Latest Updates to Media Liability Insurance in California

Hinshaw & Culbertson LLP partner James Castle recently enhanced and updated the chapter on Media Liability Insurance for LexisNexis' California Insurance Law & Practice. Cases discussed include:

For more information on Media Liability Insurance, please contact James Castle (email).

Latest Updates to the California Inurance Holding Company Act

Hinshaw & Culbertson LLP attorney Suh Choi has updated and enhanced Chapter 5, The California Insurance Holding Company Act, for the LexisNexis California Insurance Law & Practice treatise:

The latest update features a new section on "Divestiture of Control," that discusses the notice of proposed divestiture that any controlling insurer seeking to divest its controlling interest in that insurer must file with the Commissioner. The section describes how the Commissioner will deal with confidentiality concerns surrounding the notice. The new section also notes the possibility that the Commissioner may require parties seeking to divest control to file for formal approval of the transaction.

The revised chapter also features a new practice note as to the California Department of Insurance's requirements as to exhibits that must accompany the filing of Form A Information Statement when there are various acts that will, directly or indirectly, lead to a change in control of a domestic insurer or person controlling a domestic insurer.

Section 5.06[1] newly points out an exception to the exemption from registration granted an admitted foreign insurer whose domiciliary jurisdiction has disclosure requirements and standards that are substantially similar to California's requirements.

Section 5.06[8] newly discusses the annual enterprise risk report that must accompany registration statement.

A new practice note in the section discusses various online filing requirements through the California Department of Insurance's Online Assistance System for Insurers Submittals ("OASIS").

A new practice note discusses the Department's "safeguard" provisions with regard to agreements between a California insurer and an affiliate."

For more information on The California Insurance Holding Company Act, please contact Suh Choi (email).

New Chapter on Cyber-Security Insurance Authored by Hinshaw & Culbertson Partner

Hinshaw & Culbertson LLP partner Travis Wall recently authored the chapter on Cyber-Security Insurance for the LexisNexis' California Insurance Law & Practice treatise.

The chapter provides an introduction to common cyber incidents, such as data breaches, and addresses the different kinds of losses and liabilities that arise from these events.

This analysis includes a discussion of the legal and statuatory framework governing data breaches. The bulk of the chapter addresses potential coverage for cyber incidents under commercial general liability policies.

Despite recent trends, most case law in cyber context has involved traditional third-party liability insurance. Even though insurers and policy holders are shifting coverage for cyber risks away from traditional insurance into specialty policies, the prior case law is still instructive. These decisions influenced how insurers drafted cyber insurance policies. The case law also may inform how courts interpret particular provisions in specialty policies or endorsements. Thus, this chapter analyzes these pertinent court decisions. It assesses coverage provisions and exclusions under CGL Coverage A and B as applied to cyber incidents.

The chapter ends with a discussion of key characteristics of specialized cyber policies and emerging trends of coverage disputes in this area.

For more information on Cyber-Security Insurance, please contact Travis Wall (email).

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


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.  


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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Cyberattacks Push Companies to Specialty Insurance Policies

Travis Wall’s article Cyberattacks Push Companies to Specialty Insurance Policies says the window is closing for obtaining coverage for cyber attacks under traditional policies.

The article, published in The Recorder on May 23 says as insures refine coverage defenses and expand exclusions for cyber events, business will have to turn to specialty cyber policies for protection against data theft or loss.

Commercial general liability (CGL) policies have two basic coverage types. Coverage A addresses "property damage" and "bodily injury." Coverage B applies to "personal injury" offenses, such as publications that invade rights of privacy. Because data breaches typically do not involve property damage or bodily injury, policyholders rely primarily on the personal injury prong.

Among other requirements, personal injury coverage applies only to claims arising from a "publication" of information. Data theft through hacking does not appear to involve a "publication" as that term is commonly understood.

Courts will not presume a publication simply because a data loss occurred. In a recent case, tapes containing confidential employee information fell out of a delivery truck. An unknown person then retrieved them but there was no evidence that employee information was publicly disclosed or improperly used.

A Connecticut appellate court rejected the argument that the data loss, in and of itself, constituted a "publication." The mere potential for disclosure was not enough—there had to be evidence that confidential information on the tapes was actually published. See Recall Total Information Management Inc. v. Federal Ins. Co., 147 Conn. App. 450 (2014).

Read the full article at The Recorder.

Read more on this topic, please visit The Recorder (subscription required).

Use of cyberinsurance continues to grow

Travis Wall was extensively quoted in an article recently published in Dell’s Tech Page One about the growing use of cyberinsurance among companies. According to an August 2013 Ponemon Institute report, 76 percent of companies believed cyberthreats represented the biggest danger to their sustainability.  

According to Wall, few companies appreciate the actual time and costs involved in responding to a data breach.

Without a cyberpolicy, companies have no protection against damages related to these risks,” says Travis R. Wall, a partner at Barger & Wolen LLP, a San Francisco-based insurance law firm and the founder of the firm’s Cyber Risk and Technology Group. “The costs can be significant for both large and small companies.”

The article goes on to discuss misconceptions small and large companies have with regard to cybersecurity issues as well as the varying cost of cyberinsurance.

Companies should weigh their needs carefully before deciding on the appropriate coverage. Insurers offer a variety of [coverage options], but not all are relevant to all companies,” Wall says.

Companies should ensure they can address their “minimum” requirements, Wall says. “All companies should have data security insurance covering the loss or theft of employees’ or consumers’ personal information,” he says. “In general, cyberpolicies exclude coverage for losses arising from an insured’s fraudulent or dishonest acts or from willful violations of laws or statutes.

For more information on Barger & Wolen's Cyber Risk & Technology practice, please contact Travis Wall.

Insurers Will Take Lead On Oil Rail Transport Safety Push

David McMahon was quoted in a Jan. 23, 2014, Law360 article, Insurers Will Take Lead On Oil Rail Transport Safety Push, about how a series of fiery derailments of trains carrying crude oil have not only led lawmakers to consider new rules, but also could push insurers to take action, forcing the oil and rail industry to improve safety to cut down on underwriting costs.

According to the article, rail transport of crude oil has grown significantly in recent years with the U.S. energy boom. Three recent crashes have highlighted safety problems: a Dec. 30, 2013, collision near Casselton, N.D.; a November derailment in rural Alabama; and a derailment in Lac-Megantic, Quebec in July. That accident set off massive blasts, destroyed part of the town and killed 47 people.

There was a real concern about the condition of the railroad’s assets in [the] Alabama [crash]. You might see carriers put inspection requirements on their own assets before writing the coverage,” McMahon said. “The carrier doesn’t want to write coverage where the assets of the railroad are dilapidated and haven’t been maintained.”

McMahon told the publication that the crashes and the resulting push for tougher rules governing the transport of oil by rail could lead insurers to limit what they are willing to underwrite.

You can see them saying, 'We’re not going to give you a blank check and allow you to carry 100 tanker cars with oil. We’re going to limit it to 40 to 50 cars,’” he said. “Or there could be outright exclusions of some particular activities.”

McMahon said insurers will not doubt embrace whatever rules regulators and lawmakers enact to improve safety.

The tighter the regulations are ... it can result in a safer environment, which insurers like,” he said. “They like things they can effectively evaluate — the safer it is, it tends to be safer to insure.”


Title Insurance

Barger & Wolen's James Hazlehurst recently updated Chapter 39 of the California Insurance Law & Practice, Title Insurance

The chapter features many new practice tips on such diverse matters such as:

  • Filing for litigation despite the equitable tolling rule;
  • Tolling agreements;
  • The notice-prejudice rule;
  • Quiet title actions;
  • The trigger of tripartite relationships;
  • The attorney-client privilege;
  • Attorney claims adjusters;
  • Informal representations about the status of title;
  • Bad faith actions;
  • Undisclosed liens or encumbrances;
  • Failure to file an amended title report;
  • Posting collateral for an indemnification agreement;
  • Access to property rights and the title report;
  • Equitable subrogation; and
  • "Hand-crafted" endorsements.


Homeowners and Related Policies

Barger & Wolen recently updated Chapter 36 of the California Insurance Law & Practice, Homeowners and Related Policies

The chapter revisions include:

  • Trigger of coverage rules;
  • Triggering first-party coverage vs. third-party coverage;
  • Continuing or progressive damage issues;
  • The known loss rule;
  • Recission of the policy;
  • The Residential Property Insurance Bill of Rights; and,
  • Personal property coverage and exclusions.

In addition, there are 28 new practice tips covering a wide range of issues attorneys may confront in regard to homeowners insurance and reports of several court decisions on point.


Claims Handling and the Duty of Good Faith

Barger & Wolen partners Gregory Eisenreich and John  Holmes recently updated Chapter 13 of the California Insurance Law & Practice, Claims Handling and the Duty of Good Faith

The chapter revisions include:

  • The nature and scope of the insured’s duty of good faith;
  • General principles of bad faith actions;
  • The duration of the implied covenant extending from the policy’s inception and remaining in force during litigation;
  • Insured may impact their rights under their policies if they do not comply with policy conditions;
  • The burden of proving in bad faith actions that policy benefits were wrongfully withheld;
  • The use of litigation conduct and settlement offers to prove that policy benefits were wrongfully withheld;
  • Standards for finding bad faith and awarding punitive damages contrasted;
  • Tort damages are not available for an insurer’s breach of an obligation unrelated to claim handing, and
  • An insurer found liable to its insured based on estoppel rather than the contract’s terms of coverage cannot be liable for tortuous bad faith.


Insurance Cases To Watch In 2014

Larry Golub was recently quoted in an article by Law360, Insurance Cases to Watch in 2014 (subscription required), detailing what is expects will be the biggest insurance cases decided in 2014.

Golub's comments pertained to Fluor Corp. v. Superior Court of Orange County. The California Supreme Court agreed to take up the case this year, reconsidering its 2003 ruling in Henkel Corp. v. Hartford.

The Henkel ruling limits the circumstances under which policyholders can transfer insurance rights without an insurer's permission, allowing transfers “only if a loss has already been reduced to a sum of money due under the policy as a result of a settlement or judgment.”

The Fluor case argues that when it ruled in Henkel, the court ignored an 1872 statute which allows companies to freely assign their rights under insurance policies following a loss.

Golub told Law360 that the court's ruling in Fluor could be key given that there have been an increasing number of mergers and acquisitions and that it would provide certainty for both insurers and policyholders.

“The supreme court will reconsider the issue in light of this 1872 statute and hopefully draw a bright line, so parties know which way to go,” he said.


Barger & Wolen Partners Author "Insurance Practices and Coverage in Liability Defense"

Barger & Wolen partners David McMahon, Robert Levy and John (Jack) Pierce authored the second edition of Insurance Practices and Coverage in Liability Defense (formerly Defending the Insured). 

Intended for legal practitioners, researchers, courts, and other insurance industry professionals, the book provides the first comprehensive and objective analysis of the various duties and potential pitfalls confronting each party in a three-way relationship between insurance carrier, insured, and the appointed counsel in insurance defense.

Through national study and state-specific analysis, the book offers a detailed discussion of topics engendered by the duty to defend and the consequent obligations of each of the parties. Reference tables and appendices then survey the law in each state on those topics.

Our approach to writing this book was to provide our unique perspectives from our day-to-day knowledge of the laws and our industry experiences through our firm’s insurance defense practice,” said David McMahon. “We are confident it will be a valuable resource to the legal and insurance industries.”

David McMahon, the Managing Partner in Barger & Wolen's San Francisco office, is a co-editor of the firm’s Litigation Management & Attorney Fee Analysis blog, and a California State Chair for the Council on Litigation Management.

Jack Pierce is a nationally recognized author and an expert witness in the areas of legal fee disputes, fee and cost allocation, legal ethics, and issues related to legal and ethical responsibilities of lawyers that arise from the tripartite relationship between insurers, insureds and defense counsel.

Robert Levy is a frequent author and has more than 33 years of experience encompassing coverage and defense litigation on behalf of major commercial general liability and professional liability insurers throughout the United States

Insurance Practices and Coverage in Liability Defense, Second Edition, published by Wolters Kluwer Law & Business is available for purchase through Wolters Kluwer website here.

Genuine Dispute Doctrine Precludes Bad Faith Claim Reaffirmed by District Court

Barger & Wolen LLP Secures Summary Judgment On Behalf of Client

District Court Reaffirms “Genuine Dispute Doctrine,” Precludes Bad Faith Claim

LOS ANGELES –On November 29, 2013, United States District Court Judge Margaret M. Morrow granted summary judgment to Barger & Wolen LLP client Mitsui Sumitomo Insurance Company of America in Lucky Leather Inc. v. Mitsui Sumitomo (Case No. CV12-09510-MMM).  Lead attorneys Stephen Klein and Peter Sindhuphak were successful in convincing the Court that the insured had failed to raise a triable issue that benefits under the Mitsui Sumitomo policy were owed. 

The Court found that not only did plaintiff fail to produce evidence that the claimed loss of leather goods from water damage was covered, but that the insurer’s reasonableness in the claims-handling process was indisputable,” says Klein, a partner in the firm’s Los Angeles office. “Under the “genuine dispute” doctrine, absent any evidence that the insurer’s coverage determination was unreasonable, the insurer was not in violation of the covenant of good faith and fair dealing.”

Judge Morrow’s decision relies upon both state and federal California cases allowing a trial court to conclude, as a matter of law that an insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer’s liability at the time the claim decision was made. 

The Genuine Dispute Doctrine is designed for cases like this where there was clear evidence that the insurer’s coverage determination was based on a thorough investigation of the claim and its actions in concluding that there was no coverage were indisputably reasonable given the facts and the policy language,” said Stephen Klein.


Companies Increasingly Look To Captive Insurance

David McMahon and Peter Felsenfeld’s article, Companies Increasingly Look To Captive Insurance, takes a look at the captive insurance market and how more and more companies have been choosing it as an alternative to traditional risk management.

According to McMahon and Felsenfeld, the captive works as a private in-house insurer that is wholly owned by the parent company. The company pay the captive premiums but the parent company keeps its capital if claims are less than premiums. At the same time, the company pays the difference if the opposite happens.

As reported by the authors, captive self-insurance now comes in a variety of forms, such as trade association and group captives. Some industry experts estimate that roughy 90 percent of Fortune 1000 companies use captive insurance while 60 percent of mid-sized companies take advantage of some form of captive structure. A majority of states now also allow for licensing of captive insurers under equally advantageous conditions.

Among the numerous benefits of forming a captive are increased control over the risk management process, reduced costs and greater underwriting flexibility, McMahon and Felsenfeld wrote. Even so, there are risks and they aren't for everyone.

A company must carefully assess its unique risk management characteristics before plunging into the captive market. Captives, for example, can be costly to maintain and may be more complicated than the standard insurance contract,” the authors wrote. “Also, captives are generally more appropriate for businesses with recurring, predictable risks, such as slip and falls, construction accidents and auto claims. A business with more varied, unpredictable risks may want to stick with the more predictable insurance model.”


