For millions of Americans (and others) the expression “beware the Ides of March,” from Shakespeare’s original play, comes with it a feeling of foreboding. On March 15, 44 BC Julius Caesar was assassinated, marking a turning point in Roman history. In our own time middle March marks the final stretch before tax season – plenty to stress over.
For Californian’s, middle March is cause for an additional concern: the state’s wet season is drawing to a close and the dry season – along with its sometimes furnace-like heat – is close at hand. It also means the state’s fire season is about to begin.
Whether you live near the San Gabriel Mountains, the Oakland Hills, or any place in between, California’s fire season causes millions of dollars of homeowner property damage every year. It’s part of the risk that comes with calling this beautiful state home. But commensurate with that risk, is the justifiable belief that insurance companies who do business in the state are up to the task of reimbursing families if and when, a worst-case fire scenario unfolds. Unfortunately, this reasonable expectation is not always upheld.
Wire Fire or Fraud?
In a case Viau & Kwasniewski litigated, an insurance company and its subsidiary tried to circumvent its legal obligation to its client. In doing so, the insurance company and its subsidiary risked actions that constituted insurance bad – a legal term of art when insurance companies behave unreasonably and/or act in an unfair or arbitrary manner after a claim is made.
This particular case began in March, 2009 when an extensive fire tore through the insured’s home, causing extensive structural and electrical damage as well as subsequent water damage; the necessary consequence of extinguishing the blaze. Despite repeated insinuation by the insurance company that the fire was suspicious, no shred of evidence was ever found linking the insured to the fire. And, for good reason. The insured did not cause the fire.
In the months and years that followed (yes, years!) the insurance company failed its insured in numerous ways. For starters, case law, state statutes, and the mandatory insurance standards enumerated in the California Fair Claims Settlement Practices Regulations, require that insurance companies handle a case in a timely, thorough, fair, objective and efficient manner.
Also, evidence supporting payment denial can’t be “cherry picked.” In the case at hand, multiple insurance company adjuster damage estimates included multiple lowball estimates and lower actual cash values, or ACV (the cost to repair the home minus depreciation). Moreover, insurance law states that ACV must be paid as soon as the insurance company has evidence that the claim is covered and can estimate the value of the loss – not after repeated attempts to reduce the amount required to be paid. After repeated back and forth letters and the threat of lawsuit, the insurance company begrudgingly reimbursed additional (but not all) sums owed to the claimant.
But like a drying water well, trickledown monetary assistance is not enough to avoid financial disaster or lessen severe emotional trauma. If anything, the nearly three-year delay exacerbated the pain and suffering caused by the insurance company’s bad faith.
Rules Are Not Made to be Broken
The bottom line: homeowners need the full ACV amount owed immediately so they can afford to hire the contractor of their choice to begin the repair work. Claimants must also be made aware that water damage and mold mitigation are a necessary component of the insurance adjustment process.
In addition to low balling initial damage claims, failing to pay in a reasonable manner, the insured was also subject to what amounted to character assignation: the claimant was required to hand over reams of personal financial information as he was in the middle of battle foreclosure and fighting to keep his house. He was able to keep his home.
While all insurance companies have a right to obtain certain information in their investigation, they do not have the right to essentially stab their insureds in the back by using personal financial information against them without just cause.
Even in 44 BC Roman citizens knew better. That’s why many of them took to the streets to avenge their leader’s death.
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GARY K. KWASNIEWSKI Bar No. 126808
JEANETTE L. VIAU Bar No. 123224
VIAU & KWASNIEWSKI
One Bunker Hill
601 West Fifth Street, 8th Floor
Los Angeles, California 90071-2004
Mailing Address:
466 Foothill Boulevard, No. 323
La Cañada, California 91011
Telephone: (213) 225-5855
Facsimile: (818) 790-6297
Attorneys for Plaintiff/Insured
John Doe
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
JOHN DOE Plaintiff,
vs.
INSURANCE COMPANY,
and DOES 1 through 30, inclusive,
Defendants.
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CASE NO.
