Homeowners Insurance Coverage For Wrongful Death Under California Law

In a wrongful death action, the availability of insurance coverage under a homeowners policy is a critical but often complicated question.  Difficult coverage issues can arise where the death was the result of an intentional or criminal act, or the manner of death otherwise implicates a policy exclusion.

Generally speaking, where a death results from negligence there should be coverage under the liability portions of a homeowners insurance policy.  The California Supreme Court has held that “reasonable insureds expect their homeowners policy to protect them against liability for accidental injury or death occurring in their home.”  (Safeco Ins. Co. of America v. Robert S. (2001) 26 Cal.4th 758, 851.)

Complications arise, however, because many events resulting in death have an element of intentional or even criminal conduct involved.  Homeowner liability policies frequently have an intentional acts exclusion, which precludes coverage for injuries that are “expected or intended” by the insured.  There are also exclusion for criminal acts, which are often combined with or part of the intentional acts exclusions. (20th Century Ins. Co. v. Stewart (1998) 63 Cal.App.4th 1333, 1336.)  In addition, California Insurance Code §533, precludes insurance coverage for losses that are “caused by the willful act of the insured.”

Often insureds who are not accused of intentional conduct are sued along with the insureds who committed the intentional act, frequently on a failure to supervise theory.  In Castro v. Allstate (S.D.Cal. 1994) 855 F.Supp 1152, a son committed a murder, his mother was sued for “negligence in supervising” the son, and a claim was made under a homeowners policy.  (Id. at 1152.)  These are sometimes referred to as mixed coverage cases, because they involve allegations of intentional conduct mixed with negligent conduct against different insureds.  Whether there is coverage for the so-called “innocent insureds” in these mixed actions often boils down to whether the exclusion’s language states it applies to “any” insured (collective exclusion), or “the” insured (individual exclusion).  (Id. at 1155.)

However, even where a policy uses the broader, collective language regarding application of an intentional acts exclusion, if the policy contains a “separate insurance” clause the exclusion still may only apply individually.  In Minkler v. Safeco Ins. Co. (2010) 49 Cal.4th 315, the California Supreme Court addressed an intentional acts exclusion in the context of child molestation, and a claim of negligent supervision against the mother of the accused molester.  Minkler held that even though the intentional act exclusion contained collective language excluding coverage for intentional conduct by “an” insured, because it also contained a clause stating that policy “applies separately to each insured,” it did not exclude coverage for the mother accused of negligence.

Another difficult area is if an automobile was involved in an accidental death and coverage is claimed under a homeowners insurance policy.  Under California’s concurrent causation doctrine, where an accident is caused by both covered and noncovered events, coverage usually exists.  (State Farm Mut. Auto Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 102.)  However, recent precedent has narrowly interpreted that doctrine.  In Farmers Insurance Exchange v. Superior Court (2013) 220 Cal.App.4th 1199, a child was struck and killed by a truck driven by the child’s grandfather in his home’s driveway.  The policy contained a motor vehicle exclusion.  The plaintiff, however, claimed the grandmother was negligent in supervising the children, and that such negligent supervision was covered despite the motor vehicle exclusion.  The California Court of Appeal found that the accident was “dependent” on use of the car, and therefore the motor vehicle exclusion was applicable.  (Id. at 1208-09.)

Wrongful death cases often involve mixed claims of intentional and negligent conduct.  Such cases raise important and complicated insurance coverage questions.  Persons faced with wrongful death claims under these circumstances should closely scrutinize potential theories and their impact on coverage, in order to maximize the odds of obtaining a recovery.

California Supreme Court Clarifies Attorneys’ Fees And Punitive Damages In An Insurance Bad Faith Action

Because of the unique nature of an insurance contract, under California law, the unreasonable delay or denial of policy benefits gives rise to a tort cause of action for insurance bad faith.  A tort claim for insurance bad faith, as opposed to an ordinary breach of contract claim, allows for extra-contractual damages, including attorney’s fees and punitive damages.

