Bad Faith in Oregon? The Oregon Court of Appeals Cracks Open the Door…

By on February 4, 2022
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Oregon has for years been well known as a jurisdiction that generally does not recognize “bad faith” claims against insurers. This is because the Oregon courts have long suggested that such a tort claim by an insured generally exists only where the insurer has a “special relationship” with its insured, beyond the mere existence of an insurance policy. Such a relationship arises, for example, where the insurer agrees to defend its insured in a lawsuit brought by a third party. Unless that special relationship exists between the insured and insurer, the Oregon courts historically have limited an insured’s remedies against its insurer to contractual remedies.

Until now. In what appears to be a dramatic expansion of insurance coverage bad faith law in Oregon, the Oregon Court of Appeals held that an insurer’s alleged violation of Oregon claim handling regulations set forth in ORS 746.230(1) can provide the basis for a negligence per se claim against the insurer. Moody v. Oregon Community Credit Union and Federal Insurance Company, 317 Or. App. 233, ___ P.3d ___ (January 26, 2022). Resolving an issue of first impression in the policyholder’s favor, the Court concluded that the insurer’s breach of those regulations opened the door to tort damages, including the insured’s emotional distress damages caused by the insurer’s conduct.

The Moody case arose out of a claim for accidental death and a $3,000 life insurance policy. The insurer concluded there was no coverage and the insured sued, alleging breach of contract and negligence per se, the elements of which are that (1) defendant violated a statute; (2) plaintiff was injured as a result of the violation; (3) plaintiff was a member of the class of persons meant to be protected by the statute; and (4) the injury plaintiff suffered is of a type that the statute was enacted to prevent. At some point the insurer conceded coverage and paid the $3,000 policy limits.

The insurer moved to dismiss the negligence per se claim and the claim for emotional distress damages, arguing that well-established Oregon common law does not permit a policyholder to assert a negligence claim for what is essentially a breach of contract.

The insured opposed the motion, arguing that the insurer’s failure to conduct a reasonable investigation and settle the claim violated Oregon’s claim handling statute, thus providing the foundation for a negligence per se claim. That statute, ORS 746.230, prohibits the following actions by insurers during the claim handling process:

  1. Misrepresenting facts or policy provisions in settling claims;
  2. Failing to acknowledge and act promptly upon communications relating to claims;
  3. Failing to adopt and implement reasonable standards for the prompt investigation of claims;
  4. Refusing to pay claims without conducting a reasonable investigation based on all available information;
  5. Failing to affirm or deny coverage of claims within a reasonable time after completed proof of loss statements have been submitted;
  6. Not attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear;
  7. Compelling claimants to initiate litigation to recover amounts due by offering substantially less than amounts ultimately recovered in actions brought by such claimants;
  8. Attempting to settle claims for less than the amount to which a reasonable person would believe a reasonable person was entitled after referring to written or printed advertising material accompanying or made part of an application;
  9. Attempting to settle claims on the basis of an application altered without notice to or consent of the applicant;
  10. Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made;
  11. Delaying investigation or payment of claims by requiring a claimant or the claimant’s physician, naturopathic physician, physician assistant or nurse practitioner to submit a preliminary claim report and then requiring subsequent submission of loss forms when both require essentially the same information;
  12. Failing to promptly settle claims under one coverage of a policy where liability has become reasonably clear in order to influence settlements under other coverages of the policy;
  13. Failing to promptly provide the proper explanation of the basis relied on in the insurance policy in relation to the facts or applicable law for the denial of a claim…

ORS 746.230(1).

The trial court agreed with the insurer and dismissed the claims regarding negligence per se and emotional distress.

The Court of Appeals reversed, however, thereby opening the door to first-party and third-party “bad faith” claims against insurers in Oregon, even though the Court did not utter the words “bad faith”. Such claims would appear to now be permissible if an insurer violates any of the above claim handling provisions.

