An Overview of California Insurance Claims Handling
Disclaimers: This presentation is focuses on California law and is for informational purposes only. Please do not rely on the content for any particular case without consulting with an attorney. Please feel free to contact us to discuss any specific matter.
TYPES OF LIABILITY POLICIES AND WHY GAPS CAN OCCUR
CGL, Professional E&O, D&O, EPLI, Auto Liability, Inland Marine, and Work Comp.
Wraps / OCIP’s.
Specialized Policies: Contractors Pollution, Environmental, Demolition liability, Lead Abatement, Mold Abatement, Asbestos Abatement, & Roofing Liability.
Site Specific and Project Specific Policies.
Excess and Umbrella policies.
Occurrence Based, Claims Made, and Modified Occurrence Policy Triggers.
INSURED’S / ADDITIONAL INSURED’S
Endorsements v. Certificates. Certificates are proof of coverage, but do not confer coverage. Always secure the actual endorsement when securing coverage and when analyzing a claim.
Endorsement Language: Completed Operations (20 10 11 85) or Ongoing Operations (20 10 11 93). Does the endorsement cover all matters “Arising out of YOUR Work," or just those claims that arise during the project “Arising from your ongoing operations." Beware of manuscript endorsements using alternative language.
Contractual Requirements and Blanket AI Endorsements: Most contracts require completed operations coverage pursuant to CG 20 10 11 85 or an equivalent. CG 20 10 11 93 is not an equivalent and can lead to a failure to procure claim. Potential that failure to obtain the right coverage from subcontractors may affect a developer’s policy and coverage.
Rights and Obligations: Assuming an actual endorsement is secured providing coverage, the insured’s rights and obligations are in full force and effect under the insurance agreement. This includes notification by the insurer of any changes to the underlying policy.
- Defense Trigger:
- Broader than duty to indemnify
- Potential for coverage
Includes groundless, false or fraudulent claims
Supplemental / Defense within limits
- Determining Defense Obligation:
“4-corners" or extrinsic evidence
Doubts resolved in favor of insured
Extrinsic: (majority) Arizona, California, Illinois, Nevada, Utah, Washington
“4-corners": Colorado, Florida, Oregon, Texas
No obligation to independently investigate claims
Facts known or reasonably could be obtained when defense demanded
- Defending Mixed Claims:
Some claims covered, some not covered
Must defend the entire case
Reservation of rights to deny coverage
Insurer may seek reimbursement from insured for defense of non-covered claims
“Cumis Counsel" – ability to “steer" case toward uncovered claims or offer token defense
Tripartite relationship – fiduciary duties to both insurer and insured
Courts differ if defense under ROR creates a per se conflict of interest
- Selected Cases:
Presley v. American States (Scope and timing of defense of additional insured)
Travelers v. Centex (Insurers rights related to defense of additional insured)
Buss v. Superior Court (Insurers right to reimbursement of defense costs)
Forecast v. Steadfast (Insured’s obligation to pay SIR)
SELF INSURED RETENTIONS (SIR) VS. DEDUCTIBLE
CGL policies generally afford coverage for “suits," which are generally defined as a “court proceeding initiated by the filing of a complaint"; “suits" include quasi-judicial administrative agency board proceedings. Ameron International Corp. v. Ins. Co. of the State of Pennsylvania, 50 Cal. 4th 1370 (2011)
Liability policies often contain a deductible or self insured retention (SIR) requiring the insured to bear a portion of a loss covered by a policy. A deductible generally only relates to the damages for which an insured is indemnified, not defense costs. A SIR, on the other hand, generally applies to defense costs and settlement of any claim.
A “per claim" SIR applies once to a single lawsuit regardless of the number of homes or homeowners involved where the term “claim" is undefined in the policy and ambiguous. Clarendon America Ins. Co. v. North American Capacity Ins. Co., 186 Cal. App. 4th 556 (2010).
A CGL policy may specifically require that the SIR be satisfied by the named insured; in such cases, an additional insured cannot satisfy the SIR. Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466 (2010).
An insurer that refuses to participate in the defense of an insured on the ground that the insured failed to satisfy the SIR may be unable to contest liability or subsequent judgment against the insured. See, e.g., Executive Risk Indemnity, Inc. v. Jones, 171 Cal. App. 4th 319 (2009).
INDEMNITY OBLIGATIONS & ACTUAL COVERAGE
Unlike the defense obligation, payment of policy benefits to indemnify an insured depends on a claim or lawsuit that is actually covered, not just potentially or possibly covered.
The most common indemnity exclusions are for damage to the insured’s own work or products for which there is no coverage.
The coverage under a CGL policy is for damage to the work of other contractors or to the property of the homeowner or property owner.
A CGL policy also provides coverage for an insured’s liability for breach of a written contract by which the insured agrees to indemnify another for his tort liability to a third party.
The “trigger" event for coverage is an “occurrence" of property damage that takes place during the policy term, not the negligent or defective work by the insured. General Ins. v. American Safety.
Where an insurer pays indemnity on behalf of an insured on a claim the insurer contends was not covered, the insurer can seek reimbursement from the insured, assuming this right was reserved in a Reservation of Rights letter to the insured when the insured’s defense was taken up. American Modern v. Fahmian; Blue Ridge v. Jacobson.
Under the recent case of Ameron v. Ins. of Pennsylvania, an administrative action by a governmental body against an insured that requires an insured to retain counsel and potentially pay money damages qualifies as a “suit" to trigger an indemnity obligation.
Under a CGL policy, coverage is usually triggered by an “occurrence" of property damage or bodily injury that occurs during the policy.
Due to the difficulty of determining when property damage occurs due to alleged defective construction, the case of Montrose v. Sup. Ct. held that a “continuous injury" trigger applies.
Under such a theory, coverage is triggered based on when the insured performed defective work that led to the property damage that is the subject of the claim or suit.
The law presumes that the property damage began when the defective work was performed and continues until it is repaired.
Under a “continuous injury" trigger of coverage, all policies that are in effect when the defective work was performed and the damage continues owe a duty to indemnify the insured.
The main limitation is that the insured’s work must have been performed and completed during the policy period. Otherwise the “completed operations" coverage does not apply to these completed operations type of claims where the damage is alleged to have occurred after the insured completed its work.
ENDORSEMENTS & EXCLUSIONS
In response to the Montrose v. Sup. Ct.“continuous injury" trigger of coverage rule, many insurers have developed policy language and/or endorsements to eliminate coverage for such damage claims.
The cases of USF Ins. v. Clarendon America Ins.; Pennsylvania General Ins. v. American Safety Indem., have set out examples of such endorsements that the Courts will uphold to eliminate coverage for a “continuous injury" trigger of coverage.
An approved such provision is one that states that “all property damage arising from an occurrence shall be deemed to take place at the time of the first such damage even though the damage may be continuous, progressive or evolving."
Under such a policy provision, there is no coverage for property damage that first manifests or becomes known before the inception of the policy.
Other current policy provisions or endorsements exclude coverage for work that is completed prior to the policy period, or work that is performed prior to the policy period.
The goal of these provisions is to limit coverage for property damage to damage that actually occurs during the policy period.