Overlearn Your Deposition

Ken Broda-Bahm | Holland & Hart LLP | February 13, 2017

For the witness preparing for trial testimony, there is one common piece of advice: Study your deposition. In preparation sessions, I will always stress this advice, noting that a thorough knowledge of the deposition is both your sword and shield during trial testimony. Not only does it avoid or blunt the effects of impeachment, it also helps in letting the witness know exactly where opposing counsel is going and why. Of course, most witnesses will review their deposition before trial. But, in my experience at least, fewer witnesses will study that deposition enough. Just having a copy is not enough. Just skimming through it is not enough. Even reading it cover to cover is not enough. Instead, a truly prepared witness will have read it more than once, and will have read it actively in order to have an understanding of the topics covered, the ways the key questions were phrased, and the precise language of the most important answers. When the witness knows the prior testimony at that level, cross-examination is a lot more difficult for opposing counsel.

The problem is that some witnesses, probably most, will stop reviewing the deposition once they feel like they are generally familiar with it. The research, however, shows that they should keep going. A new study (Shibata et al., 2017) focuses on “overlearning,” or “the continued training of a skill after performance improvement has plateaued.” The result is that continuing to study, even after you have that “I’ve got it” feeling, yields some definite benefits. Focused on a learning task, the study found that spending even 20 minutes past the plateau point in learning, lead to significantly greater retention of information. The thinking is that, after we learn something, that knowledge is initially “plastic” rather than “stabilized.” That means that, even though it is well understood at the moment, it is vulnerable and in danger of being overwritten, in effect, by new knowledge. Overlearning seems to combat that vulnerability by locking in the information. According to one of the study authors, Professor Takeo Watanable, “These results suggest that just a short period of overlearning drastically changes a post-training plastic and unstable [learning state] to a hyperstabilized state that is resilient against, and even disrupts, new learning.” So extra review is good advice for anyone trying to learn new information. In this post, I will share a few recommendations for witnesses seeking to know their deposition testimony prior to being examined at trial.

Here are three pieces of advice I think witnesses should take to heart when it comes to learning their depositions.

Review Actively, Not Passively

The advice I hear most often from attorneys is, “Here is a copy of your deposition, make sure you review it.” But if the witness just passively reads it, the way they might read a novel, they are missing out on most of the benefits. Instead of just reading it, the witness ought to actively engage with it. Use sticky tabs to identify all of the topics covered. Make notes on which topics proved to be most troublesome, and therefore most likely to be covered in cross. When you see a key answer that is likely to matter in trial testimony, highlight both the exact wording of the question, and the wording of your answer. Understanding the content at that level provides you with a powerful foundation for not just making it through cross-examination but excelling at it.

Keep Reviewing Even After You Have It

The witness who dreads their upcoming time on the stand, might not read their deposition out of simple psychological avoidance, and that is a bad thing. The witness who truly wants to do well needs to prepare. But preparing means continuing to review, even after the witness is generally familiar with the transcript. The research makes a good point. Continued review, even after one has reached the point of general knowledge, is like adding a second coat of paint: It makes the knowledge stronger and more likely to last.

Take a Break After Your Review

New knowledge is also better protected if you give it time to set. It is like waiting for the paint to dry. That is why information learned just prior to going to bed is more likely to be remembered — because for awhile at least, you are unlikely to learn anything new that would risk overwriting what you just learned. So, review your deposition before going to bed, or take a break after reviewing the deposition. Instead of jumping into more work, or reading something else, do some exercise or listen to music.

Ultimately, it is tough to do too much preparation work in this area. The advice witnesses should be receiving is not just, “Learn your deposition,” but “Overlearn your deposition.”

Related Acts Provisions in Professional Liability Policies

Christopher Fredericks and Gregory S. Mantych | International Law Office | February 7, 2017


Of the various provisions found in insurance policies, few lend themselves to existential exploration more than those concerning ‘related’ acts. What makes two separate acts related? Does the relationship come down to the similarities or the differences? Does one act have to cause or directly lead to the other? Is anything related? Is everything related? These can be tough questions for a graduate philosophy course, much less an insurance attorney. However, the answers to these questions could mean the difference in millions (and even billions)(1) of dollars of insurance coverage. Such provisions are frequently found in professional liability and various claims-made policies.(2) The exact wording can vary depending on the policy.(3) Examples of policy wordings which contain the concept of ‘related’ include:

