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Ms. Hairston represents corporate policyholders in insurance coverage disputes. She has assisted clients in pursuing claims related to products liability, employment class actions, SEC investigations, shareholder litigation, intellectual property claims, technology errors and omissions, and mass casualty torts. Ms. Hairston’s clients include technology companies, health care companies, retailers, and financial services companies. She also performs insurance policy reviews and advises clients on insurance program renewals. Ms. Hairston has been named to the list of Northern California Rising Stars by Super Lawyers.


Even when carriers agree to defend an insured, policyholders and carriers can still get locked into disputes about who will provide such a defense.  Policyholders often want to choose their own counsel while a carrier has its own idea about who should defend the case.  The dispute in Travelers Property v. Centex Homes, C10-02757 (N.D. Cal. April 1, 2011) illustrates this problem and shows how a dispute over defense counsel can potentially lead the carrier to argue that the policyholder has breached its duty to cooperate and that such a breach relieves the carrier of both its duty to defend and indemnify under the policy.    

Continue Reading Harsh Result In Dispute Over Appointed Counsel

The California Supreme Court recently issued a decision in Century-National Ins. Co. v. Jesus Garcia, No. S179252, holding that California Insurance Code section 533, which bars coverage for intentional conduct, does not apply to coverage for innocent co-insureds.  The Court examined this issue in the context of a fire insurance policy.  The insureds, Jesus and Theodora Garcia, suffered substantial property damage to their home when their adult son – who was also an insured under the policy – set fire to his bedroom.  Century-National denied coverage for the Garcias’ claim citing the policy’s exclusion for claims based on the intentional acts or criminal conduct of “any insured.”  The trial court agreed and granted Century-National’s demurrer on the grounds that 1) the Century-National policy defined the term “any insured,” to include relatives of the insured who lived at the insured property; 2) courts generally interpret policy exclusions for intentional or criminal acts to exclude coverage for innocent co-insureds; and 3) Insurance Code section 533 expressly sets forth California’s public policy of denying coverage for willful wrongs. Continue Reading Section 533 Does Not Bar Coverage for Innocent Co-Insureds

Under California law, awards of plaintiffs’ attorneys’ fees based on contract, statute, or law qualify as “costs” and may fall within the supplementary payments coverage of a CGL policy.  Cal. Code Civ. Proc § 1033.5.  If this coverage is part of the insurer’s defense obligation, the carrier must pay such an award outside of its policy limits.    

Most CGL policies obligate the insurer to pay in “suits” they defend, “[a]ll costs taxed against the insured in the suit.”  Under California law, this provision obligates “the insurer to pay ‘costs’ whenever it must defend the suit, independent of whether those costs would otherwise be covered by way of the insurer’s indemnity obligation.”  Prichard v. Liberty Mutual Ins. Co., 84 Cal. App. 4th 890, 895 (2000).  This is so because “the supplementary payments provision providing all ‘costs taxed’ is a function of the insurer’s defense obligation, not its indemnity obligation.”  Prichard, 84 Cal. App. 4th at 911-12.

In Prichard, the insured was entitled to its claims for costs – including attorneys’ fees –even if it turned out that the insurer could later prove that there was no actual coverage because the court found that the insured’s costs were part of the carrier’s defense obligation.  Id. at 912. 

The Prichard court rejected the insurer’s challenge to the “fairness” of requiring an insurance carrier to pay all costs in any suit it defends.  The insurer suggested that:

the absence of even the possibility of coverage for the causes of action that generated the large costs award is somehow unfair because the insured is getting a benefit he never paid for by being in effect indemnified for exposure on claims the defense of which he never paid a premium for.

Prichard, 84 Cal. App. 4th at 912 n.22.  The court dismissed this argument, stating that the problem

is in the insurance contract, not the law . . . If the ISO [ ] forms are written so that attorney fees awarded as part of prevailing party clauses can be considered costs associated with the insurer’s defense obligation, there is nothing we can do about it.

Id.  See also Insurance Co. of North America v. National American Ins. Co., 37 Cal. App. 4th 195, 206-07 (1995) (holding that costs awarded against the insured because of prevailing party attorney fee clauses applicable in the underlying litigation were part of the supplementary payments section of the policy and noting that such attorney fees were statutorily defined as costs). 