DEPARTMENT
Assigned For All Purposes To The Honorable
Complaint Filed : September 14, 2009
Trial Date : November 4, 2010
PLAINTIFF/INSURED TRIAL BRIEF
I. INTRODUCTION
II. BREACH OF THE INSURANCE CONTRACT - BASIC PRINCIPLES
CACI 2300 provides as the essential factual elements for a breach of a contractual duty to pay a covered claim the following:
“[Name of plaintiff] claims that [name of defendant] breached its duty to pay [him] for a loss covered under an insurance policy. To establish this claim, [name of plaintiff] must prove all of the following:
1. That [name of plaintiff] suffered a loss, [all or part of] which was covered under an insurance policy with [name of defendant];
2. That [name of defendant] was notified of the loss [as required by the policy]; and
3. The amount of the covered loss that [name of defendant] failed to pay.”
The insured can and will prove each essential element:
1. John Doe is the insured under the Insurance Company Policy, and suffered covered losses under the Insurance Company Policy;
2. Defendant Insurance Company was promptly notified of the loss (this is not reasonably disputed);
3. The amount of the loss that Insurance Company failed to pay - under the contract (i.e., contract damages, not bad faith) will be established at trial.
See, Civ. C. § 3300; San Diego Housing Comm’n v. Industrial Indem. Co. (1998) 68 Cal.App.4th 526, 536.
III. BAD FAITH - BASIC PRINCIPLES
A core issue in this trial will be whether Insurance Company breached the implied covenant of good faith and fair dealing. CACI 2330, 2331, 2332, 2333, 2337 (or BAJI 12.94) set forth the law.
In a first party case, as here, the gravamen of tortious insurer conduct is the insurance company’s unreasonable withholding of benefits. The implied covenant enjoins the insurer from doing anything to impair the insured’s right to receive the policy benefits. See, Egan v. Mut. of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 - 819.
“To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort. And an insurer cannot reasonably and in good faith deny payments to its insured without fully investigating the grounds for its denial. (Citations omitted.). . . [T]he Supreme Court emphasized that, in order to protect the interests of its insured, it was ‘essential that an insurer fully inquire into possible bases that might support the insured’s claim.’” (Emphasis in original.)
The courts acknowledge that the term “bad faith” is an “imprecise label for what is essentially some kind of unreasonable insurer conduct.” See, Austero v. Nat’l Cas. Co. of Detroit, Michigan (1978) 84 Cal.App.3d 1, 26.
Nevertheless, the Courts, the Legislature, and the Judicial Council of California Advisory Committee on Civil Jury Instructions have found the following to constitute factors the jury should consider in evaluating carrier bad faith:
● Misrepresentation of relevant claim facts.
● Misrepresentation or concealment of relevant policy provisions.
● Failure to act reasonably promptly on communications.
● Failure to promptly and objectively investigate.
● Failure to accept or deny coverage within a reasonable time.
● Failure to attempt in good faith to reach a prompt, fair, and equitable settlement, after liability is reasonably clear.
● Requiring the insured to file a lawsuit to recover amounts due under the policy by offering substantially less than actually due.
● Failing to promptly provide a reasonable explanation of the carrier’s reasons for denying the claim or partially denying the claim.
See, Ins. C. § 790.03(h); CACI 2337; BAJI 12.94; Regulations, Tit. 10, Ch. 5, subch. 7.5, §§ 2695.1, et seq.
IV. BAD FAITH - STATUTORY AND REGULATORY VIOLATIONS
There will be evidence that Insurance Company violated the Insurance Code section 790.03(h), and the California Code of Regulations, Title 10, Chapter 5, subchapter 7.25, sections 2695.1, et seq. (“Regulations”). Violations of Insurance Code section 790.03(h) and related Regulations do not give rise to a private right of action. However, the violations are indicia or evidence of carrier unreasonableness in its handling of an insured’s claim. See, Jordan v. Allstate Ins. Co., supra, 148 Cal.App.4th at 1078. In Jordan, the Court of Appeal affirmed the trial court’s consideration of expert evidence regarding statutory and Regulatory violations:
“We agree with the trial court. Jordan was not seeking to recover on a claim based on a violation of Insurance Code section 790.03, subdivision (h). Rather, her claim was based on a claim of common law bad faith arising from Allstate’s breach of the implied covenant of good faith and fair dealing which she is entitled to pursue. (Citation omitted.) Jordan’s reliance upon the Occhialini [expert] declaration was for the purpose of providing evidence supporting her contention that Allstate had breached the implied covenant by its actions. This is a proper use of evidence of an insurer’s violations of the statute and the corresponding regulations. (Citation omitted.)” (Emphasis in original.)