  • “Two or more claims arising out of a single act, error or omission or series of related acts, errors or omissions shall be treated as a single claim”;(4)
  • “Any claim or claims arising out of the same or related wrongful acts, shall be considered first made during the policy term in which the earliest claim arising out of such wrongful acts was made”;(5)
  • “Claims alleging, based upon, arising out of or attributable to the same or related wrongful acts shall be treated as a single claim regardless of whether made against one or more than one of you”;(6) and
  • “[A]ll Claims for Wrongful Acts based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situations, transactions or events” (defining related claims).(7)

While wordings and definitions may vary in policies (where the terms are defined at all), substantial consequences can pivot on the interpretation of the word ‘related’. Whether the relation of claims stands to benefit the insured or the insurer depends in part on the size of the total loss, the insured’s deductible or self-insured retention and the presence of a per-claim and aggregate limit. This becomes increasingly important with a policy’s inclusion of both a per-claim limit and an aggregate limit. If higher limits are needed to absorb the entire loss, the separation of multiple claims and their allocation to separate per-claim policy limits will benefit the insured. The insurer would inversely prefer to relate all of the claims in order to cap the extent of their exposure at the single per-claim limit amount. On the other hand, if there are many smaller claims, the insured’s individual deductibles may limit severely the amount available for the insured’s defense and indemnity.(8) Where multiple unrelated claims may fail to erode the insured’s separate deductibles, the consolidation of related acts into a single claim could quickly reach the insurer’s coverage layer. Thus, insureds and insurers are often compelled to push for a certain interpretation of a related acts provision depending on the different variable at stake.

To complicate matters further, the timing of related claims can add an additional variable to the equation. If two claims made in two different policy periods are unrelated, two limits of liability (and two different towers of insurance) are implicated. If the claims are related, the limit of only one policy period applies (and one tower of insurance).

Defining ‘related’

Courts across various jurisdictions have struggled to pin down the meaning of ‘related’. Some of the most common questions include the following:

  • Is the term ambiguously broad?
  • Does ‘related’ mean logically connected, causally connected or both?

Policies may specifically include language requiring a logical or causal connection. In the absence of such clarification (or sometimes despite it), courts’ interpretations have varied. While the oft-cited cases below may help to steer the ship, it is obvious from the resultant case law that murky waters may still lie ahead.

In Arizona Property & Casualty Insurance Guaranty Fund v Helme the Arizona Supreme Court asked whether ‘related’ implied a logical or causal meaning. One doctor negligently diagnosed a patient and another doctor negligently operated on the patient. The patient died as a result of an undiagnosed and untreated fracture dislocation of his cervical vertebrae. The Arizona Supreme Court held that the two physicians negligently failed to look at x-rays in connection with consultation and surgery on separate days which resulted in two unrelated occurrences, rather than a single occurrence, under the professional liability policy. Thus, the patient’s survivors could recover for two separate covered claims.

In interpreting ‘related’, the court looked to the dictionary definition, which defines ‘relate’ as “show[ing] or establish[ing] a logical or causal connection between”.(9) The court rejected the notion of a logical relationship because the term implied a subjective approach, and thus was too ambiguous. According to the court, a logical connection relies on the subjective “mental process of the reviewer” and incidents could be logically related for a “wide variety of indefinable reasons”.(10) Instead, the court found that acts were “related” if they were “causally connected” because a causal connection depends, to a much greater extent, on objective facts in the record.(11)

Therefore, the court held that the proper construction of the policy is that even though there have been multiple acts, there will be a single occurrence only if the acts are causally related to each other as well as to the final result.(12) It went on to hold that because there was no causal connection between the negligent acts of the two physicians who examined the plaintiff (in the sense that one error did not cause the other), the plaintiff’s claims against each physician did not arise out of a series of related acts under the multiple claims provision of the policy.(13)

However, the Seventh Circuit in Gregory v Home Insurance Co found that the concept of logical connection was not as ambiguous as the Helme court held it to be.(14) Gregory involved a class action that arose out of an offering for sale of episodes in a videotape series. Investors brought claims against an attorney alleging that he misrepresented:

  • the status of videotapes as securities; and
  • the tax consequences of investment in videotapes.

The court found these acts sufficiently related to constitute a single claim under the policy.

Although Gregory agreed with the Helme court to the extent that the common understanding of the word ‘related’ covers a broad range of connections, both causal and logical, it did not reduce its interpretation of the term to such a narrow construction. The court noted that while a logical connection could be considered too tenuous to reasonably be called a relationship (as the subjectivity fears in Helme warned), the rule of restrictive reading of broad language would come into play in such instances.(15) The court therefore saw no reason to exclude ‘logically connected’ when interpreting ‘related’. Thus, the facts of the case comfortably fit within the common concept of logically connected and were considered sufficiently related to be considered a single claim under the insured law firm’s professional liability policy.