California Court Releases Insurers From Strict Duty To Settle

Larry Golub was quoted in an October 23, 2013, article published by Law360 about a California appeals court decision, Paul Reid v. Mercury Insurance Co., which held that insurers generally don’t have to launch settlement discussions with those injured by their policyholders in high stakes cases, freeing insurers from the greater bad faith liability.

This ruling put to bed confusion that was stirred up by the Ninth Circuit's ruling in Du v. Allstate Insurance Co. which said California insurers must proactively work toward a settlement when it's clear that the policyholder is liable, even if claimants have not made a settlement demand.

Golub told Law360 that it would have been helpful for the appeals court to rule that claimants must make a formal settlement demand before insurers have a duty to settle.

Insurance companies often hold off on responding to claimants' requests for policy limits because they need more information, especially in cases where there are multiple injured parties and there is little insurance available, Golub said.

He explained that an explicit rule requiring formal settlement demands would ensure that all parties act in good faith.

There should be a bright line rule because there are going to be disputes," Golub said. “It's easy for the insured or the insured's attorney to make a settlement demand formally, and there's no question."

For more information on the decision, see this blog's discussion No Settlement Offer, No Bad Faith Liability for Insurer.

Reasoning Behind Punitive Damages Calculations Provided By California Appellate Court

Royal Oakes was quoted extensively in an Oct. 7, 2013, Claims Journal article, California Court Of Appeals Decision Provides Reasoning Behind Punitive Damages Calculations, about a significant insurance case where $19 million in punitive damages were awarded, then later shot down by the California Court of Appeals, which found the verdict excessive. The court capped the award at $350,000.

The case, Nickerson v. Stonebridge Life Ins. Co., involved a former Marine who sought payment for 109 days in the hospital due to a fall after his insurance company concluded that only 19 of the days were medically necessary. The jury awarded him $35,000 for emotional distress and $19 million in punitive damages.

Oakes told the publication that traditionally the way in which punitive damages have been calculated has varied.

“For years the appellate courts have been trying to interpret the various pronouncements by the U.S. Supreme Court about the issue of the size of punitive damages and specifically, the ratio of punitive damages to compensatory damages. The reason it has been a bit of a struggle on occasion is because of the high court and the appellate courts, in general, are not prepared to impose a strict bright line test, limiting punitive damages to a single digit ratio,” Oakes said.

“Having said that, this new case is one of many cases that have come very close to seeing that, in the absence of exceptionally reprehensible conduct, then it is a due process violation to exceed a ratio of 9 or 10 to 1. In fact, many appellate courts have suggested that far smaller ratios are appropriate in virtually all cases.”

Oakes also said that the decision is significant to insurers because it doesn’t include breach-of-contract damages.

“The significance of this decision is to reinforce the idea that though evidence of reprehensible conduct may have been found by a jury; nonetheless, it is almost impossible for an appellate court to find that a ratio of more than 10 to 1 between punitives and the compensatory damages satisfies constitutional due process requirements. There’s another very significant and separate aspect to this decision. When you figure out how much compensatory damages exist in order to come up with the punitives to compensatory ratio, do you have to decide what components of damages should be included in compensatory damages? This new Nickerson case reaffirms the idea that in computing compensatory damages, you do not include breach of contract damages. Instead, you only include damages for torts, such as bad faith and emotional distress,” he said.

According to Oakes, in Nickerson the court concluded that in determining compensatory damages, “for purposes of computing a ratio between punitive and compensatory, you do not include the breach of contract damages.

 “The reason for that is that punitive damages relate to tortuous conduct. You don’t get punitive for a breach of contract. You might get punitive for tort, depending on the tort and depending on whether the punitive damage standard is met, such as malice, oppression or fraud. And so, this case is an important reminder that in computing compensatory damages for purposes of arriving at a ratio between punitives and compensatory you exclude breach of contract damages and you include tort damages,” he said.

In general, if a contract is breached and the party who breached it is sued, damages are limited to contractor damages, the article notes.

“However, years ago, the courts decided that because of the special relationship between a policy holder and an insurance company that if a policyholder is suing for breach of contract and can also go beyond that and prove additional conduct such as bad faith or emotional distress then the policy holder is entitled to try to assert those causes of action,” Oakes said.

Oakes also told the Claims Journal that there have been several court decisions that have come close to saying it’s a due process violation to exceed the ratio of 9 or 10 to 1 between punitive and compensatory damages.

“I think that we have been moving in the direction of a bright line test limiting punitive damages to a single digit ratio. It may be that because every case is different and you occasionally see cases that suggest an extreme level of reprehensibility, there will continue to be a reluctance to impose a bright line test,” Oakes said.

Health Insurer Again Evades TCPA Suit Over Jobs Calls

Larry Golub was quoted in an Aug. 14, 2013, Law360 article, Health Insurer Again Evades TCPA Suit Over Jobs Calls, about the dismissal of a case against United American Insurance Co. alleging that the insurance company's prerecorded telephone calls advertising job openings violated the Telephone Consumer Protection Act.

Golub is one of the attorneys representing United American in Jordan Friedman v. Torchmark Corp. et al., a putative class action which claimed that the company was engaging in unsolicited advertising.

On Aug. 13, a judge tossed the suit ruling that the plaintiff had not stated an actionable claim. The plaintiff Jordan Friedman alleged that the recorded messages were actually an attempt by the company to encourage people to invest in its brokerage services, an argument that the court rejected. The court instead found that the messages were not intended to sell goods, but rather to inform recipients of an independent contractor position.

The court found this didn’t change the basic nature of what the alleged telephone call was,” Golub told the publication.

Barger & Wolen partners Kent Keller and Larry Golub represented United American Insurance Company in this action.

Fingers Point to Different Defendants in Asiana Airlines Plane Crash

David McMahon, who represents insurers in litigation resulting from natural disasters and product liability lawsuits against the airline and cruise industry, was interviewed for an Aug. 6, 2013, Claims Journal article, Fingers Point to Different Defendants in Asiana Airlines Plane Crash, about the crash of Asiana Airlines Flight 214 and the different types of lawsuits resulting from it. McMahon told the publication that the Montreal Convention might limit the number of lawsuits that come out of the July 6 crash in San Francisco.

The Montreal Convention of 1999, among other things, prevents people “from filing a lawsuit in the United States if their final destination was outside of the country,” McMahon said. As such, if there were passengers on the flight who had round-trip tickets to South Korea, they would be prohibited from suing the airline in the U.S.

Under the Montreal Convention, I think what it’s designed to do is to give jurisdiction to the countries where someone is departing on a flight and ends up there. It makes sure that the place where the ticket was purchased and negotiated; the rules of that country apply to compensating the victims. In many countries, that kind of deprives the plaintiffs of a remedy, because very few countries have a tort system that is as advantageous as the tort system in the United States,” he said.

While the Montreal Convention may protect the airlines, it doesn't insulate the aircraft or aircraft part manufacturers from lawsuits, McMahon noted. One such suit has already been filed against Boeing by Asiana crash victims in Chicago. Lawyers for two other passengers on the plane have taken yet another approach, filing a lawsuit alleging that the flight crew were grossly negligent and reckless in their handling of the flight.

They sued Asiana in the United States district court for the Northern District of California. I think that there is likely jurisdiction here, and this would be at least one of the proper venues. They squarely bring their lawsuit under the Montreal Convention,” McMahon said of the suit. “Now, one of the other facets of the Montreal Convention is that it provides a damage limitation cap. That cap is about $150,000 for physical damages, unless the airline can show that the incident was not due to their negligence. Then they have a second cause of action for gross negligence. I think that would be designed to blow the potential cap on liability. Then they have a third cause of action for loss of consortium.”

McMahon told the publication that Asiana had roughly $2.2 billion in insurance coverage for liability, about $3 million more for the crew and roughly $130 million coverage for the plane itself. Because the plane hit a seawall, the City and County of San Francisco will likely submit a claim with its carrier who will cover the replacement cost or the cost minus depreciation.

That carrier, then, would pursue Asiana or Boeing, or both, for those claims,” McMahon said. “That’s a good example of an easy subrogation claim. Any of these carriers that end up paying will likely pursue additional claims against the party that’s predominantly culpable. A lot will be determined from the National Transportation Safety Board investigation and from discovery in the case.”

McMahon also predicted the lawsuits would take at least two years to get resolved.

Typically, in situations like this, most of the victims who are seriously hurt, there’s going to be settlements of those. The initial facts are suggesting that this didn’t happen without negligence. I mean, the pilots themselves and everything that’s pointing to them indicates negligence, if not gross negligence. One would think that the defense lawyers that get involved in this would start focusing on the amount of damages relatively quickly, just like in any big disaster like this. Three people were killed, so those would be the highest‑value claims. There are a lot of lower‑extremity and spinal‑injury claims because the plane spun on its wings and really slammed into the runway. Then, people that were more in the forward section of the plane, who weren’t that seriously injured. One would think that they would try to get the easier claims out of the way and then focus on the damages,” he said.

While it typically takes 12 to 18 months, the National Transportation Safety Board is attempting to complete its report in less than a year, according to McMahon.

“Obviously, the plaintiff’s lawyers will be very interested in getting that report,” he said.


Zhang Ruling Yanks Insurer Shield Against UCL Claims

Larry Golub was quoted in an Aug. 2, 2013, Law360 article, Zhang Ruling Yanks Insurer Shield Against UCL Claims, (subscription required) about the California Supreme Court's ruling which found that consumers can accuse insurance companies of violations of California's unfair competition law.

Some court watchers believe the ruling could invite more class actions and give plaintiffs a new means of obtaining premium refunds, injunctions and attorneys' fees.

The ruling against California Capital Insurance Co. could also motivate attorneys to add unfair competition claims to breach-of-contract and bad faith claim lawsuits against insurers, the article said.

Although violators of the unfair competition law can be forced to pay restitution and potentially attorneys' fees, doing so is not an easy task, according to Golub. Policyholders would have to demonstrate that they had done something significant for the public interest.

“In the run-of-the-mill bad-faith case, I don't think you're going to be able to establish that just because you fought an insurance company, you've done something for the public good,” he said.

Mr. Golub recently reviewed the Zhang decision on this blog, California Supreme Court Finally Decides How a UCL Claim and First Party Bad Faith Claim Can Co-Exist.

Barger & Wolen partner skeptical that Zhang will increase suits against insurers

Larry Golub was quoted in an August 2, 2013, Daily Journal article, High Court Sides with Consumers Against Insurance Industry, (subscription required) about two recent decisions by the California Supreme Court that increase the circumstances under with consumers can sue insurance carriers, banks and other companies for unfair business practices.

The two cases, Zhang v. Superior Court of San Bernardino County and Rose v. Bank of America involve the Unfair Competition Law. Zhang says that private citizens can sue insurance companies over the way they handle claims while Rose says that federal law can serve as the basis for an unfair competition action in state court.

Some court watchers believe the rulings will lead to a new practice area for plaintiffs lawyers intent on filing unfair competition claims while others predicted it would simply prompt lawyers to add unfair competition claims to existing lawsuits.

Golub, who represents insurance companies, was skeptical that there would be a big change.

“I don't know if you are going to see more lawsuits,” he told the paper.

Mr. Golub recently reviewed the Zhang decision on this blog, California Supreme Court Finally Decides How a UCL Claim and First Party Bad Faith Claim Can Co-Exist.


Asiana Flight 214 Victims' Lawsuit Amounts Will Vary Widely

David McMahon was quoted in a July 28, 2013, San Jose Mercury News article, Asiana Flight 214 Victims' Lawsuit Amounts Will Vary Widely, about the Asiana Flight 214 plane crash and how, thanks to a treaty governing international airline accidents, American passengers stand to receive much more money in compensation for their injuries than those from China and South Korea.

While the American passengers can sue Asiana in the U.S., most non-U.S. plaintiffs can only sue in China or Korea. Three Chinese teenagers died and 182 other passengers were injured when the plane crashed landed in San Francisco on July 6.

To help bridge the wide gap, a number of foreign passengers injured in the accident are expected to sue the plane's manufacturer, Chicago-based Boeing Co. Even so, the newspaper notes, the most they could expect to received is $135,000.

On the other hand, an American passenger seriously injured in the crash who sues Asiana in U.S. court could be looking at “a pretty big number – many millions of dollars,” McMahon said.


Could Medpay Be The Latest Target In California Bad Faith Claims?

Marina Karvelas was quoted in a July 18, 2013, article published by Claims Journal, Could Medpay Be The Latest Target In California Bad Faith Claims, about a recent appeals court decision in California dealing with bad faith claims related to medical payments coverage.

The case, Justin Barnes v. Western Heritage Insurance Company, involved a plaintiff who was injured at 11 years old when a table fell on his back during a recreational program. A superior court found that the plaintiff could not sue the recreational program provider's insurance for bad faith for denying him coverage in part because the plaintiff had already settled a suit against the program provider. The appeals court reversed the trial court's decision.

Karvelas told the Claims Journal that she thought the decision could increase bad faith claims relating to medical payments coverage if the decision survives scrutiny by the California Supreme Court.

The Barnes decision muddies the waters on the collateral source rule which up until this decision was fairly clear in California,” she said. “An insurance policy taken out and maintained by the alleged wrongdoer, including its medpay provisions, is not wholly independent of him/her and thus cannot be considered to be a collateral source.

“Stated simply, the injured plaintiff cannot recover against the tortfeasor under the liability provisions of the tortfeasor’s insurance policy and then sue the insurance company under the medpay provision of that same policy. The Barnes court concluded differently. The medpay provision in a tortfeasor’s liability policy can be construed as a collateral source. As a third party beneficiary of the medpay provisions, all the injured plaintiff has to do is allege the insurance company committed a wrongful act against him/her when handling the medpay claim. In Barnes, Western Heritage allegedly failed to notify the injured plaintiff of the one-year time limit to present medpay claims. The alleged failure violated California’s regulations governing the fair settlement of claims,” Karvelas said. “The Barnes decision is problematic for insurers not only with respect to the collateral source rule but reflects an ever increasing effort by California’s plaintiff’s bar to create private rights of action for violation of the fair claims settlement regulations.”

Karvelas also told the publication that policy changes to medical payments coverage may be looming.

“It may behoove insurers to add provisions to their liability policies that the Barnes court found were missing in the policy at issue. These would include provisions that reflect an intent that payment under the liability provisions of the policy extinguishes the insurer’s obligation under the medpay provisions of that same policy,” Karvelas said.

Originally posted to Barger & Wolen's Life, Health & Disability Insurance Law blog.

5 Tips for Attorneys Turned Claims Investigators

Larry Golub was quoted in a May 31, 2013, article, 5 Tips for Attorneys Turned Claims Investigators (subs. req.) published on about the risks associated with lawyers stepping into the role of claims handler. The article also offered suggestions on what lawyers can do to make sure they protect themselves.

The article suggests that lawyers should know their boundaries, not assume that their communications are privileged and should educate staff that emails, letters and other communications may not be subject to attorney-client privilege.

Golub also told the publication that outside counsel should avoid making decisions about coverage and focus on providing advice.

The actual claims decisions should be made by the claims adjuster,” he said.

Golub added that outside counsel should avoid assuming any claims handling functions because their communications may become discoverable.

