California

Automobile Total Loss Thresholds

Total Loss Formula (TLF).

A vehicle is a total loss when the vehicle’s ACV is equal to or less than the cost of repairs plus the salvage value. If the insurance company declares the vehicle a total loss, DMV can issue a Salvage Certificate.

A vehicle is a total loss where the cost of repair exceeds the vehicle’s value prior to the repair of the vehicle. “Total Loss” means either of the following:

(a) A vehicle, other than a non-repairable vehicle, that has been damaged to the extent the insurance company considers it uneconomical to repair, and is not repaired; or

(b) A vehicle determined to be uneconomical to repair, for which a total loss payment has been made by an insurer, whether or not the vehicle is subsequently repaired, if prior to or upon making the payment, the insurer obtains the agreement of the claimant to the amount of the total loss settlement, and informs the client that, pursuant to subdivision (a) or (b) of § 11515, the total loss settlement must be reported to the DMV, which will issue a salvage certificate for the vehicle.

California defines a salvaged vehicle as one that has been either totally destroyed or damaged beyond what the insurance company is willing to pay to fix it, so the owner never gets the vehicle repaired. Depending on its condition, one of several things may happen to the car.

The first of these is that the title is exchanged for a Salvage Certificate issued by the DMV. Cal. Veh. Code § 544 and Cal. Veh. Code § 11515. Martinez v. Enter. Rent-A-Car Co., 13 Cal. Rptr. 3d 857 (Cal. App. 2004).

Deductible Reimbursement

Automobile and Property: Pro-Rata. Cal. Code of Regs. tit. 10, § 2695.7(q). “Every insurer that makes a subrogation demand shall include in every demand first-party claimant’s deductible. Every insurer shall share subrogation recoveries on proportionate basis with first-party claimant, unless first-party claimant has otherwise recovered whole deductible amount. No insurer shall deduct legal or other expenses from recovery of deductible unless insurer has retained outside attorney or collection agency to collect that recovery. The deduction may only be for pro-rata share of allocated loss adjustment expense.”

Note: The plain meaning of this regulation is that an insurer seeking settlement from a tortfeasor must seek recovery of its insured’s deductible. It does not authorize an insured to recover a deductible in litigation without the insured being a party to the suit. Pacific Gas & Elec. Co. v. Superior Court, 50 Cal. Rptr.3d 199, 203 (Cal. App. 2006). The above section does not apply to disability and health insurance.

Deductible must be included in any subrogation demand.

Diminution of Value

First Party: Depends on the policy language. Courts have held that, where a damaged auto was repaired to “its pre-accident safe, mechanical, and cosmetic condition,” an insurer’s obligation to repair to “like kind and quality” is discharged according to the insurance policy. A court will not rewrite an otherwise unambiguous limitation of collision coverage to provide for a risk not bargained for.

When carrier repairs car to its pre-accident condition, it’s not also required to pay for any loss of value to vehicle, which can occur after a seriously damaged vehicle is fully repaired. (Croskey, et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 6:2025, p. 6G-4.). “To hold [the insurer] liable for the automobile’s diminution in value… would render essentially meaningless its clear right to elect to repair rather than to pay the actual cash value of the vehicle at the time of loss.” Ray v. Farmers Ins. Exch., 200 Cal. App.3d 1411 (Cal. App. Dist. 3, 1988).

If a policy covers “damages for property damage for which an insured person is legally liable because of an accident.” “Property damage” is defined as “physical damage to tangible property, including destruction or loss of its use.” Although diminution in value is not itself a form of physical damage, it is an accepted way of measuring damage and, therefore, should be paid. Copelan v. Infinity Ins. Co., 2018 WL 2714588 (9^th Cir. 2018).

An insurance policy which states that “…at [defendant’s] option” it may “pay for a loss less any depreciation” or, alternatively, “repair or replace any damaged or stolen property with like kind and quality less any depreciation” expressly excludes coverage for “any diminution in the value” If an insurer opts to repair a vehicle rather than declare it a loss and pay its pre-accident value, the insurer’s obligation to insured is discharged if those repairs return the car to its “pre-accident safe, mechanical, and cosmetic condition.” This does not require restoration to “pristine factory condition” or to its pre-accident market value. Foster v. Interinsurance Exchange, 2018 WL 1980943 (Cal. App. 2018).

Where insurance policy contains no provision requiring carrier to pursue insured’s diminished value claim or wait to assert its subro claim, there’s no bad faith or breach of contract. Insurer doesn’t need to consider diminished value in electing to repair vehicle. Carson v. Mercury Ins. Co., 210 Cal. App.4^th 409 (Cal. App. 2012) (finding insurance company’s “failure to take into account vehicle’s depreciation in value when opting to repair vehicle cannot be deemed against public policy or covenant of good faith”). Copelan v. Infinity Ins. Co., 192 F. Supp.3d 1063 (C.D. Cal. 2016).

Third Party: The issue is confusing in California. While no court decisions regarding recovery allowed for diminution in value of a damaged vehicle in a third-party claim, the new jury instruction for auto property damage seems to allow a jury to award it. Recovery for third-party property damages is limited to the difference between the FMV of the vehicle before the loss and its value after the loss. Ray v. Farmers Ins. Exch., 200 Cal. App.3d 1411 (Cal. App. Dist. 3, 1988); Moran v. California Dep’t of Motor Vehicles, 139 Cal. App.4^th 688 (Cal. App. Dist. 4, 2006).

However, the California Jury Instruction (CACI 3903J, 2017), reads in part as follows:

However, if you find that the [e.g., automobile] can be repaired, but after repairs it will be worth less than it was before the harm, the damages are (1) the difference between its value before the harm and its lesser value after the repairs have been made plus (2) the reasonable cost of making the repairs. The total amount awarded may not exceed the [e.g., automobile] value before the harm occurred.

First Come, First Served: Subrogating Multiple Claims in Excess of Policy Limits

California does not make it an easy decision for or provide bright-line rules for liability carriers faced with the quandary of settling one of several liability claims. California appears to give liability insurers wide discretion when settling multiple claims. If a carrier settles in good faith with one of several claimants, it reduces the limit of its liability to the remaining claimants, who may not complain that the insurer favored the settling claimant over them. Aetna Casualty and Sur. Co. v. Superior Court, Los Angeles County, 114 Cal.App.3d 49 (Cal. App. 1980) (principle applied to single claimant with multiple claims); Contra, Strauss v. Farmers Ins. Exchange, 26 Cal.App.4^th 1017 (Cal. App. 1994) (insurer’s acceptance of a settlement on behalf of one of three insureds would have breached the insurer’s duty of good faith). In Strauss v. Farmers Ins. Exchange, the plaintiff sued the defendants’ insurer alleging bad faith refusal to accept settlement offer exhausting policy limits in exchange for release of one of three insureds. The court held that: (1) insurer’s acceptance of offer that would leave two of its insureds bereft of coverage would have breached insurer’s implied covenant of good faith and fair dealing, and thus, insurer could not be held in bad faith for refusing to accept offer, and (2) supplementary payments clause of policy unambiguously excluded payment of prejudgment interest. Strauss, supra.

The California Law Handbook summarizes the situation quite well. In § 11:203 it states:

• 11:203. Insurer’s duty to settle when there are multiple claimants and insufficient policy limits.

When the insured’s policy limits are insufficient to pay all claims of multiple injured parties in full, the insurer must endeavor to settle in a way that avoids exposing the insured to any personal liability. Whether the insurer’s exhaustion of policy limits by settling with one claimant constitutes bad faith is a question for the jury. Kinder v. Western Pioneer Ins. Co., 231 Cal.App.2d 894, 902, 42 Cal. Rptr. 394, 399 (1^st Dist. 1965). However, where the insurer, in reality, faces only one valid claim, filing an interpleader action will not absolve an insurer of bad faith liability for failure to settle. Kelly v. Farmers Ins. Exchange, 194 Cal.App.3d 1, 239 Cal. Rptr. 259 (1^st Dist. 1987). When a liability insurer is faced with the problem of too many claims, and too little money, the insurer should use leverage to purchase greatest release of liability for the insured. However, in the context of a third party claim against the insured, the interpleader solution may expose the insurer to liability. Use of interpleader is arguably a dereliction of the insurer’s duty to insured because the interpleader does not extinguish insured’s liability, only the insurer’s. § 11:203. Insurer’s duty to settle when there are multiple claimants and insufficient policy limits, California Insurance Law Handbook § 11:203.

Notwithstanding this, some authorities tell us that an insurer should not simply pay out policy proceeds to any claimant who happens to be the first to press a claim. Rather, an insurer should first investigate fully and consult its insured as soon as possible. Arnold P. Anderson, Establishing Good Faith Settlements in Multiple Claims Cases, FIC Insurance Quarterly Summer 1979, 381, 394-395. With this statement as a foundation, the issue of good faith actually becomes important in an “excess liability” case. It is important to take the steps necessary to establish good faith.

A liability insurer may satisfy its statutory duty to make a good faith attempt to settle all claims against its insured other than by settling all third-party claims. It is entitled, in good faith, to decline to pay what it considers to be an excessive settlement on claim of questionable validity. Moradi-Shalal v. Fireman’s Fund Ins. Cos., 758 P.2d 58 (Cal. 1988). California law provides for a specific procedure for a defendant to interplead its policy limits in the facet of multiple claims against it. Section 386 of the California Code of Civil Procedure provides as follows:

(b) Entity or person subject to multiple claims which give rise to multiple liability; action against claimants to compel interpleader and litigation of claims. Any person, firm, corporation, association or other entity against whom double or multiple claims are made, or may be made, by two or more persons which are such that they may give rise to double or multiple liability, may bring an action against the claimants to compel them to interplead and litigate their several claims.

When the person, firm, corporation, association or other entity against whom such claims are made, or may be made, is a defendant in an action brought upon one or more of such claims, it may either file a verified cross-complaint in interpleader, admitting that it has no interest in the money or property claimed, or in only a portion thereof, and alleging that all or such portion is demanded by parties to such action, and apply to the court upon notice to such parties for an order to deliver such money or property or such portion thereof to such person as the court shall direct; or may bring a separate action against the claimants to compel them to interplead and litigate their several claims. The action of interpleader may be maintained although the claims have not a common origin, are not identical but are adverse to and independent of one another, or the claims are unliquidated and no liability on the part of the party bringing the action or filing the cross-complaint has arisen. The applicant or interpleading party may deny liability in whole or in part to any or all of the claimants. The applicant or interpleading party may join as a defendant in such action any other party against whom claims are made by one or more of the claimants or such other party may interplead by cross-complaint; provided, however, that such claims arise out of the same transaction or occurrence. Cal. Civ. Proc. Code § 386.

Interpleader is an equitable proceeding in which the rights of the parties as between themselves are governed by principles of equity.