Bay Cities Paving & Grading v Lawyers’ Mutual Ins Co continued Gregory‘s reasoning and similarly found the phrase ‘related acts’ to be unambiguous.(16) In Bay Cities the attorney for a contractor that was owed money on a construction project failed to serve a stop notice on the construction project’s construction lenders, and then failed to file timely a complaint to foreclose a mechanic’s lien. The contractor contended that it was asserting two separate claims within the meaning of the policy, while the insurer argued that only one claim was asserted.

The California Supreme Court agreed with the insurer because, first and foremost, the contractor’s suit against his attorney was a single claim pursuant to the policy’s definition of ‘claim’. However, even if the contractor’s action could be viewed as comprising two claims within the policy’s definition, the court reasoned that the claims arose out of a series of related acts, errors or omissions. In ruling so, the court aligned itself with Gregory:

We agree with the court in Gregory, that the term ‘related’ as it is commonly understood and used encompasses both logical and causal connections. Restricting the word to only causal connections improperly limits the word to less than its general meaning. ‘Related’ is a broad word, but it is not therefore a necessarily ambiguous word. We hold that, as used in this policy and in these circumstances, ‘related’ is not ambiguous and is not limited only to causally related acts.“(17)

General rules in determining relatedness

While the narrow interpretation of ‘related’ found in Helme may make life easier for attorneys, insurers or any party attempting to forecast accurately whether two claims will relate, most courts have found the reasoning of Gregory and Bay Cities more persuasive.(18) However, such breadth contributes to a variety of case law progeny which can be overwhelming. Secondary sources have identified a number of factors that courts and attorneys have used as footholds when attempting to determine ‘relatedness’.(19) Some of the prevalent factors include:

  • the identity of the claimants – claims made by the same party generally favour relatedness, while claims made by separate claimants generally weigh against relatedness;
  • the number of underlying causes or acts – a single act producing multiple claims is often viewed as endorsing relatedness as opposed to separate acts producing separate claims, albeit similar; and
  • the number of underlying results – separate wrongful acts contributing to the same ultimate harm weigh in favour of relatedness, whereas if separate acts lead to different harms, that fact weighs against relatedness.(20)

Recent case law

Armed with the above foundational case law as well as some general rules, one would expect to classify a set of underlying acts efficiently and correctly determine their relatedness. However, as some of the most recent cases invoking the concept show, interpretations continue to vary and often rely on the specific facts at hand.

In August 2016 the Eastern District of Pennsylvania decided Westport Insurance Corpation v Mylonas. In Mylonas the client retained the attorney to form a corporation on his behalf and to provide related legal services.(21) The client sued the attorney for malpractice after the attorney transferred corporate shares to creditors, which resulted in the creditors taking over the company and pushing the client out. The suit alleged negligence, breach of fiduciary duty and breach of contract involving at least two separate acts of malpractice. The attorney tendered the defence to its professional liability carrier. Eventually, the court found in favour of the client in the amount of $525,000. A subsequent dispute arose between the attorney and his carrier as to whether the individual allegations of malpractice constituted separate claims (implicating the $1 million aggregate limit) or related acts to constitute a single claim (implicating the $500,000 per claim limit).

While the opinion noted that Pennsylvania courts have not yet defined ‘related’, the court borrowed the reasoning of cases such as Gregory which determined that ‘related’ should be read to cover a broad range of connections, both causal and logical. The court applied something akin to a same or related transaction or occurrence test to determine the number of claims, noting that “where a single attorney committed multiple errors with respect to a single client arising out of work performed by [the attorney] for [the company]” they amount to a single claim under the policy.(22) While the attorney was retained to perform multiple legal services, it is from the administering of these legal services that the client’s legal malpractice claims arose. For this reason, the acts were related and continuous and therefore constituted a single claim under the insurance policy. Such a result was not unexpected considering the number of parties involved and the underlying causes.

In February 2016 the Central District of California decided Liberty v Davies Lemmis in which seven separate lawsuits were filed against a transactional real estate firm.(23) Each involved a similar alleged scheme, which is that, in the course of negotiating a property acquisition transaction, the real estate broker made false representations to investors that the sellers would pay all commissions relating to the transaction, when in reality the purchase price of the property was marked up to include a commission payment. All of the lawsuits alleged that the firm which represented the broker participated in the drafting of the documents relating to the proposed investment and had knowledge of the misrepresentations but failed to disclose them. All of the lawsuits included causes of action for intentional or negligent misrepresentation.