Punitive damages, under the Due Process Clause of Fourteenth Amendment to the United States Constitution, cannot be “grossly excessive.”  (BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 568.)  Thus, under federal law, an award of punitive damages must be “both reasonable and proportionate” to the harm caused.  (State Farm Mut. Automobile Ins. Co. v. Campbell(2003) 538 U.S. 408, 426.)  Courts have interpreted that to mean that, absent unique circumstances, punitive damages cannot exceed compensatory damages by more than 9 to 1 ratio.  (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182.)

An award of attorney’s fees for the amount the insured was required to expend to obtain policy benefits is recoverable in an insurance bad faith case under California law.  (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817.) This is based on the rationale that, if it is the “insurer’s tortious conduct” that forces the insured to hire a lawyer to obtain policy benefits, “the insurer should be liable . . . for that expense.”  (Id. at 817.)  A claim for attorney fees in an insurance bad faith case are often referred to as “Brandt fees,” after the case establishing the right to recover such fees in a bad faith case.  Although a jury can decide the amount of Brandtfees, because of complications regarding presenting evidence of attorney’s fees to the jury, parties often agree to have the Court decide the amount of Brandt fees after the jury decides the issue of bad faith.

The question arises, however, whether Brandt fees can be included in the compensatory damages used to calculate the appropriate ratio for punitive damages, where the Court determines the amount after a jury verdict on punitive damages.  On June 9, 2016, in Nickerson v. Stonebridge Life Ins. Co. (2016) 63 Cal.4th 363, the California Supreme Court answered that question.  It held that “Brandt fees may be included” when calculating the ratio of punitive damage to compensatory damages, regardless of the timing of the award ofBrandt fees of whether the Court or jury made the decision.  (Id. at 368.)

Nickerson noted that “Brandt fees ordinarily qualify as compensatory damages” for purposes of the punitive damage ratio.  (Id. at 373.)  Nickerson held that the proper ratio between compensatory and punitive damages is a “question aimed at reviewing courts, rather than juries.”  (Id. at 375.)  Thus, Nickerson held that there was “no reason to exclude Brandt fees” from the calculation of the proper ratio of punitive damages, even where Brandt fees are awarded by the Court after the jury has rendered a bad faith verdict.  (Id. 376.)

Nickerson is an important decision clarifying that Brandt fees should always be included in calculating the proper ratio between compensatory and punitive damages in a bad faith action.  Insureds pursuing a bad faith cause of action can now rest assured that they will not lose the ability to use the amount of Brandt fees to support a punitive damage award simply because the parties agreed to have the judge, rather than the jury, decide the amount.

There Can Be Advantages To Pleading Negligent Misrepresentation Against An Insurer In California

During an insurance claim, insureds are sometimes given incorrect information by the insurance company and its agents. Among other things, these misstatements may relate to the terms and requirements of the policy, the safety of the premises, or how repairs must be handled.  False statements made in relation to an insurance claim can give rise to a negligent misrepresentation claim.  This can be a useful tool in litigation against insurance companies in some circumstances.

Although there are “various tort theories” an insurance company can be sued for, it is well known that bad faith is the “most prominent” tort claim that can be asserted.Bock v. Hansen(2014) 225 Cal.App.4th 215, 228.)  Generally, an insured cannot sue his or her insurance company for negligence.  (Sanchez v. Lindsay Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 254.)  However, negligent misrepresentation is a “different tort” than negligence.  (Bock, supra, 225 Cal.App.4th at 227.)  Indeed, negligent misrepresentation is “a species of the tort of deceit.”  (Id. at 228.)

Under California law, under the right circumstances, a cause of action for negligent misrepresentation can be brought against an insurer.  Pleading such a claim in litigation against an insurance company can have advantages.

First, negligent misrepresentation claims provide a potentially broader avenue to pursue personal injury claims than a bad faith claim. This is because negligent misrepresentation prohibits “providing false information [which] poses a risk of and results in physical harm.”  (Id. at 229.)  In one California case, a negligent misrepresentation claim was allowed for personal injuries to an insured who was told by the insurance company adjuster that they were obligated to clean up a tree limb.  (Id. at 303-304.) In a bad faith claim, however, certain California case law has indicated that an “economic loss” may be required to recover.  (See Richards v. Sequoia Ins. Co.(2011) 195 Cal.App.4th 431, 438.)  When personal injuries are involved, a negligent misrepresentation claim may be the most viable claim against an insurance company.