There do not appear to be any cases finding that a liability insurer acted in bad faith when interpleading its policy limits. To the contrary, the few cases on this point have held in favor of insurers facing similar claims. Schwartz v. State Farm Fire & Cas. Co., 88 Cal.App.4^th 1329 (Cal. App. 2001); Lehto v. Allstate Ins. Co., 31 Cal.App.4^th 60 (Cal. App. 1994) (both holding that an insurer’s interpleader of policy limits did not or would not constitute an act of bad faith); Bowers v. State Farm Mut. Auto. Ins. Co., 460 So.2d 1288, 1290 (Ala. 1984) (UM claim). The use of interpleader has typically been limited to property damage cases and has not been allowed in the personal injury context. California Physicians’ Service v. Superior Court, 102 Cal.App.3d 91 (Cal. 1980). The 9^th Circuit has held that an interpleader is proper when, at the time of filing, there are multiple claimants with colorable claims to the insurance proceeds and the liability carrier concedes coverage by depositing the funds. Society Insurance Company v. Nystrom, 718 Fed.Appx. 482 (9^th Cir. 2017).

Notwithstanding the above, when the lienholder is a government entity, it is improper for a defendant to simply issue a check payable to both the plaintiff and the lienholder. County of Santa Clara v. Escobar, 2016 WL 369354 (Cal. App. 2016). The proper procedure would be for the conflicted tortfeasor to interplead the funds and allow the trial court to reach a determination as to the appropriate allocation of funds. Otherwise, the tortfeasor could face direct litigation from the lien holder.

Funeral Procession Traffic Laws

The only law California has regarding funeral processions prohibits anyone from disregarding any traffic signal or direction given by a peace officer in uniform authorized to escort a procession. Cal. Veh. Code § 2817.

Imputing Contributory Negligence of Driver to Vehicle Owner

Imputed Contributory Negligence Law:  Contributory negligence of the driver of a vehicle is not ordinarily imputable to his passenger or guest; unless the parties are engaged in a common or joint enterprise, contributory negligence of one will not bar recovery by the other. Pope v. Halpern, 193 Cal. 168, 223 P. 470 (1924).

In 1967, § 17150 was amended to remove the words “and the negligence of such person shall be imputed to the owner for all purposes of civil damages.” This reinstated the common law rule that contributory negligence of a bailee of a vehicle is not imputed to the owner of the vehicle in action against third-party tortfeasor to recover for damages to vehicle. Hertz Corp. v. Pippin, 113 Cal. Rptr. 698, 700 (Cal. App. 1974).

Vicarious Liability/Family Purpose Doctrine:  Every owner of a motor vehicle is liable for injury or damage caused by negligent operation of vehicle by any person using a vehicle with permission, express or implied, of the owner. California Vehicle Code § 17150. Limited to $15,000/$30,000/$5,000. California Vehicle Code § 17150.

No Family Purpose Doctrine. Spence v. Fisher, 193 P. 255 (Cal. 1920).

Sponsor Liability for Minor’s Driving:  California Vehicle Code § 17707: Person verifying minor’s license application liable for driving of minor.

California Vehicle Code § 17708: Parents jointly and severally liable for negligent driving of child.

Keep Right Traffic Laws

Statute: Cal. Vehicle Code § 21650, Cal. Vehicle Code § 21654 (a), Cal. Vehicle Code § 21753 and Cal. Vehicle Code § 21655

Summary: Vehicles must be driven in the right lane except when overtaking and passing another vehicle proceeding in the same direction; when making a lawful left turn; when the right half of the roadway is closed to traffic while under construction; upon a roadway restricted to one-way traffic; or when the roadway is not of sufficient width. Slower traffic must keep right. Notwithstanding the prima facie speed limits, any driver proceeding upon a highway at a speed less than the normal speed of traffic moving in the same direction at such time shall be driven in the right-hand lane for traffic, except when overtaking and passing another vehicle proceeding in the same direction or to turn left. Must use lane(s) designated by signs. If no designated lane, must use right-hand lane. May use second-to-right-hand lane if there are four or more lanes. To pass, must use designated lane, second-to-right lane, or right lane. Motor trucks; truck tractors with three or more axles; truck tractors trailing another vehicle. The duty of slower traffic to travel in the right lane applies notwithstanding the prima facie speed limits. Except when passing on the right is permitted; the driver of an overtaken vehicle shall safely move to the right-hand side of the highway in favor of the overtaking vehicle after an audible signal or a momentary flash of headlights by the overtaking vehicle.

Flow of Traffic: The duty of slower traffic to travel in the right lane applies notwithstanding the prima facie speed limits. Except when passing on the right is permitted; the driver of an overtaken vehicle shall safely move to the right-hand side of the highway in favor of the overtaking vehicle after an audible signal or a momentary flash of headlights by the overtaking vehicle.

However, a driver has no common law or statutory duty to move to the right into the next slower lane even if, as here, other traffic is traveling in excess of the posted speed limit. Such a driver cannot be held comparatively liable for any resulting damages if the speeding vehicle approaching from behind in the same lane collides into the rear of the law-abiding driver’s vehicle.

Monreal v. Tobin, 72 Cal. Rptr. 2d 168, 176 (Cal. App. 4th Dist. 1998).

Laws Regarding Using Cell Phones/Headphones/Texting While Driving

Cell Phone/Texting:  A person shall not drive a motor vehicle while using a wireless phone unless that phone is specifically designed and configured to allow hands-free listening and talking, and is used in that manner while driving, except for emergency purposes or for emergency services professionals while in the course/scope of their duties.  Cal. Veh. Code § 23123.

A person shall not drive a motor vehicle while using an electronic wireless communication device to write, send, or read a text-based communication, unless it is voice operated and hands-free.  Cal. Veh. Code § 23123.5.

Drivers under the age of 18 shall not drive a motor vehicle while using a wireless phone, even if it is hands-free.  Cal. Veh. Code § 23124

Other Prohibitions:  A person may not wear a headset or earplugs in both ears while operating a motor vehicle. Exceptions include persons using special construction equipment or equipment for maintaining highways, person operating refuse collection equipment, hearing aids for hard of hearing, and using earplugs to attenuate injurious noise levels.  Cal. Veh. Code § 27400.

Loss Of Use

Loss of Use: Yes. Loss of use is calculated by referencing the rental value of similar property which the plaintiff can hire for use during the period when he is deprived of the use of his own property. 23 Cal. Jur.3d, Damages, § 69, pp. 129-130; Collin v. Am. Empire Ins. Co., 21 Cal.App.4^th 787, 818, (Cal. App. 1994). A substitute vehicle doesn’t actually need to be rented in order to use rental value as a measure of loss of use. Malinson v. Black, 188 P.2d 788 (Cal. App. 1948). Upon proper pleading and proof, loss of use of a totally destroyed commercial vehicle may be recoverable in order to compensate for all detriment proximately caused by the wrongful destruction. Reynolds v. Bank of Am. Nat’l T. & S. Ass’n, 345 P.2d 926, 928 (Cal. 1959) (Airplane).

Lost Profits: Yes. As long as it does not result in a double recovery and can be proven with testimony. If full profits are recovered, that includes compensation for loss of use. If evidence of lost profits is not available, loss of use may be shown by what it would have cost to rent comparable equipment. Tremeroli v. Austin Trailer Equip. Co., 102 Cal.App.2d 464, 483 (Cal. App. 1951). Cannot recover loss of use if absent proof that vehicle is or was intended to actually be used. Metz v. Soares, 142 Cal.App.4^th 1250, 1255, (2006). To recover loss of use, the owner must prove the reasonable cost to rent a similar vehicle for the amount of time reasonably necessary to repair or replace the vehicle. Judicial Council Of California Civil Jury Instruction 3903M, Judicial Council of California Civil Jury Instruction 3903M.

Med Pay/PIP Subrogation

Med Pay: Insurer entitled to reimbursement rights only, based on policy provisions authorizing same, provided that the insured has been made whole with regard to non-covered damages (not including attorneys’ fees). 21st Century Ins. Co. v. Superior Court (Quintana), 213 P.3d 972 (Cal. 2009). No direct subrogation allowed because assignment of personal injury actions is not allowed. No intervention allowed in Med Pay subrogation cases. Id.

PIP: Coverage not applicable.

Made Whole: Can be overridden with Plan language. Samura v. Kaiser Found. Health Plan, 17 Cal.App.4^th 1284 (Cal. App. 1993).

Statute of Limitations: The two (2) year personal injury statute of limitations runs from the date of the insured’s accident. Cal. Civ. Proc. Code § 335.1 (2002). Three (3) year UM subrogation SOL runs from the date that payment was made. Cal. Ins. Code § 11580.2(g).

No Pay, No Play Laws

Rule:  An injured person cannot recover non-economic damages if that person was under the influence at the time of the accident and was convicted of that offense, the injured driver’s vehicle was not insured, or the injured driver cannot establish financial responsibility as required by the state. However, if the uninsured driver was injured by another driver that was under the influence and convicted of that offense, then that uninsured driver may recover non-economic losses.

Authority:  Cal. Civ. Proc. Code § 3333.4

Owner Liability For Stolen Vehicle

Key In The Ignition Statutes: N/A

Common Law Rule: A vehicle owner may be liable for injuries caused by a thief if “special circumstances” exist. The “special circumstances” must create a duty owed by the vehicle owner to third persons in regard to the manner in which the vehicle is secured when not in use. The question becomes one of foreseeability and whether the foreseeable risk of harm was unreasonable. Carrera v. Maurice J. Sopp & Son, 177 Cal. App.4^th 366, 378-381, 99 Cal. Rptr.3d 268 (2^nd Dist. 2009); Kiick v. Levias, 113 Cal. App.3d 399, 403, 169 Cal. Rptr. 859, 861 (Ct. App. 1980); Archer v. Sybert, 167 Cal.App.3d 722 (Cal. Ct. App. 1985).

Payment of Sales Tax After Vehicle Total Loss

First-Party Claims:  Insurer must (1) offer a cash settlement based upon the actual cost of a “comparable auto” including all applicable taxes and other fees, or (2) offer a replacement comparable auto including all applicable taxes, license fees, and other fees. Cal. Code of Regs. Tit. 10 § 2695.8(b).

Pro-rata refund of Vehicle License Fee (VLF) portion of the registration fees (in lieu of property tax) is required when one (1) vehicle is stolen and not recovered within 60 days after police report, Cal. Rev. and Tax. Code § 10902; (2) total loss, Cal. Veh. Code § 11515 & Cal. Rev. and Tax. Code § 10902, or (3) vehicle completely stripped or burned.

When a carrier elects to repair the car to its pre-accident condition, it’s not required to pay for any loss of value to the vehicle, which can occur after a seriously damaged vehicle is fully repaired. Carson v. Mercury Ins. Co., 148 Cal. Rptr. 3d 518 (Cal. App. 2012).