Most outside counsel, I would think would not want to be in that role,” he said. “The attorney-client privilege should not be waived unless there's an intentional determination to waive it.”


Barger & Wolen Insurance Regulatory Attorneys Guide Insurer Through Demutualization, Acquisition

Barger & Wolen partner Robert Hogeboom was quoted in an article published on on April 18, 2013, California Regulators Guide Insurer Through Demutualization, Acquisition, in regards to a recent deal he and Dennis Quinn worked on to help shore up a troubled homeowner's insurer through a mutual-to-stock conversion.

Hogeboom told the paper it was the first demutualization in California since 1997 and that the deal in which Merced Mutual Insurance Company was acquired by United Heritage Financial Group of Meridian, Idaho took 15 months. According to Hogeboom, a key component of the agreement was that it allowed regulators to keep the company in California.

For the deal to be attractive to both Merced members and United Heritage, the members had to receive from United Heritage more cash for their equity in Merced than the statute would allow Merced to pay,” he said. “In this case, the money came from a third party, leaving the capital and surplus in Merced.”

According to Hogeboom, Merced has been struggling financially because of the recession and housing bust, with led to foreclosures in a number of homes it insured. He estimated that the company had lost between a third and 40 percent of its business.

Hogeboom told the publication that Merced was looking for a company that specialized in auto so it could expand its offerings and would not have to rely as heavily on homeowner's insurance.

When you can offer both, you can sell both at a lower rate,” he said. “They were getting hurt because they couldn’t offer auto, and they didn’t have the resources or the expertise to start an auto company de novo.”


Barger & Wolen Completes First California Demutualization Since 1997

On March 27th, 2013, Barger & Wolen partners Robert Hogeboom and Dennis Quinn received consent from California Insurance Commissioner Dave Jones for the conversion of Merced Mutual Insurance Company (Merced) from a mutual insurer to a stock insurer. The demutualization was California’s first since 1997 and its first property and casualty demutualization since 1985. 

The transaction was a sponsored demutualization that also required that the California Department of Insurance (CDI) provide Form A consent to the acquisition of Merced by United Heritage Financial Group, Inc. of Meridian, Idaho, (United Heritage) and an amendment of the company’s certificate of authority to change its name to “Merced Property & Casualty Company” and to add automobile as a new class of insurance. Merced, which was formed in 1906 and maintains its headquarters in Atwater, California, formerly specialized in the sale of homeowners and residential property insurance, will begin offering automobile insurance products.

The Form A consent order issued by the CDI allowed United Heritage to acquire over 94% of Merced’s stock. United Heritage owns three other insurers that are domiciled in Idaho and Oregon. Merced is the United Heritage group's first California domiciled subsidiary insurer.

The Plan of Conversion (Plan) involved a lengthy approval process with the CDI and included both a CDI public hearing on the application and a special meeting of the policyholders to approve the Plan. 

The Plan became effective on April 1 upon recording of Merced's new articles of incorporation converting it to a stock insurer.

Don Duran, President and CEO of Merced, engineered the demutualization and acquisition with United Heritage President and CEO, Dennis Johnson, in order to partner with a well capitalized insurance group that shared Merced’s mutual insurance company culture and possessed expertise in underwriting auto insurance. The sale of auto and packaged products is expected to complement Merced's existing homeowners line to further serve California's Central Valley.

Hogeboom, who over the span of 30 years has formed and worked on the acquisition of numerous insurers, described the sponsored demutualization as being the most complicated of all of the transactions that he has completed. Dennis Quinn, who specializes in corporate and regulatory transactions, worked on the securities aspects of the Plan and the drafting of its major documents. Hogeboom notes that CDI senior staff, John Finston, Al Bottalico, James Holmes and Jon Tomashoff were instrumental in bringing the plan to completion.

United Heritage Press Release


When a Cruise Goes Off Course

Carnival Cruise Line’s Fascination vessel lost power while at sea on June 30th, 2010 with over 2000 passengers.David McMahon and Jack Pierce authored a column, When a Cruise Goes Off Course, that ran in the Claims Journal on Feb. 27, 2013, about the insurance coverage ramifications of the Carnival Triumph cruise ship saga that left passengers stranded without power or plumbing for days.

A class action was filed just one day after the ship was towed back to port alleging that conditions aboard the ship, which resulted from a fire in the engine room, caused severe “risk of injury or illness,” and that company officials should have known that the ship's systems could fail based on prior problems with the vessel.

In their column, McMahon and Pierce look at the unique liability and insurance issues surrounding the cruise ship fiasco and property and business interruption claims that may arise from it. The authors also note that Carnival's liability exposure under the facts alleged in the class action “does not seem extensive, particularly when compared to other recent cruise line accidents involving serious personal injuries and loss of life.”

The largest insurance claim Carnival is likely to seek, the authors wrote, involves the business interruption loss the company experienced.

This could be significant,” McMahon and Pierce wrote. “Not only did Carnival lose revenue for the cruise at issue, but the damaged vessel will likely be out of service for the foreseeable future, resulting in lostrevenue that the ship would have otherwise generated. The U.S. Coast Guard, and perhaps other agencies as well, can be expected to conduct potentially lengthy investigations into the cause of the engine room fire. The engines will have to be repaired and the vessel thoroughly cleaned and scrubbed prior to the next voyage, which may be a long time down the road.”


Sewage Cruise Suits Least of Carnival's Coverage Worries

Jack Pierce was quoted in a recent Law360 article, Sewage Cruise Suits Least Of Carnival's Coverage Worries (subscription req.), about Carnival Cruise Lines' recent troubles stemming from a fire aboard one of its ships. According to the article, published Feb. 19, the cruise line's biggest woes won't come from the suits filed by passengers who were stranded for five days aboard the Triumph, but rather from the business interruption.

Pierce told the publication that the Carnival's largest insurance claim would stem from the loss of use of Triumph as the result of an engine fire that knocked out power aboard the ship, leaving passengers without running water and working toilets.

There was a pretty significant fire in the engine room. It sounds to me like the sewage processing system is going to have to be significantly overhauled. The vessel is going to be cleaned,” he said. “There's a lot of work to be done on this vessel. I don't see it sailing for a couple of months, and that's a significant loss of use claim.”

The company paid refunds to the passengers, covered hotel rooms and cancelled 14 voyages through April 13, expenses that may be covered depending on the company's agreement with its protection and indemnity club, the article said. Piece told Law360 that coverage under those policies is fairly straightforward.

The owners of the club are the actual ship owner members. They're generally fairly generous with the cover,” Pierce said. “It's not like a domestic insurance company, which may dispute coverage and say 'I'm sorry, that type of claim is not covered.' There may be fine points that are disputed, but club managers are always willing to negotiate with one of the club's members.”

Winning Insurers Gain Clarity on Defense Duty During Appeals

Larry Golub was quoted in a Feb. 13, 2013, article by Law360, Winning Insurers Gain Clarity on Defense Duty During Appeals (subscription req.), about a recent federal court decision that found an insurer had not violated its contract when it ceased defending a policyholder after a trial court win on coverage, despite the fact that the victory was later overturned. The case is National Union Fire Insurance Co. of Pittsburgh, Pa., et al. v. Seagate Technology Inc.

Golub told the publication that carriers will sometimes continue to defend their policyholders after winning at the trial court level if a coverage win doesn't appear to be strong enough to survive an appeal. The reason is that they could end up paying high interest on defense costs they might ultimately owe, he said.

Maybe they should play it safe and just keep defending under a reservation of rights and ensure that they don't have ultimate exposure,” Golub said.

Golub also noted that if other courts agree with the decision, insurers who have won temporary victories will not have to face bad faith claims or punitive damages.


Canon Ruling May Spur Unfair Competition Claims In Calif.

Law360 quoted Larry Golub in a Jan. 24, 2013, article, Canon Ruling May Spur Unfair Competition Claims in Calif (subscription req.), about the California Supreme Court's ruling in Jamshid Aryeh v. Canon Business Solutions Inc.

The ruling, which is expected to spark similar cases, held that equitable tolling doctrines apply to claims brought under California's Unfair Competition Law.

Golub told Law360 that the ruling could encourage more plaintiffs to bring Unfair Competition Law claims against California businesses.

The decision opens up a limited door to avoiding the statute of limitations for UCL claims that involve a continuing or recurring business practice,” Golub said. “Plaintiffs bringing UCL claims in the future will try to characterize claims as a continuous practice to try to fall within the Aryeh rule.”

Click here to read Mr. Golub’s full analysis of the case.


California Supreme Court Allows "Continuous Accrual" Doctrine to Avoid Statute of Limitations for "Unfair" UCL Claim

Seeking to clarify the extent to which the four-year statute of limitations applies to claims under the Unfair Competition Law, Business & Professions Code section 17200 et seq. (the “UCL”), a unanimous California Supreme Court today issued its decision in Aryeh v. Canon Business Solutions, Inc., allowing at least a portion of the plaintiff’s UCL claim to proceed beyond demurrer.

Relying on the continuous accrual doctrine, the Court explained that this equitable exception to the usual rules governing limitations periods would permit the plaintiff to pursue:

at least some [alleged unfair] acts within the four years preceding suit, [and thus] the suit is not entirely time-barred.”


The plaintiff ran a copying business and entered into two agreements with Canon (one in November 2001 and one in February 2002) to lease copiers. The agreements required the plaintiff to pay monthly rent for each copier, subject to a maximum copy allowance. If plaintiff exceeded the monthly allowance, he had to pay an additional per copy charge. The agreements also provided that Canon would service the copiers. 

Beginning in 2002, plaintiff noticed discrepancies between meter readings taken by Canon employees and the actual number of copies made on each copier, and he began compiling independent records. Plaintiff alleged that Canon employees had run thousands of test copies during 17 service visits between February 2002 and November 2004, which he claimed resulted in him exceeding his monthly allowances and having to pay excess copy charges and fees to Canon.

Plaintiff delayed until January 2008 before he filed a single-claim complaint for violation of the UCL. In that complaint, plaintiff alleged that Canon’s practice of charging for test copies implicated both the unfair and fraudulent prong of the UCL.

Canon demurred to the complaint, contending that plaintiff’s claim was barred by the four-year statute of limitations for UCL claims. After permitting plaintiff leave to amend the complaint two times, the trial court dismissed the action. The Court of Appeal, in a 2-1 decision, affirmed the dismissal and held that neither the “delayed discovery” rule nor the “continuing violation doctrine” applied to avoid the statute of limitations. The dissenting opinion would have allowed plaintiff to proceed with a portion of his claim under the “continuous accrual” theory for those parts of the claim that were not time-barred.

Supreme Court Decision

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Insurance Cases to Watch in 2013

Larry Golub was quoted in a Jan. 1, 2013, article published on Law360, Insurance Cases to Watch in 2013 (subscription required) about key insurance cases lawyers, and those in the insurance industry, should keep an eye out for in 2013. Among other things, the article mentioned litigation filed over Hurricane Sandy losses, cyber liability claims and a much-anticipated California Supreme Court ruling on whether the state's unfair competition law can be used to accuse insurance companies of bad faith.

Golub's comments dealt with that case before the California Supreme Court, Zhang v. The Superior Court of San Bernardino County, which will decide whether policyholders can sue insurers for misrepresentation and false advertising for not promptly paying claims.

Golub told the publication that the state's courts have been split on the issue although insurers insist that Zhang is at odds with the California Supreme Court's decision in a 1988 case prohibiting private rights of action for violations of the Unfair Insurance Practices Act.

Prior to that ruling, insurance companies raised rates fearing they would be hit with private lawsuits brought under that law, a pattern that could repeat itself depending on what the Supreme Court decides, Golub said. The state's unfair competition law allows for restitution but not damages.

The remedies may be limited, but the breadth of the statute is very broad,” he said. “Since there are so many cases coming out on both sides of the issue, it's one that demands resolution.”

California Supreme Court's Reconsideration of Henkel Decision Will Re-Assess Consent-to-Assignment Clauses

Larry Golub was quoted in a Dec. 18, 2012, Law360 article, Calif. High Court's 2nd Stab At Henkel Could Help M&A (subscription required) about the California Supreme Court's determination to reconsider its 2003 ruling in Henkel Corp. v. Hartford dealing with the transfer of insurance rights.

According to the article, the court agreed to grant a petition to review Fluor Corp.'s lawsuit against Hartford Accident and Indemnity Co. which could ultimately eliminate a barrier preventing the transfer of insurance rights during mergers, acquisitions, and corporate restructurings.

Golub told the publication that should Henkel be overturned, insurers would likely need to be more diligent about underwriting and really weigh what potential liabilities they might have to cover in the future.

"The consent-to-assignment clauses are intended to make sure they are underwriting the risks they intended to underwrite,” Golub said. “Insurers [would] need to probably be more careful in the risks they underwrite and to be more diligent when they're renewing policies.”

Golub also told Law360 that the Supreme Court may be taking up the Fluor case because it hasn't had the chance to consider the 1872 statute at the heart of Henkel. That California law purports to allow companies to assign their rights under insurance policies to successors after a loss, but has never been interpreted in the 140 years since it was enacted.

“It's hard to know how the Supreme Court will deal with that other than the fact that the whole panel appears to be interested in resolving this one way or the other,” he said.

NCOIL Insurance Certificate Law May Aid Carriers In Court

Larry Golub was quoted in a Nov. 20, 2012, Law360 article (subscription required) about the National Conference of Insurance Legislators' (NCOIL) new model act to prevent the use of false and misleading certificates of insurance. The Certificate of Insurance Model Act allows state departments of insurance to fine and issue cease-and-desist orders to companies that ask insurance brokers and agents to provide false certificates.

Golub, who represents insurance companies and their agents, said the model act should help resolve problems that arise in litigation when insurance certificates contain information that conflicts with the associated policies.

In a lot of coverage cases I handle, certificates say things that are different from what the policy says, and people try to use the certificates to supplant the policy,” he said. “Having a statute on the books in various jurisdictions would be very helpful.”

Virginia has passed legislation to curb the use of erroneous insurance certificates. Whether other states will follow Virginia's lead depends on how big of a problem they are experiencing, Golub said.

9th Circuit Ruling Won't Stop Push For Proactive Insurance Deals

Larry Golub was quoted in a Oct. 15, 2012, Law360 article (subscription required) about the Ninth Circuit Court of Appeals amending an earlier ruling in which it found that insurance companies had a broad duty to settle claims when an insured's liability is clear – even when the injured party has not made settlement demand.

According to the article, insurers are now applauding the court's change of heart, but experts warn that policyholders will continue to fight the issue.

Golub told the publication that, had the earlier 9th Circuit ruling stood, insurers would have faced more pressure settle cases,even when there was little likelihood of resolution. He also said he hopes the court's amended ruling will shut down further efforts to expand insurers' duty to settle under California law.

“It was an aberration that developed in June and by October, the universe righted itself,” Golub said.

You can Mr. Golub's update on the case, Du v. Allstate Insurance Company, here.