Because the seven actions arose out of 23 distinct transactions which occurred between 2003 and 2009, the court reasoned that they were clearly not based on the same wrongful act. Nevertheless, the court set out to determine whether the underlying alleged wrongful acts were sufficiently related such that the separate actions should be treated as a single claim.

It was the Connecticut Supreme Court’s view that, while the underlying actions were brought by different plaintiffs, they all arose from a single course of conduct – that is, a unified policy of making alleged affirmative misrepresentations to investors in order to induce them to invest in commercial real estate acquisitions facilitated by the broker. Thus, the allegations contained in the complaints were sufficiently related such that they should be considered a single claim for purposes of the per-claim limit contained in the insurance policy.

The court’s reasoning in Liberty may prove counterintuitive to the general rule established by precedent that separate wrongful acts that produce separate harms are usually not related. However, the inclusion of a scheme is often seen as a relating factor. Courts have discussed the difference between a ‘common motive’ (a common purpose amongst disparate acts often different in scope and time) and a ‘common scheme’ (often involving the same claimant, contract, transaction, or outcome) when attempting to determine relatedness.(24) When the only similarity between the acts is the furthering of some general business practice or desire, courts are less likely to relate multiple acts based on this common motive. Alternatively, a common scheme is more likely to result in a “common fact, circumstance, situation, transaction, or event” between multiple acts and result in a logical or causal connection that runs throughout the events.(25)

Another recent case that may contradict the general rules at first blush is Lexington Insurance Co v Lexington Healthcare Company, Inc, which was decided in 2014. In Lexington multiple residents of a Connecticut nursing home tragically died or were injured when the facility was set ablaze by another resident.(26) As a result, 13 negligence actions seeking damages for wrongful death or serious bodily injury were filed against the facility. The case concerned the amount of professional liability insurance coverage available for these claims and whether the individual defendants’ injuries or death constituted separate medical incidents or collectively comprised ‘related medical incidents’ as defined in the policy.

The insurer maintained that the individual claims arose from related medical incidents because all of the injuries or deaths stemmed from the same root cause – namely, the admission of the individual who started the fire to the facility and the failure to supervise her properly. Therefore, it argued that a single policy limit applied to all of the individual claims collectively rather than to each claim individually. This would seem logical considering the general trend in the case law. Specifically, when one act (the negligent supervision resulting in a fire) results in multiple harms (individual deaths or injuries), courts will often find that resultant claims are related and tied together by that single initial act.

However, the Connecticut Supreme Court held that the various negligence claims stemming from the same nursing home fire were not sufficiently related to constitute a single ‘medical incident’ within the meaning of the professional liability policy. Consequently, the $500,000 per medical incident limit provided in the policy applied to each individual claimant, rather than all the claims as a whole. The court concluded that the phrase ‘related medical incidents’ did not clearly and unambiguously encompass incidents in which multiple losses are suffered by multiple people, when each loss has been caused by a unique set of negligent acts, errors or omissions by the insured, even though there might have been a “common precipitating factor”.(27) It reasoned that the individual claims arose from different medical incidents because the insured “owed each individual defendant a separate duty, committed different acts of negligence as to each and caused each discrete harm”.(28)


As evidenced above, courts continue to struggle with understanding related acts provisions. On top of that, some commenters believe that courts approach the analysis of these issues with an unconscious bias in favour of whatever outcome will maximise the amount of insurance available.(29) The various factors can result in uncertainty when attempting to analyse a case as an attorney, policyholder, insurer or court. Ultimately, the definition of ‘related’ will rely most heavily on:

  • the definitions found in the policy;
  • past practice between the insurer and the insured;
  • the individual facts of the case; and
  • applicable case law in the given jurisdiction.

However, insurers and insureds can attempt to mitigate any uncertainty that may exist on the topic through routine consistency in their applications. Insurers can benefit themselves by interpreting ‘related’ consistently as it may apply across all insureds and policy periods. If a certain interpretation of ‘related’ is subsequently contested by an insured, an insurer can point to its standard operating practice in past matters as a testament to its approach. A consistent application of what an insurer deems ‘related’ will, in turn, enable insureds to anticipate such interpretations before a court necessarily intervenes.


