decided after the Partridge case considered whether acts of negligence were dependent or independent.

Ultimately, the court concluded that Sara’s liability depended on the ownership, maintenance or use of a motor vehicle.

This is an interesting decision that further refines the “independent negligence” concept. The court concentrated on the fact that the vehicle – the excluded instrument – played an active role in producing the injury, so the exclusion barred coverage.

 

A Press Release Was Actionable

GetFugu, Inc. v. Patton Boggs LLP
(Cal. Ct. of App., 2d Dist.), filed October 3, 2013, published October 3, 2013

KEY FACTS

Davies and Warnock filed a civil action under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) on behalf of themselves as well as GetFugu shareholders, alleging claims arising from RICO violations, breaches of fiduciary duty, fraud, breach of contract and conspiracy. Davies and Warnock were represented by Richard Oparil of the Patton Boggs law firm, and Iman Reza of the Cummins & White law firm.

The district court dismissed the state law claims without prejudice, ruling it would not exercise supplemental jurisdiction to hear them. Davies and Warnock appealed the district court’s order. They also filed a state court action pursuing the claims the district court dismissed without prejudice.

Oparil issued a press release implying that the FBI was investigating GetFugu and several of its officers in conjunction with an investment scam. Oparil also wrote a “tweet,” stating “GetFugu runs an organization for the benefit of its officers and directors, not shareholders and employees. The RICO suit was not frivolous. The 500K[sic] lawsuit is frivolous, however, so buyer be wary.”

GetFugu and several officers and directors sued Oparil, Patton Boggs, Reza and Cummins & White for defamation. They responded by filing an anti-SLAPP motion. The trial court granted the motion.

HOLDING & REASONING

The Court of Appeal affirmed as to Reza and Cummins & White, but reversed as to Oparil and Patton Boggs.

The Legislature enacted the anti-SLAPP statute to discourage lawsuits filed to chill public participation. It accomplished this by providing a means of quickly disposing of such lawsuits.

Acts in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue includes any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest.

Investment scams, involving publicly traded corporations, are matters of public interest. Oparil and Patton Boggs met their burden of showing the press release involved a matter of public interest. However, GetFugu satisfied its burden of showing its claims were potentially meritorious. It submitted evidence showing it was not being investigated.

The court rejected Oparil and Patton Boggs’ assertion that the press release was subject to the litigation privilege.

The usual formulation of the litigation privilege is that it “applies to any communication: (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” The principal purpose of the litigation privilege “is to afford litigants and witnesses citation the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions.” The litigation privilege “promotes the effectiveness of judicial proceedings by encouraging ‘open channels of communication and the presentation of evidence’ in judicial proceedings.” However, “republications to nonparticipants in the action are generally not privileged under [the litigation privilege], and are thus actionable unless privileged on some other basis.”

The republished press release was not protected by the litigation privilege.

The court noted:

The litigation privilege should not be extended to “litigating in the press.” Such an extension would not serve the purposes of the privilege; indeed, it would serve no purpose but to provide immunity to those who would inflict upon our system of justice the damage which litigating in the press generally causes: poisoning of jury pools and bringing disrepute upon both the judiciary and the bar.

Although the press release was actionable, the “tweet” was not. It was a nonactionable expression of opinion and could have been seen as nothing more.

ANALYSIS

This case offers an example of what can go wrong when parties “litigate in the press.” [In Flatley v. Mauro, 39 Cal.4th 299 (2006), a prospective plaintiff threatened to go to the press with defamatory claims. Her attorney was sued for civil extortion.] Here, Oparil didn’t threaten to go to the press; he just went to the press. He even framed the press release so it implied — but didn’t expressly say — there was an FBI investigation. Nonetheless, it was enough to create possible defamation liability.

 

The Uniform Trade Secrets Act Did Not Pre-empt Other Claims

Angelica Textile Services, Inc. v. Park
(Cal. Ct. of App., 4th Dist.), filed October 15, 2013, published October 15, 2013

KEY FACTS

Angelica Textile Services, Inc. provided linens and laundry services to hospitals and healthcare facilities throughout the United States. It operated in the San Diego area for many years and controlled 90 percent of the hospital linen and laundry market in San Diego.

Jay Park began working for Angelica in San Diego in 1982 when Angelica purchased his former employer, Blue Seal Linen. By 2008, Park had been promoted to market vice president and was responsible for the operations of Angelica’s San Diego and Phoenix laundry plants.

