Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

By Larry M. Golub and Misty A. Murray

On June 20, 2011, the United States Supreme Court issued its long-anticipated decision in Wal-Mart Stores Inc. v. Dukes et al., 564 U.S. ____ (2011), decertifying a class of 1.5 million female Wal-Mart employees who alleged that they were discriminated against on the basis of their sex and were denied equal pay and promotions. Justice Scalia issued the majority opinion, parts of which were joined in by all nine Justices. 

The proposed nationwide class in Wal-Mart consisted of

[a]ll women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart’s challenged pay and management track promotion policies and practices.” 

The three class representatives did not allege that Wal-Mart had an express corporate policy of discrimination, but rather that local managers had broad discretion over pay and promotions and exercised that discretion disproportionately in favor of men and that the corporate culture permitted bias against women. 

The primary evidence of the alleged uniform corporate practice consisted of statistical evidence of salaries and promotions heavily favoring male employees and anecdotal reports of female employees, along with the testimony of a sociologist who conducted a “social” analysis of Wal-Mart’s corporate culture. 

The requested relief sought an injunction to prohibit Wal-Mart’s discriminatory practices, and also a claim to recover back pay.

The District Court certified the class, finding that the class met the threshold requirements of Federal Rule of Civil Procedure 23(a)(2) that are required for all class actions, and then the requirements of Rule 23(b)(2), which requires that the

party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” 

In other words, a Rule 23(b)(2) class is typically limited to injunctive or corresponding declaratory relief.

A divided en banc Ninth Circuit panel affirmed the trial court ruling, finding that the commonality requirement was met and that the back pay claim did not predominate over the injunctive relief request.

The Ninth Circuit also found that the class could be manageably tried and that Wal-Mart would not be denied its right to present statutory defenses because the District Court could permit Wal-Mart to present individual defenses to randomly selected sample cases. 

The United States Supreme Court granted a writ of certiorari on December 6, 2010, and we reported on that event. The Court limited its review to whether claims for monetary relief could be certified under Rule 23(b)(2) and, if so, under what circumstances.

In this week’s ruling, the Supreme Court reversed the Ninth Circuit’s decision and decertified the class. Writing for five of the nine members of the Court, Justice Scalia first found that common issues were lacking under Rule 23(a)(2). Under that part of Rule 23, the Court reiterated that

“[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’” (citation omitted) and that the plaintiff’s “common contention . . . must be of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” 

The majority opinion further advised that

“Rule 23 does not set forth a mere pleading standard,” but an affirmative demonstration that each of the components of that rule have been met after the trial court has made a “rigorous analysis,” which frequently “will entail some overlap with the merits of the plaintiff’s underlying claim.”

With respect to the case before it, the majority opinion explained that “‘significant proof’ that Wal-Mart ‘operated under a general policy of discrimination’” was “entirely absent here.” It also observed that the testimony of plaintiff’s sociologist as to his analysis if Wal-Mart’s corporate culture was “worlds away” from “significant proof that Wal-Mart operated under a general policy of discrimination.” 

The opinion found that the statistical and anecdotal evidence “falls well short” and even if such evidence was taken at face value, it was “insufficient to establish that respondents’ theory can be proved on a class wide basis” or that “one named plaintiff’s experience of discrimination” was sufficient “to infer that ‘discriminatory treatment is typical of [the employer’s employment] practices.” 

Given the lack of proof of a uniform corporate practice, the commonality requirement of Rule 23(a)(2) was lacking.

The majority opinion also concluded that the back pay claims were improperly certified under Rule 23(b)(2) because claims for individualized monetary relief do not satisfy the Rule’s requirement that a single injunction or declaratory judgment provide relief for the entire class. 

Here, given the individualized nature of each employee’s claim, individualized proof of damages as to back pay would be required, making the class unmanageable under Rule 23(b)(2). Rather, Justice Scalia wrote, “we think it clear that individualized monetary claims belong in Rule 23(b)(3)” and the “procedural protections attending the (b)(3) class.” 