California Legislative Committees Hold Hearing on Auto Insurance Initiative

On September 25, 2012, the Assembly Insurance Committee and Senate Insurance Committee held a two-hour joint informational hearing on Proposition 33 which will be on the November 2012 California ballot. The hearing was for information purposes only and therefore the committee took no action or vote on the proposition.

Proposition 33

Proposition 33 (click HERE for text) would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance. We last blogged on Proposition 33 in July and August 2012.

Under an existing California Department of Insurance regulation, an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with the insurer. The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. Proposition 33 would override this existing prohibition.

Proposition 33 would add a new section to the Insurance Code which would expressly allow an insurer to use continuous coverage as an optional rating factor for private passenger automobile insurance policies. The section defines “continuous coverage” to mean:

uninterrupted automobile insurance coverage with any admitted insurer or insurers, including coverage provided pursuant to the California Assigned Risk Plan or the California Low-Cost Automobile Insurance Program.”

The proposition states that continuous coverage is deemed to exist if a lapse of coverage is due to an insured’s military service, if there is a lapse of up to 18 months due to loss of employment, or if there is a lapse of coverage for not more than 90 days for any reason.

Proposition 33 would grant children residing with a parent a continuous coverage discount based on the parent’s eligibility for a continuous coverage discount. Finally, Proposition 33 would grant a proportional discount to a driver who is unable to demonstrate continuous coverage; the discount would reflect the number of years in the preceding five years for which the driver was insured. 

Testimony at the Hearing  

Testimony at the committees’ joint hearing was presented by three panels. That testimony was followed by comments from the public.

Legislative Analyst’s Office

Representatives of the Legislative Analyst’s Office stated that Proposition 33 would not have a significant effect on state revenue. According to the Office, the reduction in insurance premium taxes paid by drivers who get the proposition’s discount would be offset by the increased insurance premium taxes paid by drivers who do not qualify for the discount.

Proponents of Proposition 33

Representatives of the American Agents Alliance argued that Proposition 33 would reward drivers who obey the law that requires drivers to obtain insurance coverage. The proposition will allow more drivers to qualify for discounts.

Proposition 17, which also related to continuous coverage, was rejected by California voters in 2010. The Alliance representatives pointed out that Proposition 33 is entirely new. USAA and the Greenlining Institute opposed Proposition 17, but both organizations are supporting Proposition 33. 

The Alliance representatives testified that Proposition 33 is better for consumers than the current law. Under current law, a driver loses his or her discount whenever there is a lapse of coverage. In contrast, Proposition 33 would preserve the continuous coverage discount when the lapse results from military service, unemployment, or for any reason when the lapse is not more than 90 days.

Opponents of Proposition 33 contend that in states that allow continuous coverage to be used as a rating factor, drivers who do not maintain continuous coverage pay significantly higher insurance premiums. The Alliance representatives countered that California’s highly regulated system for automobile insurance is unique and thus comparisons with other states are invalid and misleading.

A representative of Pinnacle Actuaries testified that the major benefit of Proposition 33 is that it will encourage competition. Under the proposition, more insurance companies will be able to offer discounts. This will benefit consumers who shop for insurance.

The Pinnacle representative disagreed with the proposition’s opponents who argue that Proposition 33 will result in huge surcharges for many drivers. The actuary pointed to the experience during 1995-2002 when continuous coverage was authorized as a rating factor in California. During that time, there were no big surcharges.

Opponents of Proposition 33

Consumer Watchdog’s fundamental objection to Proposition 33 is that the proposition conflicts with the statutory provision enacted by Proposition 103, which states,

the absence of prior insurance coverage in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.”

Consumer Watchdog contends that proof of prior insurance is required for Proposition 33’s continuous coverage and drivers who lack prior insurance will be charged higher rates. According to Consumer Watchdog, this use of prior insurance to determine rates is barred by Proposition 103.

The Consumer Watchdog representative argued that there is no statistical evidence that the maintenance of continuous insurance coverage is related to a lower risk of loss. The representative testified that the rating factor authorized by the current Department of Insurance regulation is really a loyalty discount which is based on lower administrative costs rather than on a lower risk of loss.

A representative of Public Advocates described the organization as an association of civil rights groups. The representative stated that the Proposition 103 provision highlighted by Consumer Watchdog was aimed at insurer redlining practices. According to Public Advocates, Proposition 103 would encourage insurers to redline low income communities and communities of color.

A representative of the Consumer Federation of California characterized the supporters’ argument that Proposition 33 rewards those who obey the law as inaccurate because many law-abiding consumers will not qualify for the proposition’s discount. He pointed to drivers who let their insurance coverage lapse because of extended disabilities or use of mass transit.

The Federation representative argued that Proposition 33 would allow insurers to use continuous coverage as a rating factor without having to establish that continuous coverage has a substantial relationship to the risk of loss.

Public Comment

A representative of four veteran groups expressed support for Proposition 33.

A representative of USAA explained that USAA opposed Proposition 17 but the company supports Proposition 33 because military personnel would be better off under the proposition than they are today.

A representative of the Greenling Institute said that the organization opposed Proposition 17 but it supports Proposition 33. The Greenling Institute was established to oppose redlining practices. The Institute disagrees with those who contend that Proposition 33 would hurt low income communities and communities of color. The Institute representative accused the opponents of Proposition 33 of engaging in selective use of statistics to reach misleading conclusions.   


Unfair Acts Ruling May Save California Insurers from Stiff Fines

Robert Hogeboom was quoted in a Sept. 17, 2012, Law360 article, Unfair Acts Ruling May Save Calif. Insurers From Stiff Fines (subs. req.), about the impact of a ruling in which a California administrative law judge found that California's Department of Insurance had overstepped its bounds in enforcing Fair Claims Settlement Practices Regulations. Hogeboom represents Torchmark Corp. insurers, who are defendants in the case.

According to the article, the five Torchmark companies stood accused of nearly 700 unfair or deceptive acts but Judge Stephen Smith ruled in their favor, finding that the Department of Insurance had misused the fair claims regulations to expand the state's insurance laws. Experts believe the ruling will embolden other insurers to challenge the agency.

Hogeboom told the publication that, in the past, insurers have been quick to settle unfair practice claims because they didn't want to risk having to pay the hefty fines associated with them. He said the ruling should give insurers more leverage and shows that the Department of Insurance had been using improper procedures when it came to determining unfair acts.

 “Notwithstanding that the judge says this is particular to the Torchmark case, what he said throughout [the ruling] resonates,” Hogeboom said. “It resonates to the industry, and it should resonate to the department.”


A Duty (to Settle) Too Far

Larry Golub wrote an article that appeared in the Insurance Journal on September 10, 2012, A Duty (to Settle) Too Far, about a recent decision by the Ninth Circuit Court of Appeals that threatens to upend law developed decades ago involving a liability insurer's duty to settle third party claims.

According to Golub, the Ninth Circuit panel's July 11, 2012, ruling in Du v. Allstate Insurance Company would “open the floodgates to higher insurance premiums not to mention more (and wholly unnecessary) bad faith litigation. Indeed, such a rule change would make settlement less likely, contrary to the accepted public policy in favor of settlement and protecting insureds from personal liability.”

In its decision, the court stated that insurers have a duty to try to settle when the liability of the insured is fairly clear, even if the injured party has not made a settlement demand made. Without a demand from a third party, Golub notes, the insurer is left with little to base a settlement on.

“As a federal court decision seeking to apply California state law, but based on no actual state court authority, California courts are under no obligation to follow the Du reasoning and hopefully it will be ignored,” he wrote. “Better yet, when next confronted with a bad faith failure to settle case, perhaps the California Supreme Court or one of the panels of the California Court of Appeal will relegate Du to the graveyard of appellate decisions dead on arrival.”

Stacking of Policy Limits - Podcast interview regarding State of California v. Continental Insurance

Barger & Wolen partner Larry Golub breaks down a California Supreme Court decision, State of California v. Continental Insurance, involving the stacking of policy limits, and whether or not an insured can collect on damages over a period of many years.

Click here for the AM Best Podcast. Attorney Golub on Stacking of Policy Limits.

For a detailed analysis of the decision, please see California Supreme Court Adopts "All-Sums-With-Stacking" Rule for Continuous Injury Cases.

California Court Says Insureds Can Stack Policies For Max Coverage

Partner Larry Golub was quoted in a Law360 (subscription required) article published on Aug. 9, 2012, about a key California Supreme Court ruling that insurance policyholders with long-term property damage and personal injury claims could force carriers to cover damage outside their policy periods and stack coverage to maximize recovery.

The case, State of California v. Continental Insurance, stemmed from battle between the state of California and six excess insurance over an environmental cleanup estimated to cost as much as $700 million. The court found in the high-profile case that, “all sums” language in California's excess insurance policies means that carriers must cover all damage up to their policy limits and that stacking is allowed because the policies lacked language specifically prohibiting the practice.

Rather than stacking, the insurance companies involved in the case preferred a formula whereby carriers would be assigned a specific amount of damages to cover.

"There were other ways to allocate the loss other than saying basically all the policies, all the time, especially in the case where you had a sophisticated insured like the state of California that chose for a good portion of the time not to insure itself," Golub, who represents insurance companies but was not involved in the case, told the publication. He also said that he thought the ruling might prompt insurers to start including anti-stacking provisions in their policies.

Click here to read Mr. Golub's full analysis of the decision.

State Supreme Court Rules Against Insurers in Stringfellow Acid Pits Case

Larry Golub was quoted in an Aug. 9, 2012, article by The Recorder (subscription required) on the state Supreme Court ruling in State of California v. Continental Insurance, involving the cleanup of the Stringfellow Acid Pits, a notorious hazardous waste site in Riverside County. The court ruled that the insurance company defendants must pay “all sums” due on the insurance policies. It also allowed for the “stacking” of policies.

While considered a blow to insurance companies, the court did say that insurers could include anti-stacking clauses in future policies and rules to limit indemnity.

"Assuming an insurance company puts that language in there, and it's clear and unambiguous ... that may be a way to solve the problem for insurance companies," Golub said. "But a lot of these cases go back a long time."

Click here to read Mr. Golub's full analysis of the decision.

Fight Begins Over Prop 33 - Even as to the Ballot Language

Though the election is still three months away, and the campaigning over California’s Prop 33 (the automobile insurance portable persistency initiative) has not yet begun in earnest, the ballot proposition is already being fought in the courts. On July 27, one of the proponents of Prop 33 filed suit in Sacramento Superior Court challenging the description of the proposition in the November ballot pamphlet. Our last report on Prop 33 is found here.

The suit, D'Arelli v. Debra Bowen, filed by Michael D’Arelli, the Executive Director of the American Agents Alliance and a proponent of the initiative, is in the form of a writ petition against California Secretary of State Debra Bowen, who the suit states is responsible for the preparation of the ballot pamphlet. The action also named as “real parties in interest” California Attorney General Kamala Harris, alleged to be the author of the Ballot Label and the Ballot Title and Summary for Prop 33; the Acting Printer for the State of California; and five persons who the suit states have authored false and misleading statements in their written arguments against Prop 33.  The various ballot materials at issue, still in draft form, can be found on the Secretary of State’s website.


The first two claims in the suit allege that the Ballot Label and Ballot Title and Summary for Prop 33 are not true and impartial statements as to the purposes of Prop 33 and they are highly likely to create prejudice against the measure. Specifically, the language of the Ballot Label and Ballot Title and Summary that the suit objects to is the following:

Changes current law to allow insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company. (Emphasis added.)

The suit contends that the statement that current law allows insurers to “set prices” is not true and does not describe Prop 33 accurately since “all automobile insurance rates and rating class plans must be approved in advance by the Insurance Commissioner,” and Prop 33 does not change this system. Rather, Prop 33 merely adds another optional rating factor to the existing optional rating factors. 


Moreover, the phrase “set prices” will prejudice voters since it “is commonly used to describe and define illegal price fixing, and has extremely negative connotations.”


The suit provides a recommended re-write of the ballot language: 

Changes current law to allow an insurance company to offer a continuous coverage discount based on whether the driver previously carried auto insurance with any insurance company.

The final four causes of action in the suit are directed to four alleged false and misleading statements set forth in the written arguments against Prop 33, as submitted by several consumer groups including Consumer Watchdog. Here, the suit recommends that the Secretary of State strike each of those statements from the ballot materials.


Immediately following the filing of the suit, Consumer Watchdog issued attacks on not only the specific claims in the suit but as against Prop 33 as a whole. See here and here.


The suit alleges that the printing deadline for the November ballot is August 13, 2012, and thus the suit requests that the Sacramento court issue a peremptory writ of mandate before that date commanding the Secretary of State to (1) amend Prop 33’s Ballot Label and Ballot Title and Summary and (2) amend or delete the false and misleading statements set forth in the written arguments against the measure.


Please see update here.

Insurance Regulatory Issues Up Front at ACIC Annual Conference

Barger & Wolen is proud to once again be a sponsor of the Association of California Insurance Companies' (ACIC) 23rd Annual General Counsel Summit (July 25-27, 2012 | Las Vegas, NV).

Several Barger & Wolen partners will present at this year's conference:

Steven Weinstein - How to Get Your Rate Filing Approved Without a Hearing Even if There are Intervenors! with Vanessa Wells, partner, Hogan Lovells LLP, and Robert Hoffman, partner, SNR Denton LLP.

Robert Hogeboom - How OSC Claims Actions Undermine the Claims Examination Process and Use of the Fair Claims Practices Regulations.

Robert Cerny - Super Group Internet Marketing.

Click here for a full conference agenda.

Foreign Investments: Iran Investment Bill Well-Intentioned, But Unconstitutional

Sam Sorich and Larry Golub authored an article in the Insurance Journal discussing AB 2160, legislation that would prevent insurers from counting investments connected to the Iran's energy industry toward meeting their capital requirements. According to Sorich, the proposed California law is unconstitutional and inconsistent with the United States’ established foreign policy. 

Sorich explained that the state has broad authority to regulate the business of insurance, however, that authority is limited by the U.S. Constitution. One of the limitations is in Article II, which gives the president the power to decide U.S. foreign policy. Once the federal government establishes foreign policy on a matter, a state does not have the authority to create its own policy, no matter how well-intentioned. Sorich says the proposed law is flawed because it violates this constitutional principle.

The Assembly passed AB 2160 in May. The Senate Insurance Committee approved the bill on June 28. AB 2160 is now waiting for a vote on the Senate floor. The regular legislative session will end on Aug. 31.  

Click here for the full article.


Liberty Mutual Ruling Could Trigger California Classification Feuds

Larry Golub was quoted in a July 23, 2012, article by the legal news website Law360 about a California appeals court ruling which concluded that, because their primary work duties do not relate to management, a class of insurance claims adjusters are entitled to overtime pay (click here for full article, subscription required). Those who have been watching the case believe the decision could prompt similar misclassification suits against employers.

Golub said that employers may now find it difficult to prove that employees are exempt unless they are directly involved in company management.

 “Clearly, the employees and attorneys representing employees in wage-and-hour cases will find this decision helpful,” he told Law360. “I think the court has not given very careful consideration to the distinction between the administrative operations and production work of an employee set forth in the wage orders. This case may be used to justify similar results for other types of employees.”