Third-Party Claims:  Third-party total loss claims are evaluated in the same way as first-party claims. Cal. Code of Regs. Tit. 10 § 2695.8(b)(6). It provides:

(6) Subsection 2695.8(b) applies to the evaluation of third party automobile total loss claims, but does not change existing law with respect to the obligations of an insurer in settling such claims with a third party.

Pedestrian and Crosswalk Laws

Statute:

Cal. Veh. Code § 21950: Vehicles must yield to pedestrians in crosswalk. Pedestrians must not suddenly leave curb in front of vehicle. Vehicles still have duty to be operated safely given circumstances.

Cal. Veh. Code § 21954: Pedestrians outside crosswalk must yield to vehicles. Drivers must still exercise due care for safety of any pedestrians.

Summary: Pedestrian crossing highway without looking for approaching traffic and failing to yield to oncoming vehicles while crossing outside crosswalk is negligent per se. Ferner v. Casalegno, 141 Cal.App.2d 467, 297 P.2d 91 (Cal. App. 1956). Stepping in front of vehicle outside crosswalk constitutes negligence per se. Chase v. Thomas, 7 Cal.App.2d 440, 46 P.2d 200 (Cal. App. 3 Dist. 1935).

Rental Car Company Physical Damage and Loss of Use Claims

Recovery From Renter: Car rental company can recover actual costs of repair (based on crash book estimates) or the ACV. Loss of use is not recoverable from a renter or authorized driver. There are also limits on the amount of administrative fees the renter is liable for. Cal. Civil Code § 1939.05.

Recovery From Third-Party: Case law allows for owner of commercial vehicle (airplane). Nothing specifically for rental cars. When owner of a negligently destroyed commercial vehicle has suffered injury by being deprived of use of vehicle during period required for replacement, he is entitled, upon proper pleading and proof, to recover for loss of use in order to compensate for all the detriment proximately caused by the wrongful destruction. Owner proved equivalent aircraft were not immediately available, that it would require four or five months to replace the aircraft, that its reasonable rental value was $1,200 per month, and that the loss of business profits for the period reasonably required for replacement was $5,000. Reynolds v. Bank of America National T. & S. Ass’n, 53 Cal.2d 49 (Cal. 1959). The measure of special damages allowable to a trucking company whose truck is wrecked while the company was fulfilling a contract was the reasonable rental value of substitute trucks, whether other trucks were actually rented or not. Meyers v. Bradford, 201 P. 471 (Cal. App. 1921). Loss of use of a totally destroyed commercial vehicle may be recoverable in order to compensate for all detriment proximately caused by the wrongful destruction. Reynolds v. Bank of Am. Nat’l T. & S. Ass’n, 345 P.2d 926, 928 (Cal. 1959) (Airplane).

Rental Car Company’s Liability Insurance Primary or Excess

Summary: California is the only state in which car rental companies do not automatically provide liability coverage as part of its car rental agreement. Some companies may provide the minimum primary liability protection to international renters with driver’s licenses that show an address outside the U.S. A renter may need to provide their own liability coverage when renting in California. In general, U.S. residents are usually covered by their own personal auto coverage, but renters must be sure they have the minimum level of liability insurance required in California from their own insurance company. If not, they may have to purchase liability insurance through the car rental company. If the car rental company obtains liability insurance that describes or rates the rental vehicle and the rental agreement provides for coverage, its coverage is primary. Cal. Ins. Code § 11580.9(d); Enterprise Rent-A-Car Co. v. Workman’s Auto Ins. Co., 58 Cal.App.4th 1543, 68 Cal.Rptr.2d 725 (1997). If the car rental company obtains liability coverage (or self-insured certificate) which does not describe or rate the rented vehicle, then the coverage is excess to the renter’s policy. Mercury Casualty v. Hertz Corp., 59 Cal.App.4^th 414, 69 Cal.Rptr.2d 9 (1997). If the car rental company is self-insured, that self-insurance is excess to the renter’s personal auto coverage. Cal. Ins. Code § 11580.9; Enterprise Rent-A-Car v. Workmen’s Auto Ins., 68 Cal.Rptr.2d 725 (Cal. 1997); Mercury Casualty v. Hertz, 69 Cal.Rptr.2d 9 (Cal. 1997); Interinsurance Exchange v. Spectrum Investment Corp., 258 Cal.Rptr. 43 (Cal. 1989). However, if the car rental agreement agrees to provide liability coverage, even a self-insured car rental company will be primary. United Services Auto. Assn. v. Snappy Car Rental, Inc., 74 Cal.App.4^th 461 (Cal. App. 1999).

Sudden Medical Emergencies While Driving

Doctrine of Imminent Peril. A person confronted with a sudden emergency is held to a lesser standard of care under the circumstances. A driver who is suddenly stricken by an illness, which he could not anticipate, while driving an automobile, which renders it impossible for him to control the car, is not negligent. Waters v. Pac. Coast Dairy, Ltd. Mut. Comp. Ins. Co., Intervener, 131 P.2d 588, 590 (1942); Hammontree v. Jenner, 97 Cal. Rptr. 739 (Ct. App. 1971).

A sudden mental illness does not preclude a driver from negligence. Bashi v. Wodarz, 53 Cal. Rptr.2d 635 (Cal. 1996).

Suspension of Drivers’ Licenses

Administrative Suspension: Any driver involved in an accident which results in property damage of $750 or more, bodily injury or death, must report the accident on a SR-1. Cal. Veh. Code § 16000. If the report reveals the driver was not in compliance with the mandatory insurance laws, the state will send out a notice to suspend that person’s driver’s license, and will suspend license thirty (30) days after the notice. Cal. Veh. Code § 16070.

Judgment: A party can obtain a judgment against the uninsured defendant and file a certified copy with the DMV indicating that the judgment debtor has failed to satisfy the judgment for a period of thirty (30) days. Cal. Veh. Code § 16370. The DMV will then suspend the driver’s license of the judgment debtor and it will remain suspended until (1) the debtor gives proof of financial responsibility, and (2) the judgment is satisfied. Cal. Veh. Code § 16371.

Contact Information: California Department of Motor Vehicles, ATTN: Civil Judgment, P.O. Box 942884, Mail Station J237, Sacramento, CA 94284-0884, (916) 657-7573, https://www.dmv.ca.gov/portal/dmv.

Use of Non-Original Equipment Manufacturer (OEM) Aftermarket Crash Parts in Repair of Damaged Vehicles

Authority: Cal. Bus. & Prof. Code §§ 9875 to 9875.2; 10 CA A.D.C. § 2695.8.

Summary: Insurers are prohibited from requiring the use of aftermarket parts when repairing a damaged vehicle, unless use of the aftermarket part is disclosed to the policyholder prior to repair. Any parts used on the vehicle must have their manufacturer readily identifiable from some sort of marking on the part. This mark should remain visible after installation if at all practicable. The written estimate must notify the insured of who manufactured the non-OEM parts and that the part manufacturer warrants the non-OEM parts, not the auto manufacturer.

Muncipal/County/Local Governmental Immunity and Tort Liability

Legal Authority:

California Tort Claims:  Public entity liable if the act or omission would, apart from this section, have given rise to a cause of action against that employee. Cal. Gov’t Code § 815.2.  Numerous immunities provided. Cal. Gov’t Code §§ 815 – 996.6 (1963).  A public entity may sue and be sued. Cal. Gov’t Code § 945.  Public employee liable for injury to the same extent as a private person. Cal. Gov’t Code § 815.

Notice Deadlines:  Personal injury/property claim within six (6) months after accrual of the cause of action. All other claims shall be presented within one (1) year. Cal. Gov’t Code § 911.2.  Board must respond within 45 days. Then six (6) months to file suit.  “Substantial compliance” may be found even if deficiencies. See Cal. Gov’t Code §§ 910 and 915 for claim filing requirements. See§§ 911.4 to 912.2 re: leave to file late claims.

Claims/Actions Allowed: A public entity includes city, county or political subdivision. Cal. Gov’t Code § 811.2.  Public entity is liable for injuries proximately caused by their employee’s acts or omissions except when that employee is immune from liability. Cal. Gov’t Code § 815.2.  A public entity is liable for death or injury proximately caused by a negligent or wrongful act or omission in the operation of any motor vehicle by a public employee acting within the scope of his employment. Cal. Veh. Code § 17001.

Comments/Exceptions: A public employee is not liable for an injury resulting from his act or omission where the act or omission was the result of a discretionary act. Cal. Gov’t Code § 820.2.  Public entities are not liable for injuries caused by misrepresentation. Cal. Gov’t Code § 818.8.  Public entities are not liable for an injury caused by adopting or failing to adopt an enactment or by failing to enforce any law. Cal. Gov’t Code § 818.2.

Damage Caps:  None.  No punitive damages against the State. Cal. Gov’t Code § 818.

State Sovereign Immunity And Tort Liability

Tort Claims Act: California Tort Claims Act.

Except as otherwise provided by statute, public entities are not liable for an injury, arising from an act or omission of the public entity or their employee. Cal. Gov’t Code § 815.  Numerous immunities provided. Cal. Gov’t Code §§ 815 – 996.6 (1963).  Public employee liable for injury to the same extent as a private person. Cal. Gov’t Code § 815.

Notice Deadlines:  Personal injury/ property claim within six months after accrual of the cause of action. All other claims shall be presented within one year. Cal. Gov’t Code § 911.2.  State Board of Control Gov’t Claims Branch, P.O. Box 3035 Sacramento, CA 95812-3035.  Board must respond within 45 days. Then six months to file suit.

Claims/Actions Allowed:  A public entity (e.g., state) is liable for injuries proximately caused by their employee’s acts or omissions except when that employee is immune from liability. Cal. Gov’t Code § 815.2.  A public entity is liable for death or injury proximately caused by a negligent or wrongful act or omission in the operation of any motor vehicle by a public employee acting within the scope of his employment. Cal. Veh. Code § 17001.

Comments/Exceptions:  A public employee is not liable for an injury resulting from his act or omission where the act or omission was the result of a discretionary act. Cal. Gov’t Code § 820.2.  Public entities are not liable for injuries caused by misrepresentation.  Cal. Gov’t Code § 818.8.  Public entities are not liable for an injury caused by adopting or failing to adopt an enactment or by failing to enforce any law. Cal. Gov’t Code § 818.2.

Damage Caps:  None.  No punitive damages against the State. Cal. Gov’t Code § 818.

Anti-Indemnity Statutes

Prohibits Broad Indemnity.  Prohibits Intermediate Indemnity. Applies to Construction Contracts. Civ. Code § 2782.

