Triggering Your Underinsured Motorist Claim– California Law Requires Collection Of Third Party Policy Limits

Hblogtriggering_202

When a person is injured in a car accident caused by a negligent driver, the negligent driver’s automobile insurance liability policy limit is often not high enough to cover the damages from the personal injuries.  In these circumstances, there may be an underinsured motorist coverage claim under the injured person’s automobile policy, if that policy includes the coverage.

In California, for underinsured motorist coverage to be triggered, the injured-insured must collect the negligent driver’s insurance policy limits, and send proof of that to the underinsured motorist carrier.  This codified in the California Insurance Code §11580.2(p)(3), which states that underinsured motorist “coverage does not apply” until the policies of “all insured motor vehicles causing the injury have been exhausted by payment. . .”

This means, to preserve an uninsured motorist claim, the injured-insured must make a claim and, if necessary, sue the negligent driver.  In other words, to become eligible to make an underinsured motorist claim, the injured-insured must “take action against the tortfeasor [and] obtain a settlement or judgment and submit proof of payment . . .” (Quintano v. Mercury Casualty Co. (1995) 11 Cal.4th 1049, 1055.) If they fail to do so “there is no underinsured motorist coverage available.” (Hartford Fire Ins. Co. v. Macri (1992) 4 Cal.4th 318, 327.)

Taking action to collect the negligent driver’s insurance policy limits (known as third-party insurance) can be a tricky and difficult undertaking.  Unless the negligent driver’s insurance company settles, an injured insured has to sue the negligent driver, take him or her to trial, and collect the policy limits.  If legal action is necessary against the negligent driver, obtaining legal representation is often necessary and prudent.

All of this is only “to be eligible to make a claim.” (Quintano, supra, at 1055.) It does not mean satisfactory payment is necessarily forthcoming.  Indeed, there are often aspects of underinsured motorist laws, including the amount available to cover an injury, that insureds can find an unwelcome surprise once they make a claim.

Other complications may arise requiring proceeding through trial against the negligent driver.  For instance, where it is questionable whether the personal injury damages exceed the third-party insurance limits, the negligent driver’s insurance company may not want to pay policy limits.  Yet, the injured-insured cannot settle for less than policy limits without forfeiting her underinsured motorist claim.  Those cases often must proceed to trial to collect the third-party limits and trigger the underinsured motorist claim.

If a person is seriously injured in a car accident in California, and has underinsured motorist coverage, it is important to keep in mind the rules required to trigger the coverage. Actually doing so may be a complicated task, requiring prosecution of a civil action against the negligent driver to collect the third party insurance policy limits.

The Unique California Law: An Insurance Company’s Duty of Good Faith And Fair Dealing

Hbloghands_202

Insurance is a unique contract.  It is one of the only products people buy in the hope they will never have to use it.  The California Supreme Court has explained that, when someone buys an insurance policy, they do “not seek to obtain a commercial advantage” but only “protection against calamity.” (Egan v. Mutual of Omaha Ins. Co.(1979) 24 Cal. 3d 809, 818.) When a loss has occurred and a claim is made, insurance companies are in a powerful position, as they write the contract, know the rules, have already received the insurance premiums, and have unlimited resources if they choose to contest the claim.

In California, every contract has an implied covenant of good faith and fair dealing.  This is a promise the law implies into every contract that the parties will act in good faith to fulfill the contract.  Only in the context of an insurance contract, however, does California law allow a policyholder to sue his insurance company for tort damages (as opposed to just contract damages) for breach of the implied covenant of good faith and fair dealing, also known as insurance bad faith.  The unique aspects of an insurance policy, the disparity in power, and the vulnerable position of the insured, are all reasons that California law allows tort claims against insurance companies for bad faith breach of contract.

A bad faith claim is an extremely powerful tool for insureds, as tort remedies allow the insured to pursue all consequential damages, including emotional distress and a claim for punitive damages.

The duty of good faith and fair dealing is “is unconditional and independent” of any obligations owed by the policyholder. (Gruenberg v. Aetna Insurance Company (1973) 9 Cal.3d 556, 578.)  To pursue an insurance bad faith case, an insured must prove his insurance company unreasonably withheld policy benefits.  The key is unreasonable conduct.  If the insured can show that the insurance company failed to pay benefits unreasonably, the insured can recover tort damages, and potentially punitive damages, in addition to contract damages.

An insurance company’s unreasonable conduct in withholding benefits can occur in a myriad of contexts.  This includes unreasonably investigating the claim, interpreting the policy, estimating the damages, and making settlement offers.  Any such unreasonable conduct gives rise to a bad faith case if policy benefits were withheld.

Not all states allow for tort claims for breach of an insurance policy as California does.  This is an important rule that insurance companies are well aware of.  Potential bad faith liability is a threat which insurance companies take seriously.  Insurance companies don’t like being sued for bad faith, as they do not face such rules throughout the country.

In making an insurance claim in California, policyholders should be aware they are in a state that has uniquely favorable law protecting policyholders.  The rules relating to good faith and fair dealing with respect to insurance policies and claims provide a potent tool for California insureds who have been denied insurance benefits unreasonably.

California Property Damage Claims And The Proof Of Loss Trap

Hblogsign_202

When you suffer a property damage to your home or business, like a fire or water loss, and make an insurance claim, one of the requirements that standard insurance policies impose is that the insured submit a “proof of loss.”  The proof of loss requirement can often serve as a trap by the insurance company to attempt to shift the burden to investigate the claim to the policyholder, or set up accusations of fraud.  Yet, it is something that needs to be submitted in order to avoid giving the insurance company an excuse to deny your claim.