The minority opinion, joined in by four Justices, only agreed with the second basis for the majority opinion’s ruling, and expressly dissented from the finding that there was no commonality. Writing for the concurring/dissenting opinion, Justice Ginsburg observed:

“The evidence reviewed by the District Court adequately demonstrated that resolving those [gender discrimination] claims would necessitate examination of particular policies and practices alleged to affect, adversely and globally, women employed at Wal-Mart’s stores.  Rule 23(a)(2), setting a necessary but not a sufficient criterion for class-action certification, demands nothing further.”

Justice Ginsburg also would have remanded the case to the trial court to determine if plaintiffs could have complied with the requirements for monetary claims under a Rule 23(b)(3) class, but observing that the majority opinion “disqualifies the class at the starting gate, holding that the plaintiffs cannot cross the ‘commonality’ line set by Rule 23(a)(2).”

In the few days since the Supreme Court issued the Wal-Mart decision, numerous legal and non-legal commentators have expressed their opinion as to the reach of the decision, with some bemoaning the purported demise of class action litigation and others observing that the decision can be limited to its facts and the employment context. Time will tell whether the Wal-Mart decision substantially alters the nature of class litigation.

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In 1988, the California Supreme Court issued its landmark decision in Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287, disallowing private rights of action based on violations of the Unfair Insurance Practice Act (“UIPA”), otherwise known as third-party bad faith claims. Shortly thereafter, the prohibition was extended to first-party bad faith claims.

Most significantly, a series of Court of Appeal decisions disallowed violations of the UIPA to be brought as claims under the California’s “Unfair Competition Law” (Business and Professions Code Section 17200, et seq., or the “UCL”). 

As one court concluded:

we have no difficulty in [holding] the Business and Professions Code provides no toehold for scaling the barriers of Moradi-Shalal.” Safeco Ins. Co. v. Superior Court, 216 Cal. App. 3d 1491, 1494 (1990). 

More recently, another court held that “parties cannot plead around Moradi-Shalal’s holding by merely relabeling their cause of action as one for unfair competition.” Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061, 1070 (2004).

In November 2009, we reported on Zhang v. Superior Court, a case that rejected Textron, and held that because the UCL allows a plaintiff to allege unfair, unlawful, and misleading conduct against businesses generally (including insurers), the fact an insured asserts what appear to be violations of the UIPA is not necessarily an end run around Moradi-Shalal so long as the insured also alleges the insurer acted unfairly by engaging in false and deceptive advertising, suggesting it would provide coverage in the event of a loss, when it had no intent to do so. 

The case was short-lived, as the Supreme Court accepted review in February 2010 and the decision became depublished. While the Zhang case is fully briefed, the Supreme Court has not yet set oral argument.

On June 15, however, another Court of Appeal decision issued again sought to undercut the prohibition on using the UCL to pursue UIPA-like claims. 

In Hughes v. Progressive Direct Ins. Co., the plaintiff sued his insurer in a purported class action based on the automobile insurer’s alleged company-wide practice of steering its insureds to repair shops that were part of Progressive’s Direct Repair Program (DRP) and misrepresenting their ability to take their vehicle to a non-DRP repair shop. 

The sole claim alleged was under the UCL, but the predicate statute relied on to support the UCL claim was Insurance Code section 758.5.

That statute, which prohibits insurers from requiring an insured’s vehicle to be repaired at a specific repair shop, or suggesting a specific shop be used, unless the insured is informed in writing of his or her rights to select another repair shop, does not, just like the UIPA, permit a private right of action but only enforcement by the Insurance Commissioner pursuant to the UIPA. 

Accordingly, the trial court sustained the insurer’s demurrer to the complaint, concluding that just as the UCL could not be used to circumvent UIPA claims under Moradi-Shalal, neither could a UCL claim proceed based upon Section 758.5.    