Applicable to contracts entered into after January 1, 2013.  Neither public nor private owner can force subcontractor to indemnify or insure another party for that other party’s “active negligence or willful misconduct,” for defects in the project’s design provided to the subcontractor, or for claims arising outside the scope of the subcontractor’s work. (Exceptions: (1) private owner acting as contractor or supplying materials/equipment § 2782(c)(1), or (2) private owner performing improvement to sing-family dwelling § 2782(c)(3). Indemnity for sole negligence still applies to these two exceptions). List of inapplicable circumstances to which new § 2782.05(a) does not apply found in § 2782.05(b).  § 2782(a) appears to narrow, but not completely prohibit circumstances under which subcontractor can be required to name a GC, CM, or another SC as additional insured. § 2782.5 also prevents indemnity of GC, CM, or other subcontractor for “active negligence.”

Contribution Actions

Modified Joint and Several Liability.

Joint and several liability for economic damages on negligence claims, otherwise several liability for non-economic damages. Cal. Civ. Code Ann. §§ 1431 and 1432. Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital, 8 Cal. 4th 100 (Cal. 1994). Exceptions: Strict liability claims. Daly v. General Motors Corp., 575 P.2d 1162 (Cal. 1978).

California allows for contribution (equitable indemnity) by statute. Cal. Civ. Proc. Code § 875 states:

• Where judgment rendered jointly against two or more defendants there is right of contribution.
• Contribution allowed only after one tortfeasor has discharged or extinguished the joint judgment or has paid more than his pro rata share. Contribution limited to the excess so paid over the pro rata share of contribution plaintiff and no contribution defendant owes contribution beyond his own pro rata share of the entire judgment.
• No contribution if intentional act.
• A liability carrier who has discharged the liability of a tortfeasor judgment debtor is subrogated to his right of contribution.
• No contribution if there is indemnity right.

Is called “Partial equitable indemnity.” Good faith settlement finding bars contribution against settling tortfeasor and provides an offset in the amount of the settlement to the subsequent liability of non-settlers. A settling defendant can recover equitable indemnity from a non-settling defendant to the extent the settling defendant has discharged a liability that the non-settling defendant should be responsible to pay. The right of contribution can be enforced in a separate lawsuit. Caterpillar Tractor Co. v. Teledyne Indus., Inc., 53 Cal. App.3d 693, 126 Cal. Rptr. 455 (Cal. Ct. App. 1975).

The statute of limitations is one (1) year from date the settlement is paid. Smith v. Parks Manor, 243 Cal. Rptr. 256 (Cal. App. 1987).

Contributory Negligence/Comparative Fault

Pure Comparative Fault. Damaged parties can recover even if 99% at fault. Recovery is reduced by the damaged party’s degree of fault. Plaintiff’s negligence will offset defendant’s liability. Li v. Yellow Cab, 119 Cal. Rptr. 858 (Cal. 1975); Diaz v. Carcamo, 253 P.3d 535 (Cal. 2011).

Dog Bite Laws

Strict Liability on the dog owner where a dog bite occurs when victim is on public property or lawfully on private property. Cal. Civ. Code § 3342.

Economic Loss Doctrine

Intermediate Rule. In California, economic losses are defined as “damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits – without any claim of personal injury or damages to other property.” Frank M. Booth, Inc. v. Reynolds Metals Co., 754 F.Supp. 1441 (E.D. Cal. 1991). The line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory. Philadelphia Indem. Ins. Co. v. Simplex Grinnell, L.P., 2012 WL 1668979 (N.D. Cal., May 11, 2012). The negligent performance of a construction contract, without more, does not justify an award of tort damages. Aas v. Superior Court, 24 Cal.4^th 627, 12 P.3d 1125 (2000).

The ELD bars recovery in tort for economic damages caused by a defective product with two exceptions: (1) the loss is accompanied by some form of personal injury or damage to property other than the defective product itself, or (2) a “special relationship” exists. Jimenez v. Superior Court, 59 P.3d 450 (Cal. 2002). The “other property” exception is found in KB Home v. Superior Court, 112 Cal.App.4^th 1076 (Cal. App. 2003). This includes damage to one part of a product caused by another defective part. The injured “component” may be defined as “other property” if a jury determines that it is “a sufficiently discrete element of the larger product that it is not reasonable to expect its failure invariably to damage other portions of the finished product.” Aas v. Superior Court, 24 Cal.4^th 627 (Cal. 2000). The court must first determine what the product at issue is; only then does the court find out whether the injury is to the product itself, for which recovery is barred by the ELD, or to property other than the defective product, for which plaintiffs may recover in tort. KB Home, supra. Nevertheless, in construction defect cases where property damage is alleged – e.g., a defect that causes harm to other portions of the property, as a result of a contractor’s negligence – the plaintiff has alleged a duty independent of any contract. Robinson Helicopter, 102 P.3d 268 (Cal. 2004) (citing Jimenez v. Superior Court, 58 P.3d 450 (Cal. 2002)). Thus, to the extent that plaintiffs are asserting property damage resulting from the negligence of the defendant, they can state a claim for negligence.

The second exception is if a “special relationship” exists. J’Aire v. Gregory, 24 Cal.3d 799 (Cal. 1979). When there is a special relationship between the plaintiff and defendant, recovery for damage to the product only can be had. Id. This special relationship exists where (a) the plaintiff is an intended beneficiary of the defendant’s obligations under a contract, (b) the plaintiff’s loss is foreseeable, (c) it is very likely that the plaintiff would suffer the loss from the defendant’s conduct, (d) there is a close connection between the plaintiff’s conduct and the defendant’s loss, (e) the defendant’s conduct is morally blameworthy, and (f) public policy favors liability on the defendant. Biankanja v. Irvine, 49 Cal.2d 647 (Cal. 1958). There is an exception for fraud or conversion, or where one party breaches the contract intentionally. Robinson Helicopter, Inc. v. Dana Corp., 102 P.3d 1256 (Cal. 2004).

Therefore, where the product purchaser’s expectations are frustrated because the product purchased is not functioning properly, the remedy is in contract alone, because the owner has suffered only “economic” losses. Robinson Helicopter Co., Inc. v. Dana Corp., supra. The ELD is followed, and requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise

Parental Responsibility

Willful Misconduct.  Parents jointly and severally liable for willful misconduct causing injury, death or property damage. Liability generally imposed on parent when child has acted with “willful” misconduct; negligence of child is sufficient to impose liability on parents when child harms person or property while operating motor vehicle with parent’s permission. Government Code § 38772 provides that cities and counties can make child and parent liable for cost of abatement of nuisance due to graffiti. Education Code § 48904 makes parents liable for injury or death caused by willful act of child to any fellow pupil or school employee. Penal Code § 490.5 covers shoplifting. Cal. Civ. Code § 1714.1.

The limits of liability are: 1) Property: $25,000; 2) Medical, Dental, Hospital Costs: $25,000.00; and 3) Vandalism: $25,000 (Including Atty’s Fees)(Damage limitations will be adjusted every 2 years by the Judicial Council to reflect cost of living in California according to California Consumer Price Index. An insurer is not liable for more than $10,000 for conduct imputed to parent).

Discharge of Firearms.  Parents liable if permitted child to have firearm or left it someplace accessible. Cal. Civ. Code § 1714.3.

The limits of liability are $30,000 for injury to or death of one person as a result of any one occurrence, and $60,000 for injury to or death of all persons as a result of any one such occurrence.

Minor Driving. Person verifying minor’s license application liable for driving of minor. Cal. Veh. Code § 17707.

Parents Civil Liability for Driving. Parents jointly and severally liable for negligent driving of child. Cal. Veh. Code § 17708.

The limits of liability for a Minor’s Driving are $15,000 per person for bodily injuries, $30,000 max per occurrence for bodily injuries, and $5,000 max for property damage.

Child must be under 18-years-old.

Spoliation

First-Party Tort For Intentional Spoliation: The California Supreme Court has held that there is no tort for “the intentional spoliation of evidence by a party to the cause of action to which the spoliated evidence is relevant [i.e., first-party spoliation], in cases in which … the spoliation victim knows or should have known of the alleged spoliation before the trial or other decision on the merits of the underlying action.” Cedars-Sinai Med. Ctr. v. Superior Ct., 18 Cal.4^th 1, 74 Cal.Rptr.2d 248, 258, 954 P.2d 511 (Cal. 1998).

First-Party Tort For Intentional Spoliation: The California Supreme Court has held that there is no tort for “the intentional spoliation of evidence by a party to the cause of action to which the spoliated evidence is relevant [i.e., first-party spoliation], in cases in which … the spoliation victim knows or should have known of the alleged spoliation before the trial or other decision on the merits of the underlying action.” Cedars-Sinai Med. Ctr. v. Superior Ct., 18 Cal.4^th 1, 74 Cal.Rptr.2d 248, 258, 954 P.2d 511 (Cal. 1998).

Third-Party Tort For Intentional Spoliation: The California Supreme Court has also held that there was no cause of action for intentional spoliation of evidence by a third-party. Temple Cmty. Hosp. v. Sup. Ct., 20 Cal.4^th 464, 84 Cal.Rptr.2d 852, 862, 976 P.2d 223 (Cal. 1999).

No Tort of Negligent Spoliation: The California Court of Appeals extended these decisions to preclude causes of action for negligent spoliation by first or third parties. Forbes v. County of San Bernardino, 101 Cal.App.4^th 48, 123 Cal.Rptr.2d 721, 726-27 (Cal. 2002).

Sanctions: California recognizes the availability of standard non-tort remedies to punish and deter for the destruction of evidence. Cedars-Sinai Medical Center v. Superior Court, supra. The available remedies may include: (1) The evidentiary inference that the evidence which one party has destroyed or rendered unavailable was unfavorable to that party. California Evidence Code § 413 (evidence which one party has destroyed or rendered unavailable was unfavorable to that party); (2) Discovery sanctions under California Code of Civil Procedure § 2023; (3) Disciplinary action against the attorneys. Cal. Rules Prof. Conduct, Rule 5-220 and Cal. Bus. & Prof. Code §§ 6077 and 6106; and (4) Criminal penalties for destruction of evidence under California Penal Code § 135 (criminalizes the spoliation of evidence, which creates an effective deterrent against this wrongful conduct).

In Toste v. Lewis Controls, Inc., 1996 WL 101189 (N.D. Calif. 1996), an employee was injured by an alleged defective bandsaw owned by the employer, a nonparty. The defendant moved to sanction the employer and the intervening workers’ compensation carrier for spoliation. The employer’s employees cleaned up the broken pieces of the band saw blade and placed them in a scrap bin, knowing that the pieces would ultimately be discarded. On the same day, those employees measured and examined the log, which was being sawed during the incident, then cut it into lumber. The parties dispute Arcata’s duty to preserve the log and shattered band saw blade as evidence. Lewis argues if Arcata employees had notice of potential litigation arising from Toste’s injury, and a reasonable person would have known the log and band saw blade would be relevant, then they had a duty to preserve the evidence. The defendant also argued that by recording the system’s “setworks history” and measuring the log, commenced an investigation into the cause of the accident. Lewis further argues that based on this initial investigation, Arcata reasonably should have known litigation was likely and the blade pieces and log would be relevant. Interestingly, the defendant’s own employee who two days after the accident observed a broken blade which may have been the one from the incident, did not request it be preserved. The court denied the motion for sanctions, holding that, after considering the delicate balance between the prejudice to Lewis resulting from the destruction of relevant evidence and the prejudice to Liberty Mutual and especially to Toste which would result from an adverse inference instruction, there is insufficient evidence in the record to determine that such an instruction is appropriate. The court can determine at trial whether any evidentiary remedies are appropriate to limit the prejudice to Lewis arising from Arcata’s destruction of evidence. The duty, therefore, may not have arisen before the evidence was destroyed. A party’s destruction of evidence need not be in “bad faith” to warrant a court’s imposition of sanctions.

