In a recent decision, a California Court of Appeal permitted an employer’s insurer to intervene in an action against the employee and her company, even though a default judgment had been entered against the employee.

At issue in Western Heritage Insurance Company v. Superior Court, 199 Cal.App.4th 1196 (2011), was the negligence of a home healthcare company employee who was in a car accident while transporting a patient in her car.  The patient died as a result of his injuries after the employee took the patient home.  The family of the patient brought an action against the employee and the healthcare company for negligence.  The employee failed to answer the complaint and failed to appear for a deposition.  Instead, the insurance company answered on her behalf.

After learning the employee was unable to be found, the trial court struck the employee’s answer and entered a default judgment as to the employee.  With the issue of the employee’s negligence therefore “resolved,” the trial court prohibited the insurance company from further litigating the employee’s liability.

The Court of Appeal reversed.  It distinguished intervention (inserting oneself into a proceeding) from subrogation (bringing suit as if standing in the shoes of the insured), noting that the insurer here was not asserting subrogation rights based on the rights of the employee.  An intervening insurer may assert defenses that might be unavailable to its insured, and the right to contest liability was essential to the insurer’s ability to protect its interests.  Therefore, the insurer was permitted to intervene to litigate issues of liability and damages.

In Ameron Intern. Corp. v. Insurance Co. of State of Pennsylvania, 50 Cal. 4th 1370 (2010), the Supreme Court of California ruled that a policyholder may invoke their insurance policy’s duty to defend when the policyholder is subject to an administrative proceeding. At issue in Ameron was a construction defect claim arising from an aqueduct project that started in 1975. The federal government contracted with Kiewit Son’s Company who then sub-contracted with Ameron to manufacture and install siphons in an Arizona aqueduct. In 1995, the government found defects in the siphons and sought $40 million in damages from both Ameron and Kiewit. Ameron challenged the government’s findings and filed a claim before the Department of Interior Board of Contract Appeals.

The previous approach for claims like Ameron’s dispute was articulated in Foster-Gardner, where the Court limited an insurance carrier’s duty to defend to civil actions in court.  However, in Ameron’s case, the Supreme Court expanded their previous holding and found that because the insurance carrier’s policy was ambiguous on the definition of the term “suit,” the term should be construed to protect an insured’s reasonable expectations. The Court explained that because a claim before the Interior Board of Contract Appeals requires the filing of a complaint and has trial-like features, Ameron’s adversarial action before the Board of Contract Appeals should qualify as a “suit” for purposes of the insurance policy.

The new Ameron approach requires insurers to evaluate administrative actions to determine whether they are sufficiently “adjudicative” to qualify as a “suit” such that it triggers their duty to defend.  This ruling gives policyholders more leeway when faced with the possibility of a claim against the government. Also significant is that this is consistent with its recent trend to evaluate the “purpose” of insurance policy rather than just the literal meaning of its terms.

Cyber-crime and data-privacy violations have the potential to result in serious risks and financial consequences for a business. According to a study of 50 organizations published by Ponemon Institute released in August 2011, the median annualized cost of cyber crime is $5.9 million per year.  Cyber related losses include loss of electronic data and interruption in production and supply chains, fraud and theft, intellectual property risks, and stealing proprietary products and systems. Other collateral risks include legal risks such as compliance fines, copyright infringement, and even web-content liability.

Because of these risks, the market for Cyber-Insurance is growing at a rapid pace. In the past two years, the volume of policies offered has increased by 30% and the industry has yielded over $700 million in premiums.

Importantly, Cyber-Insurance does not come in a one-size-fits-all package. Because each company has different technology risks, each policy must be specifically tailored to fit each business. Therefore, when deciding whether to buy Cyber-Insurance it is important to coordinate across a company – from directors, to IT, to the risk management department. Cross-platform coordination will ensure that your company has an accurate picture of your vulnerabilities for cyber related violations.

The Fourth District Court of Appeals held that where an insurance policy states that the insurer has three years after the end of the policy period to complete an audit of the insured’ records to determine the final premium due, and the insurer completes that audit and timely submits a final bill to the insured, the statute of limitations begins to run on the date the final bill is sent.