During the course of his employment with Angelica, Park signed a noncompetition agreement under which he promised he would “give his best endeavors, skill and attention to the discharge of his duties with the Company in a manner consistent with his position, at such place or places as may be reasonably expected or required by the Employer in the furtherance of its business.” Park also promised he would not, during his employment, “become interested, directly or indirectly, as a partner, officer, director, stockholder, advisor, employee, independent contractor or in any other form or capacity, in any other business similar to Company’s business.”

While still employed by Angelica, Park negotiated certain contracts with Angelica customers, but included in those contracts provisions that would enable those customers to cancel the contracts without penalty. In addition, Park assisted in the creation of a competing business. After he resigned from Angelica, Park became chief operating officer of the new business.

Park’s new business captured much of Angelica’s business in San Diego.

Angelica sued Park and the new business for misappropriation of trade secrets, violation of Business and Professions Code Section 17200, unfair competition, interference with business relationships, and breach of contract and conversion. Angelica also sued Park for breach of fiduciary duty.

In response to a motion for summary adjudication, the trial court ruled that the Uniform Trade Secrets Act (UTSA) pre-empted Angelica’s various claims. A jury then found that none of the wrongfully appropriated information was a trade secret under the UTSA. The trial court entered judgment in favor of the defendants.

Angelica appealed the ruling on the summary adjudication motion, but not the jury’s finding.

HOLDING & REASONING

The Court of Appeal reversed and remanded. It ruled that the UTSA did not displace breach of contract claims, even if they were partially based on the alleged misappropriation of a trade secret. The UTSA did not displace other claims when they were not based on an alleged trade secret misappropriation.

The breach of contract and breach of fiduciary duty theories Angelica advanced did not depend on any trade secret misappropriation and were not displaced by the UTSA. Those theories also independently supported its related claims for statutory and common law unfair competition and interference with business relations.

In particular, as an Angelica employee and signatory to Angelica’s noncompetition agreement, Park owed duties of loyalty to Angelica and there was evidence that despite these duties, he actively engaged in starting a competing business. This evidence would have supported a finding of liability. Thus, the trial court erred in granting a summary adjudication against Angelica.

ANALYSIS

The court was careful to note that it expressed no opinion as to the merits of Angelica’s claims other than that they were not pre-empted or displaced by the UTSA.

 

Other Cases Of Interest

Employees May Have Been Managing Agents

Davis. v. Kiewit Pacific Company
(Cal. Ct. of App., 4th Dist.), filed September 18, 2013, published October 8, 2013

Lisa Davis sued Kiewit Pacific for gender discrimination, hostile work environment harassment, retaliation, and failure to prevent harassment, gender discrimination, or retaliation.

The trial court granted Kiewit’s motion for summary adjudication on Davis’s claim for punitive damages, concluding there were no triable issues of material fact whether a managing agent of Kiewit had engaged in or ratified any oppressive, malicious and/or fraudulent conduct against her.

At trial, a jury found Kiewit liable. However because of the summary adjudication, it could not consider punitive damages.

Davis appealed, asserting the trial court erred by granting Kiewit’s motion for summary adjudication.

The Court of Appeal reversed, concluding there was a triable issue of material fact for determination by a jury as to whether Kiewit personnel involved in the matter qualified as managing agents.

The court found that declarations stating particular people were not managing agents were conclusory and failed to negate evidence suggesting particular employees were managing agents.

 

A Settlement Offer Was Valid

Rouland v. Pacific Specialty Insurance Company
(Cal. Ct. of App., 4th Dist.), filed October 7, 2013, published October 7, 2013

KEY FACTS

Lars and Lisa Rouland owned a hillside home in Laguna Beach, California that was damaged in a landslide.

Pacific Specialty insured the Roulands’ home. However, it denied their claim because their policy excluded landslide damage.

The Roulands sued Pacific Specialty for breach of contract and insurance bad faith.

Approximately two months before trial, Pacific Specialty served separate offers to settle with Lars and Lisa under Code of Civil Procedure Section 998. Each stated, “If you accept this offer, please file an Offer and Notice of Acceptance in the above-entitled action prior to trial or within thirty (30) days after the offer is made.”

The Roulands did not accept either offer.

The jury returned a verdict in Pacific Specialty’s favor. Pacific Specialty then filed a memorandum of costs seeking approximately $385,000 from the Roulands. Those costs included more than $331,000 in expert witness fees based on the Roulands’ failure to obtain a judgment more favorable than Pacific Specialty’s Section 998 settlement offers.

