Insurance Litigation & Regulatory Law Blog : California Insurance Lawyer & Attorney : Barger & Wolen Law Firm : CA Insurance & Bad Faith Litigation

In an article appearing in today's Los Angeles and San Francisco Daily Journals (pdf), I discuss H.R. 4115, which, if passed, will overturn the Supreme Court's recent rulings in Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal. Twombly and Iqbal held that a complaint filed in federal court could be dismissed if it does not contain sufficient factual matter to state a claim for relief that is plausible on its face.  

H.R. 4115 (called "The Open Access To Courts Act of 2009"), by contrast, would prohibit a federal district judge from dismissing a complaint unless it appears

beyond doubt that plaintiff can prove no set of facts in support of their claim which would entitle plaintiff to relief.

A judge would also be prohibited from dismissing a complaint based on the determination that the factual contents of the complaint do not show their claim to be plausible or do not warrant a reasonable inference that the defendant is laible for the misconduct alleged.  

The exact effect of this legislation is unclear, but, if passed, it is certain to invite the argument from plaintiff's lawyers that all they need to do to get a complaint past the pleading stage is to include as few facts as possible. Vagueness may become the order of the day, and it will certainly become more difficult to dismiss a case under Federal Rules of Civil Procedure Rule 12.  

This law may mean that we will soon see complaints in federal court containing fewer and vaguer allegations. For the insurance industry, this may mean rethinking the generally accepted practice of invariably removing state court actions to federal court on diversity grounds. If a motion to dismiss is being contemplated, it may see more success as a state court demurrer. 

Please feel free to contact me directly for more information.

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The California legislature passed a number of new insurance-related bills that Governor Schwarzenegger signed into law. These include new laws regulating the rescission of health insurance coverage (AB 108), life settlement transactions (SB 98) and electronic transactions (AB 328). 

Several of the laws are summarized briefly below. Our summary is intended to give you a broad overview only and does not include all new provisions enacted by the legislation. These summaries should not be relied upon as a substitute for legal advice.

If you would like additional information on any of the laws discussed herein, please contact Stuart Soldate at (213) 614-7306 or ssoldate@bargerwolen.com, Michael Rosenfield at (213) 614-7321 or mrosenfield@bargerwolen.com, Chris Burusco at (213) 614-7332 or cburusco@bargerwolen.com, or your regular Barger & Wolen attorney. 

LIFE, HEALTH AND DISABILITY INSURANCE

1. AB 23: Cal-COBRA Premium Assistance

• Establishes notice requirements that must be provided to eligible qualified beneficiaries regarding the availability of premium assistance under the American Recovery and Reinvestment Act of 2009 (ARRA).
• Qualified beneficiaries eligible for federal assistance may elect coverage under Cal-COBRA, and those enrolled in Cal-COBRA as of February 17, 2009 may request the federal premium assistance.

2. AB 76: Life and Annuity Consumer Protection Fund

• Extends the provision creating the Life and Annuity Consumer Protection Fund to January 1, 2015.
• Requires the California Insurance Commissioner (“Commissioner”) to publish an annual report on its Web site detailing certain protections for consumers of insurance products.

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By Robert W. Hogeboom

This Alert follows our Client Alert of September 4, 2009, Harvey Rosenfield Seeks Initiative to Prohibit Broker and Installment Fees.

Harvey Rosenfield’s proposed initiative, Stop Insurance Overcharges Act (pdf), of September 4, 2009, is intended to counter the July 2009 initiative, The Continuous Coverage Auto Insurance Discount Act, sponsored by CalFair and Mercury General Corp.

The historical background is as follows:

In 2004, Mercury sponsored SB 841, which codified the right to offer portable persistency discounts. In 2005, the Court of Appeal overturned SB 841, reasoning that the legislation did not further the purposes of Proposition 103. In July 2009, Mercury and CalFair sponsored an initiative for the 2010 ballot to permit insurers to offer portable persistency discounts, arguing that consumers benefit by this discount and that it encourages consumers to shop for the lowest rates.

Harvey Rosenfield argues that portable persistency punishes the uninsured. Smart’s California Insurance Report of July 15, 2009 refers to Michael Hiltzik’s July 2nd Los Angeles Times article, Mercury General using guise of benevolence to assault Prop. 103, that criticizes Mercury’s attempt to undermine Proposition 103’s ban on insurers from using the absence of prior coverage as a factor in rate setting. The article also asserts that previously uninsured motorists were charged higher premiums because they do not qualify for a discount, which, in turn, discourages them from purchasing insurance. 

