California Court Upholds In-House Counsel Privilege

By Terrence P. McAvoy and Michael G. Ruff

Brief Summary

In Palmer v. Superior Court California's Second District Court of Appeal upheld the in-house counsel privilege for communications concerning a dispute with a current client and, in doing so, declined to adopt the "fiduciary duty" and the "current client" exceptions to the attorney-client privilege.

Complete Summary

Plaintiff brought a malpractice claim against an attorney and her firm as a result of their short-lived representation of him in an invasion of privacy claim. Two months into the representation, plaintiff began sending emails expressing dissatisfaction with the firm's billings and representation. Nevertheless, plaintiff stated that he continued to rely on defendants for legal advice about his matter. Shortly thereafter, plaintiff filed a malpractice action against defendants and substituted new counsel in the underlying litigation.

During the time of representation, the attorney consulted with other attorneys in her firm — the firm's general counsel, claims counsel, and another "deputized" attorney. The firm did not bill plaintiff for any of the other attorneys' time. In response to deposition questions and discovery requests, the attorney invoked the attorney client privilege for internal communications between the attorney and other firm lawyers acting in their capacity as counsel for the firm and/or documents prepared in anticipation of litigation. Plaintiff filed a motion to compel, which the trial court granted. Defendant filed a petition for writ of mandate or prohibition, requesting the trial court to set aside its order and enter a new order denying the motion to compel.

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Insurance Regulator Too 'Aggressive,' Insurers Say

Four insurance companies sued the California Department of Insurance, claiming the agency has become "increasingly aggressive" in its efforts to enforce the state's Unfair Insurance Practices Act.

The companies say the department is trying to enforce the UPA beyond the scope of the original statute, by wanting to impose "millions of dollars in monetary penalties" against insurance companies.

In statute form, the UPA outlines 16 unfair claims settlement practices that companies must avoid in order to be compliant with the law. Prohibited practices include misrepresenting pertinent facts or policy revisions to clients, compelling insured clients to pursue litigation to recover amounts due, and attempting to settle a claim for less than a "reasonable" amount.

But the four plaintiffs known as the Torchmark group of companies said the department has been adding to the original 16 practices, creating 25 "categories of acts" that outline specific conduct to be followed or prohibited in the settlement of claims.

The Torchmark group includes Globe Life and Accident Insurance Company, American Income Life Insurance Company, United American Insurance Company and United Investors Life Insurance Company and is represented in the suit by Robert Hogeboom of the Los Angeles firm Hinshaw & Culbertson.

READ MORE at Courthouse News Service

 

California Insurance-Related Bills Signed into Law

September 30, 2014, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2014 regular legislative session. Here are summaries of noteworthy insurance-related bills that were signed into law. Unless noted otherwise, these new laws will go into effect on January 1, 2015.  

Assembly Bills

AB 1234 - provides in statute that information reported in the registration statement required by the Insurance Holding Company System Regulatory Act and information and documents disclosed in the course of an examination or investigation made pursuant to the Act is not subject to discovery from the commissioner and is not admissible into evidence in any private civil action if obtained from the commissioner in any manner.

AB 1395 - increases from $0.25 to $0.26 the annual per vehicle fee assessment on automobile insurance policies which funds consumer service functions at the Department of Insurance related to automobile insurance; the assessment will remain at $0.26 until January 1, 2016, thereafter the amount of the assessment will be determined by the insurance commissioner but may not exceed $0.26. AB 1395 also clarifies that an insurer, after it remits the $0.15 Seismic Safety Commission assessment on property insurance policies to the Department of Insurance, does not owe a duty to the policyholder to return a portion of the assessment in the event the policy is terminated early.   

AB 1804 - requires private passenger auto insurers, residential property insurers, and insurers providing individual disability income insurance to maintain a verifiable process or to adopt a procedure that allows an applicant or policyholder to designate one additional person to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of a policy for nonpayment of premium. AB 1804 does not apply to policies of private passenger auto insurance that provide coverage for less than six months. AB 1804 will become operative on January 1, 2016.

AB 1897 - adds a section to the Labor Code which provides that when a client employer obtains or is provided workers from a labor contractor to perform labor within the employer’s usual course of business, the client employer and the labor contractor share all civil legal responsibility and civil liability for all workers supplied by the labor contractor for both the payment of wages and the failure to obtain workers’ compensation insurance.

