Deck Police – The New Mandate for HOA’s Takes Safety to the Next Level

Joseph A. Ferrentino | Newmeyer Dillion | November 7, 2019

A recent California law will hold homeowners’ associations accountable for the safety of their decks. SB326 now mandates all homeowners’ associations to have decks inspected at least once every nine years by an architect or structural engineer to determine whether the decks are safe and waterproof. This law (Civil Code section 5551) follows SB721 which was passed in 2018 and requires a similar inspection every six years for other multifamily dwelling units. Failure to comply can result in paying the enforcement costs of local building agencies.

Details on the Mandate:

More specifically, the 2019 law requires inspections of wood “decks, balconies, stairways, and their railings” more than six feet off of the ground and designed for human use. Additionally, the engineer or architect must (1) certify that he or she has inspected for safety and waterproofing, and (2) certify the remaining useful life of the system. Further, the inspector must inspect a random sample of enough units to provide 95% confidence that “the results are reflective of the whole.” In other words, in addition to the inspector, the association will have to hire a statistician.

The nine-year timetable for inspection is no coincidence. After all, the statute of limitations for construction defects is ten years. In fact, associations are required to give notice to their members before filing a suit against a builder. However, under the new law, the association can delay giving notice to its members “if the association has reason to believe that the statute of limitations will expire.” Also, recent case law held that builders could add requirements to CC&R’s to limit a board’s authority to file lawsuits – i.e. adding a supermajority vote by members. Under SB326, any such provisions are now void. Hence, “supermajority” voting provisions are now invalid.

Impact on Construction Litigation

These recent laws are clearly a reaction to the tragic collapse of an apartment balcony in Berkeley in 2015 that resulted in the death of six college students. While it is imperative that decks be structurally safe, the requirements of SB326 will fuel more construction defect litigation.

Prohibited Insurer Conduct and Unfair Acts Expressed Through California Case Law – Another Quick Guide to Holding an Insurer Accountable

Victor Jacobellis | Property Insurance Coverage Law Blog | October 26, 2019

In California, a carrier’s bad faith liability includes conduct beyond what is set out in the Insurance Code (statutory) and the Fair Claims Settlement Practices Act regulations. Bad faith conduct is also expressed through case law. Some of this additional bad faith conduct is summarized below. Effectively communicating an insurer’s bad faith conduct is essential to resolving insurance disputes. When you see bad faith conduct, a best practice is to bring the conduct to the carrier’s attention and explain why such conduct is prohibited.

A summary of some bad faith conduct expressed through case law is as follows:

  • An insurance carrier cannot in good faith deny a claim without performing a thorough investigation. Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819; Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 721; Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072. An insurer’s duty to investigate continues even after a lawsuit concerning coverage is filed. Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1076, f.n. 7.
  • An insurer has duty to objectively evaluate a claim. An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured. Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1624. This is especially true if an insurer denies a claim before its insured was given a change to provide information to support a claim. Blake v. Aetna Life Ins. Co. (1979) 99 Cal.App.3d 901, 924.
  • An insurer’s failure to reconsider a denied claim after it receives new information can also be bad faith conduct. Austero v. National Cas. Co. of Detroit, Mich. (1978) 84 Cal.App.3d 1, 35.
  • It is improper for an insurer to attempt to settle a claim by making an “unreasonably low,” e.g., a “low-ball” or “nuisance value” settlement offer. White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 886.
  • An unreasonable delay in the processing of a claim or the payment of benefits is prohibited insurer conduct. Fleming v. Safeco Ins. Co. of America, Inc. (1984) 160 Cal.App.3d 31, 37. If more than two weeks have passed, always inform an insurer of this requirement.

Avoid broadly accusing a carrier of “bad faith” with no other support or directly accusing a carrier of bad faith because of a certain act. Rather, focus on the specific bad faith acts and the authority stating that the conduct is prohibited. For example, resist the urge to state, “You are in bad faith because you have not conducted a thorough investigation.” Rather, try and state the following: “You have an obligation not to deny any portion of a claim without performing a thorough investigation.1 You, however, failed to fulfil this obligation because you knew your insured was obtaining an expert report on the scope of covered damage, yet you denied further coverage before the report was received. The claim therefore should be reopened and the claim further evaluated for coverage”

As always, knowing and monitoring all of these duties will enhance your representation of insureds and build your credibility with carriers.
1 Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819.

An Example of Why Policyholders Need Favorable and Strong Bad Faith Laws

Daniel Veroff | Property Insurance Coverage Law Blog | October 19, 2019

Our Northern California office is battling the big insurers for their conduct in response the 2017 NorCal Wildfires, and recently some of our clients received letters purporting to be a “friendly reminder” from their insurance company. Well, they were actually not so friendly. Instead, they are kind of a punch to the gut.