For a full review of the decision, please see our recent blog post,

Court of Appeal Again Finds Claims Adjusters Not Exempt from California's Overtime Pay Requirement

California Health Insurance Initiative Fails to Qualify for November Ballot

By Larry Golub and Sam Sorich

On the day the Affordable Care Act was found to be constitutional by the United States Supreme Court, the backers of a proposed initiative that would bring prior approval of rates for health insurance to California announced that their initiative had failed to qualify for the November 2012 California ballot.

We initially reported on this proposed initiative back in January. Among other things, the initiative would have given the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012, would have required health insurers’ rate applications to be accompanied by a sworn statement by the insurer’s chief executive officer declaring that the contents of the application were accurate and complied in all respects with California law, and would have required health insurers to pay refunds with interest if the Commissioner determined that the company’s rates were excessive.

According to the Sacramento Bee, when Los Angeles County submitted its random-sample count of valid signatures, it reported that only 66.6% of signatures were valid, which fell short of the 69% threshold needed to have enough valid signatures statewide to avoid a full count.

Jamie Court, the President of Consumer Watchdog, the proponent of the measure,sought to downplay the failure to qualify for the upcoming November ballot, and stated that the close number of valid signatures will “make the initiative all but certain to appear on the next general election ballot after November,” which will occur in 2014.

Wheels Of Justice To Grind To Halt After Calif. Budget Cuts

Litigation Partner Kent Keller was quoted in a June 15 article in Law360, Wheels of Justice to Grind to Halt After California Budget Cuts (subscription required) covering the latest budget battle brewing in California that will have a severe impact the state's judicial branch. Keller told Law360 that a different court system is likely to emerge as a result of the cuts, where trial dates are postponed, civil cases remain unheard and lawyers scramble for work. 

"The court system has been dealing with budget problems for a number of years now, but this one will hit courts hard in terms of their ability to continue to function as they have,” said Keller. “Whether it means more dark days or that when vacancies occur, judges are not going to be appointed, it’s hard to know. But it’s clearly going to have a seriously negative impact on an already strained court system.”

With courts taking longer to move cases forward, trial court dates will be pushed farther down the road, making it more difficult for plaintiffs to put pressure on defendants to settle, according to Keller.

“As slow as courts are going to be proceeding, it will take longer to get a trial date, which is often the single biggest motivation for settling a case,” he said.

Even if courts become more aggressive in encouraging parties to mediate and seek out a neutral evaluator, Keller said he didn't think such efforts would have much success because if a trial court date is not scheduled for several years, a defendant will be in no rush to settle.

California Assembly OKs Bill to Curb Insurers' Iran Investments

PUBLISHED BY LAW360 (subscription req.)

May 25, 2012


Samuel Sorich, of counsel to Barger & Wolen, was quoted in a May 25, 2012, article published by Law360 about controversy surrounding legislation aimed at deterring insurers from investing in companies that have financial ties to Iran's energy sector. 

According to the article, the bill, AB 2160, already approved by the California Assembly, would prevent insurers from counting investments connected to the Iran's energy industry toward meeting their capital requirements. Insurers argue that the proposed legislation is unconstitutional because it conflicts with federal foreign policy.

Sorich told the publication that the Constitution states that the president must establish foreign policy.

“There has been no action taken by the president to outlaw investments in companies that are doing business in Iran,” Sorich said. “The president hasn't gone that far.”

Should the bill become law, there is a strong possibility it will be challenged in court, Sorich said. “Although well-intentioned, the California law was found to be inconsistent with U.S. foreign policy established by the president.”

Barger & Wolen's Insurance Litigation & Regulatory Law Blog Named to The Insurance Law Community's Top Blogs for 2011

Barger & Wolen's Insurance Litigation & Regulatory Law and Life, Health, Disability Insurance Law blogs have been named to LexisNexis' Insurance Law Community's Top Insurance Blogs 2011.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.

We are honored to be included among so many well-written and well-regarded blogs.

A Firm Approach
Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

For all of their hard work, we would like to congratulate and thank the editors of our blogs, as well as all our attorney contributors.

All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

U.S. News & World Report & Best Lawyers Names Barger & Wolen to Their Best Law Firms List

Barger & Wolen is proud to announce that the firm has received a first-tier ranking in the 2011-2012 U.S. News – Best Lawyers “Best Law Firms” survey for our regional Los Angeles insurance law practice. The firm is also recognized for our national insurance law practice as well.

In addition, partners Kent R. Keller and Royal F. Oakes are listed for their work in Insurance Law.

“Barger & Wolen continues to be honored by our inclusion in US News & World Report and Best Lawyers’ ranking for the second year in a row,” said Steven H. Weinstein, chairman for Barger & Wolen. “Receiving this national recognition for the work our firm is doing validates for us that we truly are providing the quality legal services our clients’ demand, while maintaining the competitive price structure the insurance industry seeks.”

About the Survey

U.S. News & World Report uses data compiled by Best Lawyers to produce their Best Law Firms rankings. Best Lawyers combines hard data with peer reviews, and client assessments to produce their annual reports.

Rankings of 75 national practice areas are included in U.S. News & World Report’s Money issue, available November 15, with the full results available online today here.

Former President of Association of California Insurance Companies Joins Barger & Wolen

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.

California Insurance Commissioner Dave Jones' Holds Investigatory Hearing on Life Insurer Claims Payments of Death Benefits

By Robert W. Hogeboom and Alexandra E. Ciganer

On May 23, 2011, California Insurance Commissioner Dave Jones along with State Controller John Chiang held an investigatory hearing on the claims practices of Metropolitan Life Insurance Company (“MetLife”) regarding the payment of death benefits under life insurance policies and annuities. Joining the Commissioner and State Controller were regulatory officials from the Florida and Minnesota Departments of Insurance who are also investigating death benefits claims practices.


MetLife was called to the hearing pursuant to the California Department of Insurance’s (“CDI”) investigatory subpoena to appear and provide documents to determine whether the insurer’s practices and procedures relating to its use of its death master file data and related information violates various sections of the Insurance Code.


The Commissioner’s opening statement reflects his concern that a number of life insurers are using death information to “boost their finances by stopping annuity payments, but not using the same information to pay policyholders the beneficiary payments they are due.” 


The CDI announced that it is commencing market conduct exams on the ten largest life insurers to investigate these practices. Adam Cole, CDI General Counsel, along with Insurance Commissioner Jones, gave opening statements and conducted the bulk of the questioning of MetLife officials. Mr. Cole indicated that the CDI is reviewing the death claims practices to determine if violations exist under California Insurance Code subsections 790.03(h)(3) and (5). Subsection (3) refers to failing to adopt reasonable standards for the prompt investigation and processing of claims. Subsection (5) refers to not attempting in good faith to effect prompt, fair and equitable settlements of claims. Other sections of the California Insurance Code were also cited.


In assessing whether claims settlement practices violated these statutes, Commissioner Jones dedicated a significant portion of the inquiry to MetLife’s use of the U.S. Social Security Administration death master file in identifying deceased insureds. Much of the time was spent questioning the application of the death master file to different insurance products, including group annuity, group life and individual life products, frequency of the death master file sweeps, and what constitutes a match in the death master file.


Commissioner Jones raised his concern with the varying frequency of death master file sweeps to the different products. He probed into the reasons for conducting a death master file sweep of individual life insurance products annually versus monthly or quarterly for other products. The regulators also dedicated significant attention to MetLife’s use and characterization of the death master file as a “safety net” procedure in identifying the deceased individual life insurance insured. Commissioner Jones’ view appears to be that the use of the death master file as a safety net is not sufficient and should be used as “an integral part of the normal process.” 


While the investigatory hearing was characterized by the CDI as a public hearing to investigate company actions, policies and practices, in actuality it was a disciplinary investigatory hearing to determine specific violations, which is tantamount to a deposition. As such, it was not being used as a public forum to exchange information which could ultimately lead to best practices legislation with respect to payment of death benefits, but to provide traction for the CDI to institute disciplinary proceedings against members of the life insurance industry.


A copy of the Commissioner’s Press Release on the hearing and his plans to conduct market conduct examinations is found here.


For more information, please contact Robert Hogeboom at (213) 614-7304, or


Two Air Ambulance Suits Grounded in Two Days by Federal and State Courts


Over the course of two days at the end of March, the Ninth Circuit Court of Appeals and the Sonoma County Superior Court issued two separate decisions dismissing claims by air ambulance companies that sought to obtain medical provider benefits under workers’ compensation without following the dictates of the California workers’ compensation system. In both instances, the courts found that they did not have subject matter jurisdiction to consider the claims alleged by the air ambulance companies.

In early 2009, California Shock Trauma Air Rescue (“CALSTAR”) filed two virtually identical actions in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers. 

CALSTAR’s lead lawsuit in the consolidated actions, California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al., argued that, as a result of CALSTAR being certified by the Federal Aviation Administration to operate as an air carrier, any claims for payment it submitted to workers’ compensation insurers and self-insured employers in California should not be limited to those amounts set forth in the Official Medical Fee Schedule for ambulance services, California Code of Regulations, title 8, section 9789.70

Rather, as a federally certified air carrier, CALSTAR asserted that the Fee Schedule is preempted by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act (“FAA/ADA”).

In other words, CALSTAR sought to avoid the limitations on payment that would apply to all other medical providers and even ground-based ambulances set forth in the Fee Schedule. CALSTAR’s complaint alleged causes of action for declaratory relief and a number of state law claims.

As reported in this blog, the federal district court dismissed CALSTAR’s lawsuits on July 24, 2009, finding, on a number of grounds, that it lacked federal subject matter jurisdiction to consider CALSTAR’s claims. CALSTAR appealed the dismissal of its two actions to the Ninth Circuit.

On March 31, 2011, the Ninth Circuit published its opinion in the two consolidated appeals, affirming the decision of the trial court and concluding that the well-pleaded complaint rule precluded the federal court’s exercise of federal subject matter jurisdiction with respect to purely state law claims.

More specifically, the three-judge panel found that CALSTAR’s claims did not “arise under” the laws of the United States, and its attempt to obtain a determination as to federal preemption of the Fee Schedule was, at most, in anticipation of its response to the defense that would be posited by the defendants – and this is not adequate to create federal court jurisdiction. 

The Ninth Circuit further dismissed CALSTAR’s attempt to fall within the case law that allows federal court jurisdiction over state law claims that “implicate significant federal issues,” since, once again, CALSTAR could not satisfy the well-pleaded complaint rule, and its state law claims do not turn on a federal issue.

Finally, the Court concluded that the mere fact that CALSTAR had alleged claims for declaratory relief in addition to its state law claims did not allow the “procedural” device of such a declaratory relief claim to confer “arising under” jurisdiction. This is especially true here, since CALSTAR’s actions did not sue any state official, which the Supreme Court and other federal circuits had found to be a prerequisite to allowing any such Supremacy Clause claims to proceed in federal court.

One of the defenses raised by the insurers and self-insured employers in CALSTAR, but never addressed by the federal trial and appellate courts was that, even if there were federal subject matter jurisdiction, the air ambulance company’s action must still be dismissed because the claims are subject to the exclusive jurisdiction of the Workers’ Compensation Appeals Board (“WCAB”) and fall within the exclusive remedies of the Workers’ Compensation Act

The day before the Ninth Circuit issued its decision, a California state trial court in Sonoma County had the occasion to address that precise issue, dismissing claims by another air ambulance company due to the exclusive jurisdiction of the WCAB and the exclusive remedy the Act.

REACH Air Medical Services LLC sued many of the same defendant insurers and self-insured employers as did CALSTAR, and the defendants demurred to REACH’s state court complaint on the grounds of exclusive jurisdiction/exclusive remedy. On March 30, Sonoma County Superior Court Judge Elliot Daum issued his Order sustaining the demurrers and dismissing the action without leave to amend. If REACH wanted to pursue its claims for additional benefits beyond those paid by the Fee Schedule under worker’s compensation, it could only do so within the exclusive remedies provided by the Act and before the exclusive jurisdiction of the WCAB.

One final note. In October 2010, CALSTAR filed its own state court action in Solano County Superior Court against many of the same defendant insurers and self-insured employers. That action seeks further payment of medical provider benefits for services rendered after the time CALSTAR filed its federal court action. The defendants have demurred to that state court complaint, and a hearing on their demurrers is set for April 21.

Larry Golub of Barger & Wolen has represented a number of the defendants in all three lawsuits.


Attorney Conflicts of Interest: Identifying and Resolving Ethical Pitfalls

Strategies to Minimize the Risk of Ethics Violations and Malpractice Claims

Barger & Wolen partner David J. McMahon will be a faculty member for this Strafford Publications' CLE webinar which will provide attorneys with a framework to identify the most problematic and difficult-to-detect conflicts risks. The panel will outline best practices for attorneys to cope with conflicts that could potentially result in disqualification, discipline and malpractice.


Conflicts of interest are one of the most common ethical dilemmas for attorneys. Whether the situation involves a personal conflict, a multi-client conflict, or a third-party conflict, practitioners must identity situations or transactions that pose potential conflicts of interest.

Conflict issues that arise when attorneys change firms are particularly relevant in the current environment. The ABA's Formal Opinion 09-455 addresses situations in which revealing a client’s identity and description of work performed may itself violate client confidence.

While many conflicts can be resolved with client consent, an effective waiver depends on the nature of the conflict, the timing of the waiver request, and whether the client is a current or former client. Conflicts can also be anticipated and addressed in engagement letters.

Listen as our authoritative panel of attorneys discusses how to identify potential conflicts issues and outlines best practices for avoiding or resolving those conflicts.


  1. Identifying sources for potential conflicts of interest
    1. Defining the client
    2. Defining the adversity that triggers conflict rules
    3. Adverse client conflict — direct adversity or adverse representation
    4. Joint representation — dual or concurrent representation
    5. Adversity to former clients
    6. Personal conflicts of interest
  2. Conflict resolution
    1. Withdrawal from representation
    2. Client consent
    3. Conflict waivers
    4. Engagement letters
    5. Law firm conflicts checks


The panel will review these and other key questions:

  • What are some best practices for law firm conflict avoidance procedures?
  • Under what circumstances will a conflict prevent representation?
  • How can engagement letters effectively limit potential conflicts?
  • What critical language should be included in a conflicts waiver document?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Joining Mr. McMahon on the faculty are Brett A. Scher, Partner, Kaufman Dolowich Voluck & Gonzo, Woodbury, N.Y. and Thomas B. Mason, Partne, Zuckerman Spaeder, Washington, D.C.

Guidelines for Health Insurers Requesting Rate Increase Issued by California Insurance Commissioner (SB 1163)

On February 4, 2011, California Insurance Commissioner Dave Jones released draft guidelines for implementing SB 1163 (“Guidance 1163:2”).

SB 1163, signed by former Governor Schwarzenegger on September 30, 2010, responds to the federal Patient Protection and Affordable Care Act (“PPACA”), which requires the United States Secretary of Health and Human Services to establish a process for the annual review of “unreasonable” increases in premiums for health insurance coverage.

