Short Take-Away - Insured Must Arbitrate UIM Claim Even Though Bad Faith Suit Has Already Been Filed Against the Insurer

 

The First Appellate District, Division Two, has held an insurer may demand arbitration of an underinsured motorist claim (UIM) made after the insured settled with the uninsured motorist (UM) and then made a claim for the UIM policy limits; indeed, the insured was required to arbitrate even though the insured had already filed a claim for bad faith against the insurer. (Tornal v. CSAA Ins. (Jan. 11, 2024) A167666.)  As Tornal explained:

Plaintiff’s policy provided UM/UIM coverage of up to $300,000 per accident. Plaintiff made a written demand to defendant under the policy for $275,000—the policy limits of $300,000, less the $25,000 she had already received from the settlement with the UIM. Defendant [insurer] refused to tender the $275,000 demanded. (Id., p. 3.)

Plaintiff and insured Tornal then filed a bad faith suit against CSAA, and the latter filed a petition to compel arbitration pursuant to the insurance policy and California's Insurance Code section 11580.2.  The trial court denied CSAA's request to compel arbitration of the underlying UIM claim and CSAA appealed.

Justice Richman and his colleagues reversed, finding the trial court erred in denying the petition.  The appellate court noted that CSAA was not challenging the right of its insured to sue for breach of contract and bad faith, but, instead, was seeking adjudication of the amount owed under its policy.  Said policy and California law provided that this should be resolved by way of arbitration and not a "bad faith" suit:

. . . [B]ecause the parties disagreed over the amount of UIM damages owed to plaintiff, defendant was entitled under section 11580.2, subdivision (f) and the terms of the policy to arbitrate the issue of UIM damages. (Id., p. 22.)

Commentary

A contrary result would have meant, of course, that an insured unable to settle a UIM or UM claim to their liking could stymie the request of the insured to arbitrate this issue by first filing a suit alleging bad faith breach of the insurance policy.

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Short take away - Policy does not cover COVID-19 losses as there is no direct physical loss or damage (Endeavor v. HDI Global)

Short take away - Second District sides with insurer as to much-litigated COVID coverage issues currently before the California Supreme Court

The Second District, Division Two has ruled in favor of an insurance company denying coverage to an entertainment entity for losses from the COVID-19, or SARS CoV-2, virus. (Endeavor v. HDI Global (Sept. 21, 2023) B323865) Endeavor had a commercial liability insurance policy with HDI which required that, for there to be coverage:

(1) there be an “[i]nsured physical loss or damage” to some property, and (2) this physical loss or damage to some property “occur within [1 or 10] statute mile[s] from [Endeavor’s] premises. . . .

Endeavor maintained the inclusion of the phrase "event" in another clause in the policy obviated the requirement that all losses include "physical loss of damage" to tangible property and sued insurer HDI when coverage was denied.  A demurrer challenged Endeavor's entire complaint, and this demurrer was sustained, without leave to amend, by the Hon. Elaine Lu, Judge of the Los Angeles County Superior Court.

Upon appeal Justice Hoffstadt wrote an opinion affirming the trial court and interpreting the policy as requiring not merely an event but also actual physical damage.  As the Endeavor opinion noted at the outset, issues as to whether 1) loss of property, rather than mere loss of use of property, is required for coverage, and 2) whether the absorption of COVID-19 on the surface of the property qualifies for coverage as a "loss," are both currently pending before the California Supreme Court:

This question is one on which the Courts of Appeal have split, and is pending before our Supreme Court in John’s Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) 86 Cal.App.5th 1195 (John’s Grill), review granted Mar. 29, 2023, S278481, and Another Planet Entertainment, LLC v. Vigilant Ins. Co. (9th Cir. 2022) 56 F.4th 730, request for certification granted Mar. 1, 2023, S277893. Until that Court provides guidance, we side with the vast majority of cases holding that direct physical loss or damage to property, rather than mere loss of the property’s use, is a prerequisite for coverage. We further hold that two of the clauses in the policy here—namely, extension clauses dealing with orders by civil authorities and with impediments to access—do not, by their addition of the word “event,” eliminate the requirement of direct physical loss or damage to property.

Second, has “direct physical loss or damage to property” been sufficiently pled where, as here, the policy holder alleges that the virus that causes COVID-19 has either been deposited onto or “adsorbed” to the surface of the policy holder’s property? The Courts of Appeal have split on this question as well, and that question is pending before our Supreme Court in Shusha, Inc. v. Century-National Ins. Co. (2022) 87 Cal.App.5th 250 (Shusha), review granted Apr. 19, 2023, S278614. Until that Court provides guidance, we side with those cases holding that the ephemeral existence of COVID-19 or its predecessor virus on property does not constitute “direct physical loss or damage to property” as a matter of law. (Id., pp. 2-3.)

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