The letter I am referring to was sent by USAA insurance, who we all know markets themselves as providing above-average service to some of our most honored citizens, servicemembers and veterans. The letter explains its purpose as follows:

We write this letter to summarize the current status of the claim and as a friendly reminder regarding various time related obligations you have under the policy governing your claim.

So, the letter is a “friendly reminder” about deadlines, right? Wrong. It is a sugar-coated gut-punch stating that sorry, you are out of time to rebuild or replace. These letters are dated more than two years after the anniversary of the wildfires, and they go on to state:

In order to recover additional amounts under your homeowners policy or any endorsements, including the Home Protector and recoverable depreciation under the replacement cost coverage, you must complete the actual repair or replacement of the damaged property within 2 years of the date of loss, unless during this time, you send us a written request for an extension for an additional 180 days to complete the repair or replacement.

USAA could have sent this “friendly reminder” a few months before the two-year deadline. Then it really would have been “friendly,” because it could have actually given insureds meaningful insight into what next steps they should take. But instead USAA waited until after, when there is nothing the insured could do except realize they are out of luck.

But that’s not all! It is not even true that an insured has two years from the date of loss to rebuild! The statement itself is an egregious misrepresentation of California law. California Insurance Code Section 2051.5(b)(1) provides:

(b) (1) Except as provided in paragraph (2), no time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit. Additional extensions of six months shall be provided to policyholders for good cause. In the event of a loss relating to a “state of emergency,” as defined in Section 8558 of the Government Code, no time limit of less than 24 months from the date that the first payment toward the actual cash value is made shall be placed upon the insured in order to collect the full replacement cost of the loss, subject to the policy limit. Nothing in this section shall prohibit the insurer from allowing the insured additional time to collect the full replacement cost.

Equally bad, USAA’s letter is in direct contradiction to the California Standards For Prompt, Fair and Equitable Settlements, which requires it to give sixty (60) days notice before any deadlines run:

(f) Except where a claim has been settled by payment, every insurer shall provide written notice of any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim. Such notice shall be given to the claimant not less than sixty (60) days prior to the expiration date; except, if notice of claim is first received by the insurer within that sixty days, then notice of the expiration date must be given to the claimant immediately.

So, what is happening here, in sum, is that USAA is giving its clients a “friendly reminder” that effectively says they are out of time to rebuild or replace, when they are in fact not. How can this be allowed to happen?

When we raise this argument in lawsuits, carriers point to the California Fair Claims regulations at 10 C.C.R. § 2695.4(b), which says:

(a) Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured’s policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer’s additional liability.

Carriers point to this and say, well, we only have to tell you what the policy says, not what California law says. That is, frankly, astonishing, and dead wrong. The key language in this regulation is “that may apply to the claim presented by the claimant.” Thus, it does not matter what the policy says if what it says will not actually apply to the claim. USAA is well-aware that their policy language is trumped by California law and will never apply to the claim.

This is not the first example of a letter like this, but it is the most shocking we’ve seen given its timing in relation to the two-year anniversary of a massive disaster that destroyed so many lives.

So why does this keep happening? The only entity who can legally enforce compliance with the California regulations is the Commissioner of Insurance, and the Commissioner of Insurance has done nothing to stop letters like this. In court, attorneys can cite to the violation of a regulation as evidence of unreasonable claims handling, but that is a far cry from stopping the activity in the first place. Hence, it is our duty to share this with the public in an attempt to educate on what is really going on here.

We have attorneys throughout California to help you with similar bad faith tactics.

California Supreme Court Concludes Notice-Prejudice Rule Applies To Consent Clauses In First-Party Insurance Policies

Andrew B. Downs | Bullivant Houser Bailey | September 30, 2019

When it comes to insurance coverage, one cue to the court’s feelings about an issue is whether it views that issue as a “technicality.” When that happens, good things rarely result. Another cue is when the case turns on an esoteric legal issue of greater interest to academics than people living their daily lives. Pitzer College v. Indian Harbor Ins. Co. (August 29, 2019) combines both of those situations. The result was not good for the insurance industry.

Pitzer College is one of the Claremont Colleges in Southern California. Claremont bought a policy providing coverage for pollution remediation expenses. During the construction of a new dormitory, Pitzer discovered lead contamination on its property. It promptly began remediation activities. It didn’t notify its insurer until some months later after remediation was complete. The insurer denied the claim based on late notice and breach of the policy’s consent to incur expenses clause. The policy had a choice of law clause making New York law applicable to its interpretation and enforcement.