(1) See, eg, SR Int’l Bus Ins Co Ltd v World Trade Ctr Properties, LLC, 445 F Supp.2d 320 (SDNY 2006) (the leaseholder of the both buildings of the World Trade Centre argued that the terrorist attacks of September 11 2001 individually constituted two separate occurrences entitling him to two separate $3.5 billion claims, whereas the insurers argued that the entire terrorist plot constituted the occurrence and thus only a single $3.5 billion limit was implicated).

(2) For the sake of discussion, the focus of this update is generally narrowed to professional liability policies.

(3) Further, these provisions can go by many names such as ‘related acts provision’, ‘interrelated acts provision’ or ‘related wrongful acts provision’.

(4) Bay Cities Paving & Grading, Inc v Lawyers Mut Ins Co, 855 P 2d 1263, 1264 (Cal 1993). See also Gregory v Home Insurance Co, 876 F 2d 602, 604 (7th Cir 1989).

(5) Continental Casualty Co v Wendt, 205 F 3d 1258, 1260 (11th Cir 2000).

(6) Liberty Ins Underwriters, Inc v Davies Lemmis Raphaely Law Corp, 162 F Supp 3d 1068, 1070 (CD Cal 2016).

(7) Highwoods Properties, Inc v Executive Risk Indemnity, Inc, 407 F 3d 917 (8th Cir 2005).

(8) Andrew Downs, “Seven Things About Professional Liability Coverage”, FDCC Blog, www.thefederation.org/blogcfcx/client/index.cfm/2013/8/19/Seven%20Things%20About%20Professional%20Liability%20Coverge%20Part%204:%20%20Related%20and%20Interrelated%20Acts.

(9) Arizona Prop & Cas Ins Guar Fund v Helme, 153 Ariz 129, 134, (1987) (quoting Webster’s Third New International Dictionary Unabridged, at 1916 (1965)).

(10) Helme at 134.

(11) Id.

(12) Id at 136

(13) Compare with N Am Specialty Ins Co v Royal Surplus Lines Ins Co, 541 F 3d 552, 558 (5th Cir 2008) (finding that poor nutritional care followed by shoulder injury caused mobility problems which caused sores, skin ulcers and similar conditions and all stemmed from a pattern of negligence and incompetence and thus the claims were related).

(14) Gregory v Home Ins Co, 876 F 2d 602 (7th Cir 1989).

(15) Id at 606.

(16) Bay Cities Paving & Grading, Inc v Lawyers’ Mut Ins Co, 855 P 2d 1263 (1993).

(17) Id at 1274.

(18) 5 Legal Malpractice § 38:16 (2017 ed); see also Continental Cas Co v Brooks, 698 So 2d 763 (Ala 1997); Eagle American Ins Co v Nichols, 814 So 2d 1083 (Fla Dist Ct App 4th Dist 2002); Bar Plan Mut Ins Co v Chesterfield Management Associates, 407 S W.3d 621 (Mo Ct App ED 2013).

(19) See John E Zulkey, “Related and Interrelated Acts Provisions: Determining Whether Your Claims Are Apples and Oranges, or Peas in a Pod”, 50 Tort Trial & Ins Prac LJ 83, 100-103 (2014).

(20) Id. See also John Zulkey, “Related Acts Provisions: Patterns Amidst the Chaos”, 50 Val U L Rev 633, 641-645 (2016).

(21) Westport Ins Corp v Mylonas, 2016 WL 4493192 (ED Pa Aug 26 2016).

(22) Id at *7.

(23) Liberty Ins Underwriters, Inc v Davies Lemmis Raphaely Law Corp, 162 F Supp 3d 1068 (CD Cal 2016).

(24) WC & AN Miller Dev Co v Cont’l Cas Co, 2014 WL 5812316, at *7 (D Md Nov 7 2014), aff’d, 814 F 3d 171 (4th Cir 2016).

(25) The Mylonas and Lemmis cases are currently on appeal to the Third Circuit and Ninth Circuit, respectively.

(26) Lexington Ins Co v Lexington Healthcare Grp, Inc, 311 Conn 29, (2014).

(27) Lexington at 49.

(28) Lexington at 41.

(29) See Kevin LaCroix, “D&O Insurance: Meditations on the Meaning of ‘Relatedness'”, The D&O Diary, www.dandodiary.com/2012/02/articles/d-o-insurance/do-insurance-meditations-on-the-meaning-of-relatedness/.

Proof of Loss: Can an Insurer Deny Coverage and Later Argue the Claim is Barred Because the Insured Did Not Comply with the Proof of Loss Condition?

