Year in review: Significant insurance law decisions from 2020

In 2020 California courts rendered a number of significant decisions regarding insurance. These include decisions addressing when an excess insurer must pay, choice of law, the breadth of coverage for additional insureds, and the standards governing an insurer broker's liability to its insureds.

In Montrose Chemical Corp. v. Superior Court, 9 Cal. 5th 215 (2020), the California Supreme Court addressed the question of what excess policies an insured can ask to pay claims arising under multiple years of insurance. Each of the excess policies states that the insured must exhaust the limits of its "underlying insurance" before the excess insurer must pay. The insurers argued for a "horizontal" exhaustion approach under which an excess policy in one year would not need to pay until all excess insurance policies at lower levels (i.e., whose liability would attach at a lower dollar amount) in all potentially applicable years paid. The insured argued that it could ask any excess policy to pay as long as the underlying excess policies in that particular year had paid. The court agreed with the insured. It adopted the "vertical exhaustion" rule, holding that "the insured has access to any excess policy once it has exhausted other directly underlying excess policies with lower attachment points."

In SantaFe Braun, Inc. v. Insurance Co. of North America, 52 Cal. App. 5th 19 (2020), the court of appeal addressed a question not answered in Montrose -- whether an insured that has incurred continuous losses covered by multiple policy periods must exhaust all potentially applicable primary policies before an excess policy must pay. The court held that "exhaustion is required only of primary policies that overlap with the policy period of the excess policies." As the court explained, unless an excess policy explicitly states otherwise, "the insured becomes entitled to the coverage it purchased from the excess carriers once the primary policies specified in the excess policy have been exhausted."

In Textron, Inc. v. Travelers Casualty & Surety Co., 45 Cal. App. 5th 733 (2020), the insured sought coverage for an underlying lawsuit alleging injuries from exposure to asbestos. It argued that California law governed. However, the insured had previously argued in a lawsuit it brought in Rhode Island that Rhode Island law governed the interpretation of its insurance policies to environmental claims. The insurer argued that collateral estoppel mandated that Rhode Island law applied. The court disagreed. It said that the issue before it was not whether the insured sought and received a ruling that Rhode Island law applied "to interpret the same policy language." Instead, the question was "whether the Rhode Island ruling that Rhode Island law applied to interpret the ... policies decided the identical choice of law issue presented here." The court held, "It clearly did not." It explained that the [underlying] action involves an alleged occurrence of continuing personal injury ... suffered by a single California resident from exposure to asbestos in California, caused by Textron's activities in California." The court then applied California law, which resulted in more coverage being provided to the insured than would have been allowed under Rhode Island law.

In Truck Insurance Exchange v. AMCO Insurance Co., 56 Cal. App. 5th 619 (2020), the court addressed, among other questions, the scope of coverage for an additional insured. The landlords of a restaurant were named as additional insureds under the tenant's insurance policy. Patrons injured when a car crashed into the restaurant sued both the landlords and the tenant. The landlords claimed coverage, pointing to a provision in the tenant's policy stating that they were insured "with respect to their liability arising out of [the tenant's] use of that part of the premises leased to" the tenant. The insurer argued that the landlords' liability did not arise out of the tenant's use of the property, but rather out of the landlords' negligent reconstruction of the property after a prior accident. The court found that this did not matter. It pointed out that the California courts "'have consistently given a broad interpretation to the terms "arising out of"'" in the policy and that this language "'does not import any particular standard of causation or theory of liability into an insurance policy.'" Therefore, it held that the fact that the accident was not attributable to the tenant's negligence "'is irrelevant when the additional insured endorsement does not purport to allocate or restrict coverage according to fault.'"

In Murray v. UPS Capital Insurance Agency, Inc., 54 Cal. App. 5th 628 (2020), the court addressed an issue of first impression with respect to an insurance broker's duties to an insured. The insured claimed that its insurance broker procured a policy for it that did not cover the risks of damage to cargo in transit absent a catastrophic loss. It argued that when an insurance broker holds itself out as having expertise in a particular kind of insurance, it owes ta heightened duty to advise the insured of what insurance is available and any limitations in the policy. The court noted that generally, a broker assumes only the duties of "'reasonable care, diligence, and judgment in procuring the insurance requested by an insured.'" However, it explained that a broker "may assume a greater duty to the insured" when it "'misrepresents the nature, extent or scope of the coverage,'" the insured requests or asks about a particular type or extent of coverage, or the broker "'assumes an additional duty by either express agreement or by "holding [it]self out" as having expertise in a given field of insurance being sought by the insured.'"

The court then explained: "While general insurance brokers should continue to benefit from the public policy of protecting them from becoming '"a blanket insurer for his principal"', the same cannot be said for [the] emerging group of highly specialized insurance brokers/agents" who "have developed expertise and skill sets tailored to their particular specialty." Therefore, it held that "evidence of specialization at a minimum creates a reasonable inference the agent/broker anticipates their clients will rely on their acknowledged expertise and supports courts imposing an extended duty." This holding has potentially far-reaching benefits for insureds that rely on their brokers to procure coverage for specific types of risks or in particular industries. In such situations, when insureds find they have disputes with their insurers or that they have gaps in coverage, they may turn to their insurance brokers to recover the fees they incur in those coverage disputes or to fill those gaps in coverage. See, e.g., Third Eye Blind, Inc. v. Near N. Entm't Ins. Servs., LLC, 127 Cal. App. 4th 1311, 1325-26 (2005) (insured entitled to recover from broker fees incurred in litigation with insurer even though it prevailed in litigation). 

Kirk Pasich is the managing partner of Pasich LLP. He represents insureds in complex coverage matters.