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Posts Tagged ‘insurance coverage’

Cancelling a Financed Policy: Reliance on a Power of Attorney

Posted on: February 8th, 2019

By: Eric Benedict

When a prospective insured is applying for and obtaining coverage, no matter the type of risk, the cost of the premiums is likely to be a foremost concern. To cover the cost of the premium, an insured may choose to seek financing from third-party entities known as premium financing companies. In exchange for agreed upon terms, premium financing companies will pay all or part of the premium due, with expectation that the insured will pay back the loan over time. In an effort to reduce the risk that the premium finance company will suffer a loss as a result of the insured’s default, premium financing companies often require that the insured grant the company a power of attorney to cancel the policy on the insured’s behalf and collect any returned premium in the event of a default. Both the terms of a policy and relevant legal authorities may set forth different requirements for cancellation when the policy is cancelled by the insured than when it is cancelled by the insurer.

As a result of the relationship established between the premium finance company and the insured, an insurer is often placed in the position of receiving a notice of cancellation from the premium finance company on behalf of the insured. In many states, premium finance companies are subject to regulation and some states have set forth specific procedures that a premium finance company must follow when exercising a power of attorney to cancel a policy on the insured’s behalf. To provide certainty to the insurer regardless of whether the premium finance company has complied with statutory or regulatory requirements prior to cancellation, some statutory schemes also provide insurers the ability to rely on representations and cancellations from premium finance companies. Many of the states which have adopted such schemes provide specific conditions under which an insurer is entitled to rely on a notice of cancellation from a premium finance company, thereby shielding the insurer from liability after it cancels a financed policy at the direction of the premium finance company. While many of these schemes contain similar language, the circumstances and conditions under which an insurer may properly rely varies by jurisdiction.

Ultimately, although an insured’s ability to finance an insurance premium may have the effect of widening access to coverage to those who require financing, it is imperative that both the premium finance company and the insured understand their rights and obligations under the relevant statutory scheme. Similarly, it is critical that insurers understand the relevant legal authorities concerning its rights and responsibilities when dealing with an insurance premium finance company which exercises its right to cancel a party on behalf of the insured.

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

998s: The Stealth Policy Limit Demand

Posted on: February 7th, 2019

By: Tim Kenna & Kristin Ingulsrud

In personal injury practice, the claimant’s attorney will sometimes serve a statutory offer to compromise in tandem with service of the summons and complaint. This strategy has a two-fold impact on the case. The first is that if the plaintiff obtains a better result at trial, it may seek costs and prejudgment interest at 10%. The second is that the 998 be relied upon as a policy limit demand. In both cases, the running of the defendant’s time to accept the 998 triggers the consequences of a failure to settle. An insurer’s rejection of a valid policy limit demand can result in extracontractual exposure. Licudine v. Cedars-Sinai Medical Center, No. BC499153, 2019 Cal. App. LEXIS 2*, directly addresses the requirement that an early 998 is only valid if the offer is reasonable under the totality of the facts. The relevant factors are (1) how far into the litigation the 998 offer was made, (2) the information available to the offeree prior to the lapse of the 998 offer, (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and (4) how the offeror responded. The court struck plaintiffs request for millions in prejudgment interest following a verdict far in excess of the 998 on the ground that it was premature because Cedars had not had an adequate opportunity to evaluate damages.

Licudine is relevant to the 998 used as a policy limit demand. The factors considered by Licudine also apply to the determination of the validity of conditional policy limit demands in general. See Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 798 (insurer should request additional time to respond to policy limit demand if further investigation of facts needed). Following trial, the results of a motion to tax costs could determine whether the 998 was valid as a policy limit demand. In either event, the case is critical of the premature demand for settlement designed to “game the system.”

If you have any questions or would like more information please contact Tim Kenna at [email protected] and Kristin Ingulsrud at [email protected].

Fire On the Mountain: Insurance Coverage Disputes Arising Under California Property Policies

Posted on: November 6th, 2017

By: Richard E. Wirick

No issue in insurance coverage could be more topical than fire losses. The Napa and Sonoma County fires, as well as lesser wildfire losses in the Anaheim area, may well give rise to more coverage disputes than we have seen since the Oakland Hills (Tunnel) fires of the nineties. This is notwithstanding the extensive statutory changes to such coverages, and the attempts to define troublesome terms and concepts such as actual cash value, fair market value, and total replacement costs in the legislature’s changes to the Insurance Code in 2005. In addition to its treatment of first party valuation issues under loss settlement provisions (the most litigated of all fire coverage issues), this series of blogs will also discuss non-valuation-based controversies, such as loss-of-use and business interruption provisions. Additionally, an upcoming blog will discuss third party coverage issues, as well as straight liability issues, that arise, principally from attempts to sue municipalities and other public entities for fire endangerment.