The Stop Insurance Overcharges Act would also add other provisions to the Insurance Code that deal with installment fees, broker fees, the absence of prior insurance and precluding the use of claims experience. 

Proposed Section 1861.25 deals with installment fees and mandates that installment fees, including a fee for the time value of money, are premium. It further limits fees to the direct cost of collecting the installment payments. Comment: This would eliminate the ability to estimate a specific amount as the installment fee.

Proposed Section 1861.26(a) precludes the charging of a broker fee if the broker receives a commission from the insurer on the transaction.  It further requires that broker fees be fair and reasonable and not unfairly discriminatory. It requires the Commissioner to adopt regulations to establish broker fee limits. Comment: This section attempts to regulate broker fees that are not part of the rate and nullify AB 2956. AB 2956, which was unanimously passed by the legislature last year, clarifies the difference between agents and brokers by using the “totality of the circumstances” test coupled with the addition of disclosures to the consumer. 

Proposed Section 1861.27 establishes that any other amount that is billed to and paid by a policyholder constitutes premium and is subject to review and approval by the Commissioner. Comment: Harvey Rosenfield is expanding Proposition 103, which covers insurance rates, to cover all amounts paid by a policyholder. This would include all broker fees and fees charged when the broker does not receive a commission.

Proposed Section 1861.28 clarifies that the absence of prior insurance is not a criteria for auto and homeowners rates. Comment: This deals directly with the Mercury/CalFair initiative.

Finally, proposed Section 1861.29 maintains that except pursuant to Section 1861.02, an insurer may not include claims experience in determining rates, discounts or insurability. Comment: This is meant to address rating and insurability in homeowners insurance.

Contact Robert Hogeboom at (213) 614-7304 for more information.

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by Robert W. Hogeboom

On September 4, 2009, Harvey Rosenfield submitted the Stop Insurance Overcharges Act (pdf), a proposed state-wide ballot measure, to Attorney General Jerry Brown.

The initiative would:

• limit all insurance broker fees charged if brokers also receive a commission;
• mandate that all other fees, including installment fees billable to a policyholder, is premium subject to prior approval;
• seek to eliminate the absence of prior insurance as a criteria for automobile and homeowner rates or insurability;
• preclude use of claims experience in calculating discounts or surcharges for automobile insurance. 

We anticipate that insurers, managing general agents, brokers and trade associations will be establishing a strategy to contest the proposed initiative.

I look forward to your comments and/or thoughts regarding this significant issue as I will be coordinating our efforts to defeat this initiative. Please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com and/or (213) 614-7304.

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In Kearns v. Ford Motor Company, --- F.3d ----, 2009 WL 1578535 (9thCir. June 8, 2009), plaintiff William Kearn sued Ford for alleged violations of California’s Consumers Legal Remedies Act (“CLRA”) and California’s Unfair Competition Law (“UCL”) arising out of Ford’s Certified Pre-Owned (“CPO”) vehicle program. Kearn’s complaint generically alleged that Ford had made false and misleading statements concerning the safety and reliability of its CPO vehicles (without identifying who made the statements, the specific content of the statements, or when and how Kearn was exposed to such statements), and failed to disclose to consumers Ford’s lack of actual oversight in determining whether used vehicles qualify for the CPO program.  Kearn alleged that he was harmed by the foregoing conduct because he had paid a higher price for a CPO vehicle then he would have paid for a non-CPO vehicle, even though there was no difference between the two. While Kearn alleged that Ford’s conduct constitutes an unfair business practice under California law, he did not assert any claims for fraud in the complaint.

In the district court, Ford brought a motion to dismiss Kearn’s complaint for failure to comply with the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The district court granted the motion and Kearn appealed, principally arguing that Rule 9(b) does not apply to California’s consumer protection statutes because California courts have not applied Rule 9(b) to such statutes, and that Rule 9(b) does not apply to his CLRA and UCL claims because they are not grounded in fraud. 

In rejecting Kearn’s arguments, the Ninth Circuit held that it is well established that the Federal Rules of Civil Procedure – including Rule 9(b) – apply in federal court, “irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal.” The Court further noted that while a federal court examines state law to determine whether the elements of fraud have been sufficiently pled to state a cause of action, the Rule 9(b) requirement that fraud be pled with specificity is a federally imposed rule. The Court also held that, while fraud is not a necessary element of a claim under the CLRA or UCL, if the plaintiff nevertheless alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of the CLRA or UCL claim, the CLRA or UCL claim is considered to be “grounded in fraud” or sounding in fraud such that the complaint as a whole must satisfy the particularity requirement of Rule 9(b).

Get a copy of the opinion here.

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