In reaching its conclusion the Court first held that an insurer’s violation of Oregon’s claim handling statute could support a claim for negligence per se. Because the plaintiff alleged violations of ORS 746.230(1)(d) and (f), and also alleged the applicability of the other negligence per se elements, the Court held that plaintiff was entitled to proceed against the insurer on her negligence theory.

In its analysis the Court of Appeals expended much effort in attempting to distinguish Oregon case law that, up until that point, had been relied upon by insurers to reject related claims by policyholders. See Abraham v. T. Henry Construction, 230 Or. App. 564, 217 P.3d 212 (2009), aff’d on other grounds, 350 Or. 29, 249 P.3d 534 (2011); Georgetown Realty v. The Home Insurance Co., 313 Or. 97, 831 P.2d 7 (1992); Farris v. U.S. Fidelity, 284 Or. 453, 587 P.2d 1015 (1978). Farris in particular has been cited by insurers in Oregon for years to keep bad faith claims at bay, but the Moody court concluded that the insurers read Farris too narrowly and that Farris did not foreclose the relief sought by the insured.

In addition to holding that the insured’s negligence claim could proceed, the Court of Appeals also held that plaintiff could seek emotional distress damages arising from the statutory violations, another theory that had previously appeared to have been rejected by the Oregon courts.

Given the break with longstanding precedent that appeared to foreclose such causes of action and damages, it seems likely that this case is heading to the Oregon Supreme Court, which will have the last word on this subject.

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New Washington Regulation Requires Mandatory Language in an Insurer’s Denial Letter

By , and on July 31, 2020
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The Washington State Office of the Insurance Commissioner (the “OIC”) has issued a new regulation, WAC 284-30-770, which mandates that insurers include specific advisory language in “adverse notifications” sent to insureds. Beginning on August 1, 2020, insurers will be required to include the mandatory language in any notice, statement, or document, wherein the insurer denies a claim, issues final payment for less than the amount of the claim submitted, makes an adverse benefit determination, or rescinds, terminates, cancels, or does not renew a policy. In any such notice, the insurer must include the following language:

“If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner’s consumer protection hotline at 1-800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry.”

This language must appear on either the first page or at the end of the adverse notification, and must be in the same font and font size as used in the majority of the notification. The OIC has advised that the purpose of the new rule is to “increase consumer awareness of available agency assistance and to help consumers with their insurance questions by requiring contact information for the Office of the Insurance Commissioner on adverse notifications.”

Many insurers already include similar language in claims correspondences sent to insureds in states other than Washington. Please be advised that beginning on August 1, 2020, insurers will also be required to include the above-stated language in certain adverse correspondences regarding insurance matters in Washington.

To the extent you have questions regarding this new regulation or another insurance-related issue, please do not hesitate to contact the insurance coverage team at Gordon Rees Scully Mansukhani, LLP.

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The Washington State Supreme Court Rules that Claims Adjusters May Not Be Held Personally Liable for Insurance Bad Faith

By and on December 17, 2019
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In 2018, the Washington Court of Appeals, Division 1, issued a ruling which rippled through the insurance community by finding that a claims adjuster may be held personally liable for the tort of insurance bad faith. However, in October 2019, the Washington State Supreme Court held that a claims adjuster may not be personally sued for insurance bad faith or for alleged violations of Washington’s Consumer Protection Act, RCW 19.86 et seq. (“CPA”). Keodalah v. Allstate Ins. Co., Slip. Op. No. 95867-0, 2019 WL 4877438 (Wash. Oct. 3, 2019).

In Keodalah v. Allstate Ins. Co., the Supreme Court ruled there is no statutory basis for a bad faith claim against an adjuster under RCW 48.01.030 because this statute does not create an implied cause of action. The Supreme Court also re-affirmed that a bad faith claim premised upon the common law may not be pursued against an adjuster, since an adjuster is outside the quasi-fiduciary relationship between the insurer and its insured. Further, the Supreme Court held that a CPA claim may not proceed against a claims adjuster as a matter of law, regardless of whether it is premised upon a per se regulatory violation or upon alleged bad faith.

