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Expert Testimony Can Help Policyholders Establish Property Damage and Survive Summary Judgment

Policyholders often face a formidable challenge proving causation on property damage claims, particularly when insurance companies insist on deferring to their own experts and adjustors. Of course, insurance companies must conduct reasonable investigations and review and evaluate all of the evidence before making a claim decision. The Ninth Circuit Court of Appeals held in an insurance action where the policyholder provides admissible evidence showing a genuine dispute as to coverage, the evidence should be evaluated by a trier of fact. Pyramid Technologies Inc. v. Hartford Casualty Insurance Co., 2015 DJDAR 6205 (Cal. App. May 19, 2014).

Pyramid involved a policy issued by Hartford Casualty Insurance Company (“Hartford”) to Pyramid Technologies (“Pyramid”) for business personal property replacement costs, lost business income and additional expenses. In 2005, Pyramid’s warehouse flooded, but the water did not come into contact with inventory. After discovering the flood, Pyramid was concerned about the humidity level in the warehouse and asked Hartford to test the inventory. Hartford refused to test for damage, after its expert, Peter Helms, performed a humidity test following removal of most of the water and concluded the flood did not reach a level to damage the inventory. Pyramid’s expert, David Spiegel, opined the humidity levels rose to over 90% during the flood and exceeded the levels of the moisture-proof packaging. Pyramid employees conducting inventory after the flood quarantined over 250,000 items with corrosion, tarnish or discoloration damage. Hartford retained Dr. Arum Kumar to conduct limited tests of the quarantined items and he found less than half the items tested were damaged, two failed “suitability standards” and concluded the damage was caused by moisture, but not by the flood. Pyramid’s expert, Ken Pytlewski, challenged Dr. Kumar’s opinion that corrosion caused by the flood would be uniform, and concluded the damaging corrosion was caused by the high humidity attributed to the flood. However, Hartford still refused coverage based on its own experts’ determinations that flood did not damage inventory in the warehouse.

Subsequently, Pyramid filed a civil action for breach of contract and the breach of the implied covenant of good faith and fair dealing. The district court granted summary judgment for Hartford without holding Daubert hearings to evaluate Pyramids’ expert testimony, and Pyramid appealed.

The Court of Appeals reversed and remanded, holding summary judgment was improper as there was a genuine dispute as to whether the flood damaged Pyramid’s inventory. First, the Court held evidence from Pyramid’s experts showing the flood caused the damage triggering coverage was admissible, and its exclusion constituted an abuse of discretion. Spiegel’s report provided evidence that Helms’ report relied on improper data regarding humidity, that humidity exceeded 90% during the flood and the 90% humidity likely compromised the moisture-proof packaging of Pyramid’s products. Pytlewski’s report contradicted Dr. Kumar’s statement that a flood would have caused uniform corrosion damage, an assumption underlying his determination. These reports permitted a trier to fact to infer the flood could have caused the damage to the inventory. The court stated:

After an expert establishes admissibility to the judge’s satisfaction, challenges that go to the weight of the evidence are within the province of a fact finder, not a trial court judge. A district court should not make credibility determinations that are reserved for the jury.

Secondly, the court stated there were triable issues of fact as to whether Hartford breached the insurance contract or acted in bad faith by failing to investigate and pay Pyramid’s claims for loss of inventory. Hartford argued Pyramid did not show the flood caused the claimed damages, as opposed to other factors. However, the court noted that evidence of condensation on the packaging and high humidity levels permitted a reasonable inference of causation. Accordingly, summary judgment was inappropriate. Next, the court held that there existed a triable issue of fact regarding Pyramid’s claim for breach of the implied covenant of good faith and fair dealing claim in light of evidence that Hartford and its experts discouraged Pyramid’s claim, refused to test inventory, conducted inadequate testing, denied coverage and extended a “low-ball” offer. The court held that if viewed in the light most favorable to Pyramid, these facts permit an inference such that a reasonable trier of fact could have found for Pyramid. Finally, the Court of Appeals affirmed summary judgment as to Pyramid’s business interruption claim, as Pyramid failed to show it lost customers due to the flood.

