Key Decisions

October 2013 – All Articles

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

Battery Does Not Require Body-To-Body Contact

Mount Vernon Fire Insurance Corporation v. Oxnard Hospitality Enterprises, Inc.
(Cal. Ct. of App., 2d Dist.), filed September 16, 2013, published September 16, 2013

KEY FACTS

Roberta Busby worked for Oxnard Hospitality Enterprises, Inc. as a nightclub dancer. A customer threw a glass full of a flammable liquid on her and set her on fire. As a result, she sued Oxnard Hospitality and others for damages for their alleged negligent failure to provide security.

At the time, Oxnard Hospitality was insured under a liability insurance policy issued by Mount Vernon Fire Insurance Corporation. The policy contained an “Assault or Battery” endorsement that excluded coverage for “all ‘bodily injury’…arising out of ‘assault’ or ‘battery’…including but not limited to ‘assault’ or ‘battery’ arising out of or caused in whole or in part by negligence…‘Battery’ means negligent or intentional wrongful physical contact with another without consent that results in physical or emotional injury.”

Mount Vernon filed a declaratory relief action in which it sought a declaration that it had no duty to indemnify Oxnard Hospitality.

Busby’s action against Oxnard was resolved by a stipulated judgment against Oxnard for $10 million. Oxnard assigned all of its rights against Mount Vernon to Busby.

Mount Vernon filed a motion for summary judgment against Busby in its declaratory relief action. The trial court granted its motion finding that the policy did not call for Mount Vernon to pay the judgment.

HOLDING & REASONING

The Court of Appeal affirmed, finding that the assault & battery exclusion barred coverage.

The court rejected Busby’s contention that Mount Vernon’s liability policy covered her judgment against Oxnard Hospitality because it defined battery as “physical contact” which in turn required direct body-to-body contact. Citing the Restatement Second of Torts, the court noted that the tort of battery generally is not limited to direct body-to-body contact. Cases in which a tortfeasor touched the plaintiff with an instrument hold that there has been a battery.

ANALYSIS

Assault and battery exclusions are increasingly common in liability policies. Depending on the particular wording, courts often apply the exclusions, even when the insured does not directly assault anyone.

 

The Insured’s Right To Cumis Counsel Ended

Swanson v. State Farm General Insurance Company
(Cal. Ct. of App., 2d Dist.), filed September 23, 2013, published September 23, 2013

KEY FACTS

Terry Ann Swanson sued her neighbors, Mark and Patricia Bitetti, for damages resulting from the failure of a retaining wall on their property. Attorney Richard Blasco represented her.

The Bitettis filed a cross-complaint against Swanson. Swanson tendered this cross-complaint to her liability insurer, State Farm, for a defense. State Farm accepted the tender but reserved its rights to deny coverage and to withdraw the defense.

Blasco asked to be appointed as “independent” or “Cumis” counsel because State Farm’s reservation created a conflict of interest. After some haggling over Blasco’s hourly rate, State Farm agreed.

State Farm ultimately withdrew portions of its reservation of rights and advised that because there was no longer a conflict of interest, it would no longer pay Blasco to represent Swanson in the defense of the cross-complaint. Rather, State Farm would select defense counsel.

Despite the fact State Farm said it would no longer pay Blasco, Blasco continued to represent Swanson in the defense of the cross-complaint. When State Farm refused to pay Blasco’s bill, Swanson sued State Farm. The trial court granted a summary judgment in favor of State Farm.

HOLDING & REASONING

The Court of Appeal affirmed.

The primary issue on appeal was whether State Farm had the right to take control of the litigation with an attorney of its choosing and to cease paying Blasco, after it withdrew its Cumis-triggering reservation of rights.

The court held that State Farm had such a right. When State Farm withdrew its Cumis-triggering reservation of rights, it no longer had an obligation to allow Swanson to control the litigation or an obligation to pay the attorney’s fees of Swanson’s Cumis counsel.

The court rejected Swanson’s argument that by agreeing on an hourly fee with Blasco, State Farm had modified the policy to permit her to select her own defense counsel. The court reasoned that the hourly fee issue was resolved in accordance with Civil Code Section 2860 and did not alter the policy.

The court also rejected Swanson’s argument that State Farm waived the right to withdraw its reservation of rights and to assume control of the defense. The duty to defend and the right to reserve rights derived from statutes and case law and there is no need to reserve the right to withdraw a reservation of rights.

ANALYSIS

This result is generally consistent with the rationale behind the insurer’s obligations to pay independent counsel in conflict situations. When the conflict is removed, the obligation to pay independent counsel may also be removed.

 

Appraisal Can Be Deferred

Alexander v. Farmers Insurance Company
(Cal. Ct. of App., 2d Dist.), filed September 23, 2013, published September 25, 2013

KEY FACTS

Frances Marc Alexander and Thomas and Anna Downie sustained fire losses. At the time of the losses, they were insured under property insurance policies issued by Fire Insurance Exchange, a member of the Farmers Insurance Group of Companies.

By statute, a fire insurance policy requires the insurer to pay “the actual cash value of the property at the time of loss.” Actual cash value is determined by the following calculation under the statute:

“In case of a partial loss to the structure, or loss to its contents, the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.”