In Keodalah, an insured brought suit against their insurer and its claims adjuster for the tort of insurance bad faith and the alleged violation of the CPA in connection with the insured’s claim for underinsured motorist (“UIM”) benefits. The insured alleged that the adjuster had improperly undervalued the UIM claim by relying on incorrect information regarding the subject auto accident. Id. In part, the insured premised his bad faith claim against the adjuster on RCW 48.01.030, which broadly provides “that all persons be actuated by good faith . . . in all insurance matters.” The Supreme Court thus evaluated whether RCW 48.01.030 created an implied cause of action for bad faith against a claims adjuster.

After analyzing the issue under the 3-prong “Bennett test”, the Supreme Court held that “RCW 48.01.030 does not create an implied cause of action for insurance bad faith.” This is because RCW 48.01.030 benefits the general public interest, rather than a specific, identifiable class of persons. RCW 48.01.030 also does not contain a specific enforcement mechanism which, the Supreme Court found, “suggests that the legislature did not intend to imply a cause of action based on violations of RCW 48.01.030.” Moreover, the Supreme Court reasoned that “[i]f we were to read the statute to imply a cause of action, by the statute’s plain language, such implied cause of action would apply against insureds as well. That is, insurers would be empowered to sue their insured … [which] would not be consistent with the legislature’s purpose in enacting the statute[.]” Accordingly, the Supreme Court held that a bad faith claim may not be pursued against a claims adjuster based upon a statutory violation of RCW 48.01.030.

Notably, the Keodalah decision also re-affirmed the Supreme Court’s prior rulings that a bad faith claim premised upon the common law may not be brought against anyone other than an insurer. In citing its ruling in Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381, 715 P.2d 1333 (1986), the Supreme Court in Keodalah stated that “this court has limited bad-faith tort claims to the context of the insurer-insured relationship[.]” This is because such claims are premised upon “the fiduciary relationship existing between the insurer and insured.” Keodalah, at *15 – 16, n. 6 (quoting Tank, 105 Wn.2d at 385). The Supreme Court found that no such fiduciary relationship exists with respect to a claims adjuster, and that limiting common law bad faith claims to actions against an insurer was consistent with a long line of Washington precedent. See, e.g., St. Paul Fire & Marine Ins. Co. v Onvia, Inc., 165 Wn.2d 122, 130 n.3, 196 P.3d 664 (2008).

Finally, the Supreme Court held that a CPA claim may not be pursued against a claims adjuster, regardless of whether the claim is premised upon alleged bad faith or upon a per se violation of Washington’s regulation concerning unfair claims settlement practices, WAC 284-30-330. By its terms, WAC 284-30-330 only applies to “unfair or deceptive acts or practices of the insurer.” Keodalah, at *14 (citing WAC 284-30-330) (emphasis original). Moreover, because “RCW 48.01.030 does not itself provide an actionable duty” for bad faith, it cannot form the basis for CPA liability against an adjuster. The Supreme Court explained that it has “limited CPA claims based on breach of the statutory duty of good faith” to the insurer because it is the insurer – not the adjuster – who owes a quasi-fiduciary duty to the insured. As a result, the Supreme Court held that “[b]ecause Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship, his CPA claim based on RCW 48.01.030 was properly dismissed.”

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The Washington Supreme Court Rules that a Holder of a Certificate of Insurance Is Entitled to Coverage

By and on December 17, 2019
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The Washington courts have historically found that the purpose of a certificate of insurance is to advise others as to the existence of insurance, but that a certificate is not the equivalent of an insurance policy. However, the Washington State Supreme Court recently held that, under certain circumstances, an insurer may be bound by the representations that its insurance agent makes in a certificate of insurance as to the additional insured (“AI”) status of a third party. Specifically, in T-Mobile USA, Inc. v. Selective Ins. Co. of America, the Supreme Court found that where an insurance agent had erroneously indicated in a certificate of insurance that an entity was an AI under a liability policy, that entity would be considered as an AI based upon the agent’s apparent authority, despite boilerplate disclaimer language contained in the certificate. T-Mobile USA, Inc. v. Selective Ins. Co. of America, Slip. Op. No. 96500-5, 2019 WL 5076647 (Wash. Oct. 10, 2019).

