California Insurance Litigation Blog

Recently, the Ninth Circuit Court of Appeals ruled that an ERISA administrator must make a “clear and continuing repudiation” of a claim, in compliance with its duties of proper notification under ERISA, in order for a claim to “accrue” and thus start the statute of limitations clock on filing a lawsuit.  In Withrow v. Basch Halsey Stuart Shield, Inc. Salary Protection Plan, __ F.3d. __ (9th Cir. 2011), the United States Court of Appeals for the Ninth Circuit  held that a telephone call and resulting voicemail message made by the administrator, which was otherwise undocumented, did not constitute proper notice to a claimant that a benefits decision constituted an irrevocable and final determination.  The court explained that such a notification was deficient, and therefore cannot serve as the basis for an argument that a complaint was untimely filed.

Every now and then a court decision comes along that is a virtual one-stop shop for basic insurance coverage and bad faith principles—a primer for newbie insurance attorneys and a refresher for seasoned litigators.  Chief Judge Anthony Ishii’s recent decision granting in part and denying in part an insurer’s motion for summary judgment on a farm-owners insurance policy is one. Ted Gaylord, et al. v. Nationwide Mutual Insurance Company, et al., 2011 U.S. Dist. LEXIS 21736 (Eastern District of California, March 4, 2011).  The Gaylord decision also sounds a cautionary note to policyholder attorneys to be mindful that first-party and third-party claims in a single action may be subject to different limitations periods.

The Facts

Gaylord owns and operates a livestock operation, raising his own cattle and raising cattle for others.  In June 2008 some of the cattle die suddenly.  By September and October 2008 cattle begin dying at an alarming rate.  Gaylord suspects feed poisoning.  Autopsies and feed testing confirm that the cattle are dying from liver failure caused by toxic plants in the alfalfa feed.  There is no known cure, so Gaylord gets permission from the Department of Agriculture to sell the cattle off for early slaughter—but at a financial loss for Gaylord and the other cattle owners. 

Nationwide issued a farm-owners insurance policy to Gaylord in March 2008.  One part insures against physical loss to covered property (first-party); one part insures against third-party liability claims.  Gaylord says he moved his farm-owners insurance from Fireman’s Fund to Nationwide because his long-trusted insurance agent told him that Nationwide had better coverage, including coverage for cattle loss from poisoned feed.  But Gaylord’s agent says he told Gaylord that a “custom feeding of livestock” endorsement was necessary to cover cattle loss from poisoned feed, and that Gaylord declined it because it was too expensive.

The genuine dispute doctrine received another blow as the California Court of Appeals held that the doctrine may not be used to refuse settlement in third party coverage cases.  The recently decided case of Howard v. American National Fire Ins. Co.,  __Cal. App. 4^th __,  2010 WL 3156851 (decided August 11, 2010), involved allegations of priest molestation by an employee of the Roman Catholic Bishop of Stockton (“Bishop”).  American National Fire Insurance Co. (“American”) provided liability insurance to Bishop that covered bodily injury caused by an employee’s battery.  When Howard filed suit for negligent retention of the molesting priest, Bishop asked American to defend and indemnify against the suit.  American refused on the grounds that the alleged molestation occurred after the policy had expired in November of 1979.  In support, American relied on deposition testimony by Howard in which he stated that his first memory of being molested was when he was five or six years old, the earliest of which would have been seven months after the policy had expired.  The case continued to trial and Bishop was found liable for negligent retention and directed to pay $5.5 million in compensatory and punitive damages.  While the case was still on appeal, the parties settled and Howard agreed to join Bishop in a suit against American to recover on the judgment and for bad faith failure to defend, settle, and indemnify against the molestation case.