The Insurance Commissioner has explained:

“When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. Any adjustments for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property. The basis for any adjustment shall be fully explained to the claimant in writing.”

Alexander and the Downies filed a class action lawsuit against Farmers on behalf of a class of homeowners who received a settlement or an offer of settlement from Farmers of a partial loss property claim for less than the applicable policy limits within the statute of limitations period. The complaint alleged that Farmers failed to comply with the method for determining the actual cash value set forth in section 2051(b). It alleged that, “[I]nstead, Farmers determines the [actual cash value] of personal property contents and structural components in partial losses by first determining a replacement cost. Farmers then deducts depreciation according to a secret schedule that is based on the age of the item.” The complaint also alleged that Farmers did not consider the pre-loss physical condition of damaged property and arbitrarily deducted the depreciation based on “its secret formula based on age.”

Farmers moved for an order that the amount of Alexander and the Downies’ losses be resolved through “appraisal,” a process established in the Insurance Code and policy for establishing the actual cash value of a loss when the parties cannot otherwise agree on it.

The trial court denied the motion without prejudice, holding that it could be renewed after the court ruled on the proper method for Farmers to follow in determining actual cash value.

HOLDING & REASONING

The Court of Appeal affirmed. It found that under the circumstances, the trial court did not abuse its discretion.

In an appraisal, the function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is not their function to resolve questions of coverage or to interpret provisions of the policy. Likewise, an appraisal panel generally lacks the authority to determine whether an insured lost what he [or she] claimed to have lost. Those things are for a court to determine.

Because appraisers are not to resolve questions of coverage or to interpret provisions of the policy, they cannot perform their function without the court’s guidance on whether the actual cash value can be determined using a formula based on a lost or damaged item’s age. It was not an abuse of discretion for the trial court to have elected to resolve the interpretation issue first.

The court followed the decisions in Kirkwood v. California State Automobile Assn. Inter-Ins. Bureau, 193 Cal.App.4th 49 (2011) and Doan v. State Farm General Ins. Co., 195 Cal.App.4th 1082 (2011) rather than Community Assisting Recovery, Inc. v. Aegis Security Ins. Co., 92 Cal.App.4th 886 (2001). Among other things, Community Assisting Recovery was decided before the Legislature amended the Insurance Code to address the proper method of determining the actual cash value of a loss.

The court noted:

“[a] judicial declaration that [the insurer’s] interpretation of section 2051(b) and its policy does not violate the statute would be the end of the line: no appraisal would be necessary, and insureds…would not be forced to pay for an appraisal. On the other hand, a contrary judicial declaration would inform the appraisal in this case and would have the meritorious effect of staving off future appraisals and litigation based on the same unlawful behavior. In our view judicial economy favors resort to declaratory relief in this instance by heading off duplicative future actions challenging [the insurer’s] statutory interpretation as reflected in its adjustment policy.”

The court found that the same considerations applied to the case before it.

ANALYSIS

This is one more case that emphasizes the relatively narrow job appraisers often have in connection with insurance claims.

We will keep our readers posted on any further holdings related to this case.

 

A “Loss Of Rent” Provision Was Ambiguous

Ventura Kester, LLC v. Folksamerica Reinsurance Company
(Cal. Ct. of App., 2d Dist.), filed September 11, 2013, published September 11, 2013

KEY FACTS

Ventura Kester owned a commercial building. Folksamerica Reinsurance Company provided property insurance on the building. At the time the policy was issued, a tenant leased the property.

The policy provided up to $2.76 million for structures and $552,000 for lost rents as a result of damage to a covered structure. The policy stated: “Subject to the terms, conditions and limitations of this policy, we insure you against financial loss resulting from: 1. direct physical loss of or damage to covered property caused by an accident; and 2. the enforcement of any ordinance, law or code which prohibits repair of a covered structure damaged by an accident and requires that any undamaged portion of the structure be demolished; and 3. rents including accrued rents which become uncollectible, and extra expenses incurred to prevent loss of rents, because of damage to or destruction of covered structures caused by an accident.”

The tenant that was in the building when Folksamerica issued its policy left, and Ventura Kester entered into negotiations for a new tenant. While the building was vacant, it was severely damaged by vandals.

Ventura Kester made a claim to Folksamerica. Folksamerica and Ventura Kester eventually reached an agreement as to the amount of the structure’s damage loss. However, Folksamerica declined to pay for lost rents because at the time of the loss, the building was vacant and Ventura Kester was collecting no rent.

Ventura Kester sued Folksamerica for breach of contract and breach of the covenant of good faith and fair dealing. It alleged that it was entitled to lost rent at a monthly rental rate of $100,000 for a total loss of rent of $3.8 million. Ventura Kester also sued its insurance broker for professional negligence.

Ventura Kester and Folksamerica filed competing motions for summary judgment. The trial court granted Folksamerica’s motion.

HOLDING & REASONING

The Court of Appeal reversed and remanded. It concluded the lost rents provision was ambiguous, and that a policyholder would have a reasonable expectation of coverage for rents that were actually lost as a result of the property damage regardless of whether there was then a lease in place.