In this case, Selective Insurance Company of America (“Selective”) issued a liability policy to a contractor who had been retained by T-Mobile Northeast (“T-Mobile NE”) to construct a cell tower. The policy conferred AI status to a third party if the insured-contractor had agreed in a written contract to add the third party as an AI to the policy. Under the terms of the subject construction contract, the contractor was required to name T-Mobile NE as an AI under the policy. T-Mobile NE was therefore properly considered as an AI because the contractor was required to provide AI coverage to T-Mobile NE under the terms of their contract.

However, over the course of approximately seven years, Selective’s own insurance agent issued a series of certificates of insurance that erroneously identified a different company, “T-Mobile USA”, as an AI under the policy. This was in error because there was no contractual requirement that T-Mobile USA be added as an AI. Nonetheless, the certificates stated that T-Mobile USA was an AI, and they were signed by the agent as Selective’s “authorized representative.”

In the ensuing coverage action, a question arose as to whether T-Mobile USA could be considered as an AI given the representations in the certificates. Significantly, the Washington State Supreme Court heard the matter pursuant to a certified question from the Ninth Circuit Court of Appeals, which had previously made several important findings that guided the Supreme Court’s treatment of the case. Chief among them, the Ninth Circuit had already concluded that Selective’s “agent [had] acted with apparent authority in issuing the certificate at issue[.]”

Based upon that predicate, the Supreme Court found that Selective was bound by the representations made by its authorized insurance agent in the certificate of insurance. The Supreme Court noted the general rule in Washington that an “insurance company is bound by all acts, contracts or representations of its agent … which are within the scope of [the agent’s] real or apparent authority[.]” Because the Ninth Circuit had already found that Selective’s insurance “agent acted with apparent authority when it issued the certificate to T-Mobile USA,” pursuant to this general rule in Washington, the Supreme Court concluded that “Selective [was] bound by the representations its agent made in the certificate of insurance.”

Selective sought to argue that T-Mobile USA’s reliance on the agent’s representations was unreasonable because T-Mobile USA knew it was not a party to the construction contract, and therefore knew it was not an AI. However, the Supreme Court found this argument was foreclosed by the fact that the Ninth Circuit had already “rul[ed] that the agent acted with apparent authority[.]” As a result, the Supreme Court reasoned that “the Ninth Circuit necessarily decided that T-Mobile USA’s belief that the agent was authorized to issue a certificate naming it as an additional insured was ‘objectively reasonable’ … [and thus] its reliance on that certificate [was] reasonable.”

The Supreme Court also rejected Selective’s argument that boilerplate disclaimer language in the certificate negated the grant of AI coverage to T-Mobile USA. For example, the boilerplate language stated that the certificate “confers no rights” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by the [policy].” The Supreme Court noted, however, that these disclaimers conflicted with the apparent grant of AI coverage to T-Mobile USA, which had been specifically written into the certificate by the insurer’s agent. Applying a canon of contract interpretation, the Supreme Court held that, in this instance, the “specific written-in additional insured statement [in the certificate] … prevails over the preprinted general disclaimers.”

It is questionable whether this finding can be applied more broadly. The Supreme Court was careful to note that “we do not hold that all disclaimers are ineffective. We hold that the disclaimers at issue here are ineffective because they completely and absolutely contradict the other, more specific promises in that same certificate.” Had the disclaimers not been so directly contradicted by the specific representations in the certificates, or if the Ninth Circuit had not previously held that Selective’s agent acted with apparent authority, this case may have been decided differently.

