Around the Nation: October 2015
State news and updates from CLM chapters, reps, and committees.
CALIFORNIA: Builder Has Absolute Right to Attempt Repairs Prior to Litigation
In McMillin Albany LLC v. The Superior Court of Kern County, the California Court of Appeal, 5th District, changed the rules of construction defect litigation. This decision rejects Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC and Burch v. Superior Court and holds that, where the complaint alleges deficiencies in construction that constitute violations of the standards in the Right to Repair Act (Civil Code §§ 895), the homeowner must comply with the prelitigation procedures, regardless of whether the complaint alleges a cause of action under the act. Prior to this ruling, Liberty Mutual and Burch established that the act was not the exclusive remedy for damages for construction defects with resultant damages. This allowed homeowners to avoid prelitigation procedures in some jurisdictions. In McMillin, the court granted the builder’s petition and issued a peremptory writ of mandate directing the trial court to enter a new order granting its motion to stay the litigation until the parties satisfied the act’s prelitigation requirements.
The opinion of the 5th District does not have the effect of overruling the opinions of Liberty Mutual or Burch in different districts. Lower courts can choose among the opinions, although they usually follow the opinion issued by their own district. This clear split in authorities may be a basis for Supreme Court review.—From Northern California Chapter Member Wakako Uritani
MASSACHUSETTS: Tariff Provides Utility with Greater Liability Limitations Than Permitted Under Contract Law
A recent Massachusetts Supreme Judicial Court decision could influence insurance claims because it presents a higher threshold for liability in some circumstances and relates to regulatory developments. In Maryland Casualty Company, et al. v. NSTAR Electric Company, et al., the Supreme Judicial Court determined that a public utility may limit its liability for gross negligence or willful and wanton conduct based on the language of a tariff approved by the Department of Public Utilities (DPU). The plaintiff-insurers in the underlying action sought damages after an electrical switching procedure by a utility resulted in an explosion in a nonresidential building. Under ordinary contract principals, parties cannot agree to limit their own liability to this extent, but the court determined that the heightened scrutiny afforded by DPU regulators justified the tariff’s more expansive limitations. The court did note that such limitations in a tariff must be reasonable but found them to be so in this matter.—From CLM Members James M. Campbell and Curtis A. Berglund.
NEVADA: Absolute Liability Statute and Implied Covenant of Good Faith
In Torres v. Nevada Direct Ins. Co., the Nevada Supreme Court addressed “whether an injured party…may assert NRS 485.3091, Nevada’s absolute-liability statute, in order to sue the tortfeasor’s insurer after obtaining a judgment against the tortfeasor, and whether an injured party can pursue a bad faith claim against the insurer.” Torres was injured when the owner of a vehicle insured by Nevada Direct Insurance Company (NDIC) crashed into her vehicle. After a lawsuit was filed, NDIC’s insureds filed an answer and then stopped participating in the action. NDIC filed a declaratory relief action against its insureds for violating the cooperation clause. A default was entered against the insureds concluding that NDIC was not obligated to defend or indemnify them. Torres obtained a default judgment against NDIC’s insureds in her original liability action. She filed a new complaint against NDIC based on promissory estoppel and for breach of implied covenant of good faith and fair dealing. After a bench trial, judgment was entered in NDIC’s favor because Torres was not a judgment creditor of NDIC and because she was neither a named contracting party nor an intended beneficiary.
Torres appealed, and the court found that NRS 485.3091 was unambiguous and that the terms of NDIC’s insurance policy include that liability “becomes absolute whenever injury or damage covered by the policy occurs” and that “no violation of the policy defeats or voids the policy.” However, the court affirmed a prior ruling that third-party claimants do not have a contractual relationship with insurers and, thus, have no standing to claim bad faith. The court also noted that NRS 485.3091 provides no express language that permits a third-party claimant to pursue an independent bad faith claim against the insurer and refused to read language into the statute granting a private cause of action for an independent tort.—From Nevada Chapter Vice President Gina M. Mushmeche
OHIO: More Than Violation Needed in Class Action Under OCSPA
The Ohio Supreme Court recently held that a plaintiff cannot maintain a class action under the Ohio Consumer Sales Practices Act (OCSPA) without proof that all proposed class members were injured. In Felix v. Ganley Chevrolet Inc., the plaintiff asserted that an auto dealership’s purchase contract contained a binding arbitration clause that violated the OCSPA. In overturning the trial court’s certification of the class, the court held that plaintiffs in a class action suit under the OCSPA must demonstrate that they can prove through common evidence that all class members were, in fact, injured by the defendant’s action. The court’s decision has wide-ranging implications in that it stands for the proposition that a plaintiff cannot seek to certify the existence of a class action under the OCSPA based on proof of a violation alone.—From Northeast Ohio Chapter Member Holly Marie Wilson
OREGON: Neighbor Not Liable for Water Intrusion
In Gibson v. Morris, the Oregon Court of Appeals considered a dispute between neighbors in which the downhill neighbor sued the uphill neighbor in trespass and nuisance for alleged water intrusion caused by a groundwater interceptor. The court ruled that, while the groundwater interceptor did, in fact, cause water to enter the plaintiff’s land, the defendant could not be liable because he did not intend or know about the intrusion. The court reasoned that, because the defendant relied on the approval of a city hydrologist and water rights officials, he did not know nor should he have known of the intrusion.—From CLM Member Jack Levy
TENNESSEE: Assignment of Proceeds to Medical Provider Only Round One
Prentice Hyler was injured in an accident in which the car was insured by Erie Insurance. In Action Chiropractic Clinic LLC v. Hyler et al., Hyler sought medical care from a chiropractic clinic that required an assignment of rights for direct payment. Erie, on behalf of its insured, Burnette, paid a settlement directly to Hyler. After receiving no payment for services, the chiropractor later sued its patient and Erie. The trial judge held that the patient “had no vested rights against Erie to assign.” The policy required the written consent of Erie prior to an assignment of rights under its policy. Also, there was no evidence of privity between the chiropractor and Erie, and under Tennessee law, there can be no direct action by a third party against an insurer. The Supreme Court affirmed but only on the narrow issue that the assignment language was simply not effective or broad enough to cover the amounts paid by Erie. The Tennessee Supreme Court says the other issues are not necessary to be decided. So let’s wait for a provider to change its language for round two.—From CLM Member Jimmy Wright