Supplementary Payments - No Obligation to Cover Attorneys Fees for Non-Covered Claim

Posted on August 4, 2009 by Sara Thorpe

California courts have been busy on insurance coverage decisions – and I am having trouble keeping up! Be ready for several posts.

An excellent (and correct) decision was issued from California’s Appellate court as to when there is an obligation to pay attorneys fees awarded against an insured pursuant to the supplementary payments provision of a general liability policy. In State Farm General Ins. Co. v. Mintarshi (2009) 175 Cal.App.4th 274, the court held that it is only where the attorney fee award is based on a covered claim that there is a duty to pay the “costs awarded” against the insured. 

 

The supplementary payments provision provides that the insurer will pay “costs taxed against the insured” in “any suit we defend.”  Under California law, where there is a duty to defend any one claim, there is a duty to defend the entire case. Buss v. Sup. Ct. (1997) 16 Cal.4th 35, 48-49. That duty is implied in law. Id. The insurer can reserve its right to seek reimbursement for amounts it pays in connection with the non-covered claims. Id.at 50-53.

 

Until now, this unanswered question troubled insurers and caused some to consider deleting this aspect of supplementary coverage because attorneys fee awards (on non-covered claims) can far exceed the value of the covered claim. This question was narrowed a few years ago when California’s appellate court ruled there was no obligation to pay an attorneys fee award based on a non-covered claim that was uninsurable because of willful conduct excluded pursuant to Ins. Code Section 533. See Combs v. State Farm Fire & Cas. Co. (2006) 143 Cal.App.4th 1338, 1344-1346.

 

Thus, if at the end of the case the claimant is awarded attorneys fees against the insured, if that award is based upon a claim not covered by the policy, there was no contractual obligation to defend that claim, only an implied in law duty. As such, the court reasoned, there should not be any obligation to cover attorneys fees relating to an aspect of the lawsuit that there was no duty under the contract to defend. To the extent Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 912,  suggested a different result, the court declined to follow Prichard.

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Insurer Burned By Insured's Waiver of Right To Payment Credit

Posted on November 16, 2008 by Sara Thorpe

 

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 __ (9th 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).

 

The WCAB awarded death and workers’ compensation benefits to the claimants covered by Travelers’ policy. Travelers petitioned the WCAB pursuant to Section 3600(b) for a credit in the amount of the settlement against any future benefits Travelers would have to pay. The WCAB denied the petition because Tosco had waived Travelers’ right to the credit under Section 3600(b). Travelers filed a lawsuit alleging Tosco breached the policy by waiving Travelers’ right to the statutory credit without its consent. The district court ruled for Tosco and against Travelers on cross-motions for summary judgment.

Travelers, which had paid $1.4 million in benefits and anticipated paying $2.1 million more in future benefits, argued Tosco breached the policy’s excess payments and voluntary payments clauses. The excess payments clause provided Tosco was “responsible for any payments in excess of the benefits regularly provided by the workers compensation law….” Travelers argued Tosco’s waiver of the credit provided by Section 3600(b) and failure to reimburse Travelers for the amount of the credit was a breach of the excess payments clause because benefits “regularly provided” by the workers compensation law would be offset by the right to a credit under Section 3600(b). Tosco’s waiver forced Travelers to make “excess” payments since the workers’ compensation benefits Travelers was paying and would continue to pay would have been reduced by the amount of the settlement but for Tosco’s waiver.

The Ninth Circuit disagreed, holding Travelers was not making “excess” payments since the payments were “regularly provided” workers’ compensation benefits. The court reasoned that while the amount of the benefits might have been reduced due by the settlement had the credit not been waived, the waiver did not increase the workers’ compensation benefits beyond those “regularly provided” by law. Noting that the WCAB held an employer has the authority to waive a compensation carrier’s right to a credit under Section 3600(b), such credits are not always included when calculating “regular” benefits.

Travelers also argued Tosco’s waiver breached the policy’s “voluntary payments” clause which provided the insured could not “voluntarily make payments, assume obligations or incur expenses, except at [Tosco’s] own cost.” Travelers argued Tosco’s waiver was a voluntary act that assumed an obligation to pay workers’ compensation benefits despite the statutory right to a credit for the settlement. The court disagreed and held the voluntary payments provision did not apply to a “non-monetary requirement simply to refrain from doing something.” Thus, the court found the policy did not require Tosco to refrain from waiving Travelers’ right to a credit under Section 3600(b) and, thus, Tosco’s waiver did not breach the policy.
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