California law provides that the standard form fire insurance policy, which is the template for homeowners property policies, contain a provision that “the insured shall render . . . a proof of loss, signed and sworn to by the insured” which among other things documents “the time and origin of the loss . . . [and] the actual cash value of each item . . . and the amount of loss . . .” (California Insurance Code §2071.) This can be a daunting burden, as most policyholders are not an expert in evaluating property damage, or the cost to repair.

The first thing to understand about the proof of loss form is that the insurance company – not the policy holder — has “a nondelegable duty to timely and in good faith . . . thoroughly investigate a claim. . .” (Rattan v. United Services Automobile Ass’n(2000) 84 Cal. App. 4th 715, 720.)  Insurance company’s often attempt to shift that burden and cost to investigate the policyholder through the proof of loss form.  They do this by insisting that the insured provide a precise amount they are claiming, and hire an expert to submit an estimate.  The insured does not have to do that.  The main thing an insured needs to do is submit something describing the loss as best they can, and provide a loose estimate of damage which puts the burden on the insurance company to investigate. With respect to the cost, statements that it is “partial” or “known as of today” or “exceeds $X amount,” other language that makes clear the insured is not limiting the claim, with a notation along the lines of “insured is not an expert, and relies on insurance company to investigate and determine extent and cost to repair loss,” should suffice.

Don’t overstate the loss, or say something you do not know, because insurance company’s also often use the proof of loss form to set up a denial based on claimed misrepresentations. Under California law, any “material misrepresentation” in a claim by the policyholder is grounds to deny the entire claim, regardless of the merits of the actual loss suffered by the insured. (Cummings v. Fire Insurance Exchange(1988) 202 Cal.App.3d 1407, 1414-1416.) That is why policyholders must be careful in submitting a proof of loss not to say something they cannot back up.

The good news is that if you submit an honest proof of loss describing the loss to the best of your ability, even if your insurance company continues to pressure you to add more detail, you are probably safe. That is because an insurance company must show “substantial prejudice” from breach of a condition precedent in order to avoid paying the claim. (Campbell v. Allstate Insurance Co. (1963) 60 Cal.2d 303, 305.)  This includes “failure to comply with requirements of . . . proof of loss . . . [and] the burden of showing prejudice [is] upon the insurer.” (Hanover Ins. Co. v. Carroll (1966) 241 Cal.App.2d 558, 569.)

In practice, however, the total failure to submit a proof of loss allows the insurance company more leeway to argue that they were substantially prejudiced. The lesson then, to avoid the proof of loss trap, is to submit a proof of loss, doing your best to describe the claim without overstating it, and being honest about what you do or do not know, and put the burden on the insurance company to pay for the thorough investigation to determine the precise scope, cause, and amount of loss.

Misclassified Truck Drivers and Junk Work Injury and Disability Policies Under California Law

Hblogmisclassifiedtruck

Truck drivers who work at the ports in California, primarily in Los Angeles, Long Beach and San Diego, have been in the news over the last few years because of the refusal of trucking companies to treat them as employees, rather than independent contractors.

One of the many ways these drivers are left more vulnerable as a result of their misclassification as independent contractors is that, if they are injured or disabled on the job, they do not have access to worker’s compensation.  Instead, the trucking companies usually obtain and charge drivers for “occupational accident” insurance policies.  However, these policies are often junk policies, providing little if no actual coverage, and nothing comparable to the workers compensation system, if a driver is disabled or injured on the job.

The way it works is that the trucking companies usually get a group, or “master” policy, from an insurance company.  Certificates of coverage pursuant to the master policy are then “issued to the individual . . . persons who are insured thereunder.’” (Reiner v. U.S. Life Ins. Co. in the City of New York (10th Cir. 2003) 69 Fed.Appx. 965, 969 (internal citations omitted).)  The cost of the policies is usually deducted by the trucking companies from the drivers’ paychecks.  The drivers usually never receive a copy of the  policy, and have no notice of what coverage they actually have.  The failure to deliver actual copies of the policy violates California law, which requires that disability policies be disclosed, which disclosure “shall include . . . the principal benefits and coverage . . . [and] the exceptions, reductions, and limitations that apply to such policy.”  (Insurance Code §§10604 -10605.)

It is usually only after they are injured or disabled, and attempt to obtain compensation, that drivers find out how illusory the coverage is under these occupational accident policies.  It is at that time, when their claim is denied, that the drivers first learn of the actual limited coverage, and broad exclusions. Moreover, the policies often work in tandem with the trucking companies’ effort to misclassify, and explicitly provide for no payment of policy benefits if the driver challenges his misclassification and files a worker’s compensation claim.

Thus, drivers are often caught in a classic Catch-22, and left with no means of compensation for work-related injuries.  They are denied worker’s compensation because they are labeled independent contractors, and the policies sold to them through the trucking companies fail to provide meaningful coverage.

In this way, insurance companies are working with trucking companies, to assist in their misclassification, and profit while evading providing actual coverage and benefits to injured and disabled truck drivers.  This practice, however, is highly vulnerable to challenge.  California Courts have refused to “allow a master policy to prevail over an inadequate Certificate,” where the insurer’s disclosures provide “inadequate information” regarding the actual coverage provided. (Hall v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA(S.D. Cal. 2010) 2010 WL 2650271, *9.) Drivers are almost never provided with advance notice of the limited coverage that is provided under these master policies.  Under California law, “an exclusion or limitation contained in a policy which the insured has never seen cannot possibly provide adequate notice . . .”  (Russell v. Bankers Life Co. (1975) 46 Cal.App.3d 405, 413-14.)  The lack of notice provided by drivers about the limited coverage under these accidental occupation policies provides a strong basis for challenging any denial of benefits.