The court rejected Folksamerica’s argument that the provision for loss of rents should be interpreted narrowly to mean rent from an existing tenant which is uncollectible as a result of damage to the covered property. It did so because the plain language of the policy did not limit recovery or calculate lost rents in the manner Folksamerica urged. It noted that “the provisions provide coverage for the loss of rents the owner would have collected, but for the property damage.”

The court also rejected Folksamerica’s argument that it was entitled to summary judgment because Ventura Kester could not establish any actual loss of rents as a result of the property damage. The court found a triable issue of fact as to whether Ventura Kester actually lost rent. Although Folksamerica presented evidence as to certain prospective tenants and their reasons for not renting the premises, it did not conclusively negate the possibility Ventura Kester could have rented the premises to other possible tenants.

ANALYSIS

This case offers a reminder of how challenging it can be to predict the outcome of policy interpretation disputes. The trial court felt that the provision addressed existing, actual rent, while the appellate court read the same words to reach broader categories of “loss of rents.”

 

The Test In FEHA Cases Is “Substantial Motivating Reason”

Alamo v. Practice Management Information Corporation
(Cal. Ct. of App., 2d Dist.), filed August 21, 2013, published September 5, 2013

KEY FACTS

Lorena Alamo worked for Practice Management Information Corporation (“PMIC”). Alamo had some job performance issues and some issues regarding her interactions with other employees. However, these were not so serious as to warrant formal discipline.

Alamo took a pregnancy leave. PMIC hired Marcell Moran to fill in for her. While Alamo was gone, PMIC discovered more serious job performance issues regarding Alamo. Alamo’s supervisor intended to discuss these recently-discovered performance issues with Alamo once Alamo returned from her leave. To that end, the supervisor advised Alamo to delay her return to work until the supervisor returned from vacation.

Although she had been told not to return to work until April 22, Alamo, with permission of another supervisor, visited the premises to have lunch with another co-worker. While there, Alamo had a verbal altercation with Moran.

Alamo returned to work. About three hours after Alamo returned and started working, she was terminated.

Alamo sued PMIC for pregnancy discrimination, retaliation in violation of the California Fair Employment and Housing Act, as embodied in Government Code Section 12900 et seq. (FEHA), and wrongful termination in violation of public policy.

At trial, Alamo denied any performance problems or that she had been counseled regarding interactions with other employees.

“The jury returned a general verdict in favor of Alamo, awarding her $10,000 in damages. With respect to Alamo’s request for punitive damages, however, the jury found that she failed to prove by clear and convincing evidence that PMIC acted with malice, oppression, or fraud. Following the verdict, the trial court granted Alamo’s motion for attorney’s fees and costs as the prevailing plaintiff under the FEHA and awarded her counsel attorney’s fees in the amount of $50,858.44.”

PMIC appealed, but the Court of Appeal affirmed. PMIC sought review by the Supreme Court. The Supreme Court directed the Court of Appeal to reconsider the matter in light of its decision in the case of Harris v. City of Santa Monica, 56 Cal.4th 203 (2013).

HOLDING & REASONING

The Court of Appeal reversed. It found that the trial court prejudicially erred in instructing the jury. The instructions the trial court used based liability for a FEHA violation on whether Alamo’s pregnancy was “a motivating reason” for her termination rather than on whether it was “a substantial motivating reason.”

The court rejected Alamo’s contention that a jury in an employment discrimination case would not draw any meaningful distinction between “a motivating reason” and “a substantial motivating reason” in deciding whether there was unlawful discrimination. The court observed that the Supreme Court reached a contrary conclusion in the Harris case. There, the Supreme Court specifically concluded that “[r]equiring the plaintiff to show that discrimination was a substantial motivating factor, rather than simply a motivating factor, more effectively ensures that liability will not be imposed based on evidence of mere thoughts or passing statements unrelated to the disputed employment decision.”

ANALYSIS

Even if some juries are unlikely to distinguish a “motivating reason” from a “substantial motivating reason,” cases like this one and Harris show how carefully jury instructions need to be drafted in pregnancy discrimination cases.

 

An Employer Was Liable For An Employee’s Torts

Moradi v. Marsh USA, Inc.
(Cal. Ct. of App., 2d Dist.), filed September 17, 2013, published September 17, 2013

KEY FACTS

Judy Bamberger was an employee of Marsh USA, an insurance brokerage. Bamberger was required each workday to drive to and from the office in her personal vehicle. During the workday, she had to use her vehicle to visit prospective clients, make presentations, provide educational seminars, follow leads, and transport company materials and co-employees to work-related destinations.

On April 15, 2010, Bamberger left the office at the end of the workday and began driving in the direction of her home. She had decided that, on the way, she would stop for some frozen yogurt and take a yoga class. As she made a left turn at the yogurt shop, she collided with a motorcycle being driven by Majid Moradi.

Moradi sued Bamberger and Marsh for his injuries. The trial court granted Marsh’s motion for summary judgment on the ground that Bamberger was not acting within the scope of her employment when she was making a left turn to get to the frozen yogurt shop.

Moradi appealed.

HOLDING & REASONING

The Court of Appeal reversed.