AB 2056 - requires pet insurance policies to include specified disclosures, including policy exclusions, any waiting period or deductible, and whether the insurer reduces coverage or increases premium based on claim history. AB 2056 also sets forth definitions of certain terms, including “chronic condition,” “hereditary disorder,” and “veterinary expenses,” which a pet insurer must include in its policies if the insurer uses any of the terms in its policies. AB 2056 applies to any policy of pet insurance which is marketed, issued, amended, renewed, or delivered to a California resident on or after July 1, 2015.  

AB 2064 - revises the disclosure language which must be included in a residential property insurer’s mandatory offer of earthquake insurance. The disclosure revisions enacted in AB 2064 will become operative on January 1, 2016. AB 2064 also increases the statutory cap on the California Earthquake Authority’s operating expenses from 3% of its premium income to not more than 6% of its premium income.

AB 2128 - extends the sunset date on the statutory provisions relating to the Department of Insurance’s California Organized Investment Network (COIN) from January 1, 2015 to January 1, 2020. Existing law requires all admitted insurers to file data on their community development investments in California. AB 2128 limits the requirement to report on community development investments to each admitted insurer with annual premiums written in California equal to or in excess of $100 million for any reporting year. AB 2128 further provides that an insurer meeting the $100 million threshold also must report on its community development infrastructure investments and its green investments in California. The information required by AB 2128 must be submitted by July, 1, 2016, on investments made or held during calendar years 2013, 2014, and 2015. AB 2128 also revises the information regarding insurer community development investments which the Department of Insurance is required to post on its website.       

AB 2220 - requires private patrol operators to carry a minimum of $1 million in liability insurance coverage.

AB 2293 - establishes insurance requirements for a transportation network company which the bill defines as an entity “operating in California that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using a personal vehicle.” AB 2293 requires a transportation network company to maintain $1 million in primary liability coverage from the moment a participating driver accepts a ride request until the driver completes the transaction on the online-enabled application or platform or until the ride is complete, whichever is later. In the timeframe from when a participating driver logs on to the transportation network company’s online-enabled application or platform until the driver accepts a request to transport a passenger, the transportation network company insurance must maintain primary liability insurance coverage in the amount of at least $50,000/$100,000/$30,000; the company also must  maintain excess coverage of at least $200,000. The statutory section on insurance coverage enacted by AB 2293 states that nothing in the section “shall be construed to require a private passenger automobile insurance policy to provide primary or excess coverage during the period of time from the moment a participating driver in a transportation network company logs on to the transportation network company’s online-enabled application or platform until the driver logs off the online-enabled application or platform or the passenger exists the vehicle, whichever is later.”   These provisions of AB 2293 become operative on July 1, 2015.      

AB 2494 - authorizes a trial court to order a party, the party’s attorney, or both to pay reasonable expenses, including attorney’s fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.

AB 2734 - makes changes to the Insurance Code which the Assembly Insurance Committee characterizes as “noncontroversial.” Among other changes, AB 2734 1) increases from $5,000 to $20,000 the annual tax threshold which triggers the obligation on a surplus lines broker to make tax payments in monthly installments, 2) increases from $5,000 to $20,000 the annual tax threshold which triggers an obligation on an insurer to prepay taxes, 3) clarifies what constitutes “California business” for the purposes of insurers’ duty to file information with the insurance commissioner concerning procurement contracts with minority, women and disabled veteran-owned businesses, 4) changes the annual data call on private passenger auto insurance information to an every-other-year data call, 5) clarifies that the $5 million financial responsibility requirement for testing of autonomous vehicles may be satisfied with an insurance policy, and 6) authorizes the insurance commissioner to act on an application seeking status as a certified reinsurer 30 days after the application is published, rather than the 90 days required by existing law.

AB 2735 - sets forth in statute that a homeowner who has purchased an earthquake insurance policy that does not satisfy the standard coverage requirements must be reminded by the insurer at renewal that the homeowner has the right to purchase a policy that meets the standard coverage requirements. The reminder notice must be filed with the insurance commissioner 30 days before its first use and is subject to the commissioner’s disapproval.   

