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California Case Law Update

DUTY OF GOOD FAITH AND FAIR DEALING

Ace American Insurance Company v. Fireman’s Fund Insurance Company (2016) _ Cal.App.4th _ , 2016 WL 4156686

Facts

The Court of Appeal reversed the trial court’s order sustaining a demurrer without leave to amend in an action by an excess carrier against the primary carrier for equitable subrogation and breach of the duty of good faith and fair dealing.  Ace American, an excess insurer, filed a complaint for equitable subrogation against Fireman’s Fund which was the primary insurer.  Fireman’s Fund rejected offers to settle the action within its policy limits during the underlying action.  The underlying action settled, but the settlement was in excess of the primary policy.  The primary insurer only contributed its policy limits to the settlement, and excess insurer paid the rest.  The trial court dismissed the excess insurer’s complaint for failure to state a claim on the ground California law required the entry of a litigated excess judgment before an equitable subrogation claim by an excess insurer could be made against a primary insurer.

Holding

The Court of Appeal concluded that, because the excess carrier alleged it was required to contribute to the settlement of the underlying case due to the primary carrier’s failure to reasonably settle the case within policy limits, the lack of an excess judgment against the insured in the underlying case did not bar an action for equitable subrogation and breach of the duty of good faith and fair dealing.

Reasoning

The Court of appeal noted that there was a direct conflict between two previous cases on the subject which took different positions on whether a litigated excess judgment was required for the excess insurer to establish a viable cause of action against the primary insurer. The Court of Appeal noted, “Ace American has paid the claim of its insured, Warner Brothers, to protect its interest and not as a volunteer; Ace American suffered damages caused by Fireman’s Fund’s act or omission; and Ace American’s damages are in a liquidated sum.”  This was enough to overcome the demurrer.  This case will likely provide the Supreme Court of California the opportunity to address the issue.

BREACH OF CONTRACT 

Aluma Systems Concrete Construction of California v. Nibbi Bros. Inc. (2016) _ Cal.App.4th _ , 2016 WL 4379322

Facts

The Court of Appeal reversed the trial court’s order sustaining defendant Nibbi Bros, Inc.’s demurrer to plaintiff Aluma Systems Concrete Construction of California’s complaint for breach of contract, express contractual indemnity, and declaratory relief. Aluma Systems Concrete Construction of California entered into an agreement with Nibbi Bros. Inc. to design and supply the materials for deck shoring at a construction project.  Two employees were injured after the shoring system collapsed. Subsequently, two lawsuits were filed by the Nibbi employees against Aluma. Those lawsuits alleged the collapse was due to Aluma’s negligence. Aluma tendered the Employee Lawsuits to Nibbi for defense and indemnification.  Nibbi did not respond to the tenders.  The terms of the contract included an indemnification provision that required Nibbi to defend, indemnify and hold harmless Aluma.  Aluma then sued Nibbi for indemnification under the provision.  The trial court sustained a demurrer brought by Nibbi without leave to amend.  The trial court reasoned in doing so that the allegations in the underlying lawsuit that set forth claims only against Aluma and not against Nibbi, the employer.

Holding

The Court of Appeal ruled plaintiff Aluma had stated a claim for indemnity and the trial court erred in sustaining the demurrer.

Reasoning

The Court reasoned an indemnitee is not limited by the claimaint’s pleadings in the underlying action in seeking indemnity under an express contractual indemnity clause.  The Court further noted this was analogous to the indemnitee not being limited by a claimant’s proof in an underlying action.

LEGISLATIVE UPDATE

AB-2159

California Governor Jerry Brown recently signed a bill into law that will bar the admission or discovery of evidence related to a person’s immigration status in wrongful death and personal injury cases.  A.B. 2159 essentially overturns Rodriguez v. Kline (1986) 186 Cal. App. 3d 1145, wherein the court considered the applicability of a plaintiff’s immigration status when calculating future loss of earnings.  In that case, plaintiff was a Mexican citizen residing in the United States illegally.  The Court of Appeal held in cases where there is a question regarding a plaintiff’s citizenship and plaintiff is seeking to recover future loss of earnings, the trial court must determine the plaintiff’s immigration status as a preliminary question of law.

Existing law provides all relevant evidence is admissible in an action before the court, including evidence relevant to the credibility of a witness or hearsay declarant, subject to specified exceptions.  A.B. 2159 creates an exception in civil actions for personal injury or wrongful death, evidence of a person’s immigration status is not admissible and discovery of a person’s immigration status is not permitted.  Doing so effectively eliminates the ability for defendants to limit a plaintiff’s lost future earnings to what the plaintiff would have made in his or her country of origin.

ABOUT THE AUTHOR

Justin Evenson is an Associate at Tyson & Mendes. Mr. Evenson specializes in personal injury, premises liability, general liability, and employment litigation. Contact Justin at (858) 263-4066 or jevenson@tysonmendes.com.