USC
INSTITUTE FOR CORPORATE COUNSEL
INSURANCE LAW UPDATE
MARCH 4, 1999
Bruce A. Friedman
Alschuler Grossman Stein & Kahan LLP
2049 Century Park East, 39th Floor
Los Angeles, California 90067
(310) 277-1226
Marc S. Maister
Irell & Manella LLP
840 Newport Center Drive, Suite 400
Newport Beach, California 92660-6324
(949) 760-0991
121906.02 09 / Draft1. DUTY TO DEFEND UNDER COMMERCIAL GENERAL LIABILITY ("CGL") POLICIES.
A. Nature of the duty to defend.
1. All policies that potentially cover the claim are obligated to defend lawsuits.
_ Gray v. Zurich Ins. Co., (1966) 65 Cal. 2d 263.
_ Montrose Chemical Corp. v. Superior Court, (1993) 6 Cal. 4th 287.
1. Each policy has a separate and independent duty to defend.
_ Buss v. Superior Court, (1997) 16 Cal. 4th 35.
2. Most policies defend both covered and uncovered claims, but insurer can obtain reimbursement for costs that insurer can prove are spent solely to defend a claim that is not even potentially covered.
_ Buss v. Superior Court, (1997) 16 Cal. 4th 35.
3. Duty to defend may not extend to environmental administrative proceedings which do not constitute a "suit."
_ Foster-Gardner, Inc. v. National Union Fire Ins. Co., (1998) 18 Cal. 4th 857, as modified (Imminent and Enlargement Order and Remedial Action Order from the California EPA).
_ Some policies may defend a "claim" or "suit."
4. Fronting policies not insurance and no duty on insured to defend.
_ Aerojet – General Corporation v. Transport Indemnity Corp., (1997) 17 Cal. 4th 38.
5. Duty to defend v. "ultimate net loss" policies.
A. Cumis counsel issues.
1. Civil Code §2860 (Insurer owing a duty to defend must appoint independent counsel where there is a disqualifying conflict of interest between insured and insurer.)
_ Disqualifying conflict exists when insurer reserves rights on a coverage issue, the outcome of which can be controlled by counsel first retained by the insurer for the defense of the claim.
_ Blanchard v. State Farm Fire & Casualty Co., (1991) 2 Cal. App. 4th 345.
121906.02 09 / - 5 - / DraftWays to distinguish Blanchard:
_ Does not apply when conflict of interest arises because outcome of the coverage issue can be controlled by counsel defending the underlying claim.
_ Appellant failed to produce any evidence of conflict.
_ The insurer fully defended and fully indemnified the insured (more like case without reservation).
_ Appellant merely sought a de minimus $5,000 for "monitoring" the case.
_ Involved only one theory of liability and two types of damages.
_ Golden Eagle Ins. Co. v. Foremost Ins. Co., (1993) 20 Cal. App. 4th 1372.
_ Dynamic Concepts v. Truck Ins. Exch., (1998) 61 Cal. App. 4th 999.
_ Mosier v. Southern California Physicians Exch., (1998) 63 Cal. App. 4th 1022.
6. Negotiating cumis counsel rates.
_ Civil Code §2860 obligates insurer to pay hourly rates it pays to defend similar claims in same locale.
_ Discovery of rates paid by insurer for defense of others and itself.
_ Stacking rates from multiple insurers.
7. Cumis fee arbitrations.
A. Insurer's liability for failing to defend.
1. Liability for all defense fees and costs reasonably incurred.
_ Amato v. Mercury Casualty, (1997) 53 Cal. App. 4th 825.
8. Liability for damages whether covered or not.
_ Isaacson v. California Ins. Guarantee Assn., (1988) 44 Cal. 3d 775.
9. Liability for punitive damages.
_ PPG Industries, Inc. v. Transamerica Ins. Co., (1996) 49 Cal. App. 4th 1120, review granted December 18, 1996.
121906.02 09 / - 5 - / Draft10. Insurer's bad faith liability and exposure to punitive damages.
_ Campbell v. Superior Court, (1996) 44 Cal. App. 4th 1308, as modified, 45 Cal. App. 4th 1232-4.
2. Duty to Indemnify UNDER CGL Policies.
A. When general liability policies must respond.
1. Injury or damage in fact/time or actual damage.
2. Continuous trigger.
B. Nature of covered "damages."
1. Liability for sums the insured becomes legally obligated to pay for a covered claim.
2. Prophylactic measures taken to prevent further damage are covered.
3. Damages include reimbursement for governmental response costs.
_ AIU Ins. v. Superior Court, (1990) 51 Cal. 3d 807.
1. Pure economic loss not covered as "bodily injury" or "property damage."
_ Waller v. Truck Insurance Exchange, (1995) 11 Cal. 4th 1.
3. Allocation – See chart attached as Appendix A.
A. Between insurer and insured.
_ Aerojet-General v. Transport Indemnity, supra.
1. Between insurers.
_ Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., (1996) 45 Cal. App. 4th 1.
_ Stonewall Ins. Co. v. City of Palos Verdes Estates, (1996) 46 Cal. 4th 1810.
4. CGL Coverage for Intellectual Property Claims.
A. Trademark and trade dress infringement.
_ Lebas Fashion Imports of USA, Inc. v. ITT Hartford Ins. Group, (1996) 50 Cal. App. 4th 548.
1. Copyright infringement.
121906.02 09 / - 5 - / Draft_ Zurich Ins. Co. v. Killer Music, Inc., 998 F. 2d 674 (9th Cir. 1993).
2. Patent infringement coverage.
_ Simply Fresh Fruit Inc. v. Continental Ins. Co., 94 F. 3d 1219 (9th Cir. 1996).
3. New CGL policies may have intellectual property exclusions.
B. New multimedia E&O policies provide coverage for intellectual property claims and internet exposures.
_ Directly covers trademark and copyright violations.
_ Covers economic loss E&O exposures.
5. Directors & Officers & Employment Practices liability policies.
A. Entity coverage.
_ Effect of Private Securities Litigation Reform Act of 1995.
_ Dilution of limits.
_ Bankruptcy.
1. Allocation between covered directors and officers and uncovered entity.
1. Defense expenses covered if reasonably related to covered claims.
_ Nordstrom Inc. v. Chubb & Son, Inc., 820 F. Supp. 530 (W.D. Wash. 1992), aff'd 54 F. 3d 1424 (9th Cir. 1995).
1. Indemnity payments covered under "larger settlement rule."
_ Nordstrom, Inc. v. Chubb & Son, Inc., supra.
2. Advance agreement on allocation.
A. Multi-year policies.
B. Bump-up provisions.
C. Panel counsel.
D. Coverage for punitive damages.
E. Employment Practices Liability policies.
1. As part of D&O policy.
121906.02 09 / - 5 - / Draft2. Coverages afforded.
3. Coverage for willful acts and punitive damages.
_ California Ins. Code Section 533.
2. Employed lawyers coverage.
_ May be endorsed onto D&O program or CGL program.
_ May have to obtain separate policy if doing "pro-bono" or "moonlighting."
6. Additional Insured Requirements and Endorsement – see attached Appendix B.
A. Establish right to obtain a copy of the policy.
B. Waiver of subrogation.
C. Endorse policies to provide which policy will be primary.
D. Reserve the right to purchase the policies upon failure to do so by primary insured.
121906.02 09 / - 5 - / Draft