Second, a negligent misrepresentation claim allows for liability against the insurance agent or adjuster that made the misrepresentation. California case law has held that a “cause of action for negligent misrepresentation can lie against an insurance adjuster.”  (Id. at 231.)

Finally, a misrepresentation by an insurance company relied on by the insured often trumps unknown terms of the policy contrary to the misrepresentation. Insurance company’s often assert the policyholder’s “duty to read” the policy when relying on terms that the insured did not know about.  California Courts, however, recognize that “a very small percentage of policy-holders” actually know the terms of their insurance policy.  (Eddy v. Sharp (1988) 199 Cal.App.3d 859, 864.)  A negligent misrepresentation lies despite unknown policy terms to the contrary because “an insured should be able to rely on an agent’s representations of coverage without . . . examining the relevant policy provisions.”  (Bock, supra, 225 Cal.App.4th at 232.)

A negligent misrepresentation claim is not often asserted in bad faith litigation against insurers. It does, however, offer certain advantages.  Policyholders who have relied on false information by their insurance company, and were harmed because of it, should consider such a claim.

Obtaining Punitive Damages Against An Insurance Company Under California Law

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In California, because of the “special relationship” between an insured and an insurer, where an insurance company acts in bad faith and the misconduct is egregious, punitive damages are available.  (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922-23.)   Awards for punitive damages often garner media attention because they can substantially increase the verdict amount.  The movie The Rainmakerwith Matt Damon climaxed in  a large punitive damage award against an insurance company for denying life saving medical treatment.

In order to obtain punitive damages under California law, the insured must prove the insurance company acted in bad faith, and that its conduct was alsomalicious, fraudulent, or oppressive.  (Civil Code §3294.)  The same actswhich are bad faith can also be the basis for punitive damages, if they rise to the level of malice, fraud and/or oppression.  (Fleming v. Safeco Ins. Co. of America(1984) 160 Cal.App.3d 31, 44.)

Punitive damages against an insurance company have been approved by California Courts in a variety of circumstances.  Punitive damages may be appropriate where there is a violation of an insurer’s “obligation to investigate” a claim.  (Hughes v. Blue Cross of Northern California (1990) 215 Cal.App.3d 832, 846, 847.)  The failure to advise an insured about “available coverages” can also lead to punitive damages.  (Amerigraphics v. Mercury Cas. Co. (2010) 182 Cal.App.4th 1538, 1559.)  Inordinatedelays in handling or investigating a claim may also justify punitive damages.  (Campbell v. Cal-Guard Sur. Services, Inc.(1998) 62 Cal.App.4th 563, 571.)

Many cases have held that punitive damages are particularly appropriate where an insurance company has an institutionalized practice that is unreasonable and in bad faith.  (Neal, supra, 21 Cal.3d at 923.)  For example, a “broad fraudulent scheme” or an “unlawful profit scheme” are significant factors that justify punitive damages. (State Farm Mut. Auto Ins. v. Campbell (2003) 538 U.S. 408, 435–436.)  Similarly, there is a greater chance for an award of punitive damages where there are “establishedpolicies or practices in claims handling which are harmful to insureds.”  (Mock v. Michigan Miller’s Mutual Ins. Co. (1992) 4. Cal.App.4th 306, 329.)  In addition, “the existence and frequency of similar past conduct” is evidence that raises the likelihood of a punitive damage award.  (Pacific Mut. Life Ins. Co. v. Hasip (1991) 499 U.S.1, 21.)

In California, insureds are allowed to conduct pattern and practice discovery to seek evidence of similar bad faith practices or conduct by the insurance company. (Colonial Life & Accident Ins. Co. v. Superior Court (Perry) (1982) 31 Cal.3d 785, 792.)  If an insured is elderly of disabled, he or she may be able to recover treble punitive damages under a California statute designed to protect the disabled and elderly.  (California Civil Code §3345.)