The court reasoned that because Bamberger was required to use her personal vehicle to travel to and from the office and make other work-related trips during the day, she was acting within the scope of her employment when she was commuting to and from work. The planned stops for frozen yogurt and a yoga class on the way home did not change the incidental benefit to her employer of having her use her personal vehicle to travel to and from the office and other destinations.

On the day of the accident, Bamberger had used her car to transport herself and some co-employees to an employer-sponsored program, and she had planned to use her car the next day to drive to a prospective client’s place of business. The planned stops did not constitute an unforeseeable, substantial departure from Bamberger’s commute. Rather, they were a foreseeable, minor deviation. Finally, the planned stops were not so unusual or startling that it would be unfair to include the resulting loss among the other costs of the employer’s business.

Under the “required vehicle” exception to the “going and coming” rule, Bamberger was acting within the scope of her employment at the time of the accident, and the doctrine of respondeat superior applied. Accordingly, the trial court erred in granting Marsh’s summary judgment motion.

ANALYSIS

Arguably, this “required vehicle” exception is narrow, applying only when the employer requires the employee to drive a vehicle to work so that it can be used for business purposes during the employee’s shift. In practice, however, it is not hard to imagine auto accident victims trying to make this exception swallow the rule. In view of the court’s ruling here, employers may want to look at whether their employees maintain adequate automobile liability insurance with coverage for any person or organization who may be liable as a result of the employee’s ownership, maintenance or use of a motor vehicle and to require that such policies include business use.

 

An Employee Who Insists On His Own Defense Attorney Can Lose Reimbursement Rights

Carter v. Entercom Sacramento, LLC
(Cal. Ct. of App., 3d Dist.), filed September 3, 2013, published September 3, 2013

KEY FACTS

Entercom Sacramento employed Matt Carter. Entercom owned a radio station which sponsored a contest. Contestants were to drink water and the winner was the contestant who could go the longest without urinating. Carter was responsible for periodically providing bottles of water to the contestants.

As the result of drinking too much water in an ill-conceived radio contest, a woman died. Her heirs, plus other contestants, sued Entercom, Carter and others.

Entercom told Carter it would provide legal counsel for him. It did so through its liability insurer, which agreed to defend without reservation of rights. The applicable policy limits were $50,000,000.

Nonetheless, Carter refused the attorney appointed by the insurer, insisting on his own attorney.

Entercom’s insurer refused to pay for the attorney Carter chose. As a result, Carter filed a cross-complaint against Entercom seeking indemnity under Labor Code Section 2802 for the fees and costs he incurred. Section 2802 requires an employer to indemnify its employee “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”

Carter sought indemnity for $807,421.22 in fees and costs.

The trial court found that none of the fees and costs Carter incurred after the insurer appointed an attorney to represent him were necessary expenditures and therefore Carter was not entitled to indemnity for those fees and costs under section 2802.

HOLDING & REASONING

The Court of Appeal affirmed.

Carter had an absolute right to choose his own attorney, which he did. However, he did not have an absolute right to choose his own attorney to represent him at the expense of his employer or its insurer under Section 2802. The fact that he faced potential liability for punitive damages or possible criminal charges did not give him the right to insist that his employer or its insurer pay for the attorney he chose.

Whether particular expenditures are necessary, and thereby subject to the duty of indemnity under section 2802, is a factual question, and Carter did not show that selecting his own attorney was necessary. He did not show a conflict of interest, that appointed counsel was unqualified, or that the insurer delayed in appointing counsel.

ANALYSIS

It is worth noting that Carter sought indemnity for $807,421.22 in fees and costs, yet the claims against the eight individual defendants were settled for $220,000 — with those against Carter being settled for $27,500.

 

Statements Posted On The Internet Were Defamatory

Sanders v. Walsh
(Cal. Ct. of App., 4th Dist.), filed September 16, 2013, published September 16, 2013

KEY FACTS

Cheryl Sanders’ mother purchased a wig from a company called Wiggin Out. According to Sanders, Constance Walsh, the owner of Wiggin Out, allegedly represented that the wig was custom made. Walsh denies making that statement.

Sanders paid for the wig using a check from the account of West Coast Building Contractors, a corporation she formed with her husband, for which she was an authorized check signer.

After realizing the wig was not custom made, Sanders’ mother attempted to cancel the contract and return the wig. Sanders stopped payment on the check.

Wiggin Out filed a small claims action against Sanders’ mother alleging breach of contract. Wiggin Out contended Sanders’ mother had not tried to return the wig and cancel the contract.

In the small claims trial, Sanders offered into evidence a letter issued by Federal Express confirming the package had been sent to Wiggin Out and refused. Wiggin Out argued that the letter was fraudulent.

Sanders’ mother prevailed in the small claims action. The small claims court found Wiggin Out had made misrepresentations and that Sanders’ mother tried to return the wig and cancel the contract, but that Wiggin Out refused to accept the wig back.

