The Ever-Evolving World of Anti-SLAPP

On Monday, June 24, 2019, Stephen L. Raucher will be one of the panelists presenting a BHBA continuing legal education program entitled “The Ever-Evolving World of Anti-SLAPP.”  The program will cover various topics and examine the most important developments in the world of Anti-SLAPP motions, including several new California Supreme Court cases.

Good News and Bad News for Insurance Company Attorneys

Stephen L. Raucher

The recent appellate case Strawn v. Morris, Polich & Purdy LLP, 30 Cal. App. 5th 1087 (2019), examined an insurance company attorney’s potential liability in the context of the litigation privilege and elder abuse claims, resulting in a mixed ruling.

Dennis and Diane Strawn’s home and vehicle were destroyed by a fire in 2009.  The Strawns immediately notified State Farm about the incident and filed a claim.  Dennis Strawn was prosecuted for arson relating to the fire, but the case was dismissed on February 19, 2013.  In August of 2015, State Farm denied the Strawn’s claim on the grounds that Dennis had intentionally set the fire and that Diane Strawn had concealed evidence of that wrongful conduct.

In August of 2016, the Strawns filed a complaint against State Farm and its attorneys.  The claims against State Farm’s attorney Douglas K. Wood (“Wood”), and his law firm Morris, Polich & Purdy, LLP (“MPP”) for invasion of privacy and elder abuse were dismissed on demurrer by the trial court.

Invasion of Privacy Claim

The invasion of privacy claim against Wood centered on alleged misconduct involving financial records.  Throughout the claims process, State Farm requested financial records from the Strawns, including tax returns.  The Strawns refused to waive any privilege regarding these tax returns.  Instead, the Strawns authorized their accountant to give Wood records used to prepare their tax returns, but not the actual returns.  However, the accountant’s office accidentally included tax returns with the documents they produced.  The Strawns alleged that Wood then provided these tax returns to State Farm despite being expressly informed that they were privileged.

Wood and MPP claimed that their actions were protected by the litigation privilege.  The litigation privilege is not limited to statements made during a proceeding, but may extend to steps taken prior thereto, or afterwards.  Strawn, 30 Cal. App. 5th at 1094 (citing Rusheen v. Cohen, 37 Cal. 4th 1048, 1057 (2006)).  The trial court dismissed the invasion of privacy claim based on this privilege.

However, on appeal, the Court found that there was a factual question as to whether Wood’s communication of the tax returns was related to litigation contemplated in good faith and under serious consideration.  The Court noted that a mere threat of litigation will not suffice for a claim of the litigation privilege, but, rather, good faith contemplation of an imminent resort to the judicial system is required.  Since no litigation was instituted until nearly a year after the claim was denied, there was a question as to whether the “imminence” element of the privilege was satisfied.  Otherwise, virtually every insurance claim investigation could be covered by the litigation privilege.  Accordingly, the Court reversed the order sustaining the demurrer to the cause of action for invasion of privacy against Wood and MPP.

Elder Abuse Claim

The basis of the elder abuse claim against Wood and MPP was that they helped State Farm wrongfully deny the Strawn’s insurance claim by supplying State Farm with privileged tax returns.  This claim by the Strawns was an attempt to circumvent a rule stating that an insurer’s agents cannot be found liable for a bad faith denial of coverage.  Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576 (1973).

The Court upheld the dismissal of this claim because Gruenberg and the legislative history of the Elder Abuse Act show no intent to impose liability on an attorney acting on behalf of an insurer for the insurer’s bad faith denial of coverage.  An attorney is not a party to the insurance agreement, and therefore is not subject to an implied duty of good faith and fair dealing regarding an insurance claim.

Fifth Annual Update On Developments In Insurance

On Monday, April 15, 2019, Stephen L. Raucher was one of the panelists presenting a continuing legal education program entitled “Fifth Annual Update on Developments in Insurance.” The program examined the most important new cases from 2018 regarding insurance coverage and bad faith, focusing particularly on liability and property policies.

Fire Insurance Claim Pointers

Stephen L. Raucher
In light of the terrible fires plaguing California, policyholders should keep in mind some basic principles should they find themselves needing to make a claim, or even if they just want to re-evaluate their property insurance policies. Many of these pointers are unique to California law.

  • Fire losses must be reported “without unnecessary delay.”
  • Policyholders must provide a sworn proof of loss within 60 days of the loss.
  • Policyholders must cooperate with the insurer in its investigation of the claim.
  • Such cooperation typically includes an obligation to submit to an examination under oath, which can even be a condition to payment.
  • The policyholder has a right to be represented by counsel in connection with such an examination, though at his or her own cost.
  • The standard fire insurance policy requires that any lawsuit against the insurer be filed within 12 months of the loss, although that can be extended to 24 months if the loss is related to a declared state of emergency.
  • Property insurance policies may call for appraisal in the event of a dispute over loss value. Appraisal is similar to arbitration, but less formal. Appraisal cannot be compelled if the loss is related to a declared state of emergency.
  • Depending on the policy language, loss is generally based either on “actual cash value” or “replacement value.”
  • Actual cash value is measured by the fair market value of the damaged structure as of the date of loss.
  • As its name suggests, replacement cost is the reasonable amount necessary to repair and replace with similar construction. Replacement cost coverage is better (and more expensive) for the policyholder.
  • Insurers must comply with the Fair Claims Settlement Practices Regulations, which generally require that a claim be accepted or denied within 40 days. Failure to satisfy the regulations can give rise to a bad faith claim by the policyholder.