Punitive damages are difficult to recover against an insurance company.  Insurers fight such claims vigorously, and cases seeking punitive damages will likely face multiple motions to dismiss the claim before it reaches a jury.  Even when a jury awards punitive damages, the award is often issues susceptible to appeal andlarge punitive damage awards can be hard to keep.

Nevertheless, if an insured can get a punitive damage claim before a jury, it becomes a potentially powerful weapon.  Punitive damage claims greatly raise the insurance company’s damage exposure and the stakes of the litigation.  The threat of punitive damages is a great deterrent to insurance company abuse, and is an important protection California law provides to its policyholders.

A Recent California Court Of Appeals Case Demonstrates That Your Excess Policy May Have Narrower Coverage Then Your Primary Policy

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When consumers purchase insurance coverage, they often also purchase what is referred to as an excess policy, also sometimes referred to as umbrella or secondary policies. An excess or umbrella policy is meant to provide coverage beyond the limits of the primary policy, and is considered an extra level of protection.  A recent California case, however, demonstrates that excess coverage can be narrower than the primary coverage it is meant to supplement.

In insurance jargon, the primary coverage refers to the insurance that is on the hook immediately for a loss, i.e., the policy where “liability attaches immediatelyupon the happening of the occurrence that gives rise to liability.” (Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal.App.4th 1246, 1255 (italics in original).)  Examples of primary policies are automobile or homeowners policies.  Umbrella or excess coverage is triggered, in contrast, “’only after a predetermined amount of primary coverage has been exhausted.’” (Id.) This means that the umbrella or excess policy kicks in once the primary policy limits have exhausted, meaning paid out in full. The idea is that the umbrella or excess policy will provide insurance coverage for large or catastrophic losses, that exceed the policy limits of the primary policy.

Excess policies generally “follow form” of the underlying primary policy. A follow formexcess policy “incorporates by reference the terms and conditions of the underlying primary policy.” (Haering v. Topa Insurance Company (2016) 244 Cal.App.4th 725, 734.)  This means that the excess policy terms and conditions “are the same as the terms and conditions of” the primary policy. (Coca Cola Bottling Co. v. Columbia Casualty Ins. Co. (1992) 11 Cal.App.4th 1176, 1182.)

A recent California Court of Appeal case, however, demonstrates that, even where an excess policy states it follows form to the primary policy, insurance companies can write excess policy coverage that is narrower than the primary policy. On February 3, 2016, the California Court of Appeals, Second Appellate District, issued its opinion inHaering v. Topa Insurance Company.  In Haering, the excess policy was a follow form policy, providing that “the provisions of the immediate underlying policy are incorporated as part of this policy.”  (Haering,supra, 244 Cal.App.4th at 730.)  The excess policy, however, contained an exception where the provisions of the primary policy are “inconsistent with the provisions of this policy.”  (Id.)  Thus, the excess policy in Haering essentially stated it followed the primary policy except to the extent they are inconsistent.

The primary policy in Haering provided underinsured motorist coverage, the excess policy did not.  (Id. at 729-731.)  The Court of Appeal in Haering stated the rule that “the obligations of following form excess insurers are defined by the language of the underlying policies, except to the extent there is a conflict between the two policies, in which case . . . the wording of the excess policy will control.”  (Id. at 734.)  Haeringnoted that the excess policy did not contain a “‘broad as primary” endorsement, which would have ensured coverage under the excess policy for a loss covered by the primary policy.  (Id. at 735.)  Haering held that the excess policy was limited to third party claims, and did not cover the first party UIM claim because such coverage “would be inconsistent with that limitation.”  (Id. at 736.)

The lesson for consumers purchasing excess policies is that they must be diligent in determining whether the excess policy contains provisions inconsistent with the primary policy, which render it narrower.  If in doubt, it may be a good idea to ask the excess insurer if a “broad as primary” endorsement can be added to the excess policy, to ensure it provides just as much coverage as the primary policy.