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Leflet v. Redwood Fire and Casualty (CA1 1/20/11)

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This is about a Morris agreement to which an insurance company is a party and about fee awards in a class action.

Homeowners sued their subdivision’s developer for construction defects. The case proceeded as a typical construction-defect case: the developer named several subcontractors as third-party defendants and tendered its defense to them and their insurers, whose policies covered the developer for claims arising from the scope of the subs’ work. But when those insurers accepted under a reservation, the developer and its own insurers entered into a Morris agreement with a judgment less than their policy limits, assigning to plaintiffs all claims against the subs and their insurers. The subs’ insurers intervened to challenge the propriety of this; the trial court granted them summary judgment and fees.

Substantively, the Court of Appeals affirms. It holds, for one thing, that the agreement failed because the subs’ insurers were not given proper notice of it.

But the opinion is concerned mostly to say that the agreement failed not merely for lack of notice but because it was fundamentally defective. A Morris agreement “that avoids the primary insurer’s obligation to pay policy limits and passes liability in excess of those limits on to other insurers” is invalid. Such an agreement is “outside the permitted parameters” of Morris. The agreement favored some of the carriers (the developer’s, with which their interests in the agreement were consistent) over others (the subs’) even though the subs’ carriers were responsible only for the scope of their subs’ work. There is also no precedent for a Morris agreement “shrinking [an insurer’s] liability to less than policy limits.” “Because Morris agreements are fraught with risk of abuse, a settlement that mimics Morris in form but does not find support in the legal and economic realities that gave rise to that decision is both unenforceable and offensive to the policy’s cooperation clause.” Because the developer breached their contracts– viz., the cooperation clauses – the subs’ insurers don’t have to pay anything.

Well, yeah, probably. Unfortunately, the opinion is not closely-reasoned, concentrating more on the effects of such an agreement than on its theoretical defects (or else confusing the two).

The last several pages of the opinion concern the fee issue. The trial court had certified this as a class action. Plaintiffs argued that you can’t award fees under 341.01 (action arising out of contract) against a class-action plaintiff. The opinion holds that although the statute doesn’t exempt class plaintiffs, “special considerations nevertheless apply” to fee awards against them. This is because the court thinks that class plaintiffs’ management of the litigation is more “attenuated” than in normal cases. What the class intended to do was to sue the developer; it didn’t know that the method of settlement was legally iffy. And in this case (though we don’t know what this has to do with class actions) the plaintiffs didn’t sue the subs’ insurers; the insurers intervened. So the trial court abused its discretion in awarding fees against the class members jointly and severally.

The opinion affirms the judgment for the subs’ insurers, vacates the fee award, and remands.

(link to opinion)

Ballesteros v. American Standard Insurance Company (1/20/11)

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This is the review of a Court of Appeals decision we reported here.

20-259.01 requires automobile insurers to offer uninsured and underinsured coverage. Cases had said that the offer must be reasonably calculated to come to the insured’s attention. Ballesteros claimed that American Standard’s offer wasn’t because its UM/UIM offer form was in English and his “primary language” is Spanish. American Standard argued that the English form is required and approved by the Department of Insurance so using it should be a “safe harbor.” The trial court granted Ballesteros summary judgment; American Standard appealed. The Court of Appeals reversed, holding that the form wasn’t a safe harbor and that there questions of fact about whether American Standard had done enough to make Ballesteros aware of the offer.

The Supreme Court holds that using the State-approved form satisfies the statute.

The statute says that the insurer “shall make available” UM/UIM coverage and “by written notice offer” it. The Court notes that the “make available” language in the statute’s predecessors had been interpreted as not requiring action by the insurer to instruct the insured about the coverage. To make the coverage available therefore does not mean to explain it. The “offer” is measured by contract law, under which an effective offer depends not on the offeree’s actual understanding of its terms but on his reasonable understanding that an offer of some sort has been made that would bind the offeror. The Plaintiff did not dispute than an offer had been made; he therefore didn’t need something in Spanish to explain that.

The Court further notes that the statute does not require a Spanish form even though other statutes do. Moreover, it once did require a Spanish form but that requirement was dropped.

Finally, the Court reviews legislative history to conclude that by certain amendments to the statute the legislature intended that obtaining a signature on the DOI-approved form be in itself sufficient compliance with the statute. (The Court avoids using the problematic term “safe harbor.”)

The Court is careful to say, though, that “we express no opinion whether tort law may impose [the requirement of a Spanish form] . . .  in certain circumstances” (Ballesteros is also making the usual claims of negligence, bad faith, etc.)

The Court vacates the Court of Appeals’ decision and remands for entry of summary judgment for American Standard on the statutory claim.

 

(link to opinion)

Estate of DeSela v. Prescott Unified School District (1/18/10)

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We blogged the Court of Appeals opinion in this case here (and its slightly revised version here). The Supreme Court vacates that opinion; it reaches the same result but for a different reason.

DeSela was injured at school in November 2004. Her mother assigned to her the mother’s claim for her medical expenses. In December 2007 she filed suit for personal injury, having turned 18 the year before. The District argued that the claim for medical expenses was barred by the statute of limitations. The trial court agreed and dismissed it. The Court of Appeals reversed, concluding that although she had received the cause of action by assignment from her mother the statute of limitations applies as though it were her own, i.e., it abated until her majority.

The Supreme Court outflanks the assignment issue, holding that DeSela herself owned the cause of action. The assignment was therefore irrelevant. This overturns earlier cases to the contrary; the Court feels the old rule – that the parents own the claim for medical expenses –  outmoded and inconsistent with a child’s rights nowadays to make various other sorts of claims. The right to recover medical expenses, says the Court, belongs to both parent and child, although no double recovery may occur. The Court reverses the trial court and remands.

This has the advantage of not running roughshod over the law of assignments, as the Court of Appeals did. Instead, it runs roughshod over the idea that you’re supposed to raise issues in the courts below. The argument it adopts was not raised until the case was before the Supreme Court. It was raised by DeSela, not by the Petition for Review. The Court considers it for two reasons. First, the issue is “of great public importance or likely to recur.” How that is true here isn’t entirely clear since the precedent being overturned is from the 1940’s; that’s about how often it comes up. Second, the Court of Appeals would have been bound by the precedent anyway. But isn’t that always true? Doesn’t this create a rule de facto that an argument for change of Supreme Court precedent needn’t be made until the case is before that court? And why is it a good idea to decree that granting review, instead of limiting the issues to those on which it is granted, expands them?

No doubt the Court thinks it has changed the law in a good way. But the impulse for immediate gratification – either of the law or of a particular claimant – should rarely be indulged. The traditional and proper solution is to signal an argument’s future acceptance by discussing it, briefly but favorably, before announcing that it was untimely. That gets the law changed. permits (when someone eventually bothers to fight the issue) full review all the way along – which, when you’re  changing seventy-year-old precedent (just to posit a random example) is not a bad idea – and respects important procedural principles. The failure to do so suggests arbitrariness, if not whimsy.

 

(link to opinion)