A Review Of Insurance Decisions In 2014

A Review Of Insurance Decisions In 2014

01.08.2015

We take this opportunity to review and update some of the notable decisions issued in 2014 involving or impacting insurance coverage previously featured in Musick Peeler’s Insurance Notes.

California Supreme Court Clarifies Disparagement For "Advertising Injury" Coverage Requires Derogation of A Specific Competitor’s Business or Products

In Hartford Casualty Insurance Co. v. Swift Distribution, Inc., 59 Cal.4th 277 (2014), the California Supreme Court held that an insurer had no duty to defend under the “advertising injury” provision in a liability insurance policy, where an insured’s allegedly offending advertisements did not identify and disparage the claimant’s business or product, by express mention or clear implication.

“Prior Publication” Exclusion Under “Advertising Injury” Applies to Trademark on Product Sold Online

In an amended decision, the Ninth Circuit Court of Appeals in Street Surfing, LLC v. Great American E&S Insurance Co., 2014 WL 5904922 (9th Cir. 2014), applying California law, upheld an insurer’s reliance on a “prior publication” exclusion, concluding the insurer had no duty to defend a suit alleging trademark infringement and unfair competition under a general liability policy’s “advertising injury” coverage.  The Ninth Circuit stated that publications during the policy period were “substantially similar” to a pre-policy publication under the exclusion if both publications carried out the same alleged wrong.  The insured had published the “Street Surfing” logo at issue before the policy period.  The Ninth Circuit determined both the publications before and during the policy period carried out the same alleged wrong and concluded the “prior publication” exclusion applied. 

Incorporation Of A Defective Building Component Is Not “Property Damage” Where Injury Is Limited To Damage Caused By Repair Work

In Regional Steel Corp. v. Liberty Surplus Insurance Corp., 226 Cal.App.4th 1377 (2014), the California Court of Appeal held that a defective product incorporated into a larger construction project does not constitute “property damage” as the term is typically defined in commercial general liability insurance policies.  The Court held that repair work does not constitute “property damage,” even if the necessary repair work involves demolition of work completed by other contractors. The cost of demolishing concrete walls to repair or replace the insured’s defective work is purely an economic loss, not “property damage” under the subcontractor’s policy.

Reasonable Expectations Of Named Insured Are Not Reasonable For Additional Insured

In Transport Insurance Co. v. Superior Court (R.R. Street & Co., Inc.), 222 Cal.App.4th 1216 (2014), the California Court of Appeal held that an additional insured seeking a defense under its subcontractor’s commercial umbrella liability policy does not have the same reasonable expectations as the named insured under that policy and would not reasonably expect that policy to “move into first position,” ahead of the additional insured’s own liability policies.  The Court observed that when the additional insured claims coverage, a court must consider that additional insured’s objectively reasonable expectations of coverage, not the named insured’s expectations of coverage.

Employment-Related Practices Exclusion Bars Claim Arising From Workplace Incident

In Jon Davler, Inc. v. Arch Insurance Co., 229 Cal.App.4th 1025 (2014), the Court of Appeal held that an employment-related practices exclusion excluded all of the employees’ claims, including false imprisonment, alleged against their employer (the insured) arising from a workplace incident in which the female employees were forced by a supervisor to submit to a humiliating physical inspection by another employee.  The Court rejected a prior decision that had held that a prior version of the exclusion did not bar coverage for an employee’s false imprisonment claim.

Employee Or Independent Contractor:  Coverage Under A CGL Policy May Depend On The Alleged Employer’s Control Over Work Details

Many liability policies have provisions referring to an individual’s status as an “employee,” such as a definition of an insured to include an employee.  The question of whether a person is an employee or independent contractor may thus have a significant impact on an insurer’s duties as to a claim.  In Ruiz v. Affinity Logistics Corp., 754 F.3d 1093 (9th Cir. 2014), the Ninth Circuit, applying California law as to whether an individual is an employee or independent contractor primarily depends on whether the alleged employer maintained a right to control work details, concluded that delivery truck drivers were employees even though the drivers hired their own helpers.  The Ninth Circuit reasoned that the alleged employer had required the drivers to hire the helpers and controlled most other aspects of its relationship with the drivers.

A New Trial Was Ordered Where Jury Did Not Decide Whether Person Who Filled In Insurance Application Was Broker For Insureds Or Agent For Insurer

In Douglas v. Fidelity National Insurance Co., 229 Cal.App.4th 392 (2014), the California Court of Appeal reversed a judgment for the insureds, where the jury was prevented from deciding whether a representative was acting as the insureds’ insurance broker or the insurer’s agent when alleged misrepresentations were made in the application for a homeowners policy.  The Court noted that representations made by an insurance broker are the responsibility of the insured and supports the insurer’s claim for rescission of the policy, whereas the representations of an insurance agent (acting on behalf of the insurer) does not and may result in liability against the insurer. As determination of the issue was necessary for judgment, the failure to decide the issue warranted a new trial.

Uninsured Motorist Arbitration Award Of Less Than The Insured’s Settlement Demand Does Not Support “Genuine Dispute” Defense, Where Insurer Failed To Investigate Injuries, Failed To Make Any Settlement Offer And Refused To Mediate

In Maslo v. Ameriprise Auto & Home Insurance, 227 Cal.App.4th 626 (2014), the California Court of Appeal held that where an insurer failed investigate the insured’s documented injuries, failed to respond to the insured’s settlement demands, failed to make its own settlement offer, refused to mediate, and instead demanded uninsured motorist arbitration, the insurer could not rely on the “genuine dispute” defense to “bad faith” liability, even where the insured’s damages were less than the policy limits and the arbitrator determined the damages were lower than the insured’s settlement demand.  The Court observed the insurer has a good faith duty to make a reasonable settlement of the insured’s claim.

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