Post Judgment Tort of Spoliation: California courts have not addressed the issue whether a tort for intentional spoliation of evidence exists “in cases of first-party spoliation in which the spoliation victim neither knows nor should have known of the spoliation until after a decision on the merits of the underlying action.” Cedars-Sinai Med. Ctr., 74 Cal.Rptr.2d at 258 n. 4, 954 P.2d 511 (Cal. 1998). As a consequence, this court must decide this issue as it believes the California Supreme Court would do. HS Servs., Inc. v. Nationwide Mut. Ins. Co., 109 F.3d 642, 644 (9^th Cir. 1997).

The Federal District Court in Central California concluded that the California Supreme Court would not recognize an intentional spoliation of evidence tort where the spoliation victim did not know nor should have known of the spoliation until after a decision on the merits of the underlying action. Roach v. Lee, 369 F.Supp.2d 1194, 1203 (C.D. Cal. 2005).

Statute of Limitations

Personal Property3 YearsCal. Civ. Proc. Code § 338(c)(1)

Personal Injury/Death2 YearsCal. Civ. Proc. Code § 335.1

Breach of Contract/Written4 YearsCal. Civ. Proc. Code § 337

Breach of Contract/Oral2 YearsCal. Civ. Proc. Code § 339

Breach of Contract/U.C.C./Goods4 YearsCal. Com. Code § 2725

Personal Injury/Product Liability Leading to Personal Injury2 YearsCal. Civ. Proc. Code § 335.1

Property Damage/Product Liability Leading to Property Damage3 YearsCal. Civ. Proc. Code § 338(c)(1)

Statute of Repose/Real Property (Patent Defect)4 YearsCal. Civ. Proc. Code § 337.1*

Statute of Repose/Real Property (Latent Defect)10 YearsCal. Civ. Proc. Code § 337.15**

Action for Construction Defect10 YearsCal. Civ. Code § 895, et seq.***

Breach of Warranty/U.C.C.4 YearsCal. Com. Code § 2725

Workers’ Comp Third Party Case2 YearsCal. Labor Code § 3852

Strict Product Liability/Personal Injury2 YearsCal. Civ. Proc. Code § 335.1

Strict Product Liability/Property Damage3 YearsCal. Civ. Proc. Code § 338(c)(1)

Action for Damages Arising From Felony Offense1 Year After Judgment/ConvictionCal. Civ. Proc. Code § 340.3

Action Against Health Care Provider3 Years From Injury or 1 Year From DiscoveryCal. Civ. Proc. Code § 340.5****

Statute of Limitations Exceptions

*4 Years from substantial completion of construction or construction of improvement to real property arising out of a patent defect. As used in this section, a “patent deficiency” means a deficiency which is apparent by a reasonable inspection and a “latent” deficiency means a deficiency which is not apparent by reasonable inspection. If the defect resulted in injury or property damage within the fourth year, the lawsuit can be brought on the defect for one year from the injury or damage date. Cal. Code Civ. Proc. § 337.1(b).

**10 Years from substantial completion for a latent defect. As used in this section, a “patent deficiency” means a deficiency which is apparent by a reasonable inspection and a “latent” deficiency means a deficiency which is not apparent by reasonable inspection. This does not apply to actions based on willful misconduct or fraudulent concealment. See Cal. Code Civ. Proc. § 337.1, 337.15.

***The Right to Repair Act was passed in 2003. Cal. Civ. Code § 895, et seq. It has its own ten-year statute of repose. A claimant proceeding under the Act must provide proper notice of the pre-litigation claim to the builder within the ten-year period. Cal. Civ. Code § 941(a). This notice temporarily tolls the statute of repose until the pre-litigation process is complete.

**** No action based upon the health care provider’s professional negligence may be commenced unless the defendant (health care provider) has been given at least 90 days’ prior notice of the intention to commence the action. Cal. Civ. Proc. Code § 364(a).

Health and Disability Insurance

Statute of Limitations: 2 Years. Cal. Civ. Proc. Code § 335.1.

Subrogation of Medical Benefits:  Yes and No. California deems subrogation to be in impermissible form of an assignment of a personal injury action. Therefore, there is no direct subrogation right against tortfeasor but a right of reimbursement exists out of the insured’s settlement. Block v. California Physicians’ Serv., 244 Cal. App.2d 266, 271, 53 Cal. Rptr. 51, 54 (Ct. App. 1966).

Subrogation of Disability Benefits: Yes and No. A right of reimbursement but no direct right of subrogation.

Made Whole Doctrine: Yes and No.  The Made-Whole Doctrine only applies in the absence of contractual language specifying a first right of recovery to the insurer. Chandler v. State Farm Mut. Auto. Ins. Co., 596 F. Supp.2d 1314, 1318 (C.D. Cal. 2008), aff’d, 598 F.3d 1115 (9^th Cir. 2010), citing Progressive W. Ins. Co. v. Superior Court, 135 Cal. App. 4^th 263, 274, 37 Cal. Rptr.3d 434, 443 (2005). See also Cal Civ. Code § 3040.

Common Fund Doctrine does apply. 21^st Century Ins. Co. v. Superior Court, 47 Cal.4^th 511 (2009).

Admissibility of Expert Testimony

Admissibility Standards: Frye

Case/Statutory Law:  People v. Leahy, 882 P.2d 321 (Cal. 1994).

Pre-Suit Disclosure of Liability Policy Limits in Third-Party Claims

Duty To Disclose: No.

Failure To disclose A Basis For Bad Faith: When requested, carrier risks bad faith if it doesn’t disclose limits in high value cases and/or doesn’t ask its insured for permission to reveal the limits. Carrier has interest in not disclosing limits, but this can adversely affect the possibility that an excess claim against a policyholder might be settled within policy limits. Aguilar v. Gostischef, 220 Cal.App.4^th 475 (2013); Reid v. Mercury Ins. Co., 220 Cal.App.4^th 262 (2013) (absence of any pre-litigation settlement demand); Boicourt v. Amex Assurance Co., 78 Cal.App.4^th 1390 (2000). California’s requirement of obtaining an insured’s written consent before disclosing policy limits is found in California Insurance Code § 791.13(a). The Insurance Information and Privacy Protection Act (§ 791, et seq.) specifically prohibits the release of the policy limits at this stage of the controversy. Griffith v. State Farm Mut. Auto. Ins. Co., 230 Cal.App.3d 59 (1991).

A formal settlement offer is not an absolute prerequisite to a bad faith action in the wake of an excess verdict when the claimant makes a request for policy limits and the insurer refuses to contact the policyholder about the request. Reid v. Mercury Ins. Co., 162 Cal.Rptr.3d 894, 903, 220 Cal.App.4^th 262, 274 (Cal. App. 2 Dist. 2013). Carrier must make a prompt, written inquiry to its California insured in response to a pre-litigation request for policy limits information. It must inquire whether or not to release policy limits information. If the insured provides that written consent, the policy limits information should be disclosed to the third-party claimant. If this is not done, the carrier may be exposed to bad faith liability should there be an outcome at trial in excess of policy limits. This is especially true where the third-party claimant says it needs the limits in order to make a demand within policy limits.

The court in Boicourt said that having a company rule against pre-complaint disclosure of policy limits without contacting policyholder to see if policyholder wants limits disclosed may give rise to bad faith claim.

Recording Conversations

All-Party Consent: California has very specific laws regulating the recording of oral and electronic communications. All parties must give their consent to be recorded. However, The California Supreme Court has ruled that if a caller in a one-party state records a conversation with someone in California, that one-party state caller is subject to the stricter of the laws and must have consent from all callers. Although California is a two-party state, it is also legal to record a conversation if an audible beep is included on the recorder and for the parties to hear.

Exceptions (one-party consent required): (1) where there is no expectation of privacy, (2) recording within government proceedings that are open to the public, (3) recording certain crimes or communications regarding such crimes (for the purpose of obtaining evidence), (4) a victim of domestic violence recording a communication made to him/her by the perpetrator (for the purpose of obtaining a restraining order or evidence that the perpetrator violated an existing restraining order), and (5) a peace officer recording a communication within a location in response to an emergency hostage situation.

Cal. Penal Code §§ 632(a)-(e); 633.5, 633.6(a), 633.8(b); Kearney v. Salomon Smith Barney Inc., 39 Cal.4^th 95 (Cal. 2006); Kight v. CashCall, Inc., 200 Cal. App. 4^th 1377 (2011); Cal. Pub. Util. Code Gen. Order 107-B(II)(A); Air Transp. Ass’n of Am. v. Pub. Utilities Comm’n of State of Cal., 833 F.2d 200 (9^th Cir. 1987).

Product Liability Law

Statute of Limitations/Repose: 2 years for personal injury and wrongful death. Cal. Civ. Proc. Code § 335.1. Discovery Rule applies. Statute of Repose is 4/10 years. Cal. Civ. Proc. Code § 337.15. There are two statutes of repose in California that apply to construction defect lawsuits (which may or may not involve a defective product). The first one is found in § 337.1 and is applicable to defects related to the specifications, design, planning, observation, supervising, surveying, or construction of the property. For claims regarding such construction defects, the deadline set by the statute of repose is four (4) years which starts from the date of completion of the project. It can also apply to a patent defect, which includes a clear mistake by the contractor that could be discovered during an inspection of the property. In case the construction defect led to an injury or property damage in the fourth year after the completion of the project, then the lawsuit can be filed within one year from the date of the injury or property damage. Section 337.15 also imposes a maximum ten (10) year statute of repose (outside time limitation) on actions for property damage caused by or arising out of a latent deficiency. The second statute of repose for construction defect lawsuits in California sets the deadline based on the latent defect. The plaintiff can file suit for the construction defect within ten (10) years of completion of the project.

Liability Standards: Negligence, Strict Liability, Consumer Expectation, Warranty, Other.

Fault Allocations: Pure Comparative.

Non-Economic Caps/Limits On Actual Damages: Yes.

Punitive Y/N and Limits: Yes.

Heeding Presumption?: No. Huitt v. Southern California Gas Co., 116 Cal. Rptr.3d 453, 467-68 (Cal. App. 2010).

Innocent Seller Statute: No.

Joint and Several Liability: Yes, for economic damages. Cal. Civ. Code § 1431.2.