Senate Bills

SB 1011 - authorizes certain 501(c)(3) nonprofit organizations to insure themselves against damage to property and the losses related to the loss of use of property though a risk pool arrangement.

SB 1205 - requires the Department of Insurance’s curriculum board to develop or recommend courses of study for agents and brokers on commercial earthquake risk management.  

SB 1273 - extends the sunset date on the California Low-Cost Automobile Insurance Program from January 1, 2016 to January 1, 2020. SB 1273 also amends several statutory provisions relating to the program. Among other changes to the program, SB 1273 1) increases the cap on the value of an automobile that may be insured under the program from $20,000 to $25,000 and authorizes the California Automobile Assigned Risk Plan Advisory Committee to adopt a method to determine the value of an automobile, subject to the insurance commissioner’s approval, 2) allows a person who has fewer than three years of driving history to qualify for coverage under the program, and 3) entitles certified producers to a commission of 12% or $50, whichever is greater.

SB 1446 - allows a small employer health plan or a small employer health insurance policy that was in effect on December 31, 2013, that is still in effect on the effective date of SB 1446, and that does not qualify as a grandfathered health plan under the federal Affordable Care Act, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2015. SB 1446 went into effect on July 7, 2014.

 

Deepwater Horizon Ruling Places $18b Bull's-Eye on BP

Barger & Wolen partner David McMahon was quoted in a Law360 article, Deepwater Horizon Ruling Places $18b Bull's-Eye on BP subscription required), on September 4, 2014, about U.S. District Judge Carl J. Barbier’s ruling which found BP’s actions in the Deepwater Horizon disaster grossly negligent. The ruling holds BP responsible for up to $18 billion in Clean Water Act penalties and leaves open the possibility of billions more in punitive damages.

The 153-page ruling issued September 4th thoroughly laid out why the negative pressure test botched by BP prior to the Macondo well blowout constituted gross negligence and even if it didn't, a series of negligent actions by BP added up to gross negligence.

While negligent acts were committed by individual BP employees, the court seemed to adopt a broader definition of a person under the CWA to include the company as well, said David McMahon, a Barger & Wolen LLP partner who worked on the early phases of the BP litigation.

Essentially, the [judge] suggested that corporate ratification was not required to have the enhanced level of penalties stick,” McMahon said. “That was an interesting analysis.”

While Judge Barbier found that BP and drilling partners Transocean Ltd. and Halliburton Co. were each liable under general maritime law for the blowout, explosion and oil spill, he also said Transocean and Halliburton’s indemnity and release clauses in their respective contracts with BP are valid and enforceable.

Barger & Wolen and Hinshaw & Culbertson Announce Merger

Combined Firms Create Powerhouse Insurance Practice with 120 Attorneys Dedicated to Serving the Insurance Industry

  

Chicago and Los Angeles — September 2, 2014 — Barger & Wolen and Hinshaw & Culberston, a national law firm with 460 lawyers in 22 offices around the country, announced today they will combine forces. The merger creates one of the largest insurance law practices in the United States with 120 full-time attorneys dedicated to providing legal counsel to insurance companies and financial services firms that shape the insurance industry.

The partner votes took place on August 28, 2014, and the merger will become effective on October 1, 2014. The combined firm will keep the name Hinshaw & Culbertson and have over 500 attorneys in 11 states as well as London.

Click here for the full press release. For more information, contact Heather Morse.  

 

Esquenazi decision interprets the Foreign Corrupt Practices Act

By David McMahon and Robert G. Levy

Companies doing business internationally no doubt have heard about the rise in claims brought by government agencies against companies and individuals under the Foreign Corrupt Practices Act (FCPA). Our last article focused on ways expenses in defending against such claims — often substantially greater than the amount for which the claims are ultimately resolved — can be contained.

A new decision, U.S. v. Esquenazi, was issued by the 11th Circuit on May 16, 2014, that carefully examines the tests required to determine whether in a given situation the FCPA has, or has not, been violated. The decision, a rare one despite the burgeoning number of prosecutions under the FCPA, clarifies but yet does not simplify what the applicable criteria for prosecution and conviction are. Pertinent to the role of corporate counsel overseeing the defense of such investigations and prosecutions, the decision in fact demonstrates just how wide ranging and fact intensive such an investigation and prosecution might become.

