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According to National Underwriter, Guardian Life Insurance Company of America is making it easier for employers with 2 to 9 employees to offer disability insurance benefits. It says it now will let employers in that size range provide disability insurance on a guaranteed issue basis. The guaranteed issue provision lets employers provide employees with some disability protection without them having to complete a medical exam or undergo medical underwriting.
Following the passage of Proposition 64 on November 2, 2004, in order to bring a representative claim under the unfair competition law (“UCL”), a plaintiff must meet the following standing requirements: (1) establish that he or she “has suffered injury in fact and has lost money or property as a result of such unfair competition” and (2) comply with the class action requirements as set forth in California Code of Civil Procedure Section 382. Bus. & Prof. Code §§ 17203, 17204 and 17535. After the passage of Prop 64, litigants continued to debate whether only the named plaintiff or all class members had to meet the more stringent standing requirements of injury in fact and loss of money or property as a result of the alleged conduct.
In In Re Tobacco II Cases, 46 Cal. 4th 298 (2009), the California Supreme Court resolved that debate. Specifically, the Court addressed two questions: “First, who in a UCL class action must comply with Proposition 64’s standing requirements, the class representative or all unnamed class members, in order for the class action to proceed?” and “Second, what is the causation requirement for purposes of establishing standing under the UCL and in particular what is the meaning of the phrase ‘as a result of’ in section 17204?” In response to the first question, the Court concluded that the new standing requirements of Prop 64 applied only to the named plaintiff/class representative and not to absent class members. In reaching this conclusion, the Court reasoned that “the references in section 17203 to one who wishes to pursue UCL claims on behalf of others are in the singular; that is, the ‘person’ and the ‘claimant’ who pursues such claims must meet the standing requirements of section 17204 and comply with Code of Civil Procedure section 382.” The Court concluded that these singular references must be interpreted to relate only to the individual representative plaintiff. The Court further reasoned that there was nothing in Prop 64 that indicated it was to have any affect on absent class members and the way in which class actions operate in the context of the UCL, or on the remedies available under the UCL, which did not always require actual injury to absent class members.
In response to the second question, the Court concluded that the named plaintiff/class representative must demonstrate actual reliance on the alleged deceptive or misleading representations, consistent with the element of reliance required in common law fraud actions. The Court, however, indicated that while the representative plaintiff must show that the alleged misrepresentation was “an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause.” In other words, it is enough that the plaintiff’s reliance “played a substantial part” and was “a substantial factor, in influencing his decision.”
Finally, while the Court made clear that the new standing requirements of Prop 64 applied only to the named plaintiff/representative, the Court also noted that Prop 64 “explicitly mandates that a representative UCL action comply with Code of Civil Procedure section 382,” which requires that class representative’s claims be typical of the unnamed class members and that common questions of law and fact predominate. See Basurco v. 21st Century Ins. Co., 108 Cal. App. 4th 110, 117 (2003).
Justice Moreno authored the opinion for a divided Court, and Justice Baxter wrote a concurring and dissenting opinion.
Several insurers who act as broker-dealers in connection with the sale of “securities” find themselves litigating in Financial Industry Regulatory Authority (“FINRA”) (formerly NASD) arbitrations when disputes arise. Sometimes, they prefer not to litigate in a FINRA forum under its rules. A very recent California Court of Appeals case discussed the types of disputes that are not subject to FINRA arbitration.
In Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal. App. 4th 606 (2009), the court held that a dispute between securities’ brokers was not subject to arbitration pursuant to FINRA rules because the dispute did not relate to the brokers’ activities as members of FINRA-associated firms.
Valentine was the founder and president of Valentine Capital Asset Management, Inc. (“VCAM”) and Valentine Wealth Management, Inc. (“VWM”), neither of which was a member of FINRA.
Agahi, Luippold and Ortale worked for VCAM and VWM. When they left, Agahi formed a competing firm. Luippold and Ortale joined him at that firm and they allegedly took with them the VCAM and VWM client databases. Valentine sued Agahi, Luippold and Ortale (“defendants”) for misappropriation of trade secrets and other causes of action. Defendants moved to compel arbitration, arguing that because they were all members of FINRA, their dispute was subject to mandatory arbitration under FINRA’s arbitration clause. Valentine opposed the defendants’ motion, contending essentially that the defendants had waived their right to arbitrate and that the disputes in the litigation were not subject to FINRA arbitration.
The trial court denied the motion to compel arbitration, finding that FINRA was inapplicable because the parties’ dispute did not arise out of their business activities as FINRA members. The Court of Appeal affirmed.
The Court first explained that written arbitration provisions in interstate commercial transactions are enforceable under the FAA and that the FAA therefore applied to determine the scope