{"id":511,"date":"2020-07-05T22:50:00","date_gmt":"2020-07-05T22:50:00","guid":{"rendered":"https:\/\/abtl.org\/northerncalifornia\/?p=511"},"modified":"2020-07-10T23:07:14","modified_gmt":"2020-07-10T23:07:14","slug":"on-insurance-litigation","status":"publish","type":"post","link":"https:\/\/abtl.org\/northerncalifornia\/abtlreport\/on-insurance-litigation\/","title":{"rendered":"On Insurance Litigation"},"content":{"rendered":"\n

by Amy Briggs<\/h2>\n\n\n\n
\"Amy
Amy Briggs<\/figcaption><\/figure><\/div>\n\n\n\n

On March 16, 2020, six Bay Area counties issued \u201cshelter in\nplace\u201d orders, which effectively brought many businesses to a grinding halt.\nLawsuits against insurers who sold business interruption coverage are now\nrolling in, thus far led largely by restaurants. In California, for example,\nThomas Keller\u2019s Michelin-starred restaurant\u2014The French Laundry\u2014recently filed\nsuit in Napa County seeking coverage for the shutdown of his restaurant.\nSimilar suits have been filed in New Orleans and Chicago. As one CEO recently\nput it, \u201cShut the doors = shut down the revenue. If that\u2019s not a property-based\ninterruption, I\u2019ll go light the [expletive] thing on fire myself.\u201d <\/p>\n\n\n\n

Many policyholders, however, are not ready for litigation,\nand instead are asking what they need to do simply to preserve their rights\nunder their business interruption policies. Of course, it is critical for\nclients to read their insurance policies and know their terms and conditions.\nGenerally speaking, however, there are three different steps to keep in mind.<\/p>\n\n\n\n

First, many policies require a notice of loss within a\nlimited time frame following awareness of either the event causing the loss or\nthe loss itself. A notice of loss is a straightforward document that simply\nalerts the insurer to the fact of a loss. Even if the insured does not timely\nsubmit notice, failure to do so is not necessarily fatal. California generally\nfollows a notice-prejudice rule, requiring the insurer to demonstrate that it\nwas actually and substantially prejudiced by the late notice. Northwestern\nTitle Security Co. v. Flack<\/em>, 6 Cal.App.3d 134, 140 (1970). This can be a\ndifficult burden for insurers to meet except in rare circumstances. Strict\nadherence may be required, however, in other jurisdictions.<\/p>\n\n\n\n

Second, commercial property and business interruption\ncoverage requires that the insured then submit a proof of loss. A proof of loss\nis a more detailed document that provides the insurer with information\nsubstantiating the claim that is being made. Generally speaking, it entails a\nsworn and notarized itemized statement that includes information such as (1)\nthe date and cause of the loss; (2) documents that support the value of the\nproperty and the amount of loss claimed (i.e.<\/em>, estimates, inventories,\nreceipts, etc.); (3) the identity of parties claiming the loss under the\npolicy; (4) parties having an interest in the property, like the bank holding\nthe mortgage; and (5) the policy under which coverage is sought. <\/p>\n\n\n\n

Often\u2014but not always\u2014the time to submit a proof of loss runs\nfrom the date the insurer requests it. Be advised that it may be due within 60\ndays of the request, which, given the current situation, could be a challenging\ndeadline for insureds to meet. <\/p>\n\n\n\n

Submission of a proper and timely notice and proof of loss\nmay be subject to a \u201csubstantial compliance\u201d standard. McCormick v. Sentinel\nLife Ins. Co.<\/em>, 153 Cal.App.3d 1030, 1046 (1984). Accordingly, a defect in a\nnotice or proof of loss, by itself, is rarely a sufficient ground to deny a\nclaim. Moreover, the insurer is under a duty to specify any defects in the\nnotice or proof of loss so that the insured can address them. If the insurer\nfails to identify the deficiency, the notice is waived. Cal. Ins. Code \u00a7\u00a7 553,\n554. However, the total failure to comply with the notice and proof of loss\nconditions could excuse insurer liability altogether. 1231 Euclid Homeowners\nAssn. v. State Farm Fire & Cas. Co.<\/em>, 135 Cal.App.4th 1008, 1018 (2006);\nHall v. Travelers Ins. Cos<\/em>., 15 Cal.App.3d 304, 308 (1971). <\/p>\n\n\n\n