The Court of Appeal in Safeco Ins. Co. v. Parks (2009) 170 Cal.App.4th 992, 1006 - 1007 clarifies that the Regulations do provide minimum standards by which insurance companies must abide in handling claims:
“Administrative regulations adopted by the Insurance Commissioner provide that, ‘Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer may apply to the claim presented by the claimant.’ (Citation omitted.) An insurer’s failure to comply with this regulation does not in itself, establish a breach of contract or bad faith by the insurer. The regulations may, however, ‘be used by a jury to infer a lack of reasonableness on (the insurer’s) part.’”
The Regulations state, by their own terms, that their purpose is:
“To delineate certain minimum standards for the settlement of claims which, when violated knowingly on a single occasion or performed with such frequency as to indicate a general business practice shall constitute an unfair claims settlement practice within the meaning of Insurance Code Section 790.03(h). . . .”
CACI 2337 and BAJI 12.94 in turn quote Insurance Code section 790.03(h) virtually verbatim as “factors” for the jury to consider in evaluating whether an insurance company acted in bad faith. Pertinent statutes and Regulations may be used by the jury to decide whether the insurance company handled a claim reasonably or unreasonably. See also, Rattan v. United Services Auto. Ass’n (2000) 84 Cal.App.4th 715, 724; Spray, Gould & Bowers v. Associated Int’l Ins. Co. (1999) 71 Cal.App.4th 1260, 1271.
V.VIOLATIONS OF THE REGULATIONS SHIFTS THE BURDEN OF PROOF
Evidence of a pattern of Regulations violations shifts the burden of proof. Such violations create a rebuttable presumption of breach of the implied covenant, shifting to the insurer the burden of proving some excuse or justification for its conduct. See, Spray, Gould & Bowers v. Associated Int’l Ins. Co., supra, 71 Cal.App.4th at 1270.
Thus, once the plaintiff/insured demonstrates statutory and regulatory violations, the burden is then on Insurance Company to establish that it acted reasonably in this case.
VI. “RULES OF THE ROAD” CONSTITUTE INDUSTRY STANDARDS
The plaintiff/insured will seek to use “Rules of the Road” during trial, including opening statement. A true and correct copy of the Rules of the Road is attached to this Trial Brief at Exhibit A.
Defendant’s own insurance claims expert, agreed that the Rules of the Road attached hereto at Exhibit A are insurance industry standards.
The Rules of the Road are a combination of industry standards and the standards set forth in the Regulations. The Rules of the Road are not law. Rather, violations of such Rules constitute evidence of bad faith. The principles set forth in the Rules of the Road are designed to help the jury understand the standards that will apply in this case.
VII. A BRIEF DISCUSSION OF PUNITIVE DAMAGES IN A BAD FAITH CASE
A. Repeated Statutory And Regulatory Violations Are Indirect Evidence Of Malice
The California Supreme Court in Colonial Life & Acc. Ins. Co. v. Superior Court (1982) 31 Cal.3d 785, 792, holds that indirect evidence of the elements of punitive damages may be established by a pattern of unfair practices, including, inter alia, (a) repeated improper conduct (such as improper knowing depreciation of non-depreciable items, utilization of outdated and undervalued materials Price Lists); and (b) repeated statutory violations (i.e., the “unfair claims settlement practices” at Insurance Code section 790.03(h)). This would include repeated regulatory violations (i.e., the “fair claims settlement practices regulations” at California Code of Regulations, Title 10).
The Court in Colonial Life stated:
“Other instances of alleged unfair settlement practices may also be highly relevant to plaintiff’s claim for punitive damages. (Citation omitted.) Punitive damages must be based on a showing of ‘oppression, fraud, or malice.’ (Citation omitted.) to be liable for punitive damages, defendant must act ‘with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff’s rights.” (Citations omitted.) These elements may be proven directly or by implication. (Citations omitted.)