The Court of Appeal reversed, and concluded that Moradi-Shalal does not bar a claim by an insured against an insurer under the UCL based solely on the allegations the insurer violated Section 758.5. 

After discussing in detail the decisions issued since the time of Moradi-Shalal vis-à-vis the UCL, as well as the legislative history of Section 758.5, and then relying on a parsed reading of the language of the UCL in which its remedies are “cumulative” to other laws unless otherwise “expressly” provided, the court found that an alleged violation of a statute like Section 758.5, so long as it does not involve conduct violating the UIPA, “may serve as the predicate for a UCL claim absent an express legislative direction to the contrary.”  

The decision, however, was not one of clear unanimity. One of the three Justices on the appellate panel issued his own concurring opinion, in which he expressed his “considerable misgivings” as to the majority opinion. After noting that the opinion “hangs precipitously on one word, namely ‘express,” Justice Fred Woods lamented that the social problems sought to be addressed by the Moradi-Shalal decision and various legislative remedies might now be undone, and that he saw “storm warnings on the horizon.”

Perhaps, just as the Supreme Court accepted review of the Zhang case last year to address that appellate decision seeking to create a chink in the armor of Moradi-Shalal, it will similarly accept review of Hughes to address this latest attack on the scope of Moradi-Shalal and bring some certainty to whether the reach of the UCL is as broad as these two lower appellate courts have held. 

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Firm Expands California Footprint with New Sacramento Office

Sam Sorich, the former president of the Association of California Insurance Companies (ACIC), California’s longest established property/casualty insurance trade association, joins Barger & Wolen as Of Counsel on June 15, 2011. Mr. Sorich, who has been in the insurance industry for more than 30 years, will also open and head the law firm’s new Sacramento office. 

“After my retirement from the ACIC, I was looking for an opportunity to continue to serve the insurance industry and its customers. Joining Barger & Wolen was the perfect opportunity to do that,” Sam Sorich says. “Barger & Wolen is an extraordinary firm that has incredible presence and influence in the insurance industry and has successfully represented many of ACIC’s 300 members.”

As ACIC president, Sorich directed the group’s legislative, regulatory and litigation activities. His role with Barger & Wolen will focus on expanding the firm’s presence and relationships in Sacramento particularly with the Department of Insurance and other state agencies. Although Barger & Wolen is not new to Sacramento, due to its representation and regulatory work before the Department of Insurance, Sorich will become a liaison for the firm’s clients within the influential circles of the state’s capital. 

“This new move solidifies our presence in Sacramento, which is a center of influence in California for the insurance industry,” says Steven Weinstein, chairman of Barger & Wolen. “The addition of Sam not only shows our understanding of our client’s business practices and needs, but it demonstrates our leadership in the industry.”

Under his direction at ACIC, Sorich and ACIC played a key role in the crafting and regulatory implementation of the 2003-2004 workers’ compensation reforms, the development of regulations that implement Proposition 103's provisions on auto insurance rating and underwriting, litigation that determines the scope of the insurance commissioner's authority over homeowners insurance underwriting, and legislation that provides consumers with effective disclosures regarding insurance coverage. 

Robert Hogeboom, one of the leaders of the firm’s regulatory practice, adds: “Sam Sorich is well respected by the insurance industry and regulators throughout the country. He will continue to play a key role in the regulatory work that we do for insurance companies at the state and federal levels.”

Sorich is a graduate of the University of Illinois College of Law. Before beginning his insurance career, Sorich served as a Peace Corps volunteer and an assistant attorney general in the office of the Illinois Attorney General. Sorich is a member of the Illinois Bar and the Hawaii Bar.

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By Larry M. Golub and Travis Wall

On June 3, 2011, the California Court of Appeal for the Second Appellate District issued a decision in Kaiser Cement and Gypsum Corp. v. Insurance Company of the State of Pennsylvania that should be of interest to insureds, primary insurers and excess insurers as to the issues of horizontal exhaustion and stacking of liability insurance policies.