Available Defenses: Assumption of Risk; Misuse; Government Contractor Defense; Alteration; Learned Intermediary; Inherently Unsafe Products; State of Art; Presumption; Compliance With Government Standards; Seatbelts; Alcohol/Drugs; Sophisticated User.

Restatement 2^nd or 3^rd?: Both.

“Matching Regulations” And Laws Affecting Homeowners Property Claims

Statute/regulation: If the replacement items do not match, the insurer must replace all in the damaged area to conform to a reasonably uniform appearance. Cal. Code Regs. tit. 10, § 2695.9.

Caselaw: The “reasonably uniform appearance” clause of § 9 of the “Unfair Property/Casualty Claims Settlement Practices Model Regulation”, was interpreted; and the court held that a bad faith claim could not lie where there was a genuine dispute as to whether certain items could be matched or whether a larger area needed to be replaced. In so holding, the court noted that “[a] perfect match was not required” under the reasonably uniform appearance regulation. Lyons v. Wawanesa Gen. Ins. Co., 2009 WL 1077294 (Cal. App. 2009).

Comments: The California Insurance Code cannot be the basis of a private cause of action. Rattan v. United Services Auto. Ass’n, 84 Cal.App.4th 715, 101 Cal.Rptr.2d 6 (Cal. App. 2000).

Condominium/Co-Op Waiver of Subrogation Laws

Condo associations are responsible for maintaining common areas. Unless otherwise provided by the condo declaration, each unit owner is responsible for maintaining their own interest. No waiver of subrogation requirement. Section 4775 currently states that unless otherwise provided in the covenants, conditions & restrictions (CC&R), a community association is responsible for repairing, replacing, or maintaining the common area, other than exclusive use common area. The homeowner of each separate interest is responsible for maintaining their separate interest (their unit or home) and any exclusive use appurtenant (attached or next to) their separate interest. Statute has addressed who is responsible for maintenance, repair, and replacement of the common area. “Exclusive use common area” is merely common area which an owner has the exclusive right to use. Unless otherwise provided in the declaration, the association is responsible for maintaining, repairing, and replacing the common area, the owner of each separate interest is responsible for maintaining, repairing, and replacing the separate interest, and the owner of the separate interest is responsible for maintaining the exclusive use common area appurtenant to the separate interest while the association is responsible for repairing and replacing the exclusive use common area. West’s Ann. Cal. Civ. Code § 4775.

Damage to Property Without Market Value

Service Value:  “[t]he ‘cost to … replace the property … destroyed’ is very simply the replacement cost, i.e., that which must be expended to replace, without regard to depreciation. Further discussion is unnecessary.” Pacific Gas and Electric Co. v. Alexander, 90 Cal. App.3d 253 (Cal. Ct. App. 1979).

Intrinsic Value:  “For items with no market value, plaintiffs are entitled to recover the rationally determined value of those items.” Robinson v. U.S., 175 F. Supp.2d 1215 (E.D. Cal. 2001).

Sentimental Value:  “Testimony regarding the sentimental value of the property or any speculative valuations of the property must necessarily be excluded.” Robinson v. U.S., 175 F. Supp.2d 1215 (E.D. Cal. 2001).

General Contractor Overhead And Profit Payments In First-Party ACV Property Damage Claims

Payment And Depreciation Of GCOP/Sales Tax: Labor necessary to repair or rebuild damaged property is not a component of physical depreciation and may not be depreciated. 10 C.C.R. 2695.9(f)(1). Where the policy defines “Actual Cash Value” as “the amount it would take to repair or replace the damaged property, at the time of the loss, with material of like kind and quality subject to a deduction for deterioration, depreciation or obsolescence and contractor’s overhead and profit. Actual cash value applies to the valuation of property whether that property has sustained partial or total loss,” The Insurer is required to pay “carrier must pay no more than the ACV of the damage. Sarkisyan v. Newport Ins. Co., 2011 WL 5995990 (Cal. App. 2011) (unreported decision).

Landlord/Tenant Subrogation

California has avoided per se rules with regard to the “Sutton Rule” (see Oklahoma) and taken a more flexible case-by-case approach, holding that a tenant’s liability to the landlord’s insurer for negligently causing a fire depends on the intent and reasonable expectations of the parties to the lease as ascertained from the lease as a whole. Fire Ins. Exch. v. Hammond, 83 Cal. App.4^th 313, 99 Cal. Rptr.2d 596, 602 (Cal. 2000).

California has generally held that a lessee is not responsible for damages where the lessor and lessee intend the lessor’s fire policy to be for their mutual benefit. Hammond, supra. The import of this rule is that an insurer may not seek subrogation against an insured’s lessee in such cases for a fire he or she negligently causes, even when the elements necessary for subrogation have otherwise been met.

California prohibits a subrogation action by the fire insurance company of a lessor against a lessee where a lessee’s negligence causes a fire, but the policy is intended to benefit the lessee. In such cases, the lessee is treated as an insured, despite the lessee not being a named insured on the policy. Because the insurance company could not seek subrogation against its own named insured (the lessor), it cannot seek subrogation against the lessee. Western Heritage Ins. Co. v. Frances Todd, Inc., 2019 WL 1011104 (Cal. App. 2019). This comes into play via the doctrine of superior equities, which prevents an insurer from recovering against a party whose equities are equal or superior to those of the insurer. State Farm Gen. Ins. Co. v. Wells Fargo Bank, N.A., 49 Cal. Rptr.3d 785 (Cal. App. 2006).

In Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc., 189 Cal.App.2d 613 (Cal. App. 1061), a lessor’s policy was held to be for the mutual benefit of the lessor and lessee where the lease expressly required the lessor to maintain fire insurance. This rule was followed in Gordon v. J.C. Penney Co., 7 Cal.App.3d 280 (Cal. App. 1970). That court affirmed a judgment in favor of the lessee following a court trial, stating, “A fire insurance policy which does not cover fires caused or contributed to by the insured would be an oddity indeed. … Otherwise, few insured fire claims would be paid without controversy and most would require litigation.” For that reason, courts do not deem that a policy “for the benefit” of a lessee excludes coverage for fires caused by his negligence.

In Liberty Mutual Fire Ins. Co. v. Auto Spring Supply Co., 59 Cal.App.3d 860 (Cal. App. 1976), the lessee’s insurer was denied subrogation against the sub-lessee where the sub-lessee’s rent covered the premium on the lessee’s fire policy and proceeds of the policy were to be used to repair fire damages. The court held it was quite obvious from these provisions that the parties to the lease and the sublease all intended that the proceeds of [the insurance company’s] fire insurance policy, maintained by the lessee at [the sub-lessee’s] expense, were to constitute the protection of all parties to the lease documents against fire loss[.] This was the commercial expectation of these parties. Stated otherwise, under the facts of this case, we regard the subtenant … as an implied in law co-insured of [the lessee], absent an express agreement between them to the contrary.” (Id. at p. 865.)

A lessor can shift to the lessee the burden of insuring against the lessee’s negligence. However, where the lease agreement adverts to the possibility of fire and there is no clear language or other admissible evidence showing an agreement to the contrary, a lease agreement should be read to place on the lessor the burden of insuring the premises (as distinguished from the lessee’s personal property) against lessor and lessee negligence.” Parsons Mfg. Corp. v. Superior Court, 203 Cal. Rptr. 419 (Cal. App. 1984).

In Western Heritage Ins. Co. v. Frances Todd, Inc., 2019 WL 1011104 (Cal. App. 2019), the lease required the tenant to obtain only liability insurance and not fire insurance. The implication of this is that fire insurance would be carried by the lessor. Lessors were also prohibited from purchasing fire insurance under the covenants and conditions of the condominium association. Therefore, there was no way to protect themselves from fire. Finally, the yield-up clause in the lease provided that lessees agreed to “surrender the Premises at the termination of the tenancy herein created, in substantially the same condition as they were on the Commencement Date, reasonable wear and tear, casualty, and any alterations, improvements, and/or additions which are the property of the Lessor under Paragraph 7 excepted.” “Casualty” includes damage from fire. The clause is similar to the one in Parsons. Where the lease agreement “adverts to the possibility of fire and there is no clear language or other admissible evidence showing an agreement to the contrary, a lease agreement should be read to place on the lessor the burden of insuring the premises (as distinguished from the lessee’s personal property) against lessor and lessee negligence.” Therefore, the tenant was an implied co-insured of the landlord and subrogation against it was barred because there was no express agreement that tenant would obtain his own fire insurance.

Anti-Subrogation Rule

An insurer has no right to subrogation against its own insured for losses or liability for which the insured is covered under the policy. Truck Ins. Exch. v. County of Los Angeles, 95 Cal. App.4^th 13, 115 Cal. Rptr.2d 179 (Cal. Ct. App. 2002). If the subrogee is not insured for the loss that occurs, the insurer can still seek subrogation and the ASR does not apply. Id. If a claimant and a tortfeasor are insured by the same policy, the insurer cannot subrogate against the tortfeasor for the insurer’s payment for the loss, because doing so would mean in effect that the insured would be covering his own loss, despite the insurer’s having accepted premiums to do so. Longoria v. Hengehold Motor Co., 191 Cal. Rptr. 439 (Cal. Ct. App 1983) (Subrogation barred where husband and wife who shared policy collided while driving separate vehicles). With regard to equitable subrogation against an insured, if the policy does not cover the insured for a particular loss or liability, it would neither undermine the insured’s coverage nor be inequitable to impose the loss or liability on the insured if the insured caused or was otherwise responsible for the loss or liability. McKinley v. XL Specialty Ins. Co., 33 Cal.Rptr.3d 98 (Cal. Ct. App. 2005). The anti-subrogation rule bars an insurer’s subrogation claims against its own insured for a claim arising from the very risk for which the insured was covered. Romero v. S. Schwab Company, Inc., 2018 WL 31261111 (S.D. Cal. 2018); Pennsylvania General Ins. Co. v. Austin Powder Co., 502 N.E.2d 982 (N.Y. 1986).

If an insurer insures both the tortfeasor and victim under separate policies, the ASR is triggered when the insurer attempts to recover from the tortfeasor for losses paid to the victim from the same incident. Nat’l Union Fire Ins. Co. of Pitt., Pa. v. Engineering-Science, Inc., 673 F. Supp. 380 (N.D. Cal. 1987) (Subrogation barred where insurer insured contractor under builder’s risk policy and engineering firm under errors and omissions policy which provided coverage for the same loss). However, in White v. Allstate Ins. Co., 1996 WL 601476 (9^th Cir. 1996) (unpublished), the Ninth Circuit, applying California law, found that subrogation was permissible against a painter, whom Allstate covered under an auto insurance policy, when the painter negligently burned down a home that Allstate covered under a homeowner’s policy.