Two months later Walsh and Wiggin Out published a lengthy “rebuttal” to an online posting on Ripoffreport.com regarding the circumstances of the small claims action. The rebuttal consisted of a series of paragraphs prefaced by “Fact:” explaining Walsh and Wiggin Outs’ version of the facts, with editorial commentary interspersed throughout. There were, essentially, two allegedly defamatory statements made: first, that Sanders used an “unauthorized” check to purchase the wig, and, second, that Sanders fabricated a letter from FedEx to try to prove her mother attempted to return the wig to Wiggin Out.

Several months later, an anonymous author posted the following on the website Yelp.com:

“Investigation on the City of Anaheim? Cheryl Sanders in the planning dept. We all know what is going on in the City of Anaheim planning dept. Our residents are tired of our tax dollars being sunk into the City of Anaheim, into the planning dept and into the friends and family members (sub-contractors) of the employees of the planning department! How much extra ‘under the table’ money is being made from our planning dept????? A nice detailed audit and internal investigation will fix this rather quickly as we have demanded one from our government! We the residents of Anaheim are tired of the Planning Dept. planning for themselves and not our community. We hope that people like Cheryl Sanders are investigated, audited and brought to justice!!!!!! We are tired City of Anaheim and the people are now joining together to bring justice to our community! Oh, I agree on keeping our own lawns in order, however we cannot let the city ‘flip and spin’ the responsibility back on to its residents!! This is an old trick and now its our turn to make the city of Anaheim responsible for its dishonest acts that are happening behind closed doors!”

The same day, an anonymous author posted the following statements on the website MerchantCircle.com: “Thank you Cheryl Sanders for hurting the community by giving all the construction business in Anaheim for a under the table bribe. I hope that an investigation takes place soon and you end up behind bars. Cheryl Sanders at the City of Anaheim Planning Dept. has been putting up a front long enough. We hope to bring you down soon. Your dishonesty and greediness will soon come to an end.”

Sanders read those posts and was “devastated” and concerned about losing her job and livelihood. She filed a complaint against unnamed defendants, later amending to name Walsh and Wiggin Out, alleging causes of action for libel, false light, and intentional and negligent infliction of emotional distress.

The trial court awarded Sanders compensatory and punitive damages.

HOLDING & REASONING

The Court of Appeal affirmed. It rejected Walsh and Wiggin Outs’ contentions that: (1) the defamatory statements were nonactionable opinion; (2) the court erred in excluding evidence of Sanders’ prior felony conviction, which was previously dismissed pursuant to Penal Code Section 1203.4; (3) there was insufficient evidence to support a finding of malice related to punitive damages; and (4) the court erred in connection with certain discovery orders. The court found the trial court erred in finding Walsh and Wiggin Out were collaterally estopped from relitigating issues previously decided in the small claims action, but that the error was harmless.

The court first reviewed the case law relative to defamatory statements versus nonactionable opinions, particularly when expressed in internet postings. Based on these, it found that the various postings were of specific factual claims, not vague implications of fact as was the case in which courts had found postings nonactionable. They were not mere opinions.

The court noted: “While courts have recognized that online posters often play fast and loose with facts…this should not be taken to mean online commentators are immune from defamation liability.”

The court next turned to the collateral estoppel issue. The trial court precluded Walsh and Wiggin Out from offering evidence that the FedEx letter Sanders had proffered was forged. The trial court did so because the small claims court found the letter was genuine and under the authority of the case of Pitzen v. Superior Court, 120 Cal.App.4th 1374 (2004), a small claims plaintiff could not relitigate an issue decided in the small claims court. The appellate court found that the trial court had correctly applied the Pitzen case, but that the Pitzen case had been wrongly decided. The appellate court chose to follow the precedent set by the California Supreme Court in Sanderson v. Niemann, 17 Cal.2d 563 (1941), which held there was no collateral estoppel with respect to a small claims action.

Although the trial court erred in precluding Walsh and Wiggin Out from challenging the authenticity of the FedEx letter, the error was harmless. Even if they were right that the letter was forged, there were other, unrelated defamatory statements that would have supported a finding of Walsh and Wiggin Outs’ liability. Since, Sanders’ only claimed damage was for the defamatory charge of corruption, it did not matter whether the FedEx letter was forged or not or whether Walsh and Wiggin Out were liable for it.

Sanders had been convicted of a felony and the trial court precluded Walsh and Wiggin Out from offering evidence. However, that felony was reduced to a misdemeanor pursuant to Penal Code, Section 17 (b), and later dismissed pursuant to Penal Code Section 1203.4. With certain exceptions, a felony conviction dismissed pursuant to Section 1203.4 is not admissible to attack a witnesses’ credibility. The trial court did not err, and even if it did, Walsh and Wiggin Out had not articulated how it erred.

As to whether there was substantial evidence in support of the trial court’s finding of “malice,” the court said:

“To show actual malice, plaintiff must demonstrate [defendants] either knew [the] statement was false or subjectively entertained serious doubt [the] statement was truthful. The question is not ‘whether a reasonably prudent man would have published, or would have investigated before publishing. There must be sufficient evidence to permit the conclusion that the defendant in fact entertained serious doubts as to the truth of his publication. Publishing with such doubts shows reckless disregard for truth or falsity and demonstrates actual malice.”’