Indirect evidence of the elements of punitive damages may be suggested by a pattern of unfair practices. In Neal, for example, we affirmed an award of punitive damages. . . where the evidence indicated that defendant insurance company’s refusal ‘to accept [plaintiff’s] offer of settlement, and its subsequent submission of the matter to its attorney for opinion, (fn. omitted) were all part of a conscious course of conduct, firmly grounded in established company policy. . . .”
See also, Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d 610, 640; CACI 2330, 2337; BAJI 12.94, 14.72.2.
B. Oppression In An Insurance Bad Faith Case
California Civil Code section 3294(c)(2) defines oppression as despicable conduct that subjects a person to unjust hardship in conscious disregard of that person’s rights.
In Richardson v. Employers Liab. Assur. Corp. (1972) 25 Cal.App.3d 232, the insurance company contorted the facts, and disputed the insured’s uninsured motorist claim. There was no reasonable basis upon which to contest the insured’s claim. Nevertheless, the insurance company delayed payment of the clearly covered claim, and paid “only as a last resort.” The award of punitive damages against the insurance company in the subsequent bad faith lawsuit was upheld on the grounds of “oppression.” There is more than just delay here; there is an outright refusal to pay the insured the reasonable amounts to restore his home, and refusal to pay covered claims.
In Moore v. American United Life Ins. Co., supra, 150 Cal.App.3d at 637, the Court upheld the imposition of punitive damages on the grounds that the insurer acted with oppression. The facts in Moore that supported a finding of oppression were: (a.) The insurance company adopted a policy of claim payment delay; and (b.) the insurance company paid covered claims only as a last resort. It was standard procedure for the carrier to instruct the claims adjusters to keep defenses “in the forefront” of the investigation - something the evidence shows Insurance Company does, and did here. See, Moore, supra, 150 Cal.App.3d at 637. See also, Downey Savings and Loan Ass’n v. Ohio Cas. Ins. Co. (1987) 189 Cal.App.3d 1072, 1091.
C. Malice In An Insurance Bad Faith
Case
Civil Code section 3294(c)(1) defines malice as despicable conduct: (a.) intended to cause injury; or (b.) carried on with a willful and conscious disregard of the rights of others.
The insured need not establish that the defendant insurance company had personal animosity toward the plaintiff/insured, or acted out of “evil” motives. Malice is demonstrated where it is shown that defendant intended the harmful consequences that were substantially
certain to result from defendant’s conduct.
See, Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 922; Mock v. Michigan Millers Mut. Ins. Co. (1992) 4 Cal.App.4th 306, 329.
An insurance company’s restricting its investigation and fact finding (as here, regarding occupancy issues, and cost of repairs) for its own gain will support a punitive damage award. Such evidence shows a “conscious course of conduct, firmly grounded in established company policy.” See, Amadeo v. Principal Mut. Life Ins. Co. (9th Cir. 2002) 290 F.3d 1152, 1165.
Further, and as discussed above, the California Supreme Court in Colonial Life & Acc. Ins. Co. v. Superior Court, supra, 31 Cal.3d at 792, held that repeated statutory violations are indirect evidence of “malice.” Insurance Company violated the Regulations here over one hundred times.
D. “Despicable” Conduct In A Bad Faith Case
The Judicial Council of California Civil Jury Instructions, CACI 3946, defines “despicable conduct” (similarly as does BAJI 14.72.1) as: “[C]onduct that is so mean, vile, base or contemptible that it would be looked down on and despised by reasonable people.”
What the jury will decide is whether Insurance Company’s: (a) refusing to consider evidence regarding the home’s occupancy provided by the insured; (b) refusing to consider evidence provided by a third party regarding the home’s occupancy; (c) refusing to contact a key witness in April, 2009 or reasonably thereafter; (d) refusing to return that key witness’ multiple telephone calls; (e) refusing to provide coverage for covered Additional Living Expense; (f) refusing to handle, investigate, and pay the insured’s covered and related vandalism claim; (g) subjecting the insured, his family, and his four grandchildren to mold exposure, and living in a home that has yet to be completely repaired and restored through today, is despicable.
VIII. THERE IS PATTERN AND PRACTICE EVIDENCE
There is evidence regarding Insurance Company’s pattern and practice of unfair claims handling, including unreasonable undervaluation of home restoration costs.
