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Posts Tagged ‘Court of Appeal’

Multi-Million Dollar California Verdict Affirmed Despite Questionable Causation

Posted on: March 6th, 2018

By: Theodore C. Peters

Image result for car accidentProof of causation is a frequently debated topic in tort cases where the battle between “possible” and “probable” is bitterly fought.  Tort victims are left empty-handed unless they can sufficiently demonstrate the causal connection between the defendant’s conduct and the harm that befell them.  Speculation or conjecture is insufficient; a plaintiff must prove more.  But how much more, and where is the line drawn when there is no direct evidence supporting a causal connection and where it is equally plausible that the defendant’s act or omission did not cause the harm in question?  The California court of appeal, In Dunlap v. Folsom Lake Ford, recently provided some guidance.

In Dunlap, the plaintiff suffered personal injuries while driving a truck that flipped after its steering allegedly locked up.  The defendant car dealership admitted that a previous owner complained of similar steering problems, and there was evidence that the dealership had diagnosed a problem with worn ball joints, but denied that this was  the cause of the accident.  Rather, the defendant asserted that the accident occurred after the truck and the van it was towing jackknifed when the van suffered a blow out.  Prior to the litigation, the insurers took action to destroy both the truck and the van for salvage, so the parties’ experts were unable to physically inspect the vehicles and instead were limited to photographs which were admitted into evidence.  The photographs were inconclusive and the parties’ experts thus offered competing opinions of their respective interpretation of this evidence.

The defense accident reconstruction expert opined that, as a consequence of the jackknifing vehicles the truck was forcefully pushed, resulting in the equivalent of a PIT (police-intervention technique) maneuver which pushed the truck into a counterclockwise spin causing the accident.  In contrast, the plaintiff’s expert testified that “it was ‘more likely true than not’ that the worn-out ball joints caused the accident, and it was ‘not at all’ a close call.  In his opinion, if the ball joints had been replaced, ‘we would not be here today.’”  The court also noted that “[t]here was evidence that a particular defect (worn ball joints) was present in the truck, and that [the dealer] was aware the ball joints could cause steering lock and needed to be replaced but failed to replace them or verbally advise the owner to do so.”

The jury found in favor of the plaintiff and awarded over $7.4M in damages.  On appeal, the dealership claimed that, because there was no physical evidence that could confirm plaintiff’s expert’s opinion, plaintiff’s evidence as to causation was speculative and plaintiff’s expert should not have been permitted to testify that the ball joints were worn sufficiently to prevent steering.  In finding that the record supported a finding of causation based on non-speculative evidence, the court stated: “Expert testimony on causation can enable a plaintiff’s case to go to the jury only if it establishes a reasonably probable causal connection between the act and the injury… A possible cause only becomes “probable” when, in the absence of other reasonable causal explanations, it becomes more likely than not that the injury was a result of its action.  This is the outer limit of inference upon which an issue may be submitted to the jury.”  The appellate court concluded that substantial evidence supported the jury’s finding of causation, and affirmed the judgment.

The Dunlap opinion is consistent with a growing body of case law that favors letting juries decide issues of questionable causation where the proof satisfies a “more likely than not” standard.  While mere speculation and conjecture are certainly not enough, circumstantial evidence and reasonable inferences that can be drawn from such evidence are sufficient proof of causation to support a jury verdict.

If you have any questions or would like more information, please contact Ted Peters at [email protected].

Continuing Fiduciary Relationship Does Not Always Toll the Statute of Limitations in California

Posted on: March 5th, 2018

By: Brett C. Safford

Image result for finance

In Choi v. Sagemark Consulting, 18 Cal. App. 5th 308 (2017) (“Choi”), plaintiffs, husband and wife, filed a lawsuit in November 2010 alleging that defendants, their former financial advisors, offered negligent and fraudulent financial planning advice with respect a complex investment program involving life insurance and annuities under former section 412(i) of the Internal Revenue Code (“IRC section 412(i) Plan”).  Audited by the IRS in 2006, Plaintiffs alleged that defendants misrepresented the IRC section 412(i) Plan’s promised benefits as well as its risk of adverse IRS action and tax consequences.  The audit concluded in 2009, and plaintiffs were subject to significant penalties and tax liabilities caused by the IRC section 412(i) Plan.

Defendants moved for summary judgment, arguing that plaintiffs’ causes of action were barred by the applicable statutes of limitation.  Defendants introduced two communications to show that plaintiffs were aware the IRS had identified defects in the IRC section 412(i) Plan as of November 2006, and IRS penalties and damages would be accruing as of September 2007. Trial court granted summary judgment, finding that plaintiffs were on notice of the IRS penalties as of September 2007, and therefore, the two-year and three-year statutes of limitations applicable to plaintiffs’ causes of action expired prior to filing of the complaint in November 2010.