In any event, the T-Mobile USA case is a stark reminder of the significance that representations by an insurer’s authorized agents may have on coverage issues.

Filed under Certificate of Insurance, Insurance

Large Insurer Overturns $12M Arbitration Award in New York Appellate Court

By and on November 5, 2018

Gordon Rees Scully Mansukhani partners Dennis O. Brown and Greil Roberts obtained a significant appeal win in a complex insurance coverage case for a major insurer on October 25, 2018, when a New York state appeals court vacated a nearly $12 Million arbitration award to Allied Capital Corporation.

The appeal arose out of an arbitration that began in 2010.  Allied Capital sought coverage from its insurer for a $10.1 million payment made to settle claims by the federal government arising out of the False Claims Act. The insurer denied coverage, and Allied filed for arbitration under its insurance policies, seeking to be compensated for the $10.1 million settlement payment plus defense costs.

In March 2016, in a 2-1 decision, the arbitration panel said the $10.1 million settlement was not a “Loss” under the policy; thus, Allied could not recover that amount. However, the arbitration panel decided that Allied was entitled to its defense costs, though the arbitration panel reserved the amount of defense costs to be awarded for a subsequent proceeding.

Not long thereafter, Allied sought reconsideration of the March 2016 award on the basis that the majority of the arbitration panel erred in finding that Allied did not suffer a “Loss” under the policy. The arbitration panel, in another 2-1 decision, determined that it was permitted to reconsider the March 2016 award and reversed itself, finding that the $10.1 million amount was a “Loss” under the policy.

The insurance company petitioned in New York state court for an order vacating the reconsidered award as having been rendered in excess of the powers and authority available to the arbitration panel. Specifically, the insurance company argued that the panel exceeded its authority based on the common law doctrine of functus officio. Under functus officio, an arbitrator cannot alter its final award except in limited circumstances.

The insurer argued that the March 2016 partial final award was final in the sense that it determined the extent of the insurer’s liability for Allied’s claim.  The insurance company argued that Allied’s counsel agreed to bifurcation of two issues: (1) the issue of coverage for Allied’s claim to be indemnified for the $10.1 million, and (2) whether Allied was entitled to recover defense costs and, if so, the amount of such recovery. Since the arbitration panel had resolved the first issue completely in the March 2016 award, the arbitration panel had no authority to subsequently alter that award. For its part, Allied argued that there had been no bifurcation, and since the issue of defense costs had not been fully resolved, there was no final award and the arbitration panel was permitted to reconsider its decision.

The state court denied the petition, and the insurance company appealed.  On October 25, 2018, in a 4-1 decision, the Appellate Division of the Supreme Court of New York, First Department, agreed with the insurance company’s position that the panel exceeded its authority and improperly reconsidered the original partial final award:

There is nothing in the record that remotely suggests that the parties or the panel believed that the [March 2016 award] would be anything less than a final determination of such issues and under the functus officio doctrine, it would be improper and in excess of the panel’s authority for such final determination to be revisited.

The mere fact that the amount of defense costs had not been decided, the Court found, did not permit the panel’s reconsideration of the award: “In this case, the panel was functus officio with respect to the [partial final award] and thus, the panel’s reconsideration of the [partial final award] on substantive grounds was improper and exceeded its authority.”

The Court rejected Allied’s argument that, since the arbitration panel itself had found that it was not functus officio, it was entitled to reconsider the March 2016 award. The Court reasoned that, by Allied’s arguments, an arbitrator could avoid exceeding its authority when reconsidering a partial final award as long as the arbitrator stated that the parties did not bifurcate the proceedings or that the arbitrator did not intend for the award to be final as to a particular issue. However, “there is no support for such theory in the relevant case law,” the Court concluded.

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New York’s Highest Court Expands the Phrase “Issued or Delivered” Under N.Y. Ins. Law § 3420(a)(2)

By and on December 11, 2017
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In a broad-reaching decision issued late last month, New York’s highest court, the New York Court of Appeals, clarified that the phrase “issued or delivered” in New York Insurance Law Section 3420 applies not only to policies issued by New York insurers or to New York insureds, but also to any policies insuring risks in the state.