The Roulands moved to tax Pacific Specialty’s expert witness fees on the ground the settlement offers did not comply with Section 998’s procedure for acceptance because they lacked a signature space for the Roulands to formally accept the offers. The Roulands also argued Pacific Specialty’s offers were merely token gestures made without any reasonable expectation the Roulands would accept them and the expert fees Pacific Specialty sought were unreasonable and unnecessary.

The trial court granted the motion and taxed all the expert witness fees because it found Pacific Specialty’s settlement offers failed to satisfy Section 998’s requirements. However, it found the offers were not token offers and the Roulands failed to show the expert fees were unreasonable or unnecessary.

The Court of Appeal reversed and remanded. It found that the offers complied with Section 998’s requirements.

The purpose of Section 998 is to encourage settlements. It does so by shifting certain litigation costs when a party rejects an offer and then fails to obtain a better result at trial.

To eliminate the uncertainties that may arise if an offer can be made or accepted orally, the offer must be in writing and include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted. Moreover, “[a]cceptance of the offer, whether made on the document containing the offer or on a separate document of acceptance, shall be in writing and shall be signed by counsel for the accepting party or, if not represented by counsel, by the accepting party.”

According to the court: “Nothing in the statute’s language requires an offer to include either a line for the party to sign acknowledging its acceptance or any specific language stating the party shall accept the offer by signing an acceptance statement.” The statute only requires the offer to specify the manner in which the offer is to be accepted.”

 

Without Damages Even “Negligent” Conduct Does Not Result In Liability

Wise v. DLA Piper LLP (US)
(Cal. Ct. of App., 4th Dist.), filed October 8, 2013, published October 28, 2013

Dennis Wise and Joan Macfarlane loaned William Cheng $350,000, for which Cheng signed two promissory notes. However, Cheng defaulted on the notes, and later filed for bankruptcy.

Wise and Macfarlane were represented by the law firm, DLA Piper LLC (US), which aided them in obtaining a judgment in 1994 against Cheng.

DLA did not advise Wise and Macfarlane that they needed to periodically renew the judgment. As a result, in 2004 the judgment became unenforceable.

Wise and Macfarlane brought an action alleging malpractice and obtained a judgment against DLA.

The Court of Appeal reversed. It found that the evidence was insufficient to support the judgment against DLA because there was no evidence the judgment against Cheng would have been collectable even had it been renewed.

 

Appellate Jurisdiction Cannot Be Created By Agreement

Kurwa v. Kislinger
(Cal. Sup. Ct.), filed October 3, 2013, published October 3, 2013

Badrudin Kurwa sued Mark Kislinger for breach of fiduciary duty and defamation, among other claims. Kislinger cross-complained for defamation.

In pretrial motions, the trial court concluded that Kislinger owed no fiduciary duties to Kurwa.

Rather than proceeding to trial just on the defamation claims, which could then go through an appeal and possible retrial on the fiduciary duty issue, Kurwa and Kislinger agreed to dismiss their respective defamation claims without prejudice and to waive the applicable statute of limitations. According to Kislinger’s counsel, this would allow the parties to “test the issue” of fiduciary duty and “get a ruling” from the appellate court before disposing of the defamation claims.

In granting a petition for review, the California Supreme Court held that this was an impermissible practice.

Under California’s “one final judgment” rule, a judgment that fails to dispose of all the causes of action pending between the parties is generally not appealable. The fact the parties have dismissed causes of action in a manner that would permit those causes of action to be brought later does not mean that the judgment has disposed of all of the causes of action between them. A petition for a writ of mandate, which is not an appeal, is the authorized means of obtaining review of orders that lack the finality the Code of Civil Procedure requires.

 

The County Was Immune From Suit

Meddock. v. County of Yolo
(Cal. Ct. of App., 3d Dist.), filed September 10, 2013, published October 13, 2013

A Fremont cottonwood tree fell on Dwight Meddock while he was in a paved parking lot located in a park along the Sacramento River owned by the County of Yolo. Based on a theory that there was a dangerous condition of public property, Meddock and his wife sued the County as a result of his injuries.

The trial court granted summary judgment for the County, applying a statutory immunity for injuries “caused by a natural condition of any unimproved public property.” (Cal. Gov. Code, § 831.2.)

The Court of Appeal affirmed. It concluded that Meddock’s injuries were “caused by” a “natural condition” of unimproved property where the tree grew. The fact the tree fell on improved property did not take the case outside the ambit of the statutory immunity.