The same reasoning applies to plaintiffs’ attorneys’ fees paid in settlement. Prichard, 84 Cal. App. 4th at 912-13 (rejecting argument that settlement of underlying case was “automatic bar” to any claim for costs “taxed” against the insured and holding “there is no reason that there should be any per se immunity from the supplementary payments obligation”).  The California Court of Appeal recently reaffirmed this holding in Employers Mutual Casualty Co. v. Philadelphia Ins. Co., 169 Cal. App. 4th 340 (2008), rejecting the insurer’s argument that “costs taxed cannot include attorney fees paid in settlement.”  In upholding the trial court’s award of “costs” to the insured, the court found that “as a matter of public policy and equity our interpretation is sensible.  It permits an insured to settle a claim instead of pursuing an action to judgment and risking a greater liability…Public policy encourages settlement.”  Id. at 344. 

In addition, the Employers Mutual court also rejected the insurer’s argument that its obligation to pay costs taxed against the insured arises only after liability is established in the underlying action.  The court found that although the insured did not admit liability as part of the settlement, the settlement agreement established the insured’s liability for the purposes of insurance coverage.  Id. 

Based on this favorable case law in California, insureds should take the time to carefully examine the basis for any plaintiffs’ attorneys fee award either by judgment or settlement.  If such an award qualifies as a “cost,” it may be covered as part of a CGL carrier’s defense obligation and thus paid outside of the available policy limits. 

When faced with a new complaint, an insured must sometimes confront the issue of whether the “interrelated wrongful acts” exclusion applies because of a claim already noticed during a prior policy year.  The Supreme Court of Delaware issued a decision providing some assistance to insureds facing such a problem by affirming that each cause of action in a complaint may constitute a separate “claim” under claims-made insurance policies. Continue Reading Supreme Court of Delaware issued a decision in AT&T Corp. v. Faraday Capital Ltd.

In what appears to be the first published California decision on the issue, the Second District Court of Appeal recently held that a carrier must defend its insured when the claim may not be covered by the primary policy and  “potentially” falls within the carrier’s umbrella coverage.  In Legacy Vulcan Corp. v. Superior Court, 2010 WL 1730788, the court rejected the trial court’s holding that although the insurance policy provided both excess and umbrella coverage, for purposes of the duty to defend, the insurer’s obligations were limited to those of an excess insurer.  The trial court had also ruled that the duty to defend was only triggered upon the exhaustion of all underlying insurance and that the duty to defend could arise only upon a showing that the claims were “actually covered” by the policy.

The umbrella policy at issue, which afforded broader coverage than the primary policy, expressly provided a duty to defend in connection with the umbrella coverage.   The policy stated that the carrier “had the right and duty to defend any suit against the insured…if the damages were not within the terms of coverage of underlying insurance but were within the terms of coverage of this insurance.”  The appellate court found that this language did not place any limits on the duty to defend and rejected the insurer’s argument that the duty to defend was modified by the policy’s “retained limit” provision.  The court held that without language expressly relieving the insurer of the duty to provide a “first dollar” defense, the insured did not have to incur liability in excess of any “retained limit” before the duty to defend was triggered. As a result, the insured was entitled to an immediate defense from the umbrella carrier.  In addition, the court also found that the self-insured retention did not limit the duty to defend and only applied to indemnity payments.

Finally, relying on well-established California case law, the appellate court held that the correct standard for assessing the duty to defend was whether the insured could show a “potential” for coverage.  Since the umbrella coverage was acting as primary rather than excess coverage, the court applied the ordinary rules regarding the duty to defend in connection with primary liability coverage.  See Scottsdale Ins. Co. v. MV Transportation, 36 Cal. 4th 643, 654-655 (holding “a duty to defend arises if facts alleged in the complaint or other facts known to the insurer, potentially could give rise to coverage under the policy.”).

In insurance coverage litigation, insurers frequently fight vigorously to prevent discovery by their insureds.  Even though the insurer often pleads affirmative defenses numbering in the dozens, the insurer resists all efforts by the insured to obtain discovery of the factual basis for such alleged defenses.  In addition, experience shows that discovery into the “drafting history” of policy forms—including the drafting of alternative wording not used in the policies at issue, can be very helpful, often showing that the policy wording was not intended to be applied in the manner the insurer now claims.  For this reason, of course, insurers strenuously oppose such discovery.

Insureds have recently received a favorable ruling on these issues in a decision from a federal court in the Southern District of New York.  A Magistrate Judge ordered Continental and CNA Insurance Companies (collectively “Continental”) to produce documents to its insured with respect to its 50 affirmative defenses, the pollution exclusion in its policies, and its underwriting practices.  See Pentair Water Treatment (OH) Company v. Continental Insurance Company, 08-3604, S.D.N.Y., Nov. 16, 2009. 

In response to the insurer’s answer, the insured sought discovery and depositions with respect to each of its 50 affirmative defenses.  Continental objected to these requests, arguing that they sought information protected by attorney work product.  In rejecting this argument, the Court relied on the text of Federal Rule of Civil Procedure 26(a)(1)(A)(ii) which provides that even without a discovery request, a party must produce “a copy…of all documents…that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses…”  The Court held that Continental must produce all documents responsive to the insured’s requests, which had not been previously produced.

The insured also sought documents relating to any pollution exclusion clause that Continental utilized during the relevant time period as well as any specific clauses relating to exclusions for injury caused by viruses, bacteria, or fungi.  Continental objected to the extent that the requests went beyond the specific pollution exclusion in the policy at issue.  Again, the Court rejected this argument and held that documents relevant to construing the clause in the policy was not limited to those relating to the issue of the precise language.  The Court found that information concerning other pollution exclusions employed by Continental including which one it chose to include and how that may have altered the pollution exclusion in the instant case was relevant.

Finally, the insured served deposition notices for witnesses to testify regarding Continental’s underwriting practices.  Continental objected on the ground that the underwriting of any policies other than the policy specifically at issue in the instant case would be irrelevant.  For the third time, the Court rejected Continental’s objection and held that Continental’s affirmative defenses – including its contention that the underlying facts did not constitute an “occurrence or an “accident” within the terms of the policy, that the lawsuit was not a “suit,” “action,” or “proceeding” under the Policy, and that the underlying action did not seek amounts that the insured was obligated to pay as damages – raised issues that implicated Continental’s underwriting practices.  As a result, the insured was entitled to explore what risks Continental expected to cover when it used terms similar to those in the policy at issue.

This Pentair Water decision opens the door to extremely valuable discovery for insureds who face numerous affirmative defenses.  The case also permits the insured to properly explore the insurers contentions regarding policy interpretation and intent, by pulling back the curtain and allowing the insured access to the internal deliberations and drafting efforts of the insurer to reveal what it intended the policy to mean before the insured asserted a claim.

The City of Long Beach got some good news earlier this month when the Ninth Circuit rejected the insurer’s petition for rehearing in its insurance coverage dispute with the Insurance Co. of the State of Pennsylvania.  The court’s initial ruling upheld the decision of the district court to award $8 million to the city arising out of a 2004 housing discrimination lawsuit.  That suit, which involved allegations that the city tried to prevent a woman and her son from building boarding homes for Alzheimer’s patients in wealthy neighborhoods by issuing numerous building code citations, resulted in a $22.5 million jury verdict against the city.  The city appealed the award but eventually settled for $20 million.  Having satisfied the $12 million deductible, the city sought $8 million in coverage from its E&O carrier.  Ultimately, a district court judge in the Central District of California granted the city $6.2 million on its motion for partial summary judgment and $1.8 million in a bench trial. 

The City of Long Beach initiated the Ninth Circuit appeal, challenging the district court’s holding that the award of plaintiffs’ attorneys’ fees in the underlying housing discrimination suit did not qualify as “damages” and thus was not covered by the policies.  In return, the insurer cross-appealed, arguing that the district court’s finding that the city was entitled to overage under the policies at all was incorrect.   

On the city’s claim, the Ninth Circuit found that the E&O policies covered “ultimate net loss,” which is the amount the insured must pay “as damages by reason of a judgment or a settlement.”  On de novo review, the Ninth Circuit held that the award of attorneys’ fees in the underlying action did constitute “damages” under California law.  The court cited an analogous decision in Golden Eagle Ins. Co. v. Ins. Co. of the West., 99 Cal. App. 4th 837, 842 (Cal. Ct. App. 2002), which held that attorneys’ fees are “damages” within the meaning of a contractual indemnity clause as well as the general proposition from the California Supreme Court decision in AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (Cal. 1990) that when language in a policy remains ambiguous even after the expectations of the parties have been considered, the ambiguity is generally resolved in favor of coverage. Since “damages” was not defined by the policies, the court found the attorneys’ fees were covered.

With respect to the insurer’s arguments, the coverage dispute centered on the “expected or intended” exclusion.  The insurer argued that the city employees, who were also named as individual defendants, had acted intentionally and therefore could have reasonably expected or intended the harm that resulted.  The Ninth Circuit rejected this argument and upheld coverage for the city as an insured under the policy.  The court found that the city itself did not intentionally cause the harm suffered by the plaintiffs in the underlying action even if the city employees had acted intentionally.  Also, since the individual city employees were not authorized to act or make policy on behalf of the city, the city was only vicariously, not directly, liable.  As a result, the Ninth Circuit affirmed the district court’s findings that the harm was neither “expected or intended” from the standpoint of the city and that the city was entitled to collect under the policies.