Under the federal act, health insurers must submit to the secretary, and the relevant state, a justification for an “unreasonable” premium increase prior to implementation of the increase.

SB 1163, effective January 1, 2011, requires health insurers to file with the California Department of Managed Health Care or the California Department of Insurance detailed rate information regarding proposed premium increases and requires that the rate information be certified by an independent actuary. 

The bill authorizes the departments to review these filings and issue guidance regarding compliance. It also requires the departments to consult with each other regarding specified actions as well as post certain findings on their Internet Web sites.

In his draft guidelines (“Guidance 1163:2”), Commissioner Jones lists several factors that will be used by the Department to determine if a rate is “unreasonable.”

Continue Reading...

Emergency Regulations to Enforce PPACA Medical Loss Ratio Guidelines Granted to California Department of Insurance

On Monday January 24, 2011, newly elected California Insurance Commissioner Dave Jones announced in a press release that he had obtained approval from the California Office of Administrative Law to issue an emergency regulation allowing the Department of Insurance (the “Department”) to enforce the medical loss ratio guidelines in the Patient Protection and Affordable Care Act of 2009 (“PPACA”). 

As of January 1, 2011, the PPACA requires all health insurers in the individual market to maintain an 80% medical loss ratio. The Department obtained approval to amend 10 California Code of Regulations § 2222.12 to mirror this requirement. A copy of the amended text can be viewed here

The emergency regulation went into effect on January 24, 2011, and expires on July 26, 2011. It requires California health insurers to demonstrate compliance with the 80% medical loss ratio at the time of the Department’s rate review.

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

Decision Stands: Proposition 103 Approved Insurance Rates Cannot be Attacked in a Civil Action

California Supreme Court Rejects Requests to Depublish MacKay

by Kent R. Keller

On October 6, 2010, Division Three of the Second Appellate District issued a landmark decision in MacKay v. Superior Court, 188 Cal. App. 4th 1427 (2010), declaring that approved insurance rates subject to Proposition 103 cannot thereafter be collaterally attacked in a civil action.

In brief, MacKay was a certified Unfair Competition Law (UCL) class action involving more than 500,000 class members who contended that 21st Century Insurance Company had used two illegal “rating factors” in developing automobile insurance premiums. The two factors had been included in rate and class plan filings approved on multiple occasions by the Insurance Commissioner. 

The issue, as the Court explained, was:

whether the approval of a rating factor by the DOI [Department of Insurance] precludes a civil action against the insurer challenging the use of that rating factor.” MacKay, supra at 1434. 

In a detailed opinion, authored by Justice H. Walter Croskey, the Court concluded that approval did preclude a collateral attack in a civil action. 

This decision is of critical importance to insurers and consumers subject to rate approval pursuant to Proposition 103. 

Prior to MacKay, it was not clear whether approval precluded civil actions. As a result, many insurers were sued, virtually always in class actions, by parties challenging approved rates on one basis or another. 

The result was that, while insurers were required to obtain rate approval before putting a rate into effect and once approval was obtained could had to use the approved rate, they did so at the peril of a class action lawsuit. 

Whether such lawsuits benefited insureds or simply increased premiums in the future is a continuing debate. What, however, was clear was that such actions often produced large attorneys’ fees awards.

Given the value of these class actions to the plaintiffs’ bar, it was not surprising that requests to depublish MacKay were numerous. 

In addition to a request from counsel for the plaintiffs in MacKay, requests were filed by Consumer Watchdog, the City and County of San Francisco, the Consumer Attorneys of California, Public Advocates, the Mexican American Legal Defense & Education Fund, the Southern Christian Leadership Conference of Greater Los Angeles, United Policyholders, the California State Insurance Commissioner, and others. 

Indeed, by a letter dated January 10, 2011, new Commissioner Dave Jones advised the California Supreme Court that he, like his predecessor, supported depublication.

Despite this tsunami of support for depublication, on January 12, 2011 the Supreme Court denied all requests and declared the case closed

While the reasons for denying or granting depublication are never certain, we have to believe that the Supreme Court recognized the correctness of Justice Crokey’s decision. As a result of the Supreme Court’s action, MacKay remains valid and precedential authority.

21st Century Insurance Company was represented in this case by Kent R. Keller, Steven H. Weinstein, Marina M. Karvelas and Peter Sindhuphak of Barger & Wolen.

Insurance Commissioner Removes Four Companies from List of Companies Doing Business with Iran

As we have previously reported in this blog, the CDI issued a broadly-drafted Data Call on July 9, 2009, to all insurers admitted in California seeking information on their investments in or related to Iran as a measure to enforce U.S. governmental sanctions against Iran, including restrictions with respect to doing business with companies that do business in Iran.

As a result of that Data Call, Commissioner Poizner issued a press release advising that more than 1000 insurers licensed to do business in California had agreed to a voluntary moratorium as to future investments in companies that do business in Iran (read more here). He also released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium.

The press release further advised that, as of March 31, 2010, the CDI “disqualified an estimated $6 billion in holdings” in the 50 Iran-related companies (based on 2008 data). The list of the 50 “Iran-related” companies was expanded to 51 companies in April 2010.

Earlier today, Commissioner Poizner issued a press release advising that the CDI has removed four companies from the original list of the 51 “Iran-related” companies based on those companies’ decisions to end operations in Iran. The companies removed form the List are Royal Dutch Shell (Netherlands), Shell International Finance (Netherlands), Total SA (France), and Reposol YPF (Spain).

Commissioner Poizner commends these companies for “putting principle ahead of profit” and hopes the remaining 47 companies on the List follow suit.

He also notes that the CDI’s efforts, together with efforts by the United States Government, the European Union, the United Nations, and recently by the California Legislature (in connection with divestment of State assets in connection with awarding state contracts to companies with Iranian investments), are proving to "add a layer of financial pressure to the broader legal and public relations aspects of the Iran divestment effort.”

The updated CDI List of Iran-related companies is attached here.

Barger & Wolen will continue to follow the CDI’s activities on this matter.

"Any One Act Test" Rejected by Court in Favor of "Totality of the Circumstances"

In a non-published decision issued on November 18, 2010, the California Court of Appeal affirmed summary judgment against class-action lawyers seeking refunds on broker fees in Munn v. Eastwood Insurance Services.  

The decision rejected the argument that if a broker performs any act on behalf of the insurer, the broker is a de facto agent, and subjects the broker to a refund of all broker fees collected. 

The court rejected the “any one act test” and followed the “totality of the circumstances test,” which has been advocated by this firm for several years as the appropriate test to distinguish the difference between an agent and broker.

The “totality of the circumstances test” was codified into law by legislation in 2008 (AB 2956) that Barger & Wolen Senior Regulatory Partner Robert Hogeboom helped draft.

The court’s decision upheld the FSC comparative rater and the electronic Zap App systems as the appropriate mechanisms for brokers to input information and process applications, and it rejected the plaintiffs’ claim that it was a process to encourage upfront underwriting and binding by the broker. 

Finally, the court recognized that the recent amendment to California Insurance Code section 1623, which includes the definition of “broker” and creates a presumption, did provide the court with “guidance in assessing the facts as part of the totality of the circumstances.” 

Barger & Wolen’s Robert Hogeboom and Suh Choi served as special consultants on the broker fee issue to Eastwood’s counsel, Milford Dahl and Zack Broslavsky of Rutan & Tucker, and to Judi Partridge, former owner of Eastwood. 

If you have any questions, please contact Robert Hogeboom via e-mail or at (213) 614-7304.

Defining "What is a Group?" Under Proposition 103

Notice of California Department of Insurance Workshop

By Robert W. Hogeboom

On Monday, November 11, 2010, the California Department of Insurance (CDI) issued a Notice of Workshop Regarding Affinity Groups Under California Insurance Code Section 1861.12.

The Workshop, scheduled for Friday, December 3, 2010, in San Francisco, deals with group rating programs and the likely need for regulations defining the term “group” for eligibility under Section 1861.12, “which is a part of Proposition 103 and authorizes insurers to issue property and casualty ‘insurance coverage on a group plan.’”

Section 1861.12 does not define the term “group” and does not specify the conditions as to when insurance may be issued on a group plan.  

Barger & Wolen notes that the issue as to “what is a group?” is of major importance to insurers that have submitted group rating plans. It is likely that the CDI will issue regulations with respect to the usage of those plans, and those regulations will likely continue the present policy of ensuring that all of the coverage offered by group members be available and offered to all insureds.

The notice sets forth 13 areas that the CDI will address at the workshop and invites written comments to be submitted prior to the close of business on December 3, 2010:

Continue Reading...

Commissioner Poizner Criticized By Director of Office of Administrative Law Over His Filing of Lawsuit Concerning Iran "Underground" Regulations

In response to news that, on November 9, 2010, California Insurance Commissioner Steve Poizner filed a lawsuit against the California Office of Administrative Law's (OAL) over the OAL's rejection of the Commissioner's rules relating to insurers' investments in companies that do business with Iran, OAL Director Susan Lapsley issued a press release later that same day indicating:

Our office is authorized by law to scrutinize rules that have been challenged as ‘underground regulations’ (regulations and rules that state agencies issue or use that have not been properly adopted pursuant to the [Administrative Procedures Act]…The Commissioner did not follow that required process but rather simply imposed new rules unilaterally without any public input or comment. This is exactly the type of action the APA is designed to prevent.”

As readers to this blog know, the OAL issued a Determination on October 11, 2010, in which it concluded that the rules Commissioner Poizner unilaterally imposed upon insurers in February 2010, regarding the treatment of their investments in companies that do business with Iran, should have been promulgated pursuant to the APA.

Since the rules did not follow the correct legal process, the OAL found those rules to be void.

Not to be deterred, the Commissioner retained the California Attorney General’s office to file his lawsuit against the OAL alleging that the OAL abused its discretion.  (While the lawsuit is directed against the OAL as the only "respondent," the action also names as "real parties in interest" the five insurance trade associations that brought this issue to the OAL.) 

In a letter to the Attorney General, also issued on November 9, Director Lapsley similarly criticized the Attorney General’s office, stating that,

in any litigation against [the OAL], just as we have in the past, we would request and expect representation from the Attorney General’s office as the Attorney General has an affirmative duty to represent state agencies…It appears to me that there is a conflict in the Attorney General representing the Insurance Commissioner and the Department of Insurance in an action against this Office. This Office has no other option but to bring this to your attention and to inform you that it does not consent to or waive the conflict.”

Director Lapsley specifically noted that the Attorney General's office is currently representing the OAL in another matter involving underground regulations.

Finally, in her press release, Director Lapsley stated:

Given the enduring fiscal crisis facing the State of California, it is regrettable to have to devote any public resources toward resolving this matter. Our mission of regulatory oversight makes it our responsibility and statutory obligation to issue an opinion if we believe an agency is acting outside the law using underground regulations. We stand by our opinion.”

We will continue to follow and report on the developments in this matter.

Commissioner Poizner Files Suit Against Office of Administrative Law

By Larry Golub and Marina Karvelas

On November 9, 2010, California Insurance Commissioner Steve Poizner issued a Press Release announcing that he is filing a lawsuit challenging the California Office of Administrative Law's (OAL) October 11, 2010, determination that the Commissioner's efforts to stop insurers from investing in Iran constituted "underground regulations." 

In a Petition for Writ of Mandate, to be filed in the Los Angeles Superior Court, the Commissioner contests the OAL's analysis of the issues and seeks to clarify his authority to address insurance company investments in contracts in Iran.

Attorney General Jerry Brown is representing the Commissioner in the lawsuit.

In his Petition for Writ of Mandate , the Commissioner alleges three causes of action based on specific conduct engaged in by the Commissioner that the OAL determined amounted to "underground regulations."  These include the Commissioner's:

  1. creation of a List of companies doing business in Iranian energy, nuclear, banking and defense sectors and the determination that these companies are subject to financial risk;
  2. creation of a Form requiring California licensed insurance companies to notify the Commissioner whether they would agree voluntarily not to invest in such companies in the future;
  3. directive to California licensed insurance companies to file financial statements identifying Iran related investments and treating those investments as "non-admitted."  

The Commissioner defends his actions under his authority pursuant to Ins. Code 12921.5 to "disseminate information concerning the insurance laws of this State for the assistance and information of the public," his examination powers under Ins. Code 729, 730, 733, 734 and 736 and under Ins. Code 923, his authority to

"make changes from time to time in the form of  the statements and the  number and method of filing reports as seem to him or her best adapted to elicit from the insurers a true exhibit of their condition."  (Poizner v. Office of Administrative Law)

Earlier, on November 1, 2010, notwithstanding the OAL's determination, the Commissioner  issued a reminder letter to all California licensed insurance companies that they need to comply with the supplemental filing requirements for Iran related investments no later than November 15, 2010.

Barger & Wolen will continue to follow further developments in this matter.

For more information, please contact:

Larry Golub | 213.614.7312 |

California Office of Administrative Law Disallows Insurance Department Rule on Iranian Investments

Yesterday afternoon, the California Office of Administrative Law (“OAL”) issued a decision finding that a rule adopted by California Department of Insurance (“CDI”) to restrict insurers’ investment in companies that do business with Iran was an improper “underground” regulation. A copy of the OAL’s decision is found here (pdf).

As we previously reported in this blog, on July 9, 2009, the CDI issued a broadly-drafted Data Call to all insurers admitted in California seeking information on their investments in or related to Iran.

The Data Call not only sought information as to insurers’ direct investments in organizations owned or controlled directly or indirectly by the Iranian government, but also indirect investments, including investments in a company that, in turn, does business with any of the five sectors set forth in the Data Call (defense, nuclear, petroleum, natural gas or banking). The information was due by September 30, 2009. 

At the time, it was announced that California Insurance Commissioner Steve Poizner sought such information as a measure to enforce U.S. governmental sanctions against Iran, including restrictions with respect to doing business with companies that do business in Iran.

On May 13, 2010, we reported that Commissioner Steve Poizner issued a press release advising that more than 1000 insurers licensed to do business in California had agreed to a voluntary moratorium as to future investments in companies that do business in Iran. He also released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium. The press release further advised that, as of March 31, 2010, the CDI “disqualified an estimated $6 billion in holdings in the 50 Iran-related companies” (based on 2008 data).

Meanwhile, on March 29, 2010, five insurance trade associations (the American Council of Life Insurers, the American Insurance Association, the Association of California Insurance Companies, the Association of California Life and Health Insurance Companies, and the Personal Insurance Federation of California) filed a petition with the OAL contending that the Commissioner’s rule on Iran investment activity constituted an impermissible “underground” regulation. “Underground” regulations are rules issued by state agencies that meet the definition of a “regulation” under Government Code section 11342.600 and are subject to the California Administrative Procedure Act (“APA”), but were not adopted pursuant to the APA process.

The OAL found that the CDI’s rule on Iranian investments was indeed a “regulation,” such that it should have been, but was not, adopted pursuant to the procedures set forth in the APA. The OAL specifically advised that it was not evaluating the advisability or wisdom of the underground regulation, nor whether the CDI possessed the authority to issue such a regulation under the proper APA procedure.

Barger & Wolen will continue to follow further developments in this matter.

