California Insurance Litigation Blog

Following the August 2009 Station Fire, the lawsuits of over 1,440 policyholders filed against Fire Insurance Exchange (“FIE”) and related insurers were consolidated into one case – Henderson v. Farmers Group, Inc., __ Cal.App.4th __, 2012 Cal. App. LEXIS 1108 (October 24, 2012).  In this case, the California Court of Appeal, Second Appellate District, issued an interesting opinion addressing several important issues. 

In the consolidated lawsuit, the policyholders alleged that FIE improperly denied their claims by asserting either that:  (1) the policyholders did not submit sworn proof of loss as required by the fire insurance policies, or (2) that the policyholders submitted delayed notice of loss.  The policyholders asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing (bad faith) and unfair business practices under section 17200.  Given the large number of policyholders, five plaintiffs were selected as representative of the other policyholders and had their claims litigated, while the lawsuits of the other policyholders were stayed. 

California Insurance Code section 533 provides that an insurer is not liable for a loss caused by the willful act of an insured.  This is consistent with California’s public policy of denying coverage for intentional acts of wrongdoing.  However, when there is more than one insured, this policy can lead to inequitable results.  Case in point is the situation presented in Century National Insurance Company v. Garcia, 2011 Cal. LEXIS 1392 (decided February 17, 2011). 

In Century, Jesus Garcia, Sr.’s home was damaged when his adult son intentionally started a fire in his bedroom.  Garcia Sr. subsequently submitted a claim under his homeowner’s insurance policy issued by Century National Insurance Company (“Century”).  Although Garcia was the named insured, his wife and son also qualified as an insured under the policy.  Century denied the claim on the grounds that the damage was caused by an intentional wrongful act by an insured.  Garcia challenged the denial arguing that the Insurance Code does not bar “innocent insureds” from recovering despite a co-insured’s wrongful acts.  At trial, the state court granted Century’s demurrer and Garcia appealed.  

Writing for a unanimous court, Justice Baxter agreed with Garcia and held that the policy provision which precluded coverage was invalid.  To reconcile this result with section 533, the Court relied on Insurance Code section 2070 which states: “All fire polices . . .  shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy . . . provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.”  In other words, fire insurance policies in California must provide coverage that is at least as good as the coverage outlined by section 2071’s standard form provisions.  Now here is where it gets a little tricky.

In a new case from Division Three of the Fourth Appellate District, Chicago Title Insurance Company v. AMZ Insurance Services; Pacific Specialty Insurance Company, __ Cal. App. 4^th __ (September 9, 2010), the California Court of Appeal has given policyholders a good holding on the issues of when a policy binder becomes effective, when an agent acts on behalf of an insurer and what actions constitute bad faith.