The Court of Appeal affirmed, rejecting plaintiffs’ arguments that (1) the September 2007 e-mail only put plaintiffs on notice that damages might occur in the future, and (2) the fiduciary or confidential relationship between plaintiffs and defendants, as their financial advisors, tolled the statute of limitations.  Applying the general “discovery rule,” the court concluded that the plaintiffs discovered or should have discovered defendants’ negligent advice as of the September 2007 e-mail because that e-mail indicated “‘legally cognizable damage’ in the form of IRS penalties.” Choi, 18 Cal. App. 5th at 330.  Despite uncertainty as to the monetary amount of the penalties, “‘the existence of appreciable actual injury does not depend on the plaintiff’s ability to attribute a qualifiable sum of money to consequential damages.’” Id. at 331.  The court further held that tolling did not apply, even though the fiduciary relationship between plaintiffs and defendants continued while they collectively challenged the IRS assessment, because “[d]elayed accrual due to the fiduciary relationship does not extend beyond the bounds of the discovery rule.” Id. at 334.  Therefore, the court “decline[d] to apply the tolling principles to a scenario in which the defendants had disclosed the facts necessary to support’ the plaintiff’s cause of action.” Id.

The Court of Appeal’s analysis in Choi is significant in the professional liability context for two reasons.  First, the court reaffirmed that the general “discovery rule,” i.e., the statute of limitations period begins to run when a plaintiff discovers or should have discovered the cause of action, is the default rule for when causes of action accrue in professional liability cases.  The Court rejected plaintiffs’ attempt to apply a differing accrual rule applicable only to accounting malpractice actions arising from negligent preparation of tax returns.  The court explained, “It may be that actual injury results from an accountant’s allegedly negligent preparation of tax returns only as determined by an IRS audit, but the same cannot be said for more wide-ranging categories of negligent tax-related or investment advice.” Choi, 18 Cal. App. 5th at 328.

Second, and more importantly, the appellate court declined to toll the statute of limitations even though plaintiffs and defendants maintained a fiduciary relationship while challenging the audit.  California recognizes that certain cases involving a fiduciary obligation will toll the statute of limitations.  For example, the statute of limitations in a legal malpractice action is tolled while “[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” Cal. Civ. Proc. Code, § 340.6, subd. (a)(2).  However, in Choi, the court held that the discovery rule is not displaced by delayed accrual due to a fiduciary relationship—at least in the financial advisor-client context.  The court reasoned that Plaintiffs were on inquiry notice of the facts constituting their injury as of September 2007, and their continuing relationship with defendants “did not prevent or delay [them] from discovering the wrongdoing beyond September 2007.” Choi, 18 Cal. App. 5th at 335.

The Court of Appeal’s decision in Choi undermines the commonly asserted proposition that a continuing fiduciary relationship will toll the statute of limitations and reaffirms the importance of the “discovery rule.”  At least in professional liability cases involving financial advisors, plaintiffs cannot hide behind their fiduciary relationship with defendants to avoid a statute of limitations defense.  Rather, the central inquiry is when did plaintiffs discover their causes of action—regardless of whether the discovery occurred before or after the termination of the fiduciary relationship.  As such, the Choi decision provides valuable authority for professional liability defense attorneys, especially those representing financial advisors, in cases where the statute of limitations may offer a defense.

If you have any questions or would like more information, please contact Brett Safford at [email protected].

Ongoing … Ongoing … Gone! — California Finds Ambiguity in Additional Insured Endorsements Addressing Ongoing Operations

Posted on: October 30th, 2017

By: Zach Moura

In two recent published decisions, the California Court of Appeal held that additional insured endorsements (“AIE”) intended to limit coverage to damages sustained while the insured is performing ongoing operations were ambiguous.

In Pulte Home Corporation v. American Safety Indemnity Company, an appeal from a coverage action related to two underlying construction defect lawsuits, the Court of Appeal concluded the AIE did not expressly exclude the policies’ completed operations coverage. Pulte Home Corporation v. American Safety Indemnity Company (2017) 14 Cal.App.5th 1086.

In the underlying action, homeowners sued the general contractor and developer, Pulte Home Corporation, for alleged foundation, electrical, and waterproofing defects.

Several of Pulte’s subcontractors purchased CGL policies with American Safety Indemnity Company, including completed operations coverage. The AIE named Pulte as an additional insured “but only with respect to liability arising out of ‘your work’ … only as respects ongoing operations [or alternatively work ‘which is ongoing’] performed by the Named Insured for the Additional Insured on or after” the AIE’s effective date.

American Safety denied Pulte a defense to the lawsuits, arguing in the coverage action the AIE properly removed completed operations coverage for additional insureds. The trial court disagreed, ruling American Safety owed Pulte a duty to defend because the AIE’s reference to “ongoing operations” was ambiguous and failed to expressly exclude completed operations coverage.

The Pulte court affirmed the judgment, rejecting American Safety’s argument that the “ongoing operations” language constituted “a limiting term excluding completed-operations coverage”. The court’s final word on the issue can be read as an instruction to subcontractors and their insurers: “If the ‘ongoing operations’ language was meant by American Safety to preclude coverage for completed operations losses, it had to expressly state ‘that coverage was limited to claims arising from work performed during the policy period.’”  Id. at 1116.