The insured here will not seek to call endless other insured witnesses to establish this pattern and practice, but will elicit the information through persons who are witnesses in this case, and those who have dealt with Insurance Company/Supervisor and Adjuster. The individuals have been identified on the Amended Joint Witness List herein.
IX. THERE SHOULD BE NO SPECIAL JURY INSTRUCTION ON “GENUINE DISPUTE”
In McCoy v. Progressive West Ins. Co. (2009) 171 Cal.App.4th 785, 792, the Court of Appeal affirmed the trial court’s refusal to include defendant insurance carrier Progressive’s special instructions based on the “genuine dispute” doctrine enunciated in Chateau Chamberay Homeowners Ass’n v. Associated Internat’l Ins. Co. (2001) 90 Cal.App.4th 335. “Genuine dispute” special instructions are duplicative of CACI 2331. The Court in McCoy stated:
“Progressive requested special instruction Nos. 5 and 6 based on the ‘genuine dispute’ holding of Chateau Chamberay. . . The trial court refused, finding the genuine dispute doctrine was subsumed within the concept of what is reasonable and unreasonable as set forth in CACI No. 2331.”
The insured has requested CACI 2331 here.
Based on Special Instructions received from Insurance Company (the text of which the insured’s counsel just received today, October 27, 2010), Insurance Company intends to request an instruction based on “genuine dispute.” Direct binding precedent mandates that this instruction is improper, and should be rejected.1
X. INSURANCE COMPANY IS NOT RELYING ON ADVICE OF COUNSEL - HOW THAT WILL IMPACT TRIAL
Good faith reliance on advice of counsel is a factor in determining whether the insurer acted in “bad faith.” The defense of advice of counsel is offered to show that the insurance company had “proper cause” for its actions. State Farm Mut. Auto Ins. Co. v. Superior Court (1991) 228 Cal.App.3d 721, 725 - 726.
In this case, Insurance Company has taken that position that it is not relying on advice of counsel. The insured specifically conducted discovery on advice of counsel. Insurance Company uniformly stated that it is not relying on the defense. As such, Insurance Company cannot introduce, or attempt to introduce, evidence that it acted reasonably during claims handling because of counsel’s advice.
The elements of the advice of counsel defense demonstrate that the defense must be timely asserted, so that the insured has an opportunity to conduct discovery. The elements are:
● That the carrier acted in good faith reliance upon advice of counsel and in what it believed was a manner necessary to protect its interests;
● The insurer was not so knowledgeable as to the legal standard involved that it knew the advice of counsel was erroneous;
● The insurance company made full disclosure of all relevant facts to counsel (or counsel acted on the basis of facts determined by his or her own investigation on behalf of insurer).
● The insurance company was willing to reconsider, and act accordingly, when it determined that the lawyer’s advice was incorrect.
See, e.g., Melorich Builders, Inc. v. Superior Court (1984) 160 Cal.App.3d 931, 936 - 937.
The rationale of the defense is that the insurer had “proper cause” for its actions even if the advice it received is ultimately unsound or erroneous. See, State Farm Mut. Auto Ins. Co. v. Superior Court, supra, 228 Cal.App.3d at 725 - 726.
This is important: Had Insurance Company asserted advice of counsel as a defense the insured would have conducted discovery on the issues of disclosures Insurance Company made to counsel. This is because - where the insurer places the opinions of its attorney at issue by claiming it acted in reliance on advice of counsel, the carrier is held to have impliedly waived the attorney-client privilege: “Generally . . . the deliberate injection of the advice of counsel into a case waives the attorney-client privilege as to communications and documents relating to the advice.” See, Transamerica Title Ins. Co. v. Superior Court (1987) 188 Cal.App.3d 1047, 1053.
The insured specifically conducted written discovery inquiring whether Insurance Company is relying on advice of counsel. Insurance Company stated that it was not. The insured served supplemental pre-trial discovery. Insurance Company did not change its position. The Court should order that at the time of trial there can be no mention that Insurance Company relied on counsel’s advice in an attempt to support the reasonableness of the positions Insurance Company took, and the conduct in which Insurance Company engaged.
DATED: March 14, 2014
Respectfully submitted,
VIAU & KWASNIEWSKI
By_____________________________
Gary K. Kwasniewski
Jeanette L. Viau
Attorneys for Plaintiff/Insured JOHN DOE
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