National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

In an action to rescind life insurance policies for fraud and misrepresentation, a New York appellate court recently held that although the action was timely filed within the statutory two-year incontestability period, the insurer was estopped from seeking rescission for having collected and retained nine premium payments after commencing suit.

In Security Mutual Life Insurance Company of New York v. Rodriguez, defendants purportedly purchased three life insurance policies worth $20 million from Security Mutual agents who, prior to the commencement of the action, had pled guilty to insurance law crimes in connection with the issuance of life insurance policies. 2009 WL 1444524 (1st Dep’t May 26, 2009). The action for rescission and fraud alleged that defendants, in conjunction with the agents, procured the policies by providing false and misleading financial and medical information. On a motion to dismiss the complaint, defendants argued the action was untimely and that the insurer had waived its right to rescind the policy and had failed to plead fraud with sufficient particularity.
 

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In Fairbanks v. Superior Court of Los Angeles County (Farmers New World Life Insurance Co.) 46 Cal.4th 56 [2009 WL 1035264] (2009), the California Supreme Court held life insurance is not a service subject to the protections of California’s Consumer Legal Remedies Act (“CLRA”). The decision provides life insurance companies with a solid defense against CLRA lawsuits alleging unfair or deceptive acts and practices in the marketing or sale of life insurance policies.

The CLRA (Calif. Civ. Code § 1750 et seq.) provides a nonexclusive statutory remedy for unfair methods of competition and unfair or deceptive acts undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.  The Act provided a means to recover damages, punitive damages, and attorneys fees.

Absence of this remedy does not preclude other causes of action, namely under California’s Business & Professions Code Section 17200 for unfair competition (limited to injunctive relief and restitution), or a “bad faith” claim (if there has been a breach of contract).

In reaching its decision in Fairbanks, the California Court rejected decisions from other jurisdictions (namely Texas and Colorado), which held life insurance does come within the meaning of services under similar consumer protection statutes. The California Court determined that, unlike the broadly worded statutes in other states, the CLRA “contains a restrictive definition of ‘services’ that excludes life insurance.”

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In Green v. William Penn Life Ins. Co. of NY, the court reviewed New York’s presumption against suicide, clarifying that decisional law and New York’s Pattern Jury instruction merely articulate guides for finders of fact, not rules of law that compel dismissal of claims as a matter of law.

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The Ninth Circuit, applying California law, issued a decision which charts new territory on the handling of workers’ compensation claims, and announces an approach contrary to enforceability of voluntary payment provisions in insurance policies. In Travelers Prop. Cas. v. Conoco Phillips Co., __ F.3d __ (9^th Cir. 2008) [08 CDOS 13285], the Ninth Circuit affirmed a judgment of the district court for ConocoPhillips Co., holding its predecessor-in-interest, Tosco Corporation, did not breach a workers’ compensation policy issued by Travelers Property Casualty Co. when Tosco waived the right to a statutory credit against future workers’ compensation benefits without Travelers’ consent in settling civil claims arising out of a refinery fire. The Ninth Circuit found the policy language at issue was clear and unambiguous and Tosco’s waiver did not force Travelers to make excess payments in violation of the policy’s excess payments clause or constitute a breach of the policy’s voluntary payments clause.

The dispute arose after several workers were killed or injured during a fire at a Tosco refinery. One injured worker and the estate of a deceased worker filed civil actions against Tosco in addition to claims for workers’ compensation benefits and for augmented penalties before the California Workers’ Compensation Appeals Board (“WCAB”). Tosco opted to settle the civil actions and agreed, without Travelers’ consent, to waive the statutory right to a credit against future workers’ compensation benefits provided by California Labor Code section 3600(b).

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Blue Shield still faces a possible class action on “post claims underwriting.” California’s Court of Appeal, Second District (Los Angeles), issued a slightly modified opinion after rehearing against Blue Shield. The appellate decisions reverses the Los Angeles County Superior Court’s order denying a motion to certify a class under Proposition 64.  In sum, the appellate court held that equitable defenses cannot be used to defeat a claim under California’s Unfair Competition Law (Bus. & Prof. Code, § 17200 [the “UCL”]) and Blue Shield could not raise as a defense fraud based on statements the insured made in an application for insurance because the application was neither attached to nor endorsed on to the policy when issued. 

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