Pyramid is mostly a policyholder-friendly decision as it sets standards for policyholders to utilize, especially regarding expert testimony, that allow them to defeat summary judgment motions. In litigation, the policyholder’s credible expert evidence should be admitted to support an inference in favor of coverage, and will be viewed in a light most favorable to the policyholder if the insurer moves for summary judgment.

LINA Ordered to Pay the McKennon Law Group Attorneys’ Fees and Costs

On May 13, 2014, a respected Central District of California Federal Court Judge, Margaret M. Morrow, issued an Order granting Plaintiff’s Motion for Attorneys’ Fees and Costs. In the Order, Life Insurance Company of North America (“LINA”) was ordered to pay the McKennon Law Group PC approximately $50,000 in attorneys’ fees and costs following the successful resolution of a dispute over long-term disability insurance benefits due pursuant to an ERISA-governed group policy. LINA reinstated the plaintiff’s claim for long-term disability benefits shortly after the McKennon Law Group PC filed the Complaint. In the Order, Judge Morrow approved Robert McKennon’s hourly rate based upon Mr. McKennon’s experience and skill, which appears to be the highest hourly rate ever allowed for an attorney in an ERISA case filed in Southern California.

Los Angeles Business Litigation Lawyers

McKennon Law Group PC specializes in litigating and resolving all types of business disputes. Our aggressive advocacy and our regional reputation as a leading business litigation firm, enables us to achieve maximum settlements and judgments/verdicts at trial. We have over 25 years of experience litigating business disputes. Our firm handles all types of complex corporate, commercial, and business litigation, including:

Breach of contract or license agreements
Breach of implied or express warranties
Breach of oral agreements
Fraud and misrepresentation claims
Unfair competition claims and trade secrets
Tortious interference cases
Intellectual property infringement
Breach of fiduciary duty
Insurance coverage and bad faith litigation relating to business disputes

Sone of our consumer and business litigation cases are taken on a contingency fee basis. You pay nothing and we recover nothing unless we win your case.

There are no other attorneys in California better suited to litigate your business disputes. McKennon Law Group PC’s founding partner, Robert J. McKennon was named in the Business Edition 2012 Thomson Reuters/Super Lawyers annual list of the nation’s top attorneys in business practice areas. We will aggressively litigate your case to achieve maximum success.

A Pro-Insurer Decision Provides Guidance for Insureds on the Application of Estoppel and Waiver to Statute of Limitations Defenses in Disability Insurance ERISA Cases

At times, decisions that appear favorable to insurers can also have unexpectedly positive take-aways for policy holders. Gordon v. Deloitte & Touche, __ F.3d ___, 2014 U.S. App. LEXIS 6688 (9th Cir. April 11, 2014) is just such a case. Although, the Ninth Circuit in Gordon ruled in favor of the insurer in finding that the insured’s ERISA action was barred by the California four-year statute of limitations, the Court also reaffirmed and clarified the standards for evoking waiver and estoppel arguments to prevent insurance companies from raising a statute of limitations or contractual limitations defense.

The plaintiff in Gordon was an insured under a long-term disability plan (the “Plan”) governed by ERISA. The plan was insured and administered by MetLife. The insured sought disability benefits under the Plan due to depression. After initially paying benefits to the insured, MetLife terminated benefits. The insured subsequently filed two appeals. In 2004, MetLife denied the insured’s second appeal, but indicated in the denial letter that she had 180 days to appeal the decision. The insured did not file an appeal and took no action for more than four years. Then, in 2009, after receiving a request from the California Department of Insurance to reevaluate the claim, MetLife reopened her claim. However, MetLife upheld its original decision to terminate benefits. MetLife’s denial letter advised the insured that she had 180 days to appeal and, that if the appeal was denied, she would have the right to bring a civil action under ERISA section 502(a).