The underlying dispute involved coverage obligations for thousands of asbestos bodily injury claims brought against Kaiser.

In a previous decision, the appellate court held that asbestos bodily injury claims should be treated as multiple occurrences under the primary policies issued to Kaiser by Truck Insurance Exchange, rather than one single occurrence for multiple claimants. The primary policies all had non-aggregating per-occurrence limits, meaning the policies potentially could be on the hook for the total per-occurrence limit for each occurrence

The present appeal addressed the situation as to whether, when an asbestos bodily injury claim exceeded the primary coverage issued by Truck in a particular year, the excess coverage issued by Insurance Company of the State of Pennsylvania (“ICSOP”) was triggered to provide indemnification to Kaiser. 

Because the case involved asbestos bodily injury, which continues to cause injury over time, even with a single claimant, a claim could trigger coverage in multiple policy years. ICSOP argued that the insured had to exhaust all underlying primary policies for all years in which coverage was triggered. Both Kaiser and Truck argued that the ICSOP excess policy was triggered upon exhaustion of the single $500,000 per occurrence limit.

The Kaiser court issued three holdings in its decision:

First, it held that the excess insurer ICSOP was entitled to horizontally exhaust all underlying primary insurance that was collectible and valid, and not just those policies directly underneath its excess policy. It advised that this ruling was consistent with prior California law addressing the issue of horizontal exhaustion. 

The second holding, however, concluded that ICSOP was not able to “stack” the individual limits of the Truck primary policies. The court did not base this holding on judicially imposed anti-stacking principles, but rather concluded that under the particular language of the Truck policies, Truck could only be liable as a company for one per-occurrence limit for each occurrence.

Specifically, the court cited the language in the insuring agreement stating that,

the Company's liability as respects to one occurrence . . . shall not exceed the per occurrence limit designated in the Declarations." (Italics added.)  

Thus, the court permitted horizontal exhaustion in principle but held that there was no valid and collectible insurance to horizontally exhaust in this case since Kaiser was only entitled to one per-occurrence limit for Truck as a whole for claims that exceeded the $500,000 per occurrence limit in the implicated Truck policy.

The final holding by the court was that the summary judgment that had been issued by the trial court in favor of Kaiser had to be reversed because, on the present record, the appellate court could not determine if there was primary coverage issued to Kaiser by other insurers (outside of Truck) whose primary policies still needed to be exhausted under the court’s horizontal exhaustion ruling.

For excess insurers, this case affirms the obligation that horizontal exhaustion of all primary insurance is still the rule in the continuous occurrence context. 

The anti-stacking ruling also should have a fairly limited scope -- it would only apply to situations in which there is a single insurer providing coverage under all triggered primary policies. 

And, above all, the case requires a careful review of the specific policy language found in each primary and excess policy at issue.

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By John M. LeBlanc and Jason C. Love

On June 1, 2011, the California State Assembly passed AB 52, which was initially introduced in December 2010.

Beginning January 1, 2012, the bill would require health care service plans and health insurers in California to obtain prior approval from the Department of Managed Health Care or the Department of Insurance for all proposed rate increases.

Under the proposed legislation, the Department of Managed Health Care and the Department of Insurance would be prohibited from approving any rate or rate change that is excessive, inadequate, or unfairly discriminatory. 

In addition, the bill calls for an examination by the Department of Managed Health Care and the Department of Insurance of all rate increases that become effective between January 1, 2011 and December 31, 2011, to ensure that those rates are not excessive, inadequate, or unfairly discriminatory, and to order the refund of any payments made pursuant to any such rate.

The bill must still be approved by the California Senate and signed into law by the Governor in order to become legally operative.

Originally posted on Barger & Wolen's Life, Health and Disability Insurance Law Blog.

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