READ MORE

Originally published by InsideCounsel, July 15, 2014

California Insurers Asked to Submit Diversity Information About Boards of Directors

by Robert Hogeboom & Samuel Sorich

The California Department of Insurance (“CDI”) has issued a notification to insurers with 2013 written premiums of $100 million or more in California to complete and submit the CDI’s Governing Board Diversity Survey.

Among other questions, the Survey asks the insurers to report on the number of directors who identify themselves as a man or a woman, how many are comprised from seven different ethnic group categories, and how many are a disabled veteran, lesbian, gay, bisexual, and/or transgender.

Completed surveys, including an affidavit on the data, are to be submitted to the CDI by August 12, 2014. All surveys will be posted on the CDI website by October 1, 2014. The notification advises that survey results will be posted on the CDI’s website and that “[f]ailure to submit a complete report or submit a report by the due date will be noted,” which we presume will be noted on the CDI website.

The Survey stems from a recommendation put forward by the CDI’s Diversity Task Force which was created shortly after the Commissioner office.

Several existing statutes require insurers to submit reports or respond to data calls on other somewhat related topics:

Insurance Code section 926.2 requires each insurer admitted in California to provide information on all its community development investments and community development infrastructure investments in California.

Insurance Code section 926.3 requires each admitted insurer writing $100 million or more in annual premiums in California to file policy statements expressing goals for community development investments and community development infrastructure investments.

Insurance Code section 927.2 requires each admitted insurer writing $100 million or more in annual premiums in California to submit reports on minority, women, and disabled veteran-owned business procurement efforts.

In contrast, there is no statute which specifically states a requirement to report on the diversity of insurance companies’ boards of directors. The department’s notification to insurers does not cite the statutory authority for the Survey.

For copies of the report or questions, please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com or (213) 614-7304.

Recent Victory on Behalf of Medical Supplement Insurers against California Department of Insurance

As a result of the filing of a Writ of Mandate and Declaratory Relief Action by Barger & Wolen LLP Senior Regulatory Counsel Robert W. Hogeboom and Litigation Partner John Holmes, the California Department of Insurance (“CDI”) agreed to cease and desist its practice of requiring insurers to file and pay fees on insurer notices to policyholders policyholder “notices” in connection with Medicare supplement policies. Further, the CDI agreed to refund to each of the plaintiff insurers in the suit all filing fees that had been paid to the CDI since 2012.

The action was filed on behalf of five Torchmark Group insurers who issue Medicare supplement insurance policies in California. Under California Insurance Code (“CIC”) § 10192.14(c), each insurer is required to submit an annual rate filing for each Medicare supplement product to demonstrate compliance with a minimum lifetime loss ratio requirement.   

Since June 2012, the CDI has required insurers which issue Medicare supplement policies to file and seek approval for each form of “notice” to policyholders. The term “notice” was broadly defined by the CDI to include invoices, friendly reminder letters, changes in premium, lapse notices, etc. The CDI alleged that all of these notices were “policy forms” subject to approval under CIC § 10192.15(a). Each notice was subject to a filing fee of $460. 

The CDI also withheld approval of rate filings pending the filing of notices and payment of filing fees notwithstanding that actuarial approval had been given. The notice filing fees alone aggregated approximately $15,000 each year for the plaintiff insurers. 

A Writ of Mandate and complaint for Declaratory and Injunctive Relief was filed against the CDI alleging that the notices were not “policy forms” within the meaning of CIC § 10192.15(a). Further, we alleged the CDI had no authority to disapprove a rate filing based on failure to file notices for approval. 

Prior to a hearing on the action, the CDI agreed to discontinue the notice filing requirements and fee charges. The CDI also agreed to refund all filing fees that had been previously collected.

 

 

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Which Insurance-Related Bills Met the California Deadline for Passage?

The deadline for California Assembly and Senate bills to pass their respected houses was May 30, 2014. Bills that met the deadline are eligible for enactment this year.

Bills that met the May 30 deadline will now be considered by the opposing house, with the regular legislative session ending on August 31.