Kevin Pollack | Property Insurance Coverage Law Blog | February 24, 2017

Insurers on occasion deny coverage or make claim decisions based on one ground, and then later, during litigation, seek to avoid liability based upon an entirely new defense theory. Although coverage decision letters regularly throw in boilerplate language seeking to avoid waiving coverage defenses, I was recently asked whether an insurer can deny coverage or refuse to pay additional policy benefits during the claim stage based on one ground, and then later, after litigation has commenced, seek to avoid coverage based on the insured’s alleged failure to fulfill the proof of loss condition. To answer this question, we need to first review some general principles concerning proof of loss.

Proof of Loss Basics:

First-party property insurance policies contain provisions known as conditions in the event of loss. One of the conditions is the “proof of loss” condition. This condition usually requires that the insured give the insurer timely notice of a claim. In addition, certain policies, including first party property policies, require the insured to provide a formal proof of loss. [See California Insurance Code § 2071].

As an example, under the California Standard Form Fire Insurance Policy, the insured must:

“[W]ithout unnecessary delay” furnish a “complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed”; and

within 60 days after the loss, provide a sworn proof of loss stating “the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto. . . .” [California Insurance Code § 2071.]

Other first party insurance policies are less specific. Some simply require a “detailed proof” or “due proof” or “satisfactory evidence” of loss. [See Culley v. New York Life Ins. Co. (1945) 27 Cal.2d 187, 192 —“due proof of disability”].

Where the policy calls for a sworn proof of loss, the insured is required to comply. But absent such a requirement in the policy, no particular form of proof is required. Even an oral communication may enable the insurer to form an estimate of its rights and liabilities. [Culley v. New York Life Ins. Co., supra, 27 C2d at 192, 163 P.2d at 701 (predating Ins.C. § 10350.7)—“due proof of disability” satisfied at meeting arranged by insurer to enable insured to comply with policy and to provide insurer with necessary information although parties also contemplated filing proof in written form; see McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal. App. 3d 1030, 1046, 200 Cal. Rptr. 732, 741—insurance company “does not have the right to insist the claim be proved only through certain types of evidence”]

Furthermore, the “proof of loss” form may be prepared by insurer. Insurers often prepare a proof of loss form based on its investigation and submits it to the insured for signature. [See Rosenblum v. Safeco Ins. Co. (2005) 126 Cal.App.4th 847, 853, fn. 7]. As an example, some policy forms specify:

send us a signed, sworn statement of loss containing the information we request to settle
the claim. You must do this within 60 days after our request. We will supply you with the
necessary forms. . . .

Denial of Coverage Waives the Defense:

If the insurance company denies coverage (for some reason other than a prejudicially late-filed notice of claim), it waives any policy requirement for notice and proof of loss. [Clemmer v. Hartford Ins. Co. (1978) 22 Cal.3d 865, 881; Downey Sav. & Loan v. Ohio Cas. Ins. Co. (1987) 189 Cal.App.3d 1072.]

“The law is established that where an insurance company denies liability under a policy which it has issued, it waives any claim that the notice provisions of the policy have not been complied with.” [Comunale v. Traders & Gen. Ins. Co. (1953) 116 Cal. App. 2d 198, 202-203, 253 P2d 495, 499]

By taking the position that the claim is not covered, the insurer demonstrates that any defect in the notice and proof of loss did not affect its decision. [See Select Ins. Co. v. Sup.Ct. (Custer) (1990) 226 Cal.App.3d 631, 637.]

“The reason for the rule is that, where the insurer denies all liability under the policy, the insured is misled into believing it would be futile for the insured to file a proof of loss, pay premium arrearages, or otherwise perform any affirmative obligation under the policy.” [Alta Calif. Regional Ctr. v. Fremont Indem. Co. (1994) 25 Cal.App.4th 455, 467-468 (disapproved on other grounds in Waller v. Truck Ins. Exch., Inc. (1995) 11 C4th 1, 34, 44 CR2d 370, 388)].

Is a Dispute Over General Contractor Overhead and Profit Appropriate for Appraisal?

Edward Eshoo | Property Insurance Coverage Law Blog | February 22, 2017

In Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Company,1 a federal district court in Illinois recently addressed the issue whether appraisal is appropriate to resolve a dispute over the need for a general contractor to perform repairs following a covered loss. There, hail damaged townhome buildings, requiring repairs. Philadelphia paid for losses it conceded were within the scope of the insurance policy’s coverage for hail damage. Philadelphia though declined to reimburse the Association for the overhead and profit charged by its general contractor in making the repairs. Philadelphia then refused to participate in an appraisal to resolve this dispute, prompting the Association to sue. The Association subsequently moved to compel appraisal, which the district court granted.