In the other recent case construing ongoing operations language in an exclusion, Global Modular, Inc. v. Kadena Pacific, Inc., the Court of Appeal narrowly interpreted exclusions j(5) and j(6) of a standard ISO CGL, affirming a ruling finding of coverage for the additional insured. Global Modular, Inc. v. Kadena Pacific, Inc. (Sept. 8, 2017) 15 Cal.App.5th 127, 137.

In Global Modular, a general contractor (Kadena) hired to build a rehabilitation center subcontracted the tasks of building, delivering, and installing the modular units that comprised the rehabilitation center to Global Modular, Inc. Global delivered the units covered only by a ¾” sheet of plywood, as agreed (the roofing was to be completed by a different subcontractor). The units were delivered in October and November – not an ideal time to leave rooms exposed to the elements with only plywood for protection. (Global covered the units with tarps, which unsurprisingly did not save the units from interior water damage when the rain came).

In finding coverage, the Global Modular court held “the active, present tense construction” of the phrase “are performing operations” in exclusion j(5) of the ISO CGL only excludes damage caused during physical construction activities, as opposed to damage to any of an insured’s uncompleted work in progress. Id. at 139. The court also held the language “particular part” of exclusion j(6) refers to components of a structure, not the structure as a whole. The court noted that while the only arguably defective “parts” of Global’s work were the plastic tarps that failed to keep water out, it was not an undisputed fact the tarps were faulty or Global’s placement of them incorrect, and there was no allegation the items for which Kadena sought repair and replacement costs were themselves defective. Id. at 141.

The Global Modular court’s narrow construction of the AIE meant that exclusions j(5) and j(6) did not exclude coverage for water damage to the modular units’ interiors. And because Kadena incurred delay damages while it repaired property damage to which the CGL applied, the delay damages were covered under the policy’s insuring clause.


Pulte and Global Modular make clear that insurers in California intending to cover only ongoing operations must be aware that such limitations are out of favor, and if they intend to exclude completed operations must include language that clearly and expressly does so. Further, because the Pulte court relied in part on the developer/GC’s reasonable expectation of coverage from the AIE, a subcontractor’s insurer will need to take that into consideration when considering the wording of any exclusion it intends to rely on.

If you have any questions or would like more information, please contact Zach Moura at [email protected].

Will California Change the Statute of Limitations for Presentation of Minors’ Claims under the Government Claims Act?

Posted on: October 2nd, 2017

By: Owen T. Rooney

In J.M. v. Huntington Beach Union High School District, 2017 Lexis 2017, the California Supreme Court ruled that a minor plaintiff was required to comply with the time requirements for petitioning a court for relief under the Government Claims Act after a late claim was denied when the public entity failed to act upon the application.

On October 31, 2011 plaintiff J.M. suffered a concussion during a high school football game.  Plaintiff did not file a claim with the District within the six months as required by Government Code section 911.2(a). Almost a year after his claim accrued, he presented the District with a late claim application which was timely pursuant to section 911.4.  The District did not take any action on the claim.  Under Government Code section 911.6, if the public entity does not take any action on a late claim application, it is deemed denied on the 45th day after it was presented. Therefore, by operation of law, the late claim application was deemed denied on December 8, 2012.

On October 28, 2013 plaintiff’s counsel petitioned the Superior Court for relief to present a Tort Claim. Under Government Code section 946.6 (b) a petition for relief from the claims requirement must be filed within six months after a late claim application is denied or it is deemed denied by operation of law. The petition for relief thus should have been filed no later than June 9, 2013. The trial court denied the petition for relief. The Court of Appeal affirmed.

The Supreme Court rejected plaintiff’s argument that under section 911.6 (b)(2) the District was required to grant his late claim application and that this section superseded the “deemed to have been denied” language of section 911.6(c).   The Supreme Court  was able to reconcile these two provisions. In doing so, the Supreme Court did not suggest that a public entity should routinely ignore late claim applications and instead rely on the “deemed denied” language as a default position.  A public entity may fail to refuse to act for a number of reasons including there may be uncertainty as to when the claim accrued or the applicant’s status as a minor, the public entity may not have been able to complete its investigation or the public entity may have simply failed to act on the claim due to inadvertence.

The six-month limitations period in section 946.6 is mandatory.  The Supreme Court held it was plaintiff’s responsibility to petition the court for relief when the District failed to respond to his claim notwithstanding that they were required to grant it.

This decision provides clarity to the statutory construction of Government Code section 946.6. In short, despite the requirement that the minor’s late claim application be granted, a denial due to the public entity’s  inaction nonetheless starts the forty-five day clock.

Three of the Justices suggested that the Legislature address the “anomaly” created by the fact that a public entity does not have an obligation to provide the claimant with written notice that the application has been denied or that the six months to petition the Superior Court has started to run when the public entity  denied an application.

It will be interesting to see if the Legislature, in fact, addresses this issue.

If you have any questions or would like more information, please contact Owen T. Rooney at [email protected].