Criminal Restitution

Although California courts allow for criminal restitution when they are the direct victim of the criminal conduct – i.e., fraud committed by the defendant directed at the insurance company – case law distinguishes these cases from when an insurance company simply reimburses their insured as a victim of criminal conduct: “Insurance companies that ‘suffer the consequences of crime only by reimbursing the crime-related losses of their policyholders [do] not reasonably fall within [the] definition [of direct victims].’” However, a workers’ compensation carrier is entitled to be reimbursed out of criminal restitution received by an employee if the carrier has paid workers’ compensation benefits.

Notwithstanding limitations on restitution, an insured entitled to restitution is still subject to whatever contractual reimbursement/subrogation rights the insurer may have. People v. Millard, 95 Cal. Rptr.3d 751 (Cal. App. 2009). Moreover, a restitution award can be assigned to the third-party payor (insurance or other) who can obtain recovery directly as the assignee of the award.  While technically, an insurer cannot be directly awarded restitution, unless it is a direct victim of a crime, it does have alternative avenues available to it within the restitution arena. People v. Hume (2011) 196 Cal. App.4^th 990, 1001; Vigilant Insurance Co. v. Chiu (2009). In Vigilant, the subrogated insurer pursued a direct civil action against Chiu, who argued that the restitution award was assigned to Vigilant and thus the civil judgment was duplicative.  The court disagreed.  Later, relying on Vigilant and working with the insured, the insurer converted a criminal restitution award in favor of the insured to a civil judgment and then recorded an assignment of the judgment in favor of the insured.

Made Whole Doctrine

The Made Whole Doctrine has been viable in California since 1974. Travelers Indem. Co. v. Ingebretsen, 113 Cal. Rptr. 679 (Cal. App. 1974). In California, the rule generally precludes an insurer from recovering any third-party funds unless and until the insured has been made whole for the loss. Progressive West Ins. Co. v. Yolo County Superior Ct., 135 Cal.App.4^th 263 (Cal. App. 2005); Barnes v. Independent Auto. Dealers of Cal., H & W Benefit Plan, 64 F.3d 1389 (9^th Cir. 1995). The Doctrine usually applies only when there is no agreement to the contrary. Barnes, supra; Samura v. Kaiser Found. Health Plan, 17 Cal.App.4^th 1284 (Cal. App. 1993).

The Made Whole Doctrine was extended to Med Pay subrogation in 2005. Progressive West, supra. An underinsured motorist carrier is entitled to reimbursement from the tortfeasor without regard to whether the insured has been made whole. Holcomb v. Hartford Cas. Ins. Co., 281 Cal. Rptr. 651 (Cal. App. 1991). On the other hand, an uninsured motorist carrier is not entitled to subrogation until the injured insured has been completely made whole. Security Nat’l Ins. Co. v. Hand, 31 Cal.App.3d 227 (Cal. App. 1973); United Pacific-Reliance Ins. Cos. v. Kelly, 140 Cal.App.3d 72 (Cal. App. 1983).

In California, the subrogation rights and reimbursement rights of a first-party Med Pay insurer fall within the rubric of subrogation, and thus both of those rights are limited by the Made Whole Doctrine. 21^st Century Ins. Co. v. Superior Ct., 213 P.3d 972 (Cal. 2009). California courts recognize the Made Whole Doctrine when, typically due to underinsurance, the tortfeasor could not pay his or her “entire debt” to the insured.

The applicability of the Made Whole Doctrine generally depends on whether the insured has been completely compensated for all the elements of damages, not merely those for which the insurer has indemnified the insured. Allstate Ins. Co. v. Superior Ct., 151 Cal.App.4^th 1512 (Cal. App. 2007) (writ granted by California Supreme Court on Sept. 25, 2007). Some jurisdictions have narrowly construed the made whole exception as referring only to an insured being fully compensated for covered losses. Ludwig v. Farm Bur. Mut. Ins. Co., 393 N.W.2d 143 (Iowa 1986). California holds that insurance companies are entitled to reimbursement of payments they made under a Med Pay policy provisions even though the insured has not been reimbursed all of his attorney’s fees. 21^st Century Ins. Co. v. Superior Ct., supra. In other words, the Made Whole Doctrine does not include liability for all the attorney’s fees the insured must pay in order to recover economic damages (including medical expenses) from a third-party tortfeasor. Id.

Although California recognizes the Made Whole Doctrine, it does not apply it as a blanket rule. Chase v. National Indem. Co., 129 Cal.App.2d 853 (Cal. App. 1950); Sapiano v. Williamsburg Nat’l Ins. Co., 28 Cal.App.4^th 533 (Cal. App. 1994); Chong v. State Farm, 428 F. Supp.2d 1136 (S.D. Cal. 2006), order vacated on reconsideration by, Chong v. State Farm Mut. Auto. Ins. Co., 2010 WL 2175842 (S.C. Cal. 2010). It does not apply in cases where the insurance policy conveys “all right of recovery against any party for loss to the extent that payment therefore is made by this company.” Ingebretsen, supra. It should be noted that in Ingebretsen, the insured and insurer executed a detailed subrogation agreement, after the loss and at the time the insurer paid the insured. The Court also noted that the insurer’s priority to the recovered funds was conditioned on it having cooperated and assisted in the recovery from the third party. Even when it is not possible to determine what portion of the recovery represents the damages paid by the insurance company, the “all right of recovery” language obviated the need for the insurer to prove what portion of the judgment was attributable to the covered loss. Id.

The requirements necessary to eliminate the application of the Made Whole Doctrine set forth in Ingebretsen are strictly applied in California. Where a policy’s subrogation language is general in nature and the insurer does not participate or cooperate with the insured in the third-party action, the insured retains the right of priority over any recovery. Sapiano, supra.

It is possible to contract around the Made Whole Doctrine. Samura v. Kaiser Found. Health Plan, Inc., 17 Cal.App.4^th 1284 (Cal. App. 1993). There is authority that language in an insurance policy that grants the insurance company “all rights of recovery to the extent of its payment” overrides the common law Made Whole Doctrine. Barnes, supra; Progressive West. Ins. Co. v. Yolo County Superior Court, 135 Cal. App.4^th 263 (Cal. App. 2005). If there is clear contractual language to the contrary, the insurer might be able to subrogate without the insured first being “made whole.” American Contractors Indem. Co. v. Saladino, 115 Cal.App.4^th 1262 (Cal. App. 2004); Progressive West Ins. Co. v. Yolo County Superior Ct., 37 Cal.Rptr.3d 434 (Cal. App. 2005); Hodge v. Kirkpatrick Dev., Inc., 130 Cal.App.4^th 540 (Cal. App. 2005). However, unlike other states, California adds one additional requirement in order to effectively negate the Made Whole Doctrine. In addition to having the right disclaimer policy language, the carrier must cooperate and assist the insured in the recovery effort. Sapiano, supra.

Although California allows the parties to an insurance contract to agree that the Made Whole Doctrine does not apply, the efficacy of such an agreement appears to only apply if the contract is sufficiently specific in this regard, and if the carrier cooperates and assists the insured in the recovery. The policy language must clearly and specifically indicate the parties’ intent to abrogate the Made Whole Doctrine. A provision in an automobile insurance policy stating that insurer “is entitled to all the rights of recovery that the insured person to whom payment was made has against another,” is not sufficient to accomplish this. Progressive West, supra. Any policy language intending to do so must clearly and specifically give the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole. Policy language eliminating the Made Whole Doctrine must be specific, especially when subrogating auto claims. The only way to contract around the Made Whole Doctrine is with clear language stating that the insurer’s reimbursement rights are “first dollar” reimbursement rights. Id. Because generic subrogation language adds nothing to the right of equitable subrogation which arises by law independent of any policy language, the policy must provide that the insurer has a priority to payments made by the tortfeasor in order to overcome the Made Whole Doctrine. Id.; Chong v. State Farm Mutual, 428 F.Supp.2d 1136 (S.D. Cal. 2006).

The appellate court has held that the insured’s assignment to the insurance company of “all rights” “to the extent of payment” gave the insurance company priority to any recovery obtained by the insured, overcoming the Made Whole Doctrine. Id. However, later case law implies that in order to overcome the Made Whole Doctrine a carrier must assist with the prosecution of the third-party case and cannot just sit back without assisting. Sapiano, supra. One California court recently held that the policy language must clearly and specifically give the insurer a priority out of the proceeds from the tortfeasor regardless whether the insured was first made whole. Progressive West, supra. Clearly, it behooves insurers to carefully draft policy language and claims handlers to engage subrogation counsel in California. Id.

Notwithstanding the aforementioned ability of a policy to disclaim the Made Whole Doctrine, California has ameliorated this ability by putting the Doctrine of Unconscionability into play. Samura, supra. Therefore, the defense of “unconscionability” is available and may require the court to look at the individual facts of each case before it disallows the Made Whole Doctrine based on policy language.

If, after a loss, an insured and insurer executes a detailed subrogation agreement which specifically negates the Made Whole Doctrine, and there is some cooperation and assistance, the insurer should be able to subrogate without regard to whether or not the insured is made whole. Ingebretsen, supra. The Made Whole Doctrine applies equally to both subrogation and reimbursement and reimbursement causes of action. Progressive West, supra. California case law specifically says that carriers which “sit back without assisting” while the insured prosecutes the third party action will not be able to recover unless the insured is fully made whole. Samura, supra. This means that, where applicable, the Made Whole Doctrine prohibits a carrier from subrogation or reimbursement unless there is a surplus resulting from the insured’s receipt of both insurance benefits and tort damages. Hodge, supra.

A carrier that has knowledge of an insured’s tort action and decides not to participate in it may not seek reimbursement from a successful recovery unless the insured’s tort recovery exceeds his actual loss. Plut v. Fireman’s Fund Ins. Co., 135 Cal.App.4^th 263 (Cal. App. 2005). In California, if the Made Whole Doctrine applies, it means that an insured must reimburse its nonparticipating insurer for the surplus, if any, remaining after the insured satisfies “his loss in full and his reasonable expenses incurred in the recovery.” Id. Therefore, when an insurer elects not to participate in the insured’s third party action against a tortfeasor, the insurer is entitled to subrogation only after the insured has been made whole.

Although the Made Whole Doctrine applies in the Med Pay context to reduce an insurer’s reimbursement right, it does not apply to the insured’s claim for attorney fees. In other words, the insured’s attorney’s fees are not included as part of the insured’s damages for purposes of determining whether the insured has been made whole in Med Pay reimbursement cases. 21^st Century Ins. Co. v. Superior Court, 213 P.3d 972 (Cal. 2009).