Here are summaries of noteworthy insurance-related bills that met the May 30 deadline for passage.

Assembly Bills

AB 1234 would exempt from discovery or from admission in civil litigation information pertaining to an insurer that is a member of an insurance holding company system when that information is included in a registration statement or obtained by or disclosed to the insurance commissioner in the course of an examination or investigation.

AB 1804 would require private passenger auto insurers, homeowners insurers, and insurers providing individual disability income insurance policies to maintain a process which allows an insured to designate an additional person to receive notice of lapse, termination, expiration, non-renewal, or cancellation of a policy for nonpayment of premium.

AB 2064 would revise the disclosure language which must be included in a homeowners insurer’s mandatory offer of earthquake insurance. AB 2064 also would increase the statutory cap on the California Earthquake Authority’s operating expenses from 3% of its premium income to 5% of its premium income.

AB 2128 would extend the sunset date on statutory provisions relating to the Department of Insurance’s California Organized Investment Network (COIN) program from January 1, 2015, to January 1, 2020.

AB 2293 would require a transportation network company to advise its participating drivers of the company’s insurance coverage and limits of liability. AB 2293 defines a “transportation network company” as an organization “that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using their personal vehicles.” AB 2293 provides that a transportation network company’s insurance policy is the primary policy coverage and that a transportation network company’s policy shall apply in the event of a loss or injury when a participating driver logs on to a transportation network company’s application program.  

AB 2734 would make changes to the Insurance Code which the Assembly Insurance Committee characterizes as “noncontroversial.” Among other changes, AB 2734 would 1) increase from $5,000 to $20,000 the threshold which triggers the obligation on a surplus lines broker or insurer to make tax payments in quarterly installments, 2) clarify what constitutes a “California business” for purposes of insurers’ duty to file information with the insurance commissioner concerning procurement contracts with minority, women, and disabled veteran-owned businesses, and 3) change the annual data call on private passenger auto insurance information to an every-other-year data call.

AB 2735 would set forth in statute that a homeowner who has purchased an earthquake insurance policy that does not satisfy the standard coverage requirement must be reminded by the insurer at renewal that the homeowner has the right to purchase a policy that meets the standard coverage requirement.

Senate Bills

SB 1034 would make clear that a health plan or insurer offering group coverage may not impose a separate waiting period in addition to the 90-day waiting period that the federal Affordable Care Act allows an employer to use.

SB 1205 would require the Department of Insurance’s curriculum board to develop or recommend a course of study for agents and brokers on commercial earthquake risk management.

SB 1273 would extend the sunset date on the California Low-Cost Automobile Insurance Program from January 1, 2016, to January 1, 2020. SB 1273 also would amend several statutory provisions relating to the program. Among other changes to the program, AB 1273 would repeal the $20,000 cap on the value of a vehicle insured under the program and would allow a person who has fewer than three years of driving history to qualify for coverage under the program.

SB 1446 would allow a small employer health plan or a small employer health insurance policy in effect on December 31, 2013, that does not qualify as a grandfathered health plan under the federal Affordable Care Act, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2016.

Statistical Sampling in Class Action Trial Violated Defendant's Due Process Rights

In a unanimous decision, the California Supreme Court on May 29 reversed a class action verdict for a class which was based on a flawed statistical model to determine liability and damages. Duran v. U.S. Bank National Association.

In Duran, plaintiffs brought a class action to challenge U.S. Bank’s (“USB”) classification of its business banking officers (“BBO’s”) as exempt under the “outside salesperson” exemption under California Labor Code section 1171

At trial, USB sought to introduce evidence demonstrating that a substantial amount of the class members performed more than 50% of their work engaged in outside sales and thus fell within the “outside salesperson” exemption. The trial court barred this evidence and instead relied on testimony from its sample size of 21 class members to find USB liable to the entire class for misclassification.  With respect to damages, the trial court accepted the estimate of plaintiffs’ expert (with an admitted 43.3% margin of error) that each class member on average worked approximately 11.87 hours of overtime per week. 

In reversing the verdict, the Supreme Court gave a scathing review of the class action trial plan at issue, specifically, its sole reliance on evidence from a flawed statistical sample of the class and its refusal to permit litigation of relevant affirmative defenses outside of the sample.

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