Following a fatal automobile accident involving his wife, the plaintiff, Michael Carlson – individually, as the administrator of his wife’s estate, and as an assignee of the underlying individual tortfeasor who was a driver for an express shipping company – brought suit against the shipping company and it’s insurers pursuant to New York Insurance Law § 3420(a)(2) and (b) to collect on multiple insurance policies. Section 3420(a)(2) provides, in relevant part, that liability insurance “issued or delivered in this state” must contain certain provisions “that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors,” including the right of a direct action. Subsection (b) provides, subject to certain limitations that such actions may be brought by personal representatives of a judgment creditor and assignees of judgments obtained against an insured.

Because a plaintiff must establish that the policy sued upon was “issued or delivered” in New York in order to recover under the law, one insurer argued that the statute failed to apply where its policy was issued in New Jersey and delivered in Washington and then Florida. The court disagreed, stating that its prior decision in Preserver Insurance Company v. Ryba, 10 N.Y.3d 635 (2008) resolved the question in deciding that Section 3420 applies to policies that cover insureds and risks located in New York.

In Preserver the Court concluded that Section 3420(d) required insurers to provide written notice when disclaiming coverage under policies “issued for delivery” in New York. Preserver held that “issued for delivery” referred to the location of the insured risk, and not where the policy document itself was handed over or mailed to the insured. Applying this ruling to all subparts of Section 3420, the New York Court of Appeals thus held in its recent decision that a plaintiff can collect against an insurer if its insured has a “substantial business presence” in New York that “creates risks in New York,” and such an insurer must adhere to the requirements of New York Insurance Law § 3420.

Moreover, Carlson noted that the original legislative intent of Section 3420 was to protect tort victims in New York State. Further amendments to the statute in 2008 expanded the law’s reach. Those amendments also altered the “issued for delivery” language in Section 3420(d) to match the “issued or delivered” language elsewhere in the statute, but there is no indication that the legislature’s minor change to Section 3420(d) was intended to overturn the holding in Preserver. Carlson ruled that interpreting “issued or delivered in this state” narrowly, to apply only to policies issued by an insurer located in New York or by an insurer who mails a policy to a New York address, would undermine the legislative intent of the statute. The Court noted, however, that its interpretation of “issued or delivered” applies only to New York Insurance Law § 3420 and does not apply to other statutes.

In sum, Carlson held that the plaintiff was able to maintain his cause of action under New Yok Insurance Law § 3420 even though the insurer issued the policy in New Jersey and delivered it in Washington and Florida. The insured at issue in Carlson had a substantial business presence and created risks in New York, and therefore the insurer was subject to New York Insurance Law § 3420. The phrase “issued or delivered” in New York will continue to cover both insureds and risks located in the state.

Insurers in all jurisdictions should take note of this decision. As the dissent in Carlson observes, the majority’s ruling as to the meaning of “issued or delivered” in Section 3420(a) “enacts sweeping change across the Insurance Law, generating substantial implications, both known and unknown.” An insurer located outside of New York issuing a policy outside of New York may now be subject to New York law, whether or not a policy is issued in New York or to a New York-based insured.

A link to the decision (Carlson v. American Int’l Group, Inc., 2017 N.Y. LEXIS 3280, 2017 N.Y. Slip Op. 08163 (N.Y. Nov. 20, 2017)) is available on the New York State website: http://nycourts.gov/reporter/3dseries/2017/2017_08163.htm.

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California Appeals Court Rules that Insurer Not Entitled to Rescind Policy Based on Material Misrepresentation Due to Ambiguity of Application Questions

By and on July 25, 2017
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In Duarte v. Pacific Specialty Insurance Company, a California appeals court found that an insurer was not entitled to rescind an insurance policy due to material misrepresentation and/or concealment of material facts as a matter of law. The court held that the insurer could not prove that the insured had made misrepresentations when he applied for the policy because the application questions at issue were ambiguous.