“A defamation plaintiff may rely on inferences drawn from circumstantial evidence to show actual malice. ‘A failure to investigate [fn. omitted] [citation], anger and hostility toward the plaintiff [citation], reliance upon sources known to be unreliable [citations], or known to be biased against the plaintiff — such factors may, in an appropriate case, indicate that the publisher himself had serious doubts regarding the truth of his publication.’”

The court noted that although Walsh testified that she held an honest belief that the statements posted on Ripoffreport.com were true, she offered no argument concerning the corruption allegations. Rather, she denied making those. Since Walsh admitted the corruption allegations were posted using an e-mail address to which she had access, there was substantial evidence from which the trial court could find she had made those allegations. Between the fact Walsh did not testify to having an honest belief in the corruption allegations and the evidence Walsh had a hostile relationship with Sanders (as evidenced by the harsh statements Walsh admitted making about Sanders in the Ripoffreport.com posting), the patently false nature of the claims, Walsh’s denial that she posted the statements, and Walsh’s hostile attitude towards Sanders, there was substantial evidence to support the trial court’s finding of malice.

ANALYSIS

This case provides helpful guidance on two major topics. First, the difference between defamatory statements versus nonactionable opinion, particularly as it relates to internet postings. Second, the implications of malice.

In addition, this case demonstrates the problem of the strategic decision to deny having done something. Having denied the corruption allegations, Walsh was precluded from testifying that she had an honest belief that they were true.

 

A Police Officer Was Immune From Suit

Moreno v. Quemuel
(Cal. Ct. of App., 2d Dist.), filed September 17, 2013, published September 17, 2013

KEY FACTS

Rowell San-Luis Quemuel was a Los Angeles County deputy sheriff. While driving a marked patrol car, he saw a motorist fail to obey a one-way street sign. Quemuel activated his red and blue overhead lights and pursued. The motorist pulled over to the curb. Quemuel opened his driver side door of the patrol car so he could exit the patrol car and make contact with the motorist. Mark Moreno, who was driving a motorcycle, collided into the car door.

Moreno sued Quemuel for negligence and negligence per se, alleging that Quemuel opened his door in violation of Vehicle Code Section 22517. That section states: “No person shall open the door of a vehicle on the side available to moving traffic unless it is reasonably safe to do so and can be done without interfering with the movement of such traffic, nor shall any person leave a door open on the side of a vehicle available to moving traffic for a period of time longer than necessary to load or unload passengers.”

Quemuel moved for summary judgment based on the argument that he was entitled to immunity under Vehicle Code Section 17004. The court granted his motion.

HOLDING & REASONING

The Court of Appeal affirmed. It held that when a peace officer opens his or her door as a precursor to exiting a patrol car and making contact with a motorist during a traffic stop, the peace officer is in “immediate pursuit of an actual or suspected violator of the law” for purposes of the immunity set forth in Vehicle Code Section 17004.

The court rejected Moreno’s argument that pursuit means a chase, or at least a situation involving the purposeful movement of two vehicles.

While it might be argued that the pursuit was over once the offending motorist pulled to the curb, the court examined the history of Section 17004 and concluded that it was nonetheless intended to cover an officer exiting a patrol car to issue a citation.

Among other things, the court observed that:

On one hand, limiting “pursuit” to vehicular pursuit would potentially protect motorcyclists because officers would have incentive to be careful when they open their car doors. On the other hand, a motorist who has been stopped for a traffic violation might reverse into the police vehicle or have weapons. There might be dangerous conditions in the area. Because of these risks, it is important for an officer to freely use discretion when deciding where to place his or her attention during a traffic stop. For several reasons, we believe the better public policy is to allow the officer to focus on personal safety and the pulled over motorist. If we do not allow an officer discretion over such important job-related matters, an officer may compromise his or her safety or hesitate to enforce the law.

ANALYSIS

Although an officer who opened his door into a motorcyclist or bicyclist’s path may be immune from suit, if the officer was negligent, the injured party still has a remedy against the public entity that employed the negligent vehicle operator. Cal. Vehicle Code Section 17001.

 

First Dollar Defense Was Required Despite A Self-Insured-Retention

American Safety Indemnity Company v. Admiral Insurance Company
(Cal. Ct. of App., 4th Dist.), filed September 27, 2013, published September 27, 2013

KEY FACTS

As a result of construction and grading on a tract of land owned by Zephyr Newhall, LP and Zephyr Partners, LLC, neighboring homeowners sustained damages to their properties. The homeowners sued the Zephyr entities as well as the developer, grading contractor and soils engineering firm involved in the work. As part of their grading contract, the grading contractor agreed to indemnify the developer against liability for any loss attributable to the grading contractor’s breach of duty, even if the developer’s conduct also contributed to the loss. At the time, the developer was insured by Admiral Insurance Company and the grading contractor was insured by American Safety Indemnity Company. The grading contractor’s policy identified the developer as an additional insured.

A dispute arose between the insurers as to their respective defense obligations. Part of the basis for the dispute was the presence of a self-insured retention clause.

