Source: http://www.insurancelawexperts.com/primer/the-contract/
Timestamp: 2019-04-24 10:32:11+00:00

Document:
The following are some issues which frequently arise when litigation insurance bad faith cases. This includes claims denials, coverage issues, duty to defend, duty to indemnify, and ERISA preemption law. This primer focuses on insurer conduct that may qualify as bad faith claims handling.
Because statutes change and decisional law on any topic evolves, and because decisions are often subject to multiple interpretations, the reader is cautioned not to rely on the principles set forth without undertaking additional research.
The authors gratefully acknowledge the assistance of Jill Schlichtmann, Esq., and Amy Bach, Esq.
Q: What general rules of construction apply to the interpretation of insurance policies?
Q: Is an insurer required to advise claimants of contractual rights under their policy?
Q: Does an insurance agent have a duty to advise a policyholder on the sufficiency of his/her coverage limits?
Q: Can an insured reasonably rely upon an insurance agent’s representations regarding coverage?
Q: Notwithstanding provisions of the policy itself, what are the restrictions on an insurer’s right to cancel?
Q: Beyond the possible effect of specific policy provisions, what are the principal restrictions on an insurer’s right to non-renew or effect a reduction in coverage in a policy?
A: The non-renewal of a property and/or liability policy, (excluding auto and worker’s compensation policies) is governed by Insurance Code section 678. A notice of non-renewal or reduction in coverage must be sent to the policyholder at least 45 days before expiration of the policy. If an insurer fails to provide such notice, the prior policy, with no changes in coverage, will remain in effect. If the insurer later complies with the notice provision, the prior policy will remain in effect for 45 days from delivery or mailing of the notice.
Q: If an insurance policy contains provisions that are extremely one-sided or unfair, what remedies are available?
Q: If two or more policies cover a loss, what remedies are available to the respective insurers?
A: Generally, each can seek contribution from the other. This is true even if the two carriers are not co-insurers and the insured risks are not identical (e.g.: an errors and omissions policy and a comprehensive general liability (“CGL”) policy). (State Farm Fire & Casualty Co. v. Cooperative of American Physicians, Inc. (1984) 163 Cal.App.3d 199, 209 Cal.Rptr. 251; Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289, 202 Cal.Rptr. 47.) For primary and excess carrier obligations, see Hartford Accident & Indemnity Co. V. Superior Court (1994) 23 Cal.App.4th 1774, 29 Cal.Rptr.2d 32 and Iolab Corp. v. Seaboard Surety Co. (9th Cir. 1994) 15 F.3d 1500.
Q: In a dispute between two property insurers regarding continuous, progressive and deteriorating damage to covered property which began during policy period #1 but continued until policy #2 was in effect, who is liable?
Q: Can coverage “evaporate” in the presence of “other insurance” clauses?
Q: Can a CGL policy providing standard “advertising liability” coverage provide a defense and/or indemnity for remotely related advertised activities?
Q: What are an insured’s remedies where an insurer has used advertising and solicitation materials that are unfair or deceptive as to the coverage that was actually provided?
A: Insurance Code sections 790.03(a) and (b) prevent insurers from engaging in such conduct.
Although there is probably no private right of action in a first party case, these code sections establish standards of conduct for the insurance industry. Violation of these code sections may constitute evidence of bad faith.
Q: Who bears the burden of proving an excluded risk or condition subsequent which negates an insurer’s liability . . . the insured or the insurer?
Q: What happens when a loss is caused by a combination of a covered and an excluded risk?
A: Coverage will probably be a question of fact. (Howell v. State Farm Fire and Casualty Co. (1990) 218 Cal.App.3d 1446, 267 Cal.Rptr. 708.) The loss should be covered if the covered risk was the triggering or “efficient proximate cause” of the loss. (Garvey v. State Farm Fire & Casualty Co., supra, 48 Cal.3d 395, 402.) The loss is not covered if the covered risk was only a remote cause of the loss, or if the excluded risk was the efficient proximate cause of the loss.

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