If your client is unable to meet the proof of loss deadline\nfor logistical reasons, make sure it is in touch with its insurer to obtain an\nextension in writing.<\/em><\/p>\n\n\n\n

Third, if the client receives a denial from its insurers, it\nmay want to initiate litigation or arbitration. Many clients may have\nCalifornia\u2019s four-year statute of limitations in mind and feel little pressure\nto move forward at this time. But that would be a mistake. Most property and\nbusiness interruption insurance contains a different\u2014and much\nshorter\u2014contractual limitations period. For instance, the California Standard\nForm Fire Insurance Policy (codified in California Insurance Code \u00a7 2071)\nprovides:<\/p>\n\n\n\n

\u201cNo suit or action on this policy for the recovery of any\nclaim shall be sustainable in any court of law or equity unless all the\nrequirements of this policy shall have been complied with, and unless commenced\nwithin 12 months next after inception of the loss.\u201d <\/p>\n\n\n\n

There are three important aspects to understand about this\nprovision.<\/p>\n\n\n\n

The first is that the limitations period is significantly\nshorter than the four years allowed by statute. Cal. Civ. Code \u00a7 337. <\/p>\n\n\n\n

The second is that this shorter, contractual limitations\nperiod is routinely upheld by California courts. Campanelli v. Allstate Life\nIns. Co.<\/em>, 322 F.3d 1086, 1093 (9th Cir. 2003) (\u201cUnder this provision, any\nclaim that is \u2018on the policy\u2019 must be brought within 12 months of the\n\u2018inception of the loss\u2019 or it is time-barred.\u201d).<\/p>\n\n\n\n

And third, the 12 months begins to run from \u201cinception of\nthe loss,\u201d not the insurer\u2019s denial of the claim. The California Supreme Court\nhas clarified that \u201cinception of the loss\u201d is that point in time when\nappreciable damage occurs and is or should be known to the insured. Prudential-LMI\nComm\u2019l Ins. v. Superior Ct.<\/em>, 51 Cal.3d 674, 686-87 (1990). And, given the\nnational emergency arising out of COVID-19 and the impact on businesses, many\npolicyholders are well aware of the loss their businesses have sustained. This\nmeans that the 12-month contractual limitations period is likely well underway\nfor many policyholders already. <\/p>\n\n\n\n

The limitations period is tolled while the insurer\ninvestigates the claim. Prudential-LMI, <\/em>51 Cal.3d at 692-93 (equitable\ntolling applies from time insured gives notice to time insurer denies claim in\nwriting). But clients are reporting that the denials they have received have\nbeen almost immediate. See, e.g.<\/em>, Complaint, Big Onion Tavern Group,\nLLC et al. v. Society Insurance, Inc.<\/em>, No. 20-02005 (D. Ill. Mar. 27,\n2020), ECF No. 1 (alleging insurer prospectively circulated memorandum\nconcluding no coverage due to COVID-19 shutdown). This means that your client\u2019s\nclaim may not have been tolled for very long.<\/p>\n\n\n\n

Clients also may not be sure whether their policies afford\ncoverage and need time to consult with their brokers or attorneys. In\nCalifornia, however, courts have generally rejected these reasons as a basis to\nextend the contractual limitations period. Abari v. State Farm Fire &\nCasualty Co.<\/em>, 205 Cal.App.3d 530, 535 (1988) (\u201cIt is the occurrence of some\n… cognizable event rather than knowledge of its legal significance that\nstarts the running of the statute of limitations.\u201d). <\/p>\n\n\n\n

\n\n\n\n

Amy Briggs is a litigation partner at Manatt, Phelps\n& Phillips, LLP where her practice focuses on insurance coverage and bad\nfaith disputes.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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