APPELLATE LAW UPDATE September 16, 2011 Submitted by H. Thomas Watson Horvitz & Levy LLP

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Meagan McCormick
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1 APPELLATE LAW UPDATE September 16, 2011 Submitted by H. Thomas Watson Horvitz & Levy LLP SUPREME COURT: The California Supreme Court published two opinions, granted review in a third matter, and set oral argument in a fourth case (that has been pending in the Supreme Court for four years), all of which may be of interest to attorneys practicing insurance law: 1. Supreme Court limits recovery by contractors employees for injuries arising from alleged violations Cal-OSHA regulations. (SeaBright Ins. Co. v. US Airways, Inc. (Aug. 22, 2011, S182508) Cal.4th [2011 WL ].) In a series of cases beginning with Privette v. Superior Court (1993) 5 Cal.4th689, the California Supreme Court has limited the circumstances in which those who retain contractors may be held liable for injuries sustained by contractors employees. In SeaBright, the Supreme Court has extended the Privette doctrine, holding that contractors employees may generally not rely on duties imposed by Cal-OSHA regulations to avoid Privette s limitations on liability of those who hire independent contractors. The injury at issue in SeaBright occurred after US Airways retained a contractor to maintain conveyor belts at an airport. During the course of this work, an employee of the contractor was injured when one of his arms became caught in the moving parts of a conveyor belt. The plaintiff contended that the conveyor belt lacked a necessary safety guard; that US Airways had a duty under Cal-OSHA regulations to ensure that the conveyor belt was in proper working order; and that US Airways could not lawfully delegate that regulatory duty to the contractor. The trial court granted summary judgment in favor of US Airways based on the Privette doctrine. The Court of Appeal then reversed, holding that Privette permits imposition of liability on a hirer for injuries caused by its failure to ensure a contractor s compliance with Cal-OSHA regulations. The Supreme Court reversed the Court of Appeal, holding that the Cal- OSHA regulation governing conveyor belts imposed a duty on US Airways

2 to protect its own employees from moving parts on the conveyor belt, but that the regulation did not preclude US Airways from delegating to the contractor the duty to comply with theregulation in order to prevent injury to the contractor s employees. The court determined that the right of delegation applied with particular force in this case because the contractor had sole control over the manner in which the maintenance work was performed. 2. Injured tort victims can recover no more than what they or their insurers paid for medical services. (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541.) The California Supreme Court held that a plaintiff in a tort action who receives treatment for his or her injuries because of the defendant s wrong and whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial. Plaintiffs had argued, and some Courts of Appeal had held, that, under the collateral source rule, the damages should be the amount a healthcare provider has nominally billed for the treatment even if the provider has accepted a lesser amount as full payment from the plaintiff s health insurer under a negotiated contract. (The collateral source rule provides that, if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor. ) The Supreme Court also concluded that the jury can be told the amount that the plaintiff s insurer paid for medical services, but not the source of the payment. Although the court held that a healthcare provider s full billed amount is irrelevant to determining the plaintiff s past medical expense damages, the court did not decide whether that amount is admissible on issues of noneconomic damages and future medical expenses. Moreover, some Courts of Appeal had left for a special post-trial proceeding the reduction of a plaintiff s medical expense damages if they exceeded the amount paid by the plaintiff s insurer. The Supreme Court found such a procedure unnecessary, given the availability of a motion for new trial on grounds of excessive damages.

3 3. Supreme Court to decide post-divorce ownership of a life insurance policy purchased during the marriage with community assets. (In re Marriage of Valli (2011) 195 Cal.App.4th 776, review granted Aug. 24, 2011, S ) While hospitalized with heart problems, singer Frankie Valli purchased with community assets a $3.75 million life insurance policy, naming his then wife Randy Valli as the owner and beneficiary of the policy. Frankie and Randy separated 18 months later. During the dissolution proceedings, the trial court ruled that the life insurance policy was community property, which Frankie would be awarded upon his payment to Randy of half its $365,032 cash value for her community property interest in it. The Court of Appeal reversed, holding that, because Randy was listed on the policy as its owner, the form of title presumption in Evidence Code section 662 established that it was Randy s separate policy since Frankie failed to present clear and convincing evidence to rebut this presumption. The Supreme Court granted review. According to the Supreme Court s docket, this case includes the following issue: Did the Court of Appeal err in concluding that an insurance policy on the husband s life was the wife s separate property upon dissolution of the marriage, even though the policy was purchased during the marriage and the premiums prior to the couple s separation were paid with community funds, because the policy listed the wife as the owner? 4. California Supreme Court to hear oral argument in a case concerning the scope of the administrative exemption to overtime requirements. (Harris v. Superior Court (Liberty Mutual Ins. Co.) (2007) 154 Cal.App.4th 164, review granted Nov. 28, 2007, S ) Harris arose from four coordinated class actions brought by plaintiff insurance claims adjusters against the insurance companies who employed them. These claims adjusters alleged that the defendant insurance companies improperly classified them as exempt from California s overtime requirements and sought to recover for such unpaid overtime. The defendants maintained that the adjusters were covered by the administrative exemption to the overtime requirements. The Court of Appeal explained that the administrative exemption applies only to employees who are primarily engaged in work of a type that is directly related to management policies or general business operations and held that only work performed at the level of policy or general operations can