For more information, please contact Larry Golub at (213) 614-7312 or (

Landmark Proposition 103 Decision Reached

On October 6, 2010, the California Court of Appeal issued a landmark decision involving Proposition 103 insurance rate approval in MacKay v. Superior Court, B220469 & B223772. 

The legal issue, as Division Three of the Second Appellate District explained, was

whether the approval of a rating factor by the DOI [Department of Insurance] precludes a civil action against the insurer challenging the use of that rating factor.”  

In MacKay, the plaintiff class sued 21st Century Insurance Company asserting that its use of certain rating factors (persistency and accident verification) was illegal and therefore actionable under California’s Unfair Competition Law (“UCL”), Bus. & Prof. Code § 17200

In a unanimous decision, written by Justice Croskey, the Court held "that the statutory provisions for an administrative process . . . are the exclusive means of challenging an approved rate,” precluding a UCL action and therefore ordered the trial court to enter judgment for 21st Century.

Prior to this decision, previous decisions had created uncertainty as to whether insurers, having fully complied with the requirements of Proposition 103 rate approval, could charge approved rates free from subsequent civil challenges. 

While Walker v. Allstate Indemnity Co, 77 Cal. App. 4th 750 (2000) held that approved rates could not thereafter be civilly challenged, Donabedian v. Mercury Ins. Co., 116 Cal. App. 4th 968 (2004) created confusion on this issue.

The MacKay decision resolves all prior confusion in declaring that approved rates and rating factors cannot thereafter be civilly challenged.

21st Century Insurance Company was represented in this action by Kent R. Keller, Steven H. Weinstein, Marina M. Karvelas and Peter Sindhuphak of Barger & Wolen.

14th Annual Insurance Forum in Chicago Sponsored by Barger & Wolen

Barger & Wolen is proud to join JVP Partners in sponsoring the 14th Annual Insurance Forum on November 9th, 2010 in Chicago. This complimentary event is open to all.

14th Annual Insurance Forum
Tuesday, November 9, 2010
7:30 a.m. - 5:30 p.m.
The Union League Club
65 West Jackson
Chicago, IL

What is the Insurance Forum? The Forum is an event presented by the Insurance Forum Committee, chaired by Kenneth M. Weine. This is an executive level program designed for insurance and risk management professionals, accountants, attorneys, corporate officers, financial examiners, and regulators.

Can I Earn Continuing Education Credit? Continuing Education credit is available for attorneys, AIRs, CPAs, CFEs, CIRs and other insurance designations. (Certain restrictions apply, so please verify that your designation is approved in the state(s) you require).

To register for this complimentary event, click here

For more information, click here

Panels & Speakers (order subject to change)

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Patient Protection and Affordable Care Act of 2009 Now in Effect

By Larry M. Golub and Misty A. Murray

On March 23, 2010, President Obama signed the Patient Protection and Affordable Health Care Act of 2009 (“PPACA”) into law. (After the amendments made March 30, 2010, the law is referred to as The Affordable Care Act.) 

While Republicans in Congress vow to repeal such enactment, key aspects of the PPACA went into effect on September 23, 2010, which marks the six-month anniversary of the legislation. 

Although the following list is not exhaustive, here are some of the more notable changes in the health care reform law (effective September 23, 2010) that will apply to individual and group health plans:

Coverage Changes

No Lifetime or Annual Limits on Essential Benefits:

Health plans may not contain lifetime limits on the amount of benefits that will be provided for essential benefits. No regulations have yet been issued regarding the definition of “essential benefits, which in general include, but are not limited to, ambulatory patient services, emergency services, hospitalization, maternity and newborn care, prescription drugs, laboratory services, preventive and wellness services, and chronic disease management.  As for annual limits, for plan years beginning before January 1, 2014, the Department of Health and Human Services’ (“HHS”) interim regulations adopt a three-year phase-in approach of removing annual limits on essential health benefits. For more information, click here.

Anti-Rescission Rules:

Health plans may not rescind, i.e., retroactively cancel coverage, except in cases of fraud or intentional misrepresentations of material fact. These rules do not apply to prospective cancellations or any cancellation due to failure to timely pay premiums.

Mandatory Preventative Health Care Services:

Health plans must provide benefits without cost sharing (i.e., no co-payments, deductibles or co-insurance) for certain preventative services, including, but not limited to, immunizations recommended by the CDC, as well as preventative care and screening for infants, children and adolescents and for women as recommended by the Health Resources and Services Administration. Grandfathered health plans are exempt. (A grandfathered health plan is a group health plan that was created – or an individual health insurance policy that was purchased – on or before March 23, 2010, and a health plan must disclose in its plan materials whether it considers itself to be a grandfathered plan.) 

Extension of Adult Dependents Coverage:

For health plans that elect to provide dependent coverage, such coverage must be extended to adult children up to age 26.

No Pre-existing Condition Exclusions for Children:

Health plans may not impose any preexisting condition exclusions for children 19 and under. (Grandfathered plans are exempt.).

Patient Protection Changes

Right to Choose Primary Care Provider (“PCP”):

For health plans that require designation of a PCP, the patient must be allowed to designate any participating PCP accepting new patients. For children, any participating physician specializing in pediatrics can be designated as the child’s PCP and, for women, any participating OB-GYN can be designated as a PCP.

Coverage for Emergency Services:

For health plans that provide coverage for emergency services, such plans must do so without requiring prior authorization and regardless of whether the provider of emergency services is a participating provider. Emergency services provided by a non-participating provider must also be provided at the same level of cost-sharing as would apply to a participating provider.

Appeals Process:

Group plans must provide for an internal appeals process that complies with the U.S. Department of Labor regulations and individual plans must provide an internal appeals process that comports with the standards established by the Secretary of Health and Human Services. Both group and individual plans must also provide for an external appeals process that complies with applicable law or at a minimum with the NAIC Uniform External Review Model Act.

Additional health care reform changes will continue to take effect in 2010 and as late as 2018. More information about the PPACA can be found on the National Association of Insurance Commissioners (NAIC) website here.

For additional information on ERISA plans and the PPACA, the U.S. Department of Labor has posted information on its website here.

For additional information on the PPACA and individual policies and nonfederal governmental plans, the HHS has posted information on its websites here and here.

Barger & Wolen Receives First-Tier Ranking in the Inaugural "Best Law Firms" Survey by U.S.News and Best Lawyers®

Barger & Wolen is proud to announce that the firm has received a first-tier ranking by U.S. News and Best Lawyers® for our Nationwide Insurance practice, as well as our regional practice in Los Angeles. In addition, partners Kent R. Keller and Royal F. Oakes are listed for their work in Insurance Law.

“We are honored to be included with such a distinguished group of law firms,” said Steven H. Weinstein, chairman for Barger & Wolen. “It is especially rewarding to have our peers note our work. It validates, for us, that a mid-sized firm can provide incredible legal services, while maintaining the competitive price structure the insurance industry seeks.”

About the Rankings:
"U.S. News is the world’s leading publisher of institutional rankings based on both objective data and peer evaluations," says Steven Naifeh, President of Best Lawyers. "We are combining this expertise with Best Lawyers’ experience of providing rankings of individual lawyers based on peer reviews for almost three decades. By combining hard data with peer reviews, and client assessments, we believe that we are providing users with the most thorough, accurate, and helpful rankings of law firms ever developed."

Barger & Wolen's Insurance Law Blogs Named to Top 50 Blogs by LexisNexis Insurance Law Community

Barger & Wolen's insurance law blogs have collectively been ranked No. 5 by LexisNexis in the Insurance Law Community's Top 50 Insurance Blogs 2009 Honorees.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources. 

Demonstrating on a daily basis that insurance makes the world go round, these blogs also show us how insurance issues interact with politics and culture. These sites also demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance."

We are honored to be included among so many well-written and well-regarded blogs.

A Firm Approach
Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

For all of their hard work, we would like to congratulate and thank the editors of our blogs, as well as all our attorney contributors.

All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

The Federal Insurance Office is on the Way

While not yet approved by the United States Senate, the Federal Insurance Office (FIO) – the first time an entity in the federal government has been created to specifically address the insurance industry – moved that much closer to reality when the House of Representatives on June 30 passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173.  The bill passed the House by a vote of 237-192.

The Senate is expected to vote on the bill when it returns from its July 4 recess on July 12.

The FIO will be housed under the U.S. Treasury Department, though it will not have any regulatory authority. Among other things, the FIO will gather information regarding the insurance industry, will monitor the industry for systemic risks, and will serve as a negotiator for international insurance treaties. The bill contains a provision that will modernize and streamline the surplus lines and non-admitted markets. As explained by the National Underwriter, the “surplus lines provisions in the bill dictate that in any multi-state placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed—the ‘principal place of business’ for the insured.”

Just prior to passage in the House, the bill dropped a tax on financial institutions to raise $19 billion to pay for implementation of the bill over five years, a provision strongly opposed by the insurance industry.

Speaking for the National Association of Insurance Commissioners (NAIC), its President and West Virginia Insurance Commissioner Jane L. Cline thanked the congressional negotiators for essentially preserving the role of state insurance regulators in protecting consumers and ensuring the viability of the insurance industry, stating, “We were pleased to see that the Federal Insurance Office (FIO) set up under the bill is narrowly designed to carry out its mission while not unnecessarily undermining strong state regulation.”  NAIC President Cline also stated: 

“The package provides senior investment protection grants for annuity suitability, an area where the NAIC and the states have a solid track record,” and “The bill also provides important clarification in regulatory authority for indexed annuities, ensuring that these guaranteed products are under the clear authority of state insurance regulators.”

While the bill will allow federal regulators to wind down troubled large institutions, the NAIC further stated that the bill made “clear that state insurance regulators will continue to have the ability to ‘wall off’ insurance companies from troubled holding companies, protecting insurance policyholders from other risks in the financial system” and that state regulators “will also retain their role to monitor consumer protections in the insurance sector.”

When the Obama administration first proposed a national insurance office last year, California Insurance Commissioner Steve Poizner stated at the time that such plan “appropriately acknowledges the primary role the states play in regulating the insurance business to benefit consumers. State oversight of insurance companies, coordinated among all state regulators, is the reason that, among all the financial players in this country, it is the insurers who are and remain the most stable and the least in need of federal assistance.”

California Department of Insurance to Implement Outside Actuarial Reviews for All Major Health Insurer Rate Increases

California Department of Insurance Commissioner, Steve Poizner, issued a press release today indicating that the Department has retained an outside actuarial firm to analyze regulatory rate change filings made with the Department by the four major health insurers in the individual market – Anthem Blue Cross, Aetna, Health Net, and Blue Shield of California

The purpose of the independent actuarial analysis is to ensure that health insurers, in raising their premium rates, comply with state law mandating that 70 cents of every dollar collected in health insurance premiums are to be spent on medical benefits.

In February 2010, after the Department received Anthem Blue Cross’ proposed rate change filing indicating that it was seeking to increase individual rates by up to 39%, Commissioner Poizner took the unprecedented step of requesting that an outside actuarial firm analyze the proposed rate increase to ensure that Anthem Blue Cross’ actuarial assumptions were justified and that it complied with the 70 cents on the dollar state law mandate. 

The Commissioner indicated at that time in a letter to Anthem’s parent, Wellpoint, Inc., that

[i]f the independent actuary concludes that Anthem’s assumptions are unjustified and that Anthem will pay out less than 70 cents of the premium dollar for benefits, I will take immediate action to stop Anthem from charging the increased rates to California consumers.”

On April 28, 2010, Axene Health Partners, LLC (“Axene”), the actuarial firm retained by the Department to analyze Anthem’s rate change filing, issued a report containing its findings. In short, Axene found that Anthem’s actuarial calculations and methodology were flawed which resulted in inflated total lifetime loss ratios. This, in turn, resulted in a finding by the Department that Anthem had attempted to charge consumers 50% more than state law allows. In response to these findings, Anthem withdrew its rate change filing.

The press release issued today by the Department indicates that, in light of Axene’s findings with respect to Anthem’s rate change filing, the Department will require that, in addition to the actuarial review conducted internally by the Department, the four major health insurers’ rate change filings be scrutinized by an outside actuarial firm to ensure accuracy and compliance with state law.  

Currently, Axene is reviewing rate change filings made by Aetna and Blue Shield, and will no doubt be reviewing Anthem’s anticipated rate change re-filing, as well as any future rate change filings made by Health Net.


California Insurance Commissioner Issues List of 296 Insurers Refusing to Agree Not to Invest in "Iran-Related" Companies

Earlier today, California Insurance Commissioner Steve Poizner issued a press release advising that more than 1000 insurers licensed to do business in California have agreed to a voluntary moratorium as to future investments in companies that do business in Iran. 

At the same time, Commissioner Poizner released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium. The list of those 296 insurance companies is attached here, and the list of the 50 “Iran-related” companies, as found on the Department’s website, is also attached here.

Our blog previously reported on this issue after Commissioner Poizner first announced his Terror Financing Probe back in June 2009, and shortly thereafter issued a Data Call on July 2, 2009, to all insurers admitted in California seeking information on their investments in or related to Iran. As stated in the press release issued today:

100 percent of the 1,306 insurance companies licensed in California responded to his request to provide data on their investments with companies doing business with Iran’s, nuclear, defense, and energy sectors.

This has been a controversial issue in California over the past year, and it is unclear, now that this list of 296 has been generated, how far Commissioner Poizner, who is currently running for the Republican nomination for Governor, will pursue matters with respect to insurance companies that have refused to agree they will not make any future investments in companies that do business with Iran. 

Today’s press release provides no clue, other than to note that as of March 31, 2010, the California Department of Insurance “disqualified an estimated $6 billion in holdings in the 50 Iran-related companies” (based on 2008 data). 

Among the questions facing insurers are the following: 

  • Will the Department seek to have any future investments “disallowed” as part of an insurer’s surplus? 
  • Will the Department order insurers to dispose of such investments? 
  • Does the Department have any legal ability to take any further action? 

Barger & Wolen will continue to follow the Commissioner's activities on this matter.

For more information, please contact Larry Golub at (213) 614-7312 (

From Out of the Blue Comes a Proposed Exemption for Air Ambulance Companies to Avoid California Workers' Compensation Official Medical Fee Schedule


This week, the Administrative Director of the Division of Workers’ Compensation of the California Department of Industrial Relations (“DWC”) proposed a regulation, California Code of Regulations, title 8, Section 9789.70(c), that would completely exempt air ambulance companies from the Official Medical Fee Schedule (“OMFS”) that applies to all other providers who furnish medical services under the California workers’ compensation system.

The DWC’s purported impetus for this abrupt action was “to avoid the hazards and cost of litigation against the Division,” as stated in the DWC’s Initial Statement of Reasons. That Statement further advised that the DWC based its proposed regulation on the contention that the OMFS may likely be preempted by the Airline Deregulation Act of 1978, which it says “prohibits states from adopting or enforcing regulations which have any effect on airline rates of air carriers.”