The overwhelming majority of coverage issues litigated in commercial and homeowners fire losses concern valuation of the replaced (or partly replaced) property. The valuation methods are contained in the “Loss Settlement Provisions” of any policy, and break down into “actual cash value” and “replacement cost value.”

*Method One: Actual Cash Valuation (ACV)

Under an open policy (one whose limits are not set in advance), the ACV of a structure that is totally destroyed by fire is its fair market value when the loss commenced. Ins. Code 2052(b)(1). “Fair market value” is the price “a willing buyer would pay a willing seller, and factors such as age, condition, fitness for buyer’s particular purpose, etc. If the structure is only partially destroyed, the ACV formula is the amount it would cost to repair, rebuild or replace the thing lost or injured, less a fair and reasonable deduction for physical depreciation. Ins. Code 2051(b)(2). Given the above depreciation schedule controversies and ensuing litigation, the legislature enacted a new version of Ins. Code 2051(b) requiring the insurer to itemize depreciation only with respect to property normally subject to repair during its useful life, and must be attributable to the age and condition of the property. Ins. Code 2051(b)(2) (2005 version).

*Method Two: “Replacement Cost” Valuation: Alternatively, property insurance policies can be deemed to provide a “replacement cost” valuation basis for insured properties destroyed by fire. (Replacement Cost Coverage or RCC). FIE v. Superior Court (Altman), (2004)116 Cal. App. 4th 446.

RCC was devised to compensate the insured for the differential/shortfall resulting from reconstructing a dwelling under a policy that pays only for ACV, since with RCC depreciation cannot be considered. Altman, supra, illustrated this as follows: “For example, if an insured wanted to replace a damaged roof, the insurer would be liable for the cost of the entire new roof, even if the damaged roof had been ten years old.” Id. at 116 Cal. App. 4th at 464.

The Three RCC Coverages & Tests: Just when you thought these analyses were about to conclude, there are three sub-valuations or standards to be utilized with RCC. The three main forms of RCC are replacement cost, extended replacement cost, and guaranteed replacement cost, all defined by statute. “Replacement Cost Coverage” provides for the cost to repair, rebuild or replace the damaged dwelling up to the policy limit. “Extended Replacement Cost Coverage” indemnifies up to a specified percentage (e.g. 10%) or specific dollar amount above the policy limit. Ins. Code 10102. See also Everett v. State Farm Gen. Ins. Co. (2008) 162 Cal. App. 649, 653. (this case defines “extended replacement cost coverage”); Minich v. Allstate (2011) 193 Cal App. 4th 477, 489-490 [150% of policy limit].“Guaranteed Replacement Cost” Coverage entails the full cost to repair, rebuild or replace the damaged dwelling, without regard to the policy limit. See Ins. Code 10102(e) (f)

Every policy containing fire property loss protection in California must specifically state whether the insured has purchased “replacement cost”, “extended replacement cost” or, alternatively, “guaranteed replacement cost coverage.”

*‘Value Protection’ Clauses [Guaranteed Replacement Cost Plus]: A valuable form of protection, and one salient to the wild swings in California property values and thus the most litigated, is a Value Protection Clause. Such provisions protect increased property values and also enable the insurer to increase premiums accordingly. They explicitly permit yearly premium adjustments to reflect increased costs of construction. This was the subject of the Altman case supra. Such a clause is usually an endorsement that supercedes any code upgrade or replacement cost coverage exclusions. Altman, 116 Cal. App. 4th at 469. Similar protection can be afforded by “inflation coverage provisions.” The particular mechanism for same is an “Inflation Coverage Index” that is in the declarations and increases the policy limits.

Mandatory Statutory Appraisal: Breach of contract, declaratory relief, and bad faith are all available judicial causes of action for an aggrieved insured. However, if the only issue is valuation under loss settlement provisions, and the policy contains an appraisal provision, statutory appraisal under Ins. Code 2071—a sort of ‘arbitration lite’—is the parties’ only form of dispute resolution. Indeed, an appraisal provision in a policy constitutes “an agreement for contractual arbitration.” Code of Civ. Procedure 1280 (a) [defining arbitration agreement to include “agreements providing for valuations, appraisals and similar proceedings”]. See Doan v. State Farm Ins. (2011), 195 Cal. App. 4th 1082, 1092.  Again, however, mandatory statutory appraisal regulations “explicitly document that the Section 2071 appraisal procedure does not limit recourse to other remedies.” Doan, 195 Cal. App. 4th at 1096 and Kirkwood v. Calif. State Auto Ass’n, Inter-Ins. Bureau, (2011) 193 Cal. App. 4th 49, 53-54.