The City of Long Beach now stands to recoup even more of its losses – the city’s bad faith claim, which was stayed pending the outcome of the Ninth Circuit’s decision, will likely go forward. 

The district court case is case number 2:04-cv-08650-R-RZ, in the U.S. District Court for the Central District of California.

In Yarway Corp. v. Admiral Ins. Co., the parties submitted to a bench trial for resolution on the issue of whether an umbrella insurer was obligated to pay the insured’s defense costs in addition to policy limits.  The insured sought coverage for lawsuits brought against it for asbestos-related bodily injury related to the insured’s products.  The insured had exhausted its primary insurance and settled with several of its other umbrella carriers.
The umbrella policy at issue provided coverage for defense costs in addition to policy limits “with respect to an occurrence which is not covered by any policy of underlying insurance [listed] and to which there is no other insurance in any way applicable.”  The parties’ dispute centered on the meaning of “applicable.”  The insured argued that the term “applicable” meant that only policies triggered by the asbestos-related suits could be “applied” to the claims and that its higher-level excess policies did not qualify as “other insurance” since they were not yet triggered by the suits.  The carrier argued that the “other insurance” clause was broad enough to include any and all policies that could at any time cover asbestos-related claims regardless of the level of that insurance and whether or not that coverage had been triggered.
Judge Munter of the San Francisco Superior Court held that both interpretations were reasonable.  As a result, he was compelled to find that the language was ambiguous and construe the language against the carrier.  In addition, he found that the limits of liability section of the policy contemplated that the umbrella policy would “continue in force as underlying insurance” after the primary policy was exhausted.  As a result, he held that it was a reasonable interpretation of the policy that the carrier was required to step in before any other higher-level policies since the “drop down” language indicated the umbrella policy was triggered by vertical exhaustion, not horizontal.  As a result of these two clauses, the court found that the “other insurance” clause only referred to policies that applied contemporaneously with the defendant carrier’s policy and did not refer to policies that were either no longer “valid and collectible” or higher-level excess policies that might apply after the defendant carrier’s policy was exhausted.  As a result, the Judge ruled that payment of defense costs would not reduce the carrier’s policy and the carrier was obligated to pay defense costs until its limits were exhausted by payment of indemnity.
This decision highlights the need to carefully consider the “other insurance” clause and which policies need to be exhausted or triggered before they can applied.  As shown by the Yarway decision, policyholders can find support in both ambiguous “other insurance” clauses and limits of liability requirements to force an umbrella carrier to pay for defense costs outside of limits.

After sopping up the mess and shutting off your water main, most homeowners reach for the telephone to call their insurer after finding a water leak and the mess, damage, and mold left in its wake.  For years homeowners have found some comfort after making that call even when their homeowner’s policy excluded damage caused by water.  Until the recent decision by the California Court of Appeal’s Second District in Freedman v. State Farm Ins. Co.¸ B202617 (May 5, 2009), homeowners could argue that water damage caused by the negligence of a third party was not excluded.  The argument made by homeowners was that the third-party negligence, not the water, was the efficient proximate cause of the damage.  Since third-party negligence was covered by the policy, the fact that it caused water damage didn’t trigger the “water exclusion.” 

Courts agreed.  So insurers added another provision excluding any damage caused by a continuous or repeated seepage or leakage from a plumbing system regardless of whether it occurred suddenly or gradually, involved isolated or widespread damage, or arose from natural or external forces.  In Freedman, a contractor drove a nail through a pipe while installing sheetrock.  Although no leak started at the time, years later the nail corroded and caused a water leak and resulting damage to the Freedman’s home.  Although the homeowners strenuously argued that the third-party negligence was the “efficient proximate cause” of the damage, and the loss should therefore be covered,  the court held that the new provision in their policy excluded coverage.  The court found that the new provision barred coverage because water damage from a continuous leak was excluded regardless of whether or not the leak was caused by third-party negligence. 

The court applied Julian v. Hartford Underwriters Ins. Co., 35 Cal. 4th 747 (2005), which held that the “efficient proximate cause” did not always determine coverage and that “an insurer is not absolutely prohibited from drafting and enforcing policy provisions that provide or leave intact coverage for some, but not all, manifestations of a particular peril.”  The court held an excluded peril can be defined “in terms of a relationship between two otherwise distinct perils.”   The Freedman court found that this rule from Julian meant the exclusion applied despite an efficient proximate cause analysis.  This decision emphasizes the need for all homeowners to double check their policies and ensure that they have the water damage coverage that they bargained for so that their next water leak doesn’t lead to a flood of problems.