In two previous posts, on April 19, 2016 and June 21, 2016, we reported on the EquityComp workers’ compensation program offered by Berkshire Hathaway subsidiaries Applied Underwriters (Applied) and California Insurance Company (CIC). In the wake of the California Insurance Commissioner’s ruling in Shasta Linen that the EquityComp program is invalid and unenforceable, Applied Underwriters and the Commissioner on September 6, 2016 stipulated to a Cease and Desist Order. The Order can be found online here: Stipulated Consent Cease and Desist Order. Insureds under the program should read it carefully, as it presents them with a number of options. Continue Reading NEW UPDATE: Is Your Workers’ Compensation Program Unlawful?
Under a ruling this week from the California Insurance Commissioner, your company may be insured under an unenforceable workers’ compensation program. You may also be entitled to a refund of premiums paid to California Insurance Company (CIC) and Applied Underwriters (Applied), two Berkshire Hathaway subsidiaries.
Our April 19, 2016 post discussed a decision from the California Department of Insurance finding that the EquityComp workers’ compensation program sold to Shasta Linen Supply by CIC and Applied is void as an unfiled collateral agreement. CIC appealed the administrative law judge’s decision finding the program void. Shasta appealed the denial of its claim for reimbursement of all sums in excess of actual claims paid. On June 20, 2016, the California Insurance Commissioner affirmed the ALJ’s decisions. Continue Reading UPDATE: Is Your Workers’ Compensation Program Unlawful?
A recent California Court of Appeal case, Howard v. American National Fire Insurance Co., 187 Cal. App. 4th 498 (2010), addresses a question that all insurance litigators will find of particular interest: whether an insurer can breach its duty to settle by rejecting a settlement offer that is within the total available limits of all the insurers’ policies, but which exceeds the limits of its own individual policy. In the first clear statement of California law on this issue, the First Appellate District ruled that the answer is “yes.”
In the underlying case, plaintiff James Howard filed suit against the Roman Catholic Bishop of Stockton, alleging negligent hiring and supervision of a priest who sexually abused him throughout his childhood. Although several of the Bishop’s insurers agreed to defend, American National Fire Insurance Company did not. Howard’s lowest pre-trial settlement demand was $1.85 million. American’s limits were $500,000, and the total combined indemnity limits of all the insurance policies implicated by Howard’s claim was $4.3 million. American refused to make any meaningful contribution, and the case did not settle.
At trial, James Howard obtained a judgment against the Bishop of $2.5 million in (insurable) compensatory damages and $3 million in (uninsurable) punitive damages. The Bishop struggled to satisfy the judgment. The Bishop ultimately entered into several settlements with his insurers and Howard, eventually assigning all rights against American to Howard.
The Court of Appeal affirmed a finding that American breached its duty to settle and acted in bad faith. The Court concluded that American could not avoid bad faith liability merely because its $500,000 limit, on its own, would have been insufficient to fund Howard’s lowest settlement demand. In a “multiple insurer case,” the Court found, “the law cannot excuse one insurer for refusing to tender its policy limits simply because other insurers likewise acted in bad faith. If this were not the case, insurers on the risk could simply all act in bad faith, thus immunizing themselves from bad faith liability.”
The court went on to find that an excess judgment is not necessarily required in order to support a finding of bad faith failure to settle, particularly where the insured also sustains consequential damages arising out of the insurer’s conduct. Here, “the Bishop was exposed to dire financial circumstances as a direct result of American’s failure to defend, indemnify, or settle James Howard’s claim.” The Court of Appeal therefore concluded that, on the facts of this case, American acted in bad faith.
On its face, the Howard case has little in common with most business insurance disputes. However, policyholders and their counsel frequently face the situation in which a loss gives rise to a potential for coverage under multiple policies. For example, a continuous or progressive loss may trigger multiple CGL policies. A plaintiff will rarely make a settlement demand that is within the limits of a single policy year. In such circumstances, insurers will often taken the position that they are under no duty to settle. As there is no pending settlement demand within its own policy limits, the insurer reasons, the insured would not be able to demonstrate the requisite causation and damages necessary to prevail on a claim for breach of the implied covenant of good faith and fair dealing. The new Howard decision clearly rejects this premise, holding that each such insurer faces bad faith exposure if it rejects a reasonable settlement demand that is within the combined indemnity limits of all triggered policies.
Nor is the Howard case strictly limited to progressive losses that trigger multiple, successive primary policies. Rather, the Court of Appeal speaks broadly of “multiple insurer” cases, which could also be interpreted to apply to a tower of primary and excess policies in place during a single policy period. Thus, policyholders facing a settlement demand that exceeds the limits of the primary policy, but is within the limits of the combined primary and excess layers, can also rely on Howard.
Howard provides powerful, additional support for policyholders who seek to demonstrate that their liability insurer has a present duty to fund settlement. For this reason (and because the Howard court upheld a judgment of over $4 million in compensatory damages, punitive damages, costs and interest), American is already challenging the decision. It has petitioned for rehearing, and a petition for review is likely if the attempt to secure a rehearing fails. The Howard case is definitely one to watch.
On July 21, U.S. District Court Judge Claudia Wilken handed insureds a significant victory in a coverage case for Seagate, a computer hard drive manufacturer. Download 2010-07-21 Order re defts MTC and plffs MSJ (2) Farella represents Seagate in that action. Judge Wilken granted Seagate partial summary judgment on its claim that the Insurance Company of the State of Pennsylvania ("ISOP") breached its duty to defend by delaying in paying and failing to pay defense costs after it had agreed to defend three sets of underlying actions. Judge Wilken also denied a motion filed by ISOP and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") seeking to compel arbitration under California Civil Code section 2860. Section 2860 allows insurers to limit fees paid to independent counsel to the attorneys fee rate charged by panel defense counsel in the defense of similar matters. Judge Wilken found that ISOP's breach of its duty to defend and undisputed evidence showing that National Union also had failed to sufficiently fund Seagate's defense precluded the insurers from taking advantage of section 2860.
This ruling is significant because it gives insureds more ammunition in arguing that an insurer's short and/or slow payment of defense costs, which can often arise over disputes about billing rates or allocation of fees between covered and non-covered claims, constitutes a breach of the duty to defend. We have argued this position on many occasions, but the directness with which Judge Wilken addressed and resolved this issue will be helpful in future disputes over insurers' non-payment or delayed payment of defense costs.