HOLDING AND REASONING

In the ensuing coverage litigation, the Court of Appeal explained:

Here, the subject commercial general liability policy has a provision labeled “Self-insured Retention (SIR)” that clearly makes the insured liable for the first $250,000 in damages payable to any third party claimant. The policy also makes it clear the insured’s payment of defense costs count toward meeting the insured’s SIR obligations.

However, the SIR clause we are asked to consider does not expressly make payment of the SIR a condition of the insurer’s broader obligation to provide a defense when an arguably covered claim is tendered. Rather, the SIR clause expressly applies only as a limitation on the insurer’s duty to indemnify the insured for covered damages for which the insured is found liable. Given the language of the policy, an insured could quite reasonably interpret it as providing a defense to arguably covered claims as soon as such claims are tendered and before any SIR has been paid. Thus, like the trial court, we find the defendant insurer in this equitable subrogation action had a duty to defend its insureds when large soil subsidence claims were made against them and without regard to the SIR provisions in their policies.

We recognize other liability insurance policies contain SIR clauses that expressly and unambiguously make payment of a SIR obligation a condition of any obligation under the policy, including any duty to defend. We also recognize those SIR provisions have been enforced according to their terms. The policy in dispute here, however, does not contain such an express condition on the defendant insurer’s duty to defend.

ANALYSIS

This case emphasizes that not all SIRs are the same. Depending on the particular wording of the SIR, the carrier’s obligations may substantially differ.

 

Other Cases Of Interest

Only Attached Property Was “Attached”

Adamo v. Fire Insurance Exchange
(Cal. Ct. of App., 4th Dist.), filed September 24, 2013, published September 24, 2013

Vincent Adamo filed a claim under his homeowner’s policy after a wildfire damaged his 1,000-tree avocado grove, 10,000-gallon water tank, irrigation system, culverts, two woodsheds, and landscaping on his property. His homeowner’s insurance policy, which was issued by Fire Insurance Exchange, provided two separate categories of coverage for: (1) the “Dwelling” (Coverage A); and (2) “Other Structures” (Coverage B).

Coverage A applied to four sub-categories, all related to or including the dwelling: (a) “the dwelling on the Described Location, used principally for dwelling purposes;” (b) “structures attached to the dwelling;” (c) “materials and supplies on or adjacent to the Described Location for use in the construction, alteration or repair of the dwelling or other structures on this location;” and (d) “if not otherwise covered in this policy, building equipment and outdoor equipment used for the service of and located on the Described Location.” Coverage A had a $531,000 total liability limit.

Coverage B applied to “other structures on the Described Location, separated from the dwelling by clear space.” Coverage B had a $53,100 limit.

Fire Insurance Exchange paid Adamo $116,000 for various damages, including the policy’s $53,100 policy limit under Coverage B for “other structures.”

Adamo sued, claiming he was entitled to additional benefits for damages to the water tank, irrigation system, and culverts associated with his avocado growing operation under: (1) Coverage A for structures that are “attached” to his dwelling; (2) subsection 1 of “Other Coverages” which included “other structures;” or (3) under Coverage A for “building equipment and outdoor equipment used for the service of and located on the Described Location.”

The trial court ruled: (1) the water tank, piping and other property were not “attached” for Coverage A to apply; (2) none of the property was covered under Coverage A for “building equipment and outdoor equipment;” and (3) subsection 1 of “Other Coverages” did not establish a separate line of coverage but only established the Coverage B policy limits.

The Court of Appeal affirmed. It found that the policy was not ambiguous and plainly and clearly specified what was or was not covered.

 

A Defendant Was Entitled To Attorney’s Fees

Brown Bark III, L.P. v. Haver
(Cal. Ct. of App., 4th Dist.), filed August 26, 2013, published September 13, 2013

Brown Bark III, L.P. sued Jaimie Haver and Westover Capital Corporation to recover funds Westover Financial, Inc. failed to repay on a revolving line of credit. Although Westover Capital was not a party to the contracts that created the line of credit, Brown Bark sued Westover Capital for breach of those contracts on a successor liability theory. Brown Bark also sued Haver and Westover Capital for conversion and fraud, alleging they converted the Westover Financial assets pledged as security for the line of credit and made misrepresentations to prevent and delay Brown Bark’s efforts to recover the outstanding balance from Westover Financial.

At trial, Haver and Westover Capital won on all of Brown Bark’s causes of action. They then sought their attorney’s fees under the fee provisions in the line of credit contracts. The trial court denied their fee motion.

Haver and Westover Capital appealed.

The Court of Appeal reversed in part and affirmed in part.

The court found that the trial court erred in failing to award Westover Capital its attorney’s fees on the breach of contract causes of action.

Civil Code Section 1717 makes an otherwise unilateral attorney’s fee provision reciprocal and entitles a noncontracting party to recover contractual attorney’s fees when it defeats a contract-based cause of action that would have made the noncontracting party liable for contractual attorney’s fees had it lost.

Brown Bark would have recovered its attorney’s fees if it had prevailed on its successor liability theory against Westover Capital because the line of credit contracts made its fee provisions binding on the contracting parties’ successors. Section 1717 therefore allowed Westover Capital to recover its attorney’s fees because it defeated claims for breach of the line of credit contracts that would have exposed Westover Capital to attorney’s fees liability had it lost.