In seeking to avoid appraisal, Philadelphia argued that whether it must reimburse the Association for the overhead and profit charged by its general contractor in making the repairs is a coverage question not subject to appraisal. The district court disagreed. The Philadelphia insurance policy provided for appraisal if the parties disagreed as to the “amount of loss.” The district court reasoned that in calculating repair or replacement cost, it is necessary to assess what must be replaced or repaired, who is qualified to perform that work, and how much that work costs. That inquiry requires determining whether a general contractor is needed, in which case overhead and profit is part of the loss, or whether a single tradesman can do the work. The district court concluded that such determination is a question appropriate for appraisal.2

Insurers like Philadelphia routinely decline to appraise a dispute over general contractor overhead and profit, asserting in conclusory fashion that it involves a “coverage” question. Ten years ago, I wrote an article titled “Overhead & Profit: Its Place in a Property Insurance Claim,” which was published in Adjusting Today.3 As discussed in the article, the majority of courts have concluded that general contractor overhead and profit should be included in the cost of repair or replacement to arrive at an actual cash value estimate and settlement where the use of a general contractor is reasonably likely in repairing or replacing a covered loss, even if no general contractor is used or no repair or replacement is made.4

This is still the majority view today.5 Indeed, the district court in Windridge of Naperville implicitly recognized the majority view in its ruling. The district court noted that the policy’s “Loss Payment” and “Valuation” provisions obligated Philadelphia under certain circumstances to pay the cost of repairing or replacing the damaged property. The district court stated that if repairing or replacing the property requires a general contractor, then the cost of repair or replacement includes the industry-standard overhead and profit.6 No policy language suggested that if a general contractor is required, Philadelphia may decline to pay the overhead and profit component of a general contractor’s charges. According to the district court, the coverage question was clear: If a general contractor is required to repair or replace the damaged property, then Philadelphia must pay the overhead and profit components of the general contractor’s charges. The only disputed question is whether a general contractor is necessary to perform the repairs, or whether a single tradesman would suffice, which the district court concluded was a question appropriate for appraisal.7

So, when an insurer refuses to appraise a dispute over general contractor overhead and profit, know the reason for its refusal. On the one hand, if the insurer asserts that the insurance policy does not cover the cost of a general contractor’s overhead and profit, then that would be a coverage dispute for the court. On the other hand, if the insurer asserts that a general contractor is not needed to perform the repairs, which is the typical basis for declining appraisal, then that factual determination is appropriate for resolution by appraisal for the reasons stated by the district court in Windridge of Naperville. The nature and extent of the damage and the number of trades needed to make the repairs are key factors in determining whether use of a general contractor is reasonably likely.8 This requires consideration of the degree to which coordination and supervision of trades is required.9

Besides appraising the dispute over general contractor overhead and profit, the Association in the Windridge of Naperville suit also sought to compel appraisal to resolve a dispute over the cost of repairing physically undamaged sides of townhome buildings to remedy a mismatch with repaired damaged sides. The district court’s ruling on that issue will be addressed in my next blog post.
1 Windridge of Naperville Condominium Association v. Philadelphia Indem. Ins. Co., No. 16-3860, 2017 WL 372308 (N.D. Ill. Jan 26, 2017).
2 Windridge, 2017 WL 372308, at **2-3.
3 Adjusting Today is a newsletter published by Adjusters International, Inc.
4 The minority view is that the cost of a general contractor’s overhead and profit is compensable only if it is incurred in repairing or replacing damaged or destroyed property. Even when incurred, insurers routinely deny payment for general contractor overhead and profit, contending that the repairs were not complex enough to warrant the use of a general contractor.
5 See, e.g., Trinidad v. Florida Peninsula Ins. Co., 121 So.3d 433 (Fla. 2013).
6 At the hearing on the motion to compel appraisal, the parties’ counsel explained that it is industry custom for a general contractor making repairs to charge “10 and 10,” or 10% for profit and 10% for overhead, on top of the amounts the general contractor pays to the subcontractors.
7 Windridge, 2017 WL 372308, at **2-3.
8 Many insurance companies’ claim handling practice is to include general contractor overhead and profit in the cost of repair or replacement in order to arrive at an actual cash value estimate and settlement when three or more trades are involved in the repair.
9 See, e.g., Mt. Bethel No. 1 Baptist Church v. Church Mut. Ins. Co., 2015 WL 12591682 (W.D. La.).

