Declarations and Exclusions

"Return of Premium" Statute Does Not Apply to Life Insurance Policy

When a policy of insurance is surrendered or canceled before its stated expiration date, California Insurance Code section 481 requires the insurer to return the portion of the premium that corresponds to the remaining time on the policy "[u]nless the insurance contract otherwise provides." The Second District Court of Appeal has held that California Insurance Code section 481 did not apply to a policy of life insurance when the policy was surrendered for its stated cash value. The insured contended that she should receive not only the cash value, but also a return of her annual premium proportional to the remainder of that year.

The appellate court (with Justice Mosk dissenting) agreed with the trial court that Section 481 does not apply to life insurance policies, and that "'the Legislature treated return premiums as one thing, and cash paid on surrender or cancellation of life policies as another.'" Moreover, the court found that the policy "otherwise provided" what sums would be paid on surrender, because it specified how the surrender value was to be calculated.

The case is Lambros v. Metropolitan Life Ins. Co., Case No. B158405 (Aug. 8, 2003). The opinion is available from the court in PDF and Microsoft Word formats.

CIGA Responsible for Defense Costs Unpaid by Insolvent Insurer

In a decision today in Woodliff v. California Insurance Guarantee Association, the Second District Court of Appeal rules that CIGA is responsible to pay a judgment for breach of the contractual duty to defend that had been obtained by and insured against his insurer prior to the insurer's insolvency.

CIGA argued successfully in the trial court that because the judgment called for payment of defense costs, it was the functional equivalent to an award of "loss adjudstment expense," which CIGA is not required to pay under Insurance Code section 1063.2(h).

The Court of Appeal, in a 2-1 decision [Justice Hastings dissenting] reversed:

Simply stated, an insured does not incur loss adjustment expenses because the insured does not initiate or control the loss adjustment process. The insured's reasonable expectation is that the insurer will engage in that process. That, in fact, is one of the reasons insurance is obtained. Consequently, when, as here, an insured is faced with a refusal to defend by its insurer and thereafter first retains counsel to defend and later obtains a judgment against the insurer to compensate for damages caused by breach of the contractual duty to defend . . . the insured's judgment cannot reasonably be categorized as one for 'loss adjustment expenses.' Instead, it reflects compensation awarded to the insured by a court based upon the insurer's failure to provide a key benefit owed to him under the insurance policy: legal representation.

The opinion is available from the court in PDF or Microsoft Word format.

California Insurance Commissioner To Seek Governorship?

Business Insurance is now reporting that California Insurance Commissioner John Garamendi will join the growing pack running to replace Governor Gray Davis in the event Davis is recalled.

No confirmation has been found from other sources yet; updates will follow as news develops.

Update:As of early afternoon, there appears to be confirmation in the Sacramento Bee:

Davis and leading Democrats have held firm in the hope that no Democrats of stature would enter the race, a strategy designed to encourage voters to reject the recall. As late as Wednesday, when U.S. Sen. Dianne Feinstein said she would not run and urged voters to retain Davis, that appeared to have a chance of holding.
But once Bustamante got in, Insurance Commissioner John Garamendi jumped in as well, saying he felt 'the floodgates opened' once another Democrat joined the race.

Punitive Damages -- "Clear and Convincing" Proof of Ratification Required

The Court of Appeal for the Fourth District has ruled, in Barton v. Alexander Hamilton Life Ins. Co., that all of the necessary elements of a claim for punitive damages must be proven by "clear and convincing" evidence. While it has long been settled that the existence of a punishable frame of mind - malice, oppression or fraud - must be proven clearly and convincingly, the law was uncertain whether that higher level of proof also applied to the question of whether an employer has authorized or ratified the punishable conduct of its employee. This case holds that heightened proof is required on that point.

The opinion is a long one (67 pages), and only a small portion addressing this issue has actually been ordered published. The entire opinion and the Court's denial of rehearing/order for publication can be found at these links in PDF or Microsoft Word formats.

Watch Your Wallets -- Fee Increases Galore

As part of the new State Budget, a large number of filing fee increases are rolling out in the California trial and appellate courts. Most become effective August 18, 2003, but increased court reporter fees are effective immediately -- including and extra $25.00 per party payable at the time of each one's first appearance.

Other increases (effective the 18th) include

*A new fee of $550 per party whenever a case is designated as "complex";
*An increase in ordinary motion fees from $23.00 to at least $36.30 [actual cost varies from county to county, depending on local surcharges];
*An increase in the fee for summary judgment motions from $100 to $165; and
*An increase in the cost of a Notice of Appeal (to the Court of Appeal) from $265 to $655.

Follow the link for a complete list of increases prepared by the Judicial Council.

Statutes of Limitations vs. Statutes of Repose

The California Supreme Court has ruled that the state's 10-year statute of repose for claims arising from latent construction defects is not tolled or extended by the offending builder's promises to repair. The 10-year period from the completion of construction is absolute and not subject to extension. In contrast, the statute of limitations -- defining the time in which suit must be filed after the existence of the claim is or should be discovered -- may be extended by efforts to correct the defect.

The decision is in the case of Lantzy v. Centex Homes, and the opinion can be viewed here.

Welcome

Welcome to Declarations and Exclusions, a weblog about California law with an emphasis on insurance law, professional liability, and whatever else strikes our fancy.
At the moment, plans are to go public with this blog the week of August 11, 2003.
Details as they become available.
Thanks, all.