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Insurance Law is published by the State Bar Litigation Section in its California Litigation Review (2018 Edition), co-authored by RRB attorney Stephen L. Raucher, along with Michael Sohigian, who have provided insurance updates together for the sixth consecutive year.

The recent appellate case Strawn v. Morris, Polich & Purdy LLP, 30 Cal. App. 5^th 1087 (2019), examined an insurance company attorney’s potential liability in the context of the litigation privilege and elder abuse claims, resulting in a mixed ruling.

Dennis and Diane Strawn’s home and vehicle were destroyed by a fire in 2009.  The Strawns immediately notified State Farm about the incident and filed a claim.  Dennis Strawn was prosecuted for arson relating to the fire, but the case was dismissed on February 19, 2013.  In August of 2015, State Farm denied the Strawn’s claim on the grounds that Dennis had intentionally set the fire and that Diane Strawn had concealed evidence of that wrongful conduct.

In August of 2016, the Strawns filed a complaint against State Farm and its attorneys.  The claims against State Farm’s attorney Douglas K. Wood (“Wood”), and his law firm Morris, Polich & Purdy, LLP (“MPP”) for invasion of privacy and elder abuse were dismissed on demurrer by the trial court.

Invasion of Privacy Claim

The invasion of privacy claim against Wood centered on alleged misconduct involving financial records.  Throughout the claims process, State Farm requested financial records from the Strawns, including tax returns.  The Strawns refused to waive any privilege regarding these tax returns.  Instead, the Strawns authorized their accountant to give Wood records used to prepare their tax returns, but not the actual returns.  However, the accountant’s office accidentally included tax returns with the documents they produced.  The Strawns alleged that Wood then provided these tax returns to State Farm despite being expressly informed that they were privileged.

Wood and MPP claimed that their actions were protected by the litigation privilege.  The litigation privilege is not limited to statements made during a proceeding, but may extend to steps taken prior thereto, or afterwards.  Strawn, 30 Cal. App. 5^th at 1094 (citing Rusheen v. Cohen, 37 Cal. 4^th 1048, 1057 (2006)).  The trial court dismissed the invasion of privacy claim based on this privilege.

However, on appeal, the Court found that there was a factual question as to whether Wood’s communication of the tax returns was related to litigation contemplated in good faith and under serious consideration.  The Court noted that a mere threat of litigation will not suffice for a claim of the litigation privilege, but, rather, good faith contemplation of an imminent resort to the judicial system is required.  Since no litigation was instituted until nearly a year after the claim was denied, there was a question as to whether the “imminence” element of the privilege was satisfied.  Otherwise, virtually every insurance claim investigation could be covered by the litigation privilege.  Accordingly, the Court reversed the order sustaining the demurrer to the cause of action for invasion of privacy against Wood and MPP.

Elder Abuse Claim

The basis of the elder abuse claim against Wood and MPP was that they helped State Farm wrongfully deny the Strawn’s insurance claim by supplying State Farm with privileged tax returns.  This claim by the Strawns was an attempt to circumvent a rule stating that an insurer’s agents cannot be found liable for a bad faith denial of coverage.  Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576 (1973).

The Court upheld the dismissal of this claim because Gruenberg and the legislative history of the Elder Abuse Act show no intent to impose liability on an attorney acting on behalf of an insurer for the insurer’s bad faith denial of coverage.  An attorney is not a party to the insurance agreement, and therefore is not subject to an implied duty of good faith and fair dealing regarding an insurance claim.

On Monday, April 15, 2019, Stephen L. Raucher was one of the panelists presenting a continuing legal education program entitled “Fifth Annual Update on Developments in Insurance.” The program examined the most important new cases from 2018 regarding insurance coverage and bad faith, focusing particularly on liability and property policies.

Stephen Raucher’s article Businesses Suffer When Disaster Strikes, Too is published in the Los Angeles Daily Journal on December 7, 2018.

In light of the terrible fires plaguing California, policyholders should keep in mind some basic principles should they find themselves needing to make a claim, or even if they just want to re-evaluate their property insurance policies. Many of these pointers are unique to California law.

• Fire losses must be reported “without unnecessary delay.”
• Policyholders must provide a sworn proof of loss within 60 days of the loss.
• Policyholders must cooperate with the insurer in its investigation of the claim.
• Such cooperation typically includes an obligation to submit to an examination under oath, which can even be a condition to payment.
• The policyholder has a right to be represented by counsel in connection with such an examination, though at his or her own cost.
• The standard fire insurance policy requires that any lawsuit against the insurer be filed within 12 months of the loss, although that can be extended to 24 months if the loss is related to a declared state of emergency.
• Property insurance policies may call for appraisal in the event of a dispute over loss value. Appraisal is similar to arbitration, but less formal. Appraisal cannot be compelled if the loss is related to a declared state of emergency.
• Depending on the policy language, loss is generally based either on “actual cash value” or “replacement value.”
• Actual cash value is measured by the fair market value of the damaged structure as of the date of loss.
• As its name suggests, replacement cost is the reasonable amount necessary to repair and replace with similar construction. Replacement cost coverage is better (and more expensive) for the policyholder.
• Insurers must comply with the Fair Claims Settlement Practices Regulations, which generally require that a claim be accepted or denied within 40 days. Failure to satisfy the regulations can give rise to a bad faith claim by the policyholder.

When the spotlight is on them during times of well-publicized disasters, most carriers responsibly adjust their policyholders’ claims. However, there are always exceptions, and policyholders should not hesitate to seek legal assistance at any stage of the process in order to protect their rights.

Insurance Law is published by the State Bar Litigation Section in its California Litigation Review (2017 Edition), co-authored by RRB attorney Stephen L. Raucher, along with Michael Sohigian, who have provided insurance updates together for the fifth consecutive year.

On Monday, April 16, 2018, Stephen L. Raucher was one of the panelists presenting a continuing legal education program entitled “Fourth Annual Update on Developments in Insurance.” The program examined the most important new cases from 2017 regarding insurance coverage and bad faith, focusing particularly on liability and property policies.