This issue of preemption by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act of 1978 (“FAA/ADA”), was asserted in a lawsuit filed last year by California Shock Trauma Air Rescue (“CALSTAR”), an air ambulance company rendering services primarily in California. That action, filed in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers, is entitled California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al.  This blog reported on that case on July 30, 2009, after the federal district court dismissed the case, finding that the federal court lacked subject matter jurisdiction over CALSTAR’s claims.  

CALSTAR then appealed the action to the Ninth Circuit Court of Appeals, where the case is now fully briefed and awaiting oral argument.

Apparently not satisfied with the court's decision in its federal court action, CALSTAR threatened to sue the DWC unless it did something to offer relief to CALSTAR and other air ambulance companies.  In an article posted on, the president and chief executive officer of CALSTAR stated that, after having the federal trial court dismiss his company’s action, “we went back to the DWC and said, ‘We’ve been instructed to sue you,’ is what brought this action on their part.” It is clear that the threat of a lawsuit prompted the DWC to issue the proposed regulation and completely exempt CALSTAR and other air ambulance companies from the ambit of the OMFS.  

The defendants in the pending federal court action contend that the FAA/ADA does not preempt the OMFS as it applies to the medical services that air ambulance companies provide in California, and indeed exempting such companies from the scope of the OMFS on preemption ground is anathema to the legislative goals and purposes of the FAA/ADA. Larry Golub and Sandra Weishart of Barger & Wolen LLP represent a number of the defendants in the litigation.

The DWC will be holding a full-day hearing on the proposed regulation in Oakland on Tuesday, April 13, 2010, to receive statements and argument from all interested persons.

"Principal Place of Business" defined by Supreme Court in Hertz Corp vs. Melinda Friend

U.S. Supreme Court Holds "Principal Place of Business" for Federal Diversity of Citizenship Purposes Is Corporations' "Nerve Center"— Where Their Executives Direct and Control Corporate Activities

by Sandra I. Weishart

In a decision closely watched by multi-state corporations, including those in the insurance industry, the U.S. Supreme Court ruled today that a company’s “principal place of business” is where “a corporation’s officers direct, control, and coordinate the corporation’s activities.”  Hertz Corp vs. Melinda Friend et al., a class action which the corporate defendant wished to remove to federal court, presented the following issue:

[w]hether, for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. § 1332, a court can disregard the location of a nationwide corporation’s headquarters – i.e., its nerve center.

In analyzing the issue, the Court first reviewed the history of Section 1332, noting the increasing difficulty, in modern times, of defining a corporation's "principal place of business," which resulted in the application of different criteria and inconsistent precedents among the federal Circuits. Accordingly, in an unanimous opinion authored by Justice Breyer, the Court held:

In an effort to find a single, more uniform interpretation of the statutory phrase [“principal place of business”] this Court returns to the “nerve center” approach: “[P]rincipal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. In practice it should normally be the place where the corporation maintains its headquarters — provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings.

This decision is of particular interest to insurance companies and other corporations with a "nerve center" in another state but which, nevertheless, conduct a significant amount of business in California. In recent years, the Ninth Circuit has imposed increasingly more onerous requirements on corporate entities' ability to remove actions to federal court, if the corporation has employees, offices or property or otherwise conducts business activities here in California. Now, in most cases, removal to federal court will be far more easily accomplished.

Reprieve for Insurers: Medicare Secondary Payer Reporting Requirements Delayed


by Steven Weinstein & Marina Karvelas

The U.S. Department of Health and Human Services (“HHS”) announced on February 16, 2010, that it will extend the deadline for reporting requirements under the Medicare Secondary Payer Act from April 1, 2010 to January 1, 2011. The news provides welcome relief for property and casualty insurers who have been working diligently to meet the new reporting requirements amidst significant uncertainties in implementation.

In addition, the HHS promised it will release during the week of February 22 the next version of its User Guide as well as provide an alert that describes the steps that reporting entities can take to assure their ongoing compliance with the new reporting requirements. 

The Medicare Secondary Payer Mandatory Reporting Requirements

Over two years ago, Congress passed the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”) 42 U.S.C., § 1395y(b)(7)(8). Section 111 of MMSEA added new and significant mandatory reporting requirements for liability insurance (including self-insurance), no-fault auto insurance and workers’ compensation (collectively “NGHPs” or non group health plans) as well as group health plans (“GHPs”). Every settlement, judgment, award, or other payment from insurers to a Medicare beneficiary must be reported to the HHS through its Centers for Medicare & Medicaid Services (“CMS”). Likewise, individuals who receive ongoing reimbursement for medical care through no-fault insurance or workers’ compensation must be reported to CMS.

The new MMSEA reporting requirements do not change existing rules that determine whether Medicare or another payer is the primary or secondary payer with respect to the Medicare beneficiary. The goal behind the new reporting requirements is to enable the HHS through CMS to better obtain necessary information to determine when Medicare’s financial responsibility is secondary, and if so, reduce Medicare payments, or if already paid, recoup them. In this regard, Medicare may recover any conditional payments it has made that should have been paid by the primary insurance plan.

Take for example, an auto accident where the injured party is a Medicare beneficiary. If that Medicare beneficiary has available auto liability or no-fault auto insurance to cover medical expenses, payments under those policies are primary to any Medicare payments for such expenses. In fact, Medicare is always a secondary payer to liability insurance (including self-insurance), no-fault insurance, and workers’ compensation.

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2009 California Legislative Update

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.


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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24-Hour Health Coverage Draws Industry Fire

An amendment introduced by Sen. Jay Rockefeller, D-W.Va. to require “24-hour health coverage”* has drawn industry fire, according to an article, Another Health Care Amendment Draws P&C Industry Fire, by Arthur D. Postal.

In a letter to the Senate Finance Committee, which was not expected to take up the amendment today, the p&c industry argues that, “the amendment would upend the systems now in place to protect injured workers, drivers and passengers.”

The insurers added that the 24-hour coverage concept “would destroy the healthy and competitive auto insurance marketplace.”

According to a lobbyist for the American Insurance Association, the amendment is not likely to be taken up by the committee, although it has been officially filed.

In a bulletin to members, the Independent Insurance Agents and Brokers of America said the work on language in the legislation in the Senate panel was supposed to be completed this week, but “the markup could very well slip into next week and potentially beyond.”

The letter, delivered to all members of the Senate Finance Committee was signed by:

  • American Insurance Association
  • Council of Insurance Agents and Brokers
  • Independent Insurance Agents and Brokers of America
  • National Association of Health Underwriters
  • National Association of Mutual Insurance Companies
  • Property Casualty Insurers Association of America

* Twenty-four hour health coverage typically refers to a coordinated system of health care delivery, whereby a person receives all medical care for injuries and illnesses from a single health care provider.


Producer Groups Critical of Proposed New York Producer Compensation Transparency Regulation

Certain producer group representatives have publicly criticized the current version of the proposed Producer Compensation Transparency Regulation (the “Proposed Regulation”) that was forwarded recently by the New York Insurance Department (“NYID”) to the Governor’s Office of Regulatory Reform (“GORR”) for review. As discussed in our September 14, 2009, Client Alert, if the Proposed Regulation becomes effective it will apply to all insurance producers that transact business in New York. 

In a September 15, 2009, P&C National Underwriter article N.Y. Comp Regulation Proposal Unacceptable, Says IIABNY, the Independent Insurance Agents & Brokers of New York  objected, among other things, to the Proposed Regulation’s requirement that producers explain to their customers whether they are functioning as an agent or a broker and how these legal classifications affect the producer’s compensation, saying such a technical discussion would engender confusion amongst consumers. Representatives of IIABNY have also criticized the Proposed Regulation’s ambiguity regarding the disclosure rules that apply to policy renewals.


The spokesman for IIABNY raised the possibility that producer groups might institute legal action if the State did not agree to make necessary revisions to the Proposed Regulation.

In addition to IIABNY, spokespersons for the Independent Insurance Agents & Brokers of America, the National Association of Professional Insurance Agents and the Council of Insurance Agents & Brokers have also criticized certain aspects of the Proposed Regulation.

Harvey Rosenfield Seeks Initiative to Prohibit Broker and Installment Fees

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 and/or (213) 614-7304.


New CMS Model Language Leaves Critical Questions Unanswered

Medicare Secondary Payer Mandatory Reporting Requirements Applicable to All Liability, No-Fault and Workers’ Compensation Insurers

On August 31, 2009, the Centers for Medicare & Medicaid Services (“CMS”) posted an “ALERT” entitled “Compliance Regarding Obtaining Individual HICNs and/or SSNs” and an accompanying Model Language Form (the “Model Form”) to the CMS web site that is intended to provide liability, no-fault and workers' compensation insurers (collectively, “NGHP Insurers”) with guidance from the agency concerning how such entities may collect the personal information from injured claimants that each NGHP Insurer, in its capacity as a Responsible Reporting Entity (“RRE”), is required to begin reporting to CMS pursuant to The Medicare, Medicaid and SCHIP Extension Act of 2007 (the “Act”).

The Act requires all NGHP Insurers to file specified data electronically with CMS with respect to all claims involving an injury to a Medicare beneficiary where the judgment, settlement, award or other payment date is January 1, 2010, or subsequent. Such NGHP Insurers are likewise obligated by the Act to report claims for which the insurer possesses an ongoing responsibility to pay for medical services (“ORM”), existing as of July 1, 2009, and subsequent, even if the date of the initial acceptance of ORM occurred prior to July 1, 2009. Please note that each NGHP Insurer has until September 30, 2009, to complete its registration with CMS as an RRE pursuant to the Act.

The newly published ALERT states that the Model Form is intended to create a safe harbor for NGHP Insurers reporting under the Act in that

CMS will consider the reporting entity compliant for purposes of its next Section 111 file submission if . . . a signed copy of the  . . . [Model Form] is obtained (even if the individual is later discovered to be a Medicare beneficiary . . . .

Problematic Aspects

  • The ALERT does not address the situation (likely to be fairly common) when an injured claimant simply declines to return the Model Form to the reporting NGHP Insurer. The clear implication of the ALERT is that the safe harbor would not apply in such a scenario, thus creating a compliance risk for the reporting NGHP Insurer.
  • The ALERT requires the NGHP Insurer to continue to obtain an additional executed Model Form from each ORM claimant at least once every 12 months to ensure the continued applicability of the safe harbor to such ORM claim. Again, this places the reporting NGHP Insurer in the uncomfortable position of requiring performance by the claimant to maintain its safe harbor status.   

We note that these issues, as well as other aspects of the Act’s reporting requirements, are complex and present difficult interpretative issues.

For further information regarding NGHP Insurers’ obligations under the Act, please contact Dennis C. Quinn at 212-655-3878 or

Insurance Commissioner Poizner Denies WCIRB's Request for An Increase in the Workers' Compensation Claims Cost Benchmark

Insurance Commissioner Steve Poizner today rejected a rate application from the Workers’ Compensation Insurance Rating Bureau (WCIRB) to raise the Workers’ Compensation Claims Cost Benchmark by 23.7 percent. This was contrary to what was hoped for by workers' compensation insurers.

Based on testimony received in June hearings, the Commissioner noted that he believes that an increase in the cost benchmark would lead to increased worker’s compensation premiums for small business. More specifically, the Commissioner sternly noted,

[m]y response to this requested record increase by workers' comp insurance companies is this – no. I will not include avoidable costs in the Benchmark.

The Commissioner further explained,

[b]ecause of the faltering economy, record unemployment levels, and objections to the proposed increase from employers, I have focused on whether insurers and other parties in the workers' comp system are exhausting every available avenue to control costs before granting any increase to the Benchmark.

With regard to the controlling of costs, following hearings last month, the Commissioner issued a 27 point outline of means in which costs can be trimmed by workers compensation insurers. That outline can be found here. The Commissioner further noted that he expects insurers to implement the efficiency procedures he outlined before a re-application for a cost benchmark increase.

Today’s denial of the cost benchmark is consistent with the Commissioner’s recent treatment of such requests over the past several years – as he has routinely either denied the requests outright or allowed for a minimal increase, despite much larger requests.

2009 WC Benchmark Proposed Decision and Proposed Order

2009 WC Benchmark Addendum Report

2009 WC Benchmark Decision and Order

Welcome to Our Blog

We are very pleased to welcome you to the Barger & Wolen Insurance Litigation & Regulatory Law Blog.

The rapid adoption in the use of Web 2.0 technology will allow us to bring our clients and friends timely and time-sensitive information in those areas in which our firms practices and hopefully of interest to those of you that visit our blog.

We hope that the Insurance Litigation & Regulatory Law Blog will become a resource for clients and attorneys by providing legal commentary, case updates, articles, and news and law updates covering the ever-burgeoning areas of insurance litigation and insurance regulation.

We look forward to blogging on topics including: bad faith, insurance industry class actions, insurance claims, coverage (including primary insurance, excess and umbrella coverage), state and federal insurance regulation, as well as state and federal legislation.

While our primary focus is California law, the blog will also address those important topics arising throughout the country.

We hope to create a forum for our readers to express opinions on the issues and topics addressed in this blog.

We trust you will find this blog to be a useful resource and we look forward to your comments and feedback. 

Larry M. Golub
Barger & Wolen LLP


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Event Cancellation and Non-Appearance Insurance Questions Surrounding Michael Jackson's Death

Having spent my professional life representing insurers in disputes arising out of the various aspects of their businesses, I sometimes can't help but view current events such as Michael Jackson's premature death through a slightly different prism than the normal person.

For example, what do the PGA and Michael Jackson have in common? In all likelihood, event cancellation and non-appearance insurance has been purchased to insure against the risk that their various events are cancelled. I cannot help but think about all of the various insurance questions that Michael Jackson's death creates.

For example, currently pending in Los Angeles Superior Court is a lawsuit filed by Toni Braxton against Lloyd's of London. Ms. Braxton alleges that Lloyd's is refusing to pay for losses associated with her cancellation of live performances at Las Vegas' Flamingo Hotel when she was hospitalized for microvascular angina. According to Ms. Braxton's complaint, Lloyd's is refusing to pay because it asserts that the hospitalization was related to a pre-existing condition that was not disclosed to Lloyd's.

What similar insurance issues could arise out of Michael Jackson's death? Did he have any preexisting conditions that could be the basis for rescinding any insurance policies?   What was and what was not disclosed in the insurance applications? What questions were asked in the insurance applications?

Of course, the insurance questions will not be limited to just whether there is coverage or not. There will be questions regarding what exact losses were covered.

For example, late last year, Lloyd's won a legal battle with Defeat the Beat, a corporation that hosts annual marching band competitions for historically black colleges in Defeat the Beat v. Underwriters at Lloyd's of London, 669 S.E.2d 48 (2008). Weather had caused delays during the 2004 marching band competition and, as a result, a number of attendees left with attendance being down 35% from the prior year. Lloyd's paid Defeat the Beat approximately $37,000 for non-refundable costs and expenses due to the weather interruption but refused to reimburse Defeat the Beat for its lost revenue due to the low attendance. Lloyd's successfully argued that it had no contractual duty to pay for this lost profit because loss of revenue and/or profit was not listed on the schedule of benefits.

There will certainly be similar questions arising from The King of Pop's recent passing.