General Liability Policies

In June, I blogged about County of Los Angeles Board of Supervisors v. Superior Court, 235 Cal. App. 4th 1154 (2015). In that case, the California Court of Appeal (Second Appellate District) concluded that legal defense bills qualified as privileged attorney-client communications, and therefore need not be produced in response to a California Public

Several solar panel manufacturers and their distributors have been sued in class actions alleging the panels are defective and need to be replaced. As will be explained below, these kinds of claims are covered by general liability insurance (CGL), the type of policy purchased by virtually any business.

Claims for Defective Solar Panels Allege Property Damage

General liability policies typically cover bodily injury and property damage. “Property damage” is defined to include “loss of use of tangible property that is not physically injured.”  Claims that the panels are defective and have led to a loss of electrical generation capacity of the roof are claims for “loss of use” of the roof for that purpose.

Consumers bought solar panels so they could use their roof surfaces to generate electricity. Due to the alleged problems with the panels, class members are claiming damages for the lost use of their roof surfaces for collecting solar energy and generating electricity from it. Class members have also suffered loss of use of the inverters. Inverters are connected to the panel array and convert the DC power generated by the solar system into domestic AC power. Defective panels reduce the use of the inverter (as less current is passed through it and converted to usable AC). Moreover, inverters have minimum thresholds, and the reduced output may shut the inverter down entirely. Thus, the claims of class members would also include loss of use of their inverters.

Continue Reading Claims for Defective Solar Panels Are Covered by CGL Insurance

Companies often monitor or record conversations between their employees and customers for training or quality control purposes. California law prohibits monitoring or recording unless both parties consent. Class actions have been brought against a number of companies alleging that calls were routinely recorded without customer consent. These claims may be covered by a company’s general liability (CGL)  policy.

CGL policies generally provide coverage for “personal injury” offenses, which are defined to include “oral or written publication of material that violates a person’s right of privacy.” Call recording is prohibited by California’s Invasion of Privacy Act, which was enacted to protect  “the right of privacy of the people of this state.”  Cal. Penal Code § 630. Thus, call recording claims fall within the Personal Injury coverage for “privacy” claims.

Continue Reading Insurance May Cover Call Recording Class Actions

Recently, the California Court of Appeal decided County of Los Angeles Board of Supervisors v. Superior Court, 235 Cal. App. 4th 1154 (2015), a case considering whether the Los Angeles County Sheriff's Department could be required to produce legal defense bills in response to a California Public Records Act request.  While not an insurance case, the case could have implications for a common practice in the insurance context: submitting defense bills to the insurer.

The Board of Supervisors court held that attorney billing statements are “confidential communications” within the meaning of California Evidence Code Section 952, and therefore their production could not be compelled.  Significantly, the court held that the LA County Sheriff could not be required to simply redact portions of the attorney time descriptions that reflected attorney opinions or advice.  Indeed, the court concluded that a communication between attorney and client, arising in the course of representation for which the client sought legal advice, need not include “legal opinion or advice” at all in order to qualify as a privileged communication.  Because the bills were, by definition, an attorney-client communication, they were privileged in their entirety.

This new ruling presents a conundrum for California insureds.  An insurance company that is footing the bill for the defense of a lawsuit will of course demand to see the bills, and as a practical matter it is unrealistic to expect that the insurer will pay them without being able to review the descriptions.  In situations where the insurer is defending without a reservation of rights, the insured's and the insurer's interests are completely aligned and the two are effectively joint clients.  But by providing the defense bills to an insurer who has reserved its right to deny coverage – or who has not yet taken a coverage position at all – is the insured waiving privilege?  If the plaintiff in the underlying lawsuit demands that the insured produce “all communications with its insurer,” could the insured then be required to produce its legal bills to plaintiff?

Continue Reading Submitting Your Defense Bills to Insurers Could Mean Waiving Privilege

No one insurance policy covers all liability risks. Risk managers expect to purchase several types or layers of insurance to cover different types of insurance liabilities, to provide sufficient limits for a catastrophe loss, or to provide coverage over multiple policy years. They may be surprised to learn however, that what they thought was a comprehensive and seamless program in fact contains glaring but avoidable gaps.

Consider the following: 

  1. A social networking site for minors purchases an insurance policy which contains a “Technology, Media and Professional Services” component defining “Professional Services” as “providing advertising services for others, for a fee.” The same policy also includes a D&O component which excludes coverage for any claim “based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving the rendering or failing to render professional services.” “Professional services” is not defined in the D&O component. Consumers complain that the site contains inappropriate content, and the State Attorney General sues the site for false advertising, alleging it misrepresented its efforts to protect minors from inappropriate content. The insurer denies coverage under the Technology, Media, Professional and Services component of the policy because the claim does not relate to the site’s “paid provision of advertising to others,” i.e., the claims do not allege covered “Professional Services” (the defined term).  It also denies coverage under the D&O component on the grounds that the “professional services” (the undefined term) exclusion extends to all services involved in operating the website. Surprisingly, the liability does not fall under either policy because the coverage grant in the professional services coverage was not broad enough to pick up the services the court found were excluded under the D&O coverage.