4 satisfy this directly related standard. According to the Court of Appeal, work that merely carries out the particular, day-to-day operations of [a] business is production work rather than administrative work and does not qualify for the administrative exemption. The Harris court determined that the work primarily performed by the plaintiff claims adjusters was merely part of the day-to-day operations of the insurance companies business and not carried on at the level of management policy or general operations. Thus, the court held that the plaintiffs were not exempt administrative employees. The Supreme Court granted review in November The Supreme Court s online docket frames the issue presented by this case as follows: Do claims adjusters employed by insurance companies fall within the administrative exemption (Cal. Code Regs, tit. 8, section 11040) to the requirement that employees are entitled to overtimecompensation? The Supreme Court has scheduled this case for oral argument on October 3, Accordingly, it should file its opinion by January COURT OF APPEAL: The California Court of Appeal recently published the following decisions that may be of interest to attorneys practicing insurance law: 1. Insurer owed no duty to defend insured under claims made policy where the initial lawsuit filed against the insured predated the policy, and the amended complaint filed during the policy period added only new causes of action that were either directly excluded from coverage or had a common nexus of facts and circumstances with the initial causes of action, and therefore excluded under the policy s Interrelated Wrongful Acts provision. (Feldman v. Illinois Union Ins. Co. (Sept. 6, 2011, H035316) Cal.App.4th [2011 WL ] [Sixth Dist.].) 2. Health and Safety Code section immunizes healthcare service plan from insurance bad faith liability based on its alleged vicarious liability for errors by healthcare provider to whom it had delegated the task of utilization review (i.e., determining the medical necessity of proposed treatment). (Martin v. PacifiCare of California (Aug. 31, 2011, G041732) Cal.App.4th [2011 WL ] [Fourth Dist., Div. Three].) 3. Commercial general liability insurer owes no duty to defend its insured against a model s right of publicity lawsuit stemming from the insured s

5 alleged unauthorized use of her image to promote its products. Although the model s right of publicity claim was within the scope of coverage for right of privacy claims, it also was within the scope of a coverage exclusion for intellectual property claims even though the exclusion did not specifically list right of publicity claims. (Aroa Marketing, Inc. v. Hartford Ins. Co. of the Midwest (Aug. 23, 2011, B228051) Cal.App.4th [2011 WL ] [Second Dist., Div. Four], opn. mod. Aug. 25, Pollution exclusion in first-party property insurance policy bars coverage for the costs of abating the release of asbestos fibers from the scraping of acoustical ceilings in a residential building, even though asbestos was not specifically listed as a pollutant in the exclusion. (Villa Los Alamos Homeowners Assn. v. State Farm General Ins. Co. (2011) 198 Cal.App.4th 522 [First Dist., Div. Four].) 5. Clear and conspicuous arbitration clauses in insurance policies are enforceable regardless whether the insured was advised of the arbitration provision when applying for insurance or knew of its existence prior to enforcement of the provision. (Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146 [Fourth Dist., Div. Three].) 6. Insurance commissioner does not abuse his discretion by denying an insurer s application to purchase an insurance company from consortium of foreign entities where there is substantial evidence the sale would harm the interests of policyholders by hindering their ability to recover restitution from the consortium based on its unlawful operations. (Aurora S.A. v. Poizner (Aug. 8, 2011, A129971) Cal.App.4th [2011 WL ] [First Dist., Div. Five], ordered published Sept. 2, 2011.) NINTH CIRCUIT COURT OF APPEALS: The Ninth Circuit Court of Appeals published the following recent insurance law decision. 1. Even where a health insurance plan expressly excludes coverage for residential care, California s Mental Health Parity Act mandates such coverage for enumerated severe mental illnesses, including anorexia nervosa, if residential care is medically necessary treatment. (Harlick v. Blue Shield of California (9th Cir. Aug. 26, 2011, No ) F.3d [2011 WL ].)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR

Filed 8/23/11 CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR AROA MARKETING, INC., Plaintiff and Appellant, v. B228051 (Los Angeles