In Jones v. Golden Eagle Ins. Corp., 201 Cal. App. 4th 139 (2011), the court examined the plaintiff’s obligations when dealing with an insolvent insurer. The court found that plaintiff’s failure to file timely claims in compliance with the Insurance Commissioners plan for an insurer’s conservatorship proceeding resulted in a loss of the plaintiff’s claims.

Plaintiffs sued Calsol, a provider of mineral solvents for exposure to a hazard chemical. At the time of suit, Calsol was insured by Golden Eagle Insurance Company. After Calso went bankrupt, the Court lifted the bankruptcy stay to allow plaintiffs to pursue Calsol, but only to the extent their claims were covered by insurance. This stay allowed plaintiffs to pursue their claims against Calsol on the condition that any judgment that they obtained could be enforced only against Calsol’s insurers such as Golden Eagle.

Golden Eagle Insurance Company went into conservatorship and as part of rehabilitation the Insurance Commissioner issued a specific claim procedure that the plaintiffs were required to follow to ensure the validity of their claims. Because the plaintiff’s failed to submit a ‘Sworn Statement Proof of Loss’ within the time limit, the plaintiff’s forfeited their right to recover against the insolvent insurer. The lesson is that whenever a policyholder is dealing with other insolvent entities, they should be prepared to take the necessary procedural steps to protect their rights regarding coverage and equitable obligations.

“Hot Topics in Federal Jurisdiction” – Federal Bar Association, Phoenix and Tuscon Chapters

“Media Law for Those In Print” – San Francisco State University and University of California, Santa Cruz Editorial Staff

“Tax, Trusts, and Estates Summit” – DLA Piper

In December 2007, Andrew George obtained an auto-insurance policy covering his Ford Thunderbird from Interinsurance Exchange of the Automobile Club. In January 2009, the car was stolen and never recovered resulting in a total loss. Mr. George sued the insurer alleging that the policy required the Interinsurance to pay $25,000 in the event of a total loss of the car, without regard to the fair market value of the car at the time of the loss.  Mr. George claimed that the policy was an agreement to value the vehicle at $25,000.

The court found that the policy provided that in the event of a total loss, the policy will pay the actual cash value of the car up to $25,000, less the deductible.  Further, the court found that the policyholder failed to plead facts that could lead the court to find that the defendant knew that the plaintiff had a mistaken interpretation of the phrase “actual cash value”. The court held that the language of the policy was “clear and unambigous.”

In Oglio Entertainment Group, Inc. v. Hartford Cas. Ins. Co., 200 Cal.App.4th 573 (2011), the court held that a music label did not have insurance coverage under Hartford Casualty Insurance Company’s “Advertising Injury” coverage when the label was sued for copying an artist’s product. The court found that copying a product is not the same as copying an artist’s advertising for purposes of advertising injury coverage.

In 2000, Mark Jonathan Davis, a recording artist, contracted with Oglio, an independent music label, to produce an album. After producing the first album, Oglio attempted to exercise their option to produce a second album with Davis but the deal went sour. Oglio went ahead with the production of an album but used a secondary artist whose sound was similar to Davis. Subsequently, Davis sued Oglio for breach of contract and intentional interference with prospective economic advantage in addition to other claims.

Oglio attempted to tender the claim against them to their insurance provider, Hartford Casualty Insurance Company, under their “Advertising Injury” policy. However, Hartford denied Oglio’s request. Oglio then sued Hartford for breach of contract for Hartford’s denial of coverage on the Davis dispute. Hartford filed a demur alleging that there was no coverage under the policy.

The trial court sustained Hartford’s demur and the appellate court affirmed. The court found that Davis’ complaint did not allege an advertising injury as defined in the Hartford’s insurance policy. The insurance policy defined advertising as copying an advertising idea or the advertisement itself. The policy did not include merely copying the ‘product’ or the artist’s similarities.  The Court stated that in order for Oglio’s suit to be covered by the “Advertising Injury” clause, Davis would have to allege that Oglio used an advertisement or copied an advertising idea of Davis.