In summary, the Made Whole Doctrine is alive and well in California. However, California courts recognize two exceptions to its applicability: (1) An insurer may disclaim the doctrine in an insurance contract by using clear and specific language that indicates the parties’ intent to permit the insurer to seek reimbursement even if the insured has not been made whole. Chandler v. State Farm Mut. Auto. Ins. Co., 596 F. Supp.2d 1314 (C.D. Cal. 2008) aff’d, 598 F.3d 1115 (9^th Cir. 2010); Progressive West Ins. Co., supra; Sapiano, supra. The insurer must also cooperate with and assist the insured in the third party litigation; and (2) the Made Whole Doctrine does not apply if the insurer prosecutes the claim against the third-party tortfeasor. Chandler, supra; Ingebretsen, supra; Progressive West, supra. The insured must attempt to recover from the tortfeasor.

A carrier may pursue reimbursement and has no obligation to make the insured whole out of reimbursement proceeds unless and until the policyholder attempts and fails to recover from the tortfeasor. Chandler, supra.

Medical Expenses, Insurance Write-Offs, and The Collateral Source Rule

Collateral Source Rule: California applies the common law version of the CSR. If plaintiff receives compensation from a source wholly independent of the tortfeasor, evidence of same is inadmissible and it may not be deducted from plaintiff’s damages. Helfend v. S. Cal. Rapid Transit Dist., 465 P.2d 61 (Cal. 1970). Even if relevant on another issue (for example, to support a defense claim of malingering), under Evidence Code § 352, the probative value of a collateral payment must be “carefully weighed … against the inevitable prejudicial impact such evidence is likely to have on the jury’s deliberations”. Hrnjak v. Graymar, Inc., 484 P.2d 599 (Cal. 1071).

Recovery Of Medical Expenses Rule:

Private Insurance: The negotiated rate differential (full amount billed vs. write-off or write-down) is not a collateral payment or benefit subject to the CSR. However, the CSR still applies with full force to sources that fit the rule. Recovery of medical expenses limited to the negotiated cash payments made by insurer, any co-payments or deductibles, as well as any amounts still owing. The court did not address the rules of evidence. Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1136 (Cal. 2011). Evidence of the full amount billed for a plaintiff’s medical care is not relevant to the determination of a plaintiff’s damages for past medical expenses and, therefore, is inadmissible for that purpose if the plaintiff’s medical providers, by prior agreement, had contracted to accept a lesser amount as full payment for the services provided. Corenbaum v. Lampkin, 156 Cal. Rptr.3d 347 (Cal. App. 2013), as modified (May 13, 2013).

Medicare/Medicaid: Plaintiff entitled to only the amount actually paid by Medi-Cal on plaintiff’s behalf, but not more. Hanif v. Hous. Auth., 246 Cal. Rptr. 192 (Ct. App. 1988).

Related Law/Comments:

Medical Malpractice: Defendant can introduce collateral payments and benefits and plaintiff can introduce evidence of premiums paid or contributions to secure these benefits. Cal. Civ. Code § 3333.1(a).

Public Entity: Collateral source inadmissible, but governmental entity can move, after trial, to reduce a personal injury award by the amount of certain collateral source payments. Court has discretion to reduce the judgment, though its discretion is guided and limited in several respects, including that the total deduction may not exceed one-half of the plaintiff’s net recovery. Cal. Gov’t Code § 985(b).

Employee Leasing Laws

In California, both the employee leasing firm and its client are considered to have made workers’ compensation insurance premium payments, and both are immune from a third-party suit, provided an employee leasing agreement has been executed and insurance coverage for the worker remained in effect throughout the length of his employment. Ann. Cal. Labor Code § 3602(d).

Hospital Lien Laws

Statute: California Civil Code §§ 3045.1 – 6. Hospital Liens.

Perfecting Lien: To perfect a lien in California, a provider shall:

(1) File a written notice containing name and address of injured person, date of accident, name and location of hospital, amount claimed as reasonable and necessary charges, and name and address of any party who may be liable for damages.

(2) The notice must be sent certified mail to each potential liable party known to the hospital. The hospital must also deliver by registered mail notice to any known liability insurance carrier. § 3045.3.

Comments: The lien applies regardless of whether the damages are recovered by judgment, settlement, or compromise.  § 3045.2. The hospital has one year from the date of payment to the injured party to enforce its lien by filing a lawsuit against any party who was given notice of the lien. § 3045.5.

OCIP/CCIP Subrogation In Workers’ Compensation Construction Cases

OCIP Law: No case law specifically dealing with effect of OCIP/CCIP. However, § 3602(d)(1) sets specific rules regarding implementation and handling of wrap-up programs.

Statutory Employer Law: In construction settings, there is rebuttable presumption any company who hires a contractor for a job requiring a license is the statutory employer of any unlicensed contractor. Cal. Labor Code § 2750.5. This statute can make a valid contractor’s license prerequisite for independent contractor status and create a dual employment relationship whereby the worker may be the employee of both the general contractor and subcontractor. Cedilio v. W.C.A.B., 130 Cal. Rptr.2d 581 (Cal. App. 2003); Cal. Labor Code § 2750.5.

Comments: There currently is no case law in California specifically discussing or applying the Exclusive Remedy Rule to construction cases involving OCIPs or “wrap-up” policies, despite the fact that California has specific rules and regulations regarding how a wrap-up program is to be implemented and handled. Section 3602(d)(1) provides that where a wrap-up agreement is in place that requires the owner/contractor to obtain workers’ compensation coverage, and such coverage remains in effect for the duration of the employment, both the general employer and the owner or contractor “statutory” employer are considered to have provided workers’ compensation coverage under California law.

Recovery Of Increased Workers’ Compensation Premiums By Employer

Recovery For Increased Premiums? No.

Statute/Case Law: Fischl v. Paller & Goldstein, 231 Cal.App.3d 1299, 282 Cal.Rptr. 802, 804 (1991).

Rule Summary: Increased workers’ compensation premiums resulting from a third-party tortfeasor’s injuries to employees are harms that are not foreseeable or are otherwise too remote to be subject to liability.

Which Workers’ Compensation “Benefits” Can Be Subrogated?

California’s workers’ compensation subrogation statute reads as follows:

“Any employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation, or who pays or becomes obligated to pay an amount to the Department of Industrial Relations pursuant to Section 4706.5, may likewise make a claim or bring an action against the third person. In the latter event, the employer may recover in the same suit, in addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents.” Cal. Labor Code § 3852.

The workers’ compensation carrier is entitled to recover in the same third-party lawsuit with the employee, the total amount of its expenditures for “compensation” and any other special damages, such as salary, wage, pension or other emolument paid to the employee. Cal. Labor Code § 3856(c). California law then defines “compensation” as:

“¼ compensation under this division and includes every benefit or payment conferred by this division [Division IV] upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence.” Cal. Labor Code § 3207.

“Compensation,” therefore, includes medical and hospital expenses (Cal. Labor Code §§ 4600-4608), nurse case manager expenses (Cal. Labor Code §§ 4600-4608), medical-legal expenses (Cal. Labor Code §§ 4620-4628), vocational rehabilitation expenses (Cal. Labor Code §§ 4635-4647), disability indemnity payments (Cal. Labor Code §§ 4650-4663), death benefits (Cal. Labor Code §§ 4700-4709), and interest (Cal. Labor Code § 5800). Most penalties are arguably recoverable as mandated by Division IV, and even the cost of utilization review should now arguably be recoverable as the use of such process is now mandated by California law. Cal. Labor Code § 4610. However, the cost of utilization review may not be a “benefit” or “payment conferred on an injured employee”. Aside from the logical arguments above, California law apparently does not directly support recovery of these items. But it does require mitigation of damages, and one Court of Appeals decision does allow a plaintiff to recover the cost of mitigation efforts as a recoverable item of damages. Kleinclause v. Marin Realty Co., 94 Cal. App. 2d 773 (1949).

Another interesting and cogent argument is an analogy to the right to a future credit. When a recovery by a claimant is made, the carrier is given a credit toward future “benefit” payments. A close look at this law reveals that “medical-legal” costs should be costs against which a carrier can press a credit, implying that they constitute “compensation” under California law and should be recoverable by a workers’ compensation carrier. Adams v. W.C.A.B., 18 Cal.3d 226 (1976).

Attorneys’ Fees. The carrier is required to reimburse the employee for “medical-legal” expenses reasonably and actually incurred. Cal. Lab. Code § 4621(a). The purpose of allowing reimbursement of medical-legal costs is to allow the employee to secure expert professional services to establish the validity of a disputed claim and to ensure payment for such services—irrespective of the risks of the litigation or the financial condition of the applicant. (Perrillo v. Picco & Presley (2007) 157 Cal. App. 4th 914, 931, 70 Cal. Rptr. 3d 29, 41–42, citing Public Employees’ Retirement System v. Workers’ Comp. Appeals Bd., 87 Cal.App.3d 223 (Cal. App. 1978). Because the carrier is required under statute to pay for the applicant’s legal fees, these benefits should be recoverable in a third-party lawsuit seeking subrogation for the benefits provided to the injured employee.

Workers’ Compensation Subrogation Waiver Endorsements

Subrogation Statute: Cal. Labor Code § 3852

Waiver Allowed? Nothing in the California Workers’ Compensation Act or applicable case law prohibits the use or efficacy of a waiver of subrogation.

Effect Of Waiver Endorsement on Carrier’s Right To Assert A Lien On Claimant’s Recovery: The effect of a waiver of subrogation on the carrier’s rights, including its right to enforce its statutory lien, has not yet been decided; however, it is settled that a waiver of subrogation does not mean a waiver of the right to a future credit. The rights to a credit and lien are distinct and the right to a credit must be expressly waived. Herr v. W.C.A.B. and County of Los Angeles, 98 Cal. App.3d 321, 159 Cal. Rptr. 435 (Ct. App. 1979).

Other Applicable Law: None.

Workers’ Compensation

Statute of Limitations:  2 Years. Cal. Labor Code § 3852.

Can Carrier Sue Third Party Directly:  Yes, with notice by certified mail.

Right to Intervene:  Yes.

Recovery from UM/UIM Benefits:  No.

Subrogation Against Medical Malpractice:  No.

Subrogation Against Legal Malpractice:  Undecided.

Recovery Allocation/Equitable Limitations:  (1) Costs/Fees Based on Services by Both; (2) Carrier Reimbursed; and (3) Rest to Plaintiff.

Employer Contribution/Negligence:  Proportional, only if verdict.

Attorney’s Fees/Costs:  Apportion, if the carrier actively participates.

Future Credit:  Yes, in the amount of the employee’s net recovery. A petition should be filed with the W.C.A.B.

Auto No-Fault:  No.

Workers’ Compensation Claims by Undocumented Employees

Y/N/U:  Y

Statute:  The term “employee” expressly includes “aliens.”  Cal. Lab. Code § 3351.

Case Law:  Farmer Brothers Coffee v. Ruiz, 133 Cal. App. 533 (Cal. App. Ct. 2005).

Comments/Explanation/Other: There is no evidence that the legislature intended “unlawfully employed” to have a complex meaning or to incorporate federal immigration law. Only if you are proved to not be an employee can a person not recover for workers’ compensation.