If you have any questions or would like more information, please contact Richard E. Wirick at [email protected].

Court Holds that Eleven Claims are Subject to Single Limit

Posted on: October 13th, 2017

By: Joyce M. Mocek

Recently, the Eleventh Circuit, applying Florida law, held that eleven claims of bodily injury by separate patients all against a pharmacy and pharmacist for negligence in repackaging a drug for injections constituted “related claims” under the insurance policy(ies) at issue.  Amer. Cas. Co. of Reading, Pa. v. Belcher, No. 17-10848, 2017 WL 4276057 (11th Cir. Sept. 27, 2017)

In this case, a pharmacy and pharmacist allegedly repackaged drugs from larger vials into single dose syringes for injections into eyes of patients, but did not take the necessary steps to prevent contamination.  The syringes allegedly became contaminated, and eleven patients that were injected with the drugs suffered severe vision loss and/or blindness.   Both the pharmacist and pharmacy tendered the eleven claims to their professional liability carrier- which were separate errors and omissions policies issued by the same insurer, each policy with a $1 million per claim and $3 million aggregate limit of liability.

The insurers defended the claims presented against the pharmacy and pharmacist subject to a reservation of rights and asserted that the claims were “related claims,” subject to the $1 million per claim limit.  The trial court held that the claims were logically connected and thus “related claims.”   

The Eleventh Circuit affirmed the trial court, holding that the test to determine whether the claims were related was whether they were logically or causally connected by any common fact or circumstance.   In this case, the Court found that the claims were logically connected because a single technician supervised by the same pharmacist prepared each syringe using the same process at the same location, violating the same health and safety regulations.

If you would like to know more about this decision or other insurance coverage matters, please contact Joyce Mocek at [email protected]


Are We Speaking the Same Language?

Posted on: July 15th, 2014

By: Seth F. Kirby

When describing insurance coverage analysis to individuals unfamiliar with the nature of my practice, I often compare it to assembling a puzzle.  Coverage counsel has to examine the claim presented to determine if it fits within the framework of coverage set forth in the insurance contract.  Of course, the puzzle pieces that we are examining, and the framework in which they are placed, are not three definitional objects with tangible shapes.  The puzzle pieces that we use to define coverage and set forth claims are words.  Unfortunately, words are imprecise and frequently fail to adequately express our desires.  The scope of coverage provided by a policy, the nature of a claim asserted by a plaintiff and the applicability of a policy exclusion can turn on the interpretation of a single word or phrase.

In cases involving the interpretation of insurance policies, courts across the nation will frequently cite the maxim that words are to be given their common and ordinary meaning.  Nevertheless, convincing a court what a particular word means is always a difficult proposition, and if an ambiguity exists, then it will be construed in favor of coverage.  A carrier can legitimately believe that a word or phrase is crystal clear, only to be told that its interpretation is flawed.  Why does this happen?

A recent article published on may provide some insight regarding this question.  In “Why Do You Think You’re Right About Language?  You’re Not.” author Gretchen McColloch investigates a concept known as “micro-language.”  In short, she explains that “micro-language” is the intuitive sense of what sounds like proper use of the English language and what doesn’t.  The intuition is developed based upon the listeners’ interactions with other speakers throughout their life.  It is shaped by geography, education, age, gender, level of education, family influence and other factors.  “A doctor who watches a lot of sci-fi will have a slightly different vocabulary than a lawyer who reads a lot of historical fiction, and both of them will have a slightly different vocabulary from their neighbor who’s a birdwatcher. Just as no two people live the same life, no two have the same set of linguistic influences. In other words, no two people end up speaking the same language.”

Ms. McColloch’s article is a fascinating exploration of what it means to use “proper” English.  For instance, in the South it would be “proper” to tell someone that you “might could” pick them up from the airport, while the phrase “could might” would be rejected as inappropriate.  Why?  Because that is the way we say it.  Understanding these differences and adapting to your audience can be the key to effective communication.

From an insurance coverage perspective, we must continually remind ourselves that our puzzle pieces may not convey the meanings that we ascribe to them.  If we forget that words and phrases can mean different things to different people, we run the risk of walking into surprise outcomes.  One such surprise outcome that turns on the interpretation of a phrase will be addressed in an upcoming blog post.  In the interim, to the extent that you are interested in “micro-language,”  Ms. McColloch’s article can be found at: