Insurance Coverage Rights Now Easier to Transfer in California

Advise & Consult, Inc. | August 31, 2015

Overturning a 2003 California Supreme Court decision in Henkel Corp. v. Hartford Accident & Indemnity Co., 29 Cal. 4th 934, the California Supreme Court ruled in Fluor Corp. v. Superior Court, No. S205889, 2015 WL4938295 (Cal. 2015) that an insurer is precluded from refusing to honor an insured’s assignment of right for past losses that occurred during the policy period.

This decision obviously swings the pendulum back into favor of policyholders and removes a huge obstacle in claims coverage.  This will also be mark a change of how business in conducted by those companies looking to restructure or sell corporate divisions and for those cases defending losses which arose prior to the corporate reorganization or sale.  During the Henkel years, insurance companies dealing with property damage, environmental damage, or personal injury were not allowed to rely on the on any insurance that was purchased by the preceding company – depending on the sales and corporate restructuring.  Now, due to the Flour ruling, companies will have more flexibility in those corporate structuring and for those instances where companies reorganized prior to Henkel in cases needing insurance for product or long-tail environmental liability.

In an article by Thomas M. McMahon, Joren S. Ayala-Bass, and Allison Zamani, they provide further details in this case and its repercussions:

Summary of the Case


Hartford Accident and Indemnity Company (Hartford) issued liability policies to Fluor Corporation (Fluor) from 1971 to 1986. During this policy period, a number of asbestos-related lawsuits were filed against Fluor. Hartford defended the lawsuits and continued to defend asbestos-related lawsuits for a time even after the expiration of the policy period.


In 2000, Fluor restructured into two companies: Massey Energy Company (Massey) and a new Fluor, referred to as Fluor-2. Fluor-2 sought recovery from Hartford, which Hartford denied pursuant to an anti-assignment clause in the policy.


Pursuant to the California Supreme Court’s decision in Henkel, Hartford’s anti-assignment clause operated to void Fluor-2’s interest in the policy until there was a “chose in action,” occurring only when the claims against Fluor had matured to an actual monetary loss due under the policy. During litigation, Fluor identified a California statute enacted in 1872 and cited only once since, which was completely ignored by both the parties and the court in Henkel, which also appeared to directly contradict the ruling in Henkel. The statute, section 520 of the California Insurance Code, voided anti-assignment provisions purporting to limit an insured’s right to transfer its interests where the loss took place before the transfer: “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.”


In litigation between Fluor and Hartford, both the trial court and the Court of Appeal found for Hartford, explaining that they were bound by Henkel. In Fluor, a unanimous California Supreme Court reversed the lower courts and overruled Henkel. The court found that Hartford’s consent was not required for Fluor to transfer its rights to Fluor-2, holding “section 520 bars an insurer from refusing to honor an insured’s assignment of policy coverage regarding injuries that predate the assignment.” As the court concluded, “after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss.”

Do Insurance Adjuster’s Need Personal Liability Insurance?

Advise & Consult, Inc. | August 28, 2015

This very question has just recently been addressed in a Texas federal court.  After a storm caused damage resulting in the insurer making a commercial property policy claim and the insurance company hiring an adjuster to investigate the claim, the insured are claiming that this adjuster hired an engineer and contractor that were known for opinions that benefited insurance companies and refused to identify structural damage that was covered under the policy, and not responding to inquiries by the insured about the status of the claim and payment.  Further claims against the insurance adjuster actions were “the producing cause(s) of injury and damage to Plaintiff” which resulted in the Plaintiff suffering “actual damages, economic damages, and consequential damages.”

As defined by the Insurance Code, when an individual has been damaged by “unfair methods of competition or unfair or deceptive acts or practices in the business of insurance” may bring action against the “person or persons engaging in such acts or practices.”  These acts or practices would include “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.”  The Insurance Code also defines a “person” as any “legal entity engaged in the business of insurance, including an … adjuster.”

Shane S. Smith discusses this ruling further in a recent article – here is part of that article.

The court discussed other Texas state and federal courts that have addressed similar claims:


Both the Texas Supreme Court and the Fifth Circuit have recognized that an insurance adjuster may be held individually liable for violating chapter 541 of the Insurance Code. Liberty Mutual Ins. Co., v. Garrison Contractors, Inc., 966 S.W.2d 482, 486 (Tex.1998) (concluding based on chapter 541’s definition of a “person” that an individual employee of an insurance company may be held liable for violations of the chapter, so long as the employee is “engage[d] in the business of insurance”); Gasch, 491 F.3d at 282 (“Texas law clearly authorizes [chapter 541] actions against insurance adjusters in their individual capacities.”) (citing Liberty Mutual, 966 S.W.2d at 486). Following their lead, numerous lower courts, including this Court, have specifically found that an adjuster may be held personally liable for engaging in unfair settlement practices under provision 541.060 of the Texas Insurance Code. See Esteban v. State Farm Lloyds, 23 F.Supp.3d 723, 729–31 (N.D.Tex.2014); Yeldell v. GeoVera Specialty Ins. Co., No. 3:12–CV–1908–M, 2012 WL 5451822, at *4 (N.D.Tex. Nov.8, 2012); Campbell v. Hartford Lloyd’s Ins. Co., 3:05–CV–1180–B (N.D.Tex. Nov. 29, 2005) (Boyle, J., presiding);Blanchard v. State Farm Lloyds, 206 F.Supp.2d 840, 847 (S.D.Tex.2001); Shipley v. Nat’l Fire Ins. of Hartford, No. 3:95–CV–0972–BC, 1998 WL 355493, at *3 (N.D.Tex. June 25, 1998) (Boyle, J., presiding).


Despite the abundance of case law supporting adjuster liability under § 541.060, however, a few courts have recently begun to question the appropriateness of holding an adjuster individually liable for unfair settlement practices under § 541.060. See One Way Investments, 2014 WL 6991277, at *4–5 (N.D.Tex. Dec.11, 2014); Messersmith v. Nationwide Mut. Fire Ins. Co., 10 F.Supp.3d 721, 724 (N.D.Tex.2014). These courts reason that an adjuster cannot be liable for violating those provisions of § 541.060 specifically referring to the settlement or paying of claims, because an adjuster “does not have settlement authority on behalf of [the insurance company]” and his or her “sole role is to assess the damage.” Messersmith, 10 F.Supp.3d at 724; see also One Way Investments, 2014 WL 6991277, at *4–5 (citing Messersmith, 10 F.Supp.3d at 724). But while the courts’ reasoning in these cases has some logical appeal, a closer examination of the precise language of § 541.060(a)(2)(a) and the role played by insurance adjusters in the claims handling process belies their conclusions.


Section 541.060(a) (2)(A) prohibits those engaged in the business of insurance from “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement.” Tex. Ins.Code Ann. § 541.060(a)(2)(A) (emphasis added). Webster’s defines the word “effectuate” by reference to the definition for “effect,” meaning “to cause to come into being” or “to bring about.” Merriam–Webster’s Collegiate Dictionary 397 (11th ed.2007). The fact that the statute uses the word “effectuate” rather than a word that conveys finality (e.g., finalize), suggests that its prohibition extends to all persons who play a role in bringing about a prompt, fair, and equitable settlement of a claim.


As the persons primarily responsible for investigating and evaluating insurance claims, insurance adjusters unquestionably have the ability to affect or bring about the “prompt, fair, and equitable settlement” of claims, because it is upon their investigation that the insurance company’s settlement of a claim is generally based. See Arana v. Allstate Texas Lloyds, No. 3:13–CV–0750–D, 2013 WL 2149589, at *5 (N.D.Tex. May 17, 2013) (“Adjusters play a role in the investigation, estimation, and settlement of insurance claims.”); Vargas v. State Farm Lloyds, 216 F.Supp.2d (S.D.Tex.2002) (noting that the adjuster “engages in the business of insurance by investigation, processing, evaluating, approving, and denying claims”). As such, a delay in an adjuster’s investigation will undoubtedly cause a delay in the payment of the claim, and an insufficient investigation may well lead to a less than fair settlement of a claim.5


Therefore, in Linron, the court found that the insured’s allegations sufficient to support a claim against the adjuster individually.

Construction Defects in Tile and Removal Doesn’t Cover Remediation Work

Advise & Consult, Inc. | August 27, 2015

A California law applied in a federal district court in denying coverage for remediation work when defective tiles needed to be replaced in Am. Home Assur. Co. v. SMG Stone Co., 2015 U.S. Dist. LEXIS 75910 (N. D. Cal. June 11, 2015).

When a developer discovered fractures in some of the stone tile that was installed by a subcontractor, he requested that those tiles be removed and replaced.  Due to the process of removing these tiles, portions of drywall and concrete subfloor that was installed by other subcontractors also needed to be replaced.  The developer then sued the subcontractor, who then passed the claim on to its insurer, which denied the coverage and filed for declaratory judgement on the basis that there is no coverage for the floor tile fracture claims.

Tred Eyerly discusses this further in a recent article:

On cross-motions for summary judgment, the court first found that the fracturing of the stone floor tiles caused by the subcontractor’s defective installation was the result of an “occurrence.” There was no evidence that the subcontractor knew that its tile installation work was defective before the tiles fractured. Instead, the fracturing was an unexpected consequence of the defective installation.