Victor Duarte bought a tenant-occupied rental property in 2001. Sometime thereafter, the daughter of the tenant moved into the rental property with her father, and continued to reside there after her father’s death in 2010. In February 2012, Duarte served the daughter with an eviction notice. The daughter did not leave the rental property and Duarte did not take any further action to remove her.

In April 2012, Duarte electronically submitted an application for a landlord insurance policy with defendant Pacific. Pacific issued a policy to Duarte covering the rental property the same day.

In June 2012, the tenant/daughter filed a lawsuit against Duarte for habitability defects at the rental property which allegedly existed since 2009. The lawsuit alleged that Duarte had been notified of these defects, and sought various damages arising from the defects. In August 2012, Duarte tendered defense of the lawsuit to Pacific which denied coverage and any duty to defend. Duarte then sued Pacific for breach of contract and other claims on the grounds that Pacific not only failed to defend the tenant lawsuit but also wrongfully cancelled his policy. In responding to the lawsuit, Pacific asserted a right to rescind the policy due to material misrepresentations on the application.

In cross-motions for summary judgment/adjudication, Pacific argued that it was entitled to rescind the policy because Duarte made material misrepresentations when he answered “no” to two questions on the application: (1) whether he knew of any disputes concerning the property; and (2) whether there were any businesses conducted on the property. In support of its position, Pacific submitted records regarding a March 2012 complaint filed by the tenant/daughter against Duarte with a public agency. Pacific also submitted a transcript of Duarte’s deposition in which he testified about his understanding about the complaint filed against him by the tenant/daughter. The trial court granted Pacific’s motion and denied Duarte’s motion. Duarte appealed, and the appeals court reversed.

The court held that Pacific did not meet its initial burden of proving that Duarte made misrepresentations on the insurance application. The court noted that the first application question at issue – “Has damage remained unrepaired from previous claim and/or pending claims, and/or known or potential (a) defects, (b) claim disputes, (c) property disputes, and/or (d) lawsuit?” – had “garbled syntax” and was “utterly ambiguous.” The court found that the evidence submitted by Pacific showed that Duarte knew of claims and/or disputes concerning the property. However, the court rejected Pacific’s position that the question required the answer, “yes” if there was unrepaired damage, any open or pending claims, potential defect, property disputes, or potential lawsuits. Given the question’s ambiguity, the court found that Duarte properly answered, “no” because he reasonably interpreted the question to ask whether the property had unrepaired damage associated in some way with previous or pending claims, defects, claims disputes, property disputes or potential lawsuits.

With regard to the second application question – “Is there any type of business conducted on the premises?” – the court noted that Pacific submitted evidence that showed that Duarte knew the tenant and tenant/daughter occasionally sold motorcycle parts from the rental property. Nonetheless, the court held that Duarte properly answered, “no,” because he reasonably interpreted the question as referring to “regular and ongoing business activity,” of which there was none to his knowledge.

Filed under Insurance, Rescission

Gordon & Rees Partner Matthew S. Foy Appointed to Chair of DRI’s Insurance Law Committee

By on December 27, 2016

San Francisco partner Matthew S. Foy was recently appointed to serve a two-year term as Chair of the Defense Research Institute’s (DRI) Insurance Law Committee. The Insurance Law Committee is one of DRI’s largest and most active committees with more than 2,700 members and is the resource for professionals whose careers are devoted to or influenced by insurance.

________________________________________

Matthew Foy is a partner in Gordon & Rees’s San Francisco office and serves as the National Practice Group Leader for the firm’s Property and Casualty Practice Group. Mr. Foy maintains a national practice and has represented the insurance industry for 20 years at the claims stage, in trial, and on appeal. Matt can be reached at (415) 875-3174 or MFoy@gordonrees.com.

Filed under Insurance