Construction Defect – Application of the Right to Repair Statute to Material Suppliers

Joseph M. Fenech | Low, Ball & Lynch |  February 2017

The Right to Repair Statute in California requires a homeowner show a breach of contract or negligence to succeed.

Acqua Vista Homeowners Association v. MWI, Inc.

California Court of Appeals, Fourth Appellate District (January 26, 2017)

Civil Code § 8951 et seq. (the “Act”) establishes a set of building standards pertaining to new residential construction and provides homeowners with a cause of action against, among others, material suppliers, for a violation of the standards(§§ 896, 936). Here, the Fourth District Court of Appeals was asked to decide whether the Act requires homeowners suing a material supplier to prove that material supplied violated a particular standard of the Act as the result of negligence or a breach of contract. The Court concluded that a homeowner must prove that the Act was violated by showing a breach of contract or negligence in order to prevail.

In this case, Acqua Vista Homeowners Association (the “HOA”) sued MWI, Inc. (“MWI”), a supplier of pipe used in the construction of the HOA condominium development. The operative third amended complaint contained a claim for a violation of the Act’s standards in which the HOA alleged that defective cast iron pipe was used throughout the project. At a pretrial hearing, the HOA explained that it was not pursuing any claim premised on the doctrine of strict liability and that it was alleging a single cause of action against MWI for violations of the Act’s standards.

A jury trial was held on the HOA’s claims under the Act against MWI, and another iron pipe supplier, Standard Plumbing & Industrial Supply Co. (“Standard”). At trial, the HOA presented evidence that the pipes supplied by MWI contained manufacturing defects, that they leaked, and that the leaks had caused damage to various parts of the condominium development.

Near the close of evidence, MWI filed a motion for a directed verdict on the grounds that the HOA failed to present any evidence that MWI had caused a violation of the Act’s standards as a result of MWI’s negligence or breach of contract. The trial court denied the motion, concluding that the HOA was not required to prove that any violations of the Act’s standards were caused by MWI’s negligence or breach of contract. In reaching this conclusion, the court relied on the final sentence of section 936, which states in relevant part, “[t]he negligence standard in this section does not apply to … material suppliers … with respect to claims for which strict liability would apply.”

The trial court entered a judgment against MWI in March, 2015 in the amount of $23,955,796.28, reflecting MWI’s 92 percent responsibility for the total damages suffered. After the jury rendered a verdict against MWI, MWI filed a motion for judgment notwithstanding the verdict (“JNOV”) on the same ground as it had raised in its motion for directed verdict. The trial court denied the JNOV on the same grounds it denied the motion for a directed verdict.

On appeal, MWI claimed that the trial court misinterpreted the Act and erred in denying its motion for a directed verdict and motion for JNOV. The Appellate Court agreed. According to the Fourth District, § 936 contains an “explicit adoption of a negligence standard for claims” under the Act against material suppliers. (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194 at p. 1216, fn. 14.) Since it was undisputed that the HOA’s claim was brought under the Act, it was required to prove that MWI “caused, in whole or in part, a violation of a particular standard as the result of a negligent act or omission or a breach of contract.” (§ 936.) The court concluded that because there was no evidence that MWI caused a violation of the Act’s standards through its negligence or breach of contract, the trial court erred in denying MWI’s motion for a directed verdict and JNOV. Accordingly, the Court reversed the judgment and the trial court’s order denying MWI’s motion for JNOV and remanded the matter to the trial court with directions to grant MWI’s motion for a directed verdict and to enter judgment in favor of MWI.

The Court acknowledged that the plain language of the final sentence in § 936, when read in isolation, is ambiguous. However, in their view, the negligence standard in this section did not apply to any general contractor, subcontractor, material supplier, individual product manufacturers, or design professional with respect to claims for which strict liability would apply. The Court pointed out that this case involved only a cause of action for violation of the Act. There were no claims for strict liability which required proof of negligence or breach of contract to prevail.


This case held that a homeowner must prove that a material supplier was negligent or had breached a contract if the homeowner does not allege common law theories of strict liability in the operative complaint. This requirement can best be attacked at trial by way of a directed verdict or JNOV, because a demurrer or a motion for summary judgment would bring this pleading defect to the attention of plaintiff’s counsel and allow for amendment before trial.

For a copy of the complete decision, see: Acqua Vista Homeowners Assn. v. MWI, Inc.