To be honest, I was unpersuaded by a majority of the published opinions by the Court of Appeal today. So perhaps I'm just in a particularly bad mood.
But only one of them -- this one -- do I believe should be granted review by the California Supreme Court and summarily reversed.
While I was reading it, I was stunned that there'd be three justices on the Court of Appeal who'd sign on to something like this. I was even more surprised when I saw that the opinion was written by Justice Tucher, who's incredibly smart and (I'd have thought) eminently reasonable.
It's an insurance coverage case, which I understand will make a ton of readers instantly disinterested in the outcome. Notwithstanding that practical reality, it's an incredibly important -- and pernicious -- opinion.
The usual, longstanding rule in insurance law is that if you've got an insurance policy and someone sues you, the insurance company has to defend you in that lawsuit if any of the claims in that action might be covered by the policy, even if other claims in that same suit might not be covered. So if, for example, you are sued for assault and battery, and the insurance policy only covers you for battery, the company has to defend the lawsuit on your behalf. Do they have to pay any judgment ultimately entered against you for assault? No, since that's not covered by the policy. Since since the suit seeks covered damages against you for something covered by the policy (here, assault), they've got to defend the suit and, if you're ultimately found guilty of assault, pay any covered damages.
Makes sense, right? Is definitely the law. Here in California and elsewhere. In short, if you buy a policy that covers you for a claim -- assault, negligent driving, whatever -- and someone sues you raising one of those claims, the insurer has to defend the lawsuit. That's an obligation imposed by both law as well as by the policy language.
Today's opinion, however, says that it's super simple for the insurer to totally circumvent that rule. One that I'm quite confident virtually every insurance company will employ to its heart's content and that will practically negate any actual insurance coverage for policyholders.
The Court of Appeal says that all the insurer has to do is to include -- as in the present case -- a "catch-all" clause that says that if the lawsuit includes any uncovered claims, then all of the claims are categorically uncovered. The Court of Appeal holds that such a provision is enforceable, makes sense, will be upheld, and legitimately negates coverage under the policy.
Nonsense.
I get that that's what the policy might in fact say. But in my view, that's 100% unenforceable and against public policy. For the identical reasons the California Supreme Court (amongst others) have repeatedly set forth in previously imposing a duty to defend such "mixed" actions.
As a practical matter, virtually every suit -- and almost certainly any suit under a business insurance policy like the one here -- includes both covered and uncovered claims. Take your own automobile insurance policy, for example. Say you get into an accident and get sued. You'll typically be sued for negligence, of course, and that's a covered claim. But the plaintiff might also plead a variety of claims -- alternative or otherwise -- that aren't covered by the policy. Particularly if they're not 100% sure they'll win the negligence claim. Maybe they'll plead in the alternative that you were drunk, or speeding, and perhaps the policy excludes coverage for specified criminal conduct. Or perhaps they'll also include a claim for punitive damages, which definitely aren't covered under the policy (and legally can't be).
Normally, until today, that wouldn't matter. Your insurer would still have to defend you (and, in all likelihood, settle the lawsuit on your behalf). That's what you bought insurance for, after all.
But after today, all the insurer has to do is to include a "catch-all" clause that says that if there are any excluded claims under the policy (e.g., punitive damages), then all of the claims are hereby excluded from coverage. And, suddenly, boom, you've got zero coverage. You're on your own.
Let me reiterate: virtually every business lawsuit contains a mix of covered and uncovered claims. If the holding today is indeed the law, then there's basically no coverage at all, in stark contrast to what we've always thought were the expectations of an insured. 'Cause you should have read the fifty-page policy (or what have you) with a much finer toothcomb, and gone to law school and then practiced law for ten or twenty years and realized how subsidiary catch-all provisions like the one here actually works. For it means that there's essentially no practical coverage under the policy at all.
I appreciate and understand that if you're a person who believes that markets are perfect and consumers can be screwed if they don't read things close and that there's no such thing as an unenforceable clause in an insurance policy then, yeah, today's opinion makes sense, because that's what the written contract says and so that's what we'll enforce. (Don't get me started, by the way, on the claim in the opinion that the clause here is truly "clear and conspicuous," which it's totally not by any reasonable interpretation of that phrase -- unless you count every clause in an insurance contract as clear and conspicuous based on the fact that there's 100+ different places in the policy where the insurer includes a boilerplate insert in bold that at the top of every page essentially says "READ THIS CAREFULLY THIS TOTALLY MATTERS THIS IS THE IMPORTANT STUFF," 'cause, yeah, every insured definitely reads all 50-odd pages super carefully so long as you include that boilerplate.)
But, honestly, that's not how I would describe the California Court of Appeal in general, or Justice Tucher in particular. Yet today's opinion, in my view, does precisely that. It lets an insurance company totally take away legitimate coverage by inserting a clause that is completely unnecessary and contrary to how insurance policies have been interpreted and applied by California courts for fifty-plus years.
Does an insurance company have to cover uncovered claims? Absolutely not. Do they have to pay damages for them? Nope. Do they even have to defend uncovered claims? I could see an argument that says they don't, as long as those uncovered claims are severable and can be separately defended.
But can an insurance company refuse to cover even covered claims -- entirely -- just because there's a single claim in the underlying lawsuit that's not covered by the policy? Nope. No way. Not in my view, anyway. I'd one thousand percent hold unenforceable any provision in a policy that attempted to do so. Because it's not how insurance does, or should, work, nor is it consistent with reasonable expectations of coverage.
But the Court of Appeal today holds otherwise. So as of today, those provisions definitely work.
Unless the California Supreme Court grants review and reverses.
Which I definitely hope it does.