In January 2011, the insured filed a complaint in federal district court. The district court granted the Plan’s motion for summary judgment, finding that the insured’s action was barred by the applicable four-year statute of limitation and the Plan’s three-year contractual limitation. The insured appealed arguing that MetLife’s limitation defense does not bar her action because: (1) reopening the claim file reset the statute of limitation; (2) the insurer waived its limitation defense; and (3) the insurer was estopped from asserting a limitation defense. All three arguments were ultimately rejected by the Ninth Circuit who affirmed the district court’s decision. However, in reaching this decision, the Court provided valuable edification of the limits placed on the use of time bars as a defense to claim brought under ERISA. As an initial matter, given the nearly seven years that had passed between the filing of the complaint and when the 180 day period to file an appeal expired, the court found that the statute of limitations had clearly ran and did not consider whether the three-year contractual limitation period applied.

The Court then addressed the insured’s argument that reconsideration of her claim in 2009 revived the statute of limitations pursuant to California law regarding creation of a new cause of action resulting from acknowledgment of debt. However, the Court reiterated that federal law governs determination of the accrual of an ERISA action and the Court found that reopening the claim file by itself is not sufficient to revive the statute of limitations. Next, the Court considered the insured’s estoppel argument. Significantly, the Court definitively acknowledged that, as a general rule, an insurance carrier will be estopped from relying on a statute of limitations defense when its own prior representations or conduct have caused the plaintiff to run afoul of the statute and equity justifies holding the defendant responsible for the outcome. However, the Court found that in this particular case, the statute of limitations had already run when MetLife informed the insured in its 2009 denial letter that she could bring an ERISA action.

Finally, the Ninth Circuit addressed for the first time in this case, whether a waiver argument can be used by insureds to prevent insurers from raising a limitation defense in ERISA cases. Turning to California law for guidance, the Court concluded that, based on a review of California decisions, an insurance company cannot waive the statute of limitations after it has run. Nevertheless, adopting the position taken by the Seventh Circuit, the Court found that even if waiver or estoppel were available in this case, the insured would have to show either detrimental reliance or some misconduct by the insured. Here, the Court held the insured had simply not shown any detrimental reliance or unfair conduct by MetLife. However, it is important to note that the Court in Gordon did not address the United States Supreme Court’s recent decision in Heimeshoff. In that decision, which was discussed in our prior blog article, the Supreme Court explicitly reserved for their use traditional equitable remedies including equitable tolling, waiver and estoppel. Given, the Supreme Court’s clear position on this issue, the Ninth Circuit will likely be more inclined to allow waiver arguments to be used to prevent insurers from raising a limitation defense in the future.

The Gordon decision highlights many of the potential pitfalls for insureds in dealing with navigating often complex rules regarding statute of limitations and contractual limitations. More importantly, it reaffirmed that estoppel can still prevent insurers from raising a limitations defense. The decision leaves open whether waiver may be used as well to prevent insurance companies from using contractual limitation periods as a defense if the insured can show detrimental reliance or self-serving misconduct by the insurer. However, given the Supreme Court’s affirmation of the applicability of traditional equitable remedies in ERISA cases in Heimeshoff v. Hartford Life & Accident Insurance Co. and Wal-mart Stores, Inc., 134 S. Ct. 604 (Dec. 16, 2013) courts in the Ninth Circuit will likely allow insureds to use waiver and estoppel to overcome statute of limitation defenses in certain limited situations. The Gordon decision should serve as a reminder to insureds to act immediately if their claims are denied and to contact an attorney to ensure that they do not forfeit their right to file a lawsuit. This is especially true in dealing with disability LTD insurance, health insurance and life insurance matters.

Robert J. McKennon, Published an Article in the Los Angeles Daily Journal

McKennon Law Group PC’s founding partner, Robert J. McKennon, published an article entitled “Clear win for insureds, though scope uncertain” in the Los Angeles Daily Journal on August. 7, 2013, discussing the very important and highly anticipated California Supreme Court ruling in Zhang v. Superior Court of San Bernardino, 2013 DJDAR 10174 (August. 1, 2013). This decision allowed new theories of liability under California’s Unfair Competition Law against insurance companies who improperly deny insurance claims.

Robert J. McKennon Published an Article in the Los Angeles Daily Journal

McKennon Law Group PC’s founding partner, Robert J. McKennon, published an article entitled “New liability for claims adjusters the right move” in the Los Angeles Daily Journal on April 21, 2014, a new case which exposes insurance adjustors to negligent misrepresentation and intentional infliction of emotional distress claims by policyholders.

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