Continue Reading Mind the Gap! Avoiding Unexpected Gaps in Insurance Programs

A recent unpublished decision from California’s Second Appellate Division highlights one of the most common mistakes lawyers make when obtaining insurance coverage for the defense of a lawsuit:  accepting the insurer’s ultra-low hourly rate caps for charges incurred before the date on which the insurer actually acknowledged its defense obligation and began defending.

The case is City Arts, Inc. v. Superior Court (Travelers Property Casualty Company of America), B256132 (issued Dec. 9, 2014).  There, Travelers agreed that its obligation to defend an underlying lawsuit against City Arts was triggered no later than April 2009.  However, Travelers did not actually agree to begin reimbursing defense costs until February 2010.  (In the intervening 10 months, Travelers and City Arts exchanged a series of letters arguing about whether Travelers had a duty to defend, before Travelers finally relented in February 2010.)  Nevertheless, Travelers claimed that it could impose its hourly rate caps on all charges incurred from April 2009 forward.

Continue Reading CA Court of Appeals Confirms that Insured Need Not Accept 2860 Rate Caps For Work Done After Tender, But Before Insurer Accepts Defense

“The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.” 

The above sentence appears in California Civil Code section 2860(c); it limits a defending insurer’s obligation to provide independent counsel of the insured’s own choosing in cases where the insurer’s reservation of rights gives rise to a potential conflict of interest between the insurer and the insured. 

In California, insurers routinely insist that they pay no more than $225 per hour (or even less) to their retained defense counsel, and refuse to pay higher hourly rates to independent counsel. Clearly, the statutory language itself can be used to create leverage points in a negotiation with insurers about “2860 rates,” as it places the burden on the insurer to demonstrate that it routinely pays those rates to defend similar actions in that community. 

But before the insurer even announces its intent to impose 2860 rate caps, there are things an insured can do to place itself in a strong bargaining position regarding defense costs issues. By drafting a thoughtful and thorough notice letter, an insured can lay the groundwork (and create leverage) for future negotiations. 

Continue Reading Setting Up a Successful Negotiation Regarding “2860 Rates”

We recently litigated and successfully settled an insurance coverage case that offers a model for managing a case thoughtfully. Too often, parties reflexively dive into litigation with its procedural hurdles and delays, unbounded discovery, and often unnecessary motion practice, without considering whether a more efficient but fair alternative exists. Our group regularly seeks to fashion a sensible case-specific dispute resolution process at the outset. These models also allow us to offer creative fee arrangements that build incentives to optimize the costs and recoveries for the client.

Our client company and its officers were named in an intellectual property lawsuit. The same insurer provided CGL and D&O policies. It denied coverage under the CGL. It initially agreed to defend under the D&O policy but later withdrew its defense over our objections.

Continue Reading Mindful Case Management

Insurers often take the position that indemnification for claims for “restitution” are barred by public policy, and contend they have no obligation to reimburse a settlement of such claims. They often take this position even if the policy itself states that coverage can only be denied if there is a “final adjudication” the insured has obtained a personal profit to which it was not entitled.

This position is based largely on  Level 3 Communications, Inc. v. Federal Insurance Co., 272 F.3d 908 (7th Cir. 2001). In that case, Judge Posner ruled that indemnification of restitution was barred by public policy, and the public policy prohibition applied regardless of whether indemnification is for a judgment or settlement. Level 3, however, did not address the “Personal Profit” exclusion. We have argued that Level 3 does not apply to settlements, particularly where there is a “Personal Profit” exclusion which is expressly limited to cases in which liability is determined by a “final adjudication.”  Recently, a Federal District Court in Minnesota has reached exactly this conclusion. See U.S. Bank Nat’l. Assoc. v. Indian Harbor Insurance Company , U. S. District Court. Dist. of Minn., Case No.: 12-CV-3175 (July 3,2014). In U.S. Bank, the Court looked at Delaware law, and determined there was no Delaware public policy against indemnification for restitution. Moreover, the Court held that the “Ill-Gotten Gains” exclusion further supported coverage. 

Continue Reading Court Finds Coverage For Settlement Of Restitution Claim

On June 12, 2014, the California Supreme Court issued its decision in the closely watched case of Hartford Casualty Insurance v. Swift Distribution, Inc., S207172.  I reported on the Court of Appeals decision last year on this blog in the post "California Supreme Court to Decide Scope of Implied Disparagement; Implications for Coverage in IP and False Advertising Cases" and related article "California To Draw The Lines In Disparagement Liability"

The Court affirmed the Court of Appeals ruling that an insurer did not have a duty to defend its insured against allegations that it had infringed a competitor’s trademark and patents by producing and selling a similar looking music equipment cart with a very similar name (“Multi-Cart” vs. “Ulti-Cart”). Id.  The insured argued that there was a potential for covered damages, and hence a duty to defend, because the underlying complaint alleged facts supporting a claim of implied disparagement, and its general liability policy covered damages because of the publication of material that “disparages a person’s or organization’s goods, products or services.”  The Court found no potential for liability based on disparagement, either express or implied, reasoning that the insured was not alleged to have identified the competitor or its product, or to have “necessarily referred to and derogated” the claimant’s product. 

Continue Reading California Supreme Court Refines the Tort of Commercial Disparagement