But there was no “property damage.” For the subcontractor to prevail, the defective installation work had to be considered separate and distinct from the physical manifestation of the defective work. Under California law, coverage resulted from construction defects that involved physical injuries to other parts of the construction project. Here, damage to the subfloor and the drywall did not result from the defective floor tile work, but from the remediation of the defective floor tile work. Remediation work did not constitute property damage under California law.

Nor did loss of use create property damage. The case law indicated that a mere delay in the completion of the project and sale of the residences did not constitute “loss of use.”

Finally, even if the costs arising from the fractured floor tiles constituted “property damage,” Exclusions J (5), J (6) and (l) would bar coverage. Exclusion j (5) did not apply when faulty workmanship directly caused damage to other parts of the property that were not being worked on by the subcontractor. Such was not the case here. Exclusion j (6) did not apply when the subcontractor had to replace the tile because its “work” was “incorrectly performed on it.” Moreover, the products-completed operations hazard exception was not applicable because the units had not yet been put to their intended use when the fractured tiles were discovered.

Finally, Exclusion l, barring coverage for “your work” that is defective or actively malfunctions, applied because the tiles fractured when they were not installed properly. The “malfunction” of the tiles in the form of fracturing could not be separated from the subcontractor’s defective tile installation work.

Because there were no genuine issues of material fact as to the potential for coverage, there was no duty to defend.


Sidewalk Jogger Sues for Personal Injury

Advise & Consult, Inc. | August 26, 2015

Lancaster County District Judge Andrew Jacobsen, in Nebraska, dismissed Dawn Amory’s lawsuit which blamed Lincoln, Nebraska officials for not finding and then fixing a section of sidewalk tile that was raised approximately one inch.

Amory’s suit against the city was for more than $19,000 for medical expenses that she incurred after tripping and falling which resulted in a broken pelvis four years ago.

Part of the reason for the dismissal was that Amory didn’t show any neglect by the city in any of its 1,500 miles of sidewalks that it maintains.  Also, no one prior to this incident, complained about this or similar problems and that Amory herself had run through this same area at least 20 times prior to the day that resulted in her broken pelvis.

There is a greater burden of proof that is placed on the victim in these types of cases.  Municipalities, as well as our taxes, would be stretched beyond recognition if they were to not only find, but then repair or replace, and “prevent” every possibility that could cause someone injury.  There is already a certain amount of stretching that cities currently do in defending these types of cases.

Most states have a “first notice” statute which must first make these officials aware of possible dangerous conditions and then a reasonable amount of time for them to remedy the situation.  This would be similar to the timeframes for snow removal and how often they must plow and re-plow.

Regardless of the situation, the experts at Advise & Consult, Inc., are ready to help in your personal injury case.  We have an unbiased track record as expert witnesses in representing victims, municipalities, commercial properties, residential properties and homeowner associations, as well as work site injuries in matters where some aspect of construction has come into question in the safety of the property.  We are happy to talk with you and look into your case for you.

Building Codes: Better Codes or Better Enforcement?

Advise & Consult, Inc. | August 25, 2015

Building codes have often been defined as the lowest (easiest, cheapest) possible accepted way of completing a particular construction task.  Obviously money is one of the factors – it always is, and that doesn’t figure to change any time soon.  But, do we need to raise the bar on the current building codes or just enforce the building codes that we currently have?

Federal Alliance For Safe Homes (FLASH) is a nonprofit group that recently released a paper calling for putting “innovative disaster resilience policies in place ahead of the next disaster.”1  This paper outlines six proposals to the current U.S. building code system.  These six proposals, while valid in increasing building quality, safety and withstanding disaster damage, fall short in two main areas: funding and enforcement.

Phillip Sanov recently posted this question – here is an excerpt:

Better Enforcement of Existing Codes?

Public adjusters and general contractors often and repeatedly tell me that insurance carriers don’t properly pay building code coverage due to lack of enforcement. Consider the following scenario, a not uncommon occurrence in both residential and commercial claims we’ve handled:

  1. The insurance company acknowledges a roof needs total replacement;
  2. The policy contains adequate building code coverage;
  3. The roof decking also needs replacement due to building code requirements;
  4. The carrier denies paying for roof decking due to a lack of “direct physical damage;”
  5. The PA/GC invokes building code coverage; and
  6. The carrier still denies roof decking payment because the building inspector office does not enforce the building code.
  7. No enforcement = No coverage.
  8. Now what?!?

What Does This Mean For Me?

If you handle claims in a jurisdiction with inconsistent or inadequate building code enforcement, consider taking the issue up-the-food-chain. We’ve seen instances in which the City Attorney and/or City Council have been instrumental in achieving the enforcement that leads to proper coverage. A solution likely exists, so keep striving to find it.