When the spotlight is on them during times of well-publicized disasters, most carriers responsibly adjust their policyholders’ claims. However, there are always exceptions, and policyholders should not hesitate to seek legal assistance at any stage of the process in order to protect their rights.

Conflict Waivers, Mediation Waivers, New Rules – Oh My!

On October 11, 2018, Stephen L. Raucher was one of the panelists who presented a continuing legal education program entitled “Conflict Waivers, Mediation Waivers – Oh My! Avoiding Ethical Traps Triggered By Recent Developments Under California Law.” The program examined and discussed the ramifications of a recent California Supreme Court opinion regarding conflict waivers as well as new legislation affecting mediation waivers.

Stephen L. Raucher Quoted in Los Angeles Daily Journal on Conflict Waivers Case

Reuben Raucher & Blum attorney Stephen L. Raucher is quoted in the August 31, 2018 Los Angeles Daily Journal regarding the California Supreme Court’s ruling in Sheppard Mullin v. J-M Manufacturing. The state high court upheld an appellate court decision that broad attorney conflict waivers that fail to disclose known conflicts of interest are unenforceable.

Fourth Annual Update On Developments In Insurance

On Monday, April 16, 2018, Stephen L. Raucher was one of the panelists presenting a continuing legal education program entitled “Fourth Annual Update on Developments in Insurance.” The program examined the most important new cases from 2017 regarding insurance coverage and bad faith, focusing particularly on liability and property policies.

Sanctions Under Section 128.5 Must Comply With 21-Day Safe Harbor Provision

Stephen L. RaucherIn Nutrition Distribution, LLC v. Southern SARMs, Inc. (2018) 2018 Cal. App. LEXIS 81, the California Court of Appeal, Second Appellate District, Division 7, was asked to interpret Code of Civil Procedure Section 128.5(f), which governs the procedure applicable to motions for sanctions for bad faith actions or tactics. The court held that under the version of Section 128.5(f) in effect from January 1, 2015 to August 7, 2017, a 21-day safe harbor waiting period applied to such motions for sanctions. This is in contrast to the holding in San Diegans for Open Government v. San Diego (2016) 246 Cal. App.4th 1306, 1317, which held: “[A] party filing a sanctions motion under Section 128.5 does not need comply with the safe harbor waiting period described in Section 128.7, subdivision (c)(1).”

Section 128.5(a) authorizes a trial court to order a party, the party’s attorney, or both to pay reasonable expenses, including attorney fees, incurred as a result of bad faith actions that are frivolous or solely intended to cause unnecessary delay. Former subdivision (f) was in effect from January 1, 2015 to August 7, 2017. It provided: “Any sanctions imposed pursuant to this section shall be imposed consistently with the standards, conditions, and procedures set forth in subdivisions (c), (d), and (h) of Section 128.7.” Section 128.7 governs misconduct in the filing or advocacy of groundless claims in signed pleadings and other papers. Under Section 128.7(c)(1), service of the motion for sanctions initiates a 21-day safe harbor period, patterned after Federal Rule of Civil Procedure 11. During this time, the offending document may be corrected or withdrawn without penalty, and the motion for sanctions cannot be filed. San Diegans for Open Government found that motions for sanctions under Section 128.5 did not need to comply with the safe harbor provision. This had the effect of allowing parties to request sanctions as part of their moving or opposition papers, in a throwback to the process in California prior to adoption of Section 128.7 and its safe harbor provision.

In Nutrition Development, as part of its demurrer, the defendant argued that the plaintiff’s assertion of frivolous claims and bad faith conduct warranted imposition of sanctions pursuant to Sections 128.5 and 128.7. The court sustained the demurrer and dismissed the case but denied the request for sanctions. The court indicated that the defendant could choose to file a separate motion for sanctions. The defendant did so, but the motion was denied pursuant to the safe harbor rule on January 9, 2017. The defendant appealed.

Meanwhile, in August 2017, the Legislature amended Section 128.5 to include subdivision (f)(1)(B), which contains an explicit 21-day safe harbor period. The Nutrition Development court stated that this amendment confirmed the Legislature’s intent to include a safe harbor provision in former subdivision (f) and “abrogate several of the holdings under San Diegans for Open Government.” The court in Nutrition Development explicitly disagreed with the holding in San Diegans for Open Government and found the plain meaning and obvious intent of the Legislature in Section 128.5 prior to the August amendment was to incorporate the Section 128.7 safe harbor provision by cross-reference. Accordingly, the court affirmed the denial of sanctions.

Given the clear intent to incorporate the safe harbor requirement as stated in the new version of Section 128.5(f), the effect of the holding in Nutrition Development will be limited to sanctions orders issued under the prior version of the law without compliance with the safe harbor rule in reliance on San Diegans for Open Government. How many such orders are or will be subject to appeal — and whether the California Supreme Court will be asked to resolve the split of opinion on this now mostly moot issue — remains to be seen.

Author’s Note:  In CPF Vaseo Associates, LLC v. Gray, 29 Cal. App. 5th 997 (2018) (filed December 6, 2018), the Fourth Appellate District reversed its decision in San Diegans for Open Government in favor of the holding and reasoning in Nutrition Distribution.  Accordingly, there is no longer a conflict between the Fourth and Second Appellate Districts on this issue.