Section 1717 only applies to contract causes of action. Therefore, Westover Capital was not entitled to attorney’s fees on the tort causes of action.

The appellate court affirmed the trial court’s order denying Haver’s fee motion. She was not a party to the line of credit contracts and Brown Bark did not sue her for breaching those contracts. Because Haver never faced attorney’s fees liability under the line of credit contracts, she could not invoke Section 1717 to recover her fees.

 

Post-Judgment Discovery Was Improper

Fox Johns Lazar Pekin & Wexler APC v. Superior Court
(Cal. Ct. of App., 4th Dist.), filed September 24, 2013, published September 24, 2013

Brewer Corporation, among others, obtained a money judgment against Point Center Financial, Inc. Brewer then served a subpoena duces tecum for the production of documents on the law firm that had been representing Point Center, Fox Johns Lazar Pekin & Wexler, and sought a third party judgment debtor examination of the handling attorney under Code of Civil Procedure Section 708.120.

After various procedural matters in the trial court, it ordered compliance. Fox Johns sought appellate review. It asserted that the requested discovery exceeded the limited scope and purpose of a third party examination as permitted under Section 708.120.

In what the Court of Appeal described as “a matter of first impression,” it held that what the discovery sought was beyond the scope of what Section 708.120 permitted.

Section 708.120 provides a mechanism by which a judgment creditor can examine a third party after a judgment has been rendered in the particular case. It states:

“Upon ex parte application by a judgment creditor who has a money judgment and proof by the judgment creditor by affidavit or otherwise to the satisfaction of the proper court that a third person has possession or control of property in which the judgment debtor has an interest or is indebted to the judgment debtor in an amount exceeding two hundred fifty dollars ($250), the court shall make an order directing the third person to appear before the court, or before a referee appointed by the court, at a time and place specified in the order, to answer concerning such property or debt.”

As a result, Point Center’s attorney only had to answer questions relating to: (1) Fox Johns’s possession or control of property in which Point, as the judgment debtor, has an interest; or (2) Fox Johns’s indebtedness to Point if it exceeds $250.

The court rejected Brewer’s assertion that the liberal scope of pre-trial discovery should apply to post-judgment discovery.

Since Brewer sought discovery about the identity of Fox Johns’s client in the Point Center case, about its billings in the case and about matters which might support an alter ego theory against others, its discovery was impermissible.

 

An Arbitration Provision Was Enforceable

Mt. Holyoke Homes, L.C. v. Jeffer Mangels Butler & Mitchell, LLP
(Cal. Ct. of App., 2d Dist.), filed September 24, 2013, published September 24, 2013

Mt. Holyoke Homes sued the law firm of Jeffer Mangels Butler & Mitchell for legal malpractice. The firm moved to compel arbitration. It relied on a provision in its retainer agreement that stated in bold capital letters:

ARBITRATION AND WAIVER OF JURY TRIAL. ANY DISPUTE BASED UPON OR ARISING OUT OF OUR ENGAGEMENT, THIS LETTER AGREEMENT AND/OR THE PERFORMANCE OR FAILURE TO PERFORM SERVICES (INCLUDING, WITHOUT LIMIT, CLAIMS OF BREACH OF DUTY OR PROFESSIONAL NEGLIGENCE) SHALL BE SUBJECT TO BINDING ARBITRATION TO BE HELD IN LOS ANGELES OR SAN FRANCISCO COUNTY, CALIFORNIA (WHICHEVER COUNTY IS THE ONE IN WHICH THE FIRM’S OFFICE IS LOCATED WHICH PERFORMED MORE OF THE SERVICES IN QUESTION) BEFORE A RETIRED CALIFORNIA SUPERIOR COURT JUDGE. JUDGMENT ON THE ARBITRATOR’S AWARD SHALL BE FINAL AND BINDING, AND MAY BE ENTERED IN ANY COMPETENT COURT. AS A PRACTICAL MATTER, BY AGREEING TO ARBITRATE ALL PARTIES ARE WAIVING JURY TRIAL.

The retainer agreement also stated, in part, “We are not advising you with respect to this letter because we would have a conflict of interest in doing so. If you wish advice, you should consult independent counsel of your choice.” The agreement also provided that the prevailing party in any arbitration or litigation was entitled to recover its attorney’s fees, expert fees and costs. The agreement stated above the signature line for the client:

The undersigned has read and understood this agreement. The undersigned acknowledges that this letter agreement is subject to binding arbitration as provided in Paragraph 11 above. The foregoing accurately sets forth all the terms of your engagement, and is approved and accepted on OCT 20, 1997.

The trial court granted the motion to compel arbitration.

After the arbitrator rendered an award in favor of Jeffer Mangels, Mt. Holyoke moved to vacate it. The trial court denied that motion.

In the ensuing appeal, the Court of Appeal ruled the arbitration provision was enforceable and the trial court had properly ordered the matter into arbitration. However, due to other irregularities, the award had to be vacated.

The court rejected Mt. Holyoke’s argument that Jeffer Mangels had a duty to disclose and explain the significance of the arbitration provision and that its failure to satisfy such a duty invalidated the arbitration agreement.