The California Supreme Court was asked to determine (a)Whether California’s notice-prejudice rule, under which an insurer denying on the basis of late notice must prove it was prejudiced, was a fundamental public policy which should be applied notwithstanding a contractual choice of law clause in favor of New York; and (b)whether that notice-prejudice rule should be applied to consent to incur expenses requirements in first-party policies.

Choice of law is a subject which can make both lawyers’ and judges’ brains hurt, but that’s reflective of the fact that the differences in state law can be outcome determinative. California, like most jurisdictions, will enforce contractual choice of law clauses, like the one in the policy here, provided it isn’t (in layman’s terms) really important that California law applies. In this case, if New York law applied, the insurer would win, while if California law applied, the policyholder might win. Under California’s choice of law jurisprudence, a contractual choice of law provision, like the one favoring New York here, won’t be enforced if the result would conflict with California’s fundamental public policy and if California had a materially greater interest in the determination of the issue than New York.

The notice-prejudice rule requires the insurer to prove the policyholder’s late notice of a claim has “substantially prejudiced” the insurer. Here, the California Supreme Court concluded the notice-prejudice rule was a fundamental public policy of California. Because the case reached the Supreme Court on certification from the federal Ninth Circuit Court of Appeals (a way for the federal courts to solicit the state court’s opinion on a question of state law), the Supreme Court wasn’t able to determine whether California had a materially greater interest in determining these issues than New York did.

In the long run, the second issue addressed by the court may be more important. The policy required notice and, in non-emergency situations, consent to the expenditure of funds by the policyholder. Here, the Supreme Court drew a distinction between third-party liability policies where it agreed “no voluntary payment” provisions were enforceable without a need to prove prejudice and first-party policies where it concluded the notice-prejudice doctrine applied. The court reasoned the insurer’s right to control the defense and settlement of claims is paramount in third-party claims, so breaches of the consent clause are inherently prejudicial, but in the first-party context requiring proof of prejudice before denying coverage is appropriate because the failure to obtain advance consent is not inherently prejudicial unlike the situation in third-party claims.

What does this mean for insurers in their day to day operations? First, having a contractual choice of law clause that selects favorable, or at least predictable, law is not a panacea because if the different California law reflects a fundamental public policy in California, the choice of law clause may be disregarded. Second, in a first-party context (and the policy issued to Pitzer is somewhat unusual in that, at least from the policyholder’s perspective, it provided coverage for the voluntary remediation of the policyholder’s own property), the courts will expect some actual, not theoretical, harm, from the failure to give advance notice and obtain consent for expenditures.

California Supreme Court Strikes Blow to Insurers’ Choice-of-Law Provisions

Kevin Brantley and J. Kelby Van Patten | Payne & Fears | September 27, 2019

The California Supreme Court has struck a blow to insurers’ attempts to contract out of more policyholder friendly jurisdictions, holding that the notice-prejudice rule is a fundamental public policy. Pitzer College v. Indian Harbor Insurance Co., 2019 WL 4065521. 

In Pitzer College, the Court analyzed a choice-of-law provision requiring that New York law applies to any policy disputes. New York courts apply a notice rule where an insured forfeits coverage based on late notice regardless of prejudice to the insurer. On the other hand, California courts apply a notice-prejudice rule requiring that an insurer show that it has been prejudiced by the late notice. Given that the notice-prejudice rule is a fundamental public policy, and the notice rule provides an insured fewer protections, the Court determined that New York must have a materially greater interest in determining the coverage issue for the choice-of-law provision to be enforced. This was left to the lower court to decide.

This ruling has a direct impact on how California courts make choice-of-law determinations for insurance policies. Specifically, insurers often include choice-of-law provisions in their policies that ostensibly require resolution of disputes based on the laws of a jurisdiction with little, or no, relationship to their policies. These jurisdictions have no relationship to where the (1) policy is procured, (2) insureds are domiciled, or (3) covered operations occur. Insurers do so because these chosen jurisdictions provide substantially less protection for policyholders than the laws of the jurisdiction substantially related to the policy. Now choice-of-law provisions will not be enforced if a fundamental public policy is implicated and the chosen jurisdiction provides less protection to policyholders. 

This is consistent with what other jurisdictions are doing as well. For instance, the Nevada Supreme Court has held that a choice-of-law provision in an insurance policy is unenforceable unless the forum selected by contract has “a substantial relation with the transaction” and the agreement is “not … contrary to the public policy of the forum” or other interested state. See Daniels v. National Home Life, 103 Nev. 674, 677 ( 1987) (denying effect to choice of law provision in insurance contract as law chosen provides less protection than the insured would receive in Nevada).


Although Pitzer College answers the question about whether the notice-prejudice rule is a fundamental public policy, it remains to be seen what other policyholder protections are also fundamental public policies.  Policyholders should be prepared to continue to face disputes over choice-of-law provisions.