Insurer's Violation of Fair Claims Settlement Practices Regulations Estops it From Relying on One-Year Contractual Limitation02.19.2010
Since the California Supreme Court’s landmark holding in Moradi-Shalal v. Fireman’s Fund Ins. Co., 46 Cal.3d 287 (1988) that “[n]either [California Insurance Code] section 790.03 nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h),” policyholder lawyers have sought to circumvent that decision. They are achieving some success.[FN1]
Courts are admitting into evidence in bad faith cases an insurer’s failure to strictly comply with the California Fair Claims Settlement Practices Regulations [Cal. Code of Regulations, Title 10, Chapter 5, Subchapter 7.5, Article 1], though these regulations do not in and of themselves give rise to a private right of action. See e.g., City of Hollister v. Monterey Ins. Co., 165 Cal.App.4th (2008), Northwest Airlines, Inc. v. Ontario Aircraft Services, Inc., 104 Cal.App.4th 1053 (2002), and Spray, Gould & Bowers v. Associated Int’l Ins. Co., 71 Cal.App.4th 1260 (1999).
The most recent case is Superior Dispatch, Inc. v. Ins. Corp. of New York, 2010 WL 187957 (1/21/10). The insured was hired by Matson to transport a dump truck in June 2003. While enroute, the dump truck was damaged. Matson’s customer rejected the dump truck. Matson then sued the insured for the loss.
The insured submitted a claim to its insurer in July 2003. The insurer rejected the claim in November 2003. The insured hired counsel, who wrote to the insurer challenging the denial of coverage in January 2004. The insurer’s coverage counsel reiterated the denial in February 2004. There were no further communications until the insured filed suit against the insurer, about 15 months later.
The insurer demurred to the complaint on the grounds the lawsuit was not filed within one year of the loss, as required by the one-year contractual limitation provision in the insurance policy. The insured argued that the insurer was estopped from relying on the provision because neither of the insurer’s letters advised the insured of the provision as required by Section 2695.4(a) of the Fair Claims Settlement Regulations, which provides that “[e]very insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant.”
The insurer contended that it was not required to advise the insured of one-year contractual limitation period because the insured was represented by legal counsel. The insurer cited to Section 2695.7(f) of the Fair Claims Settlement Regulations, which states: “Every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date; .… This subsection shall not apply to a claimant represented by counsel on the claim matter.” [Emphasis added.]
The trial court ruled in favor of the insurer. The Court of Appeal reversed, reasoning that the section cited by the insured required the insurer to disclose any policy provisions that might apply to the claim and did not exempt the insurer from the notice requirement.
Thus, the Court held that the insurer was estopped from asserting the one-year contractual limitations period and allowed the insured’s lawsuit to proceed. This case, like the cases before it, demonstrates the importance of an insurer’s strict compliance with the notice requirements and other sections of the Fair Claims Settlement Regulations.
[FN1] In our December 2009 issue, we reported on Zhang v. The Superior Court of San Bernardino County, 178 Cal.App.4th 1081 (2009), which held that an insured could state a cause of action under California Business & Professions Code § 17200 (known as the Unfair Competition Law) based on alleged conduct that violates Insurance Code § 790.03. On February 10, 2010, the California Supreme Court granted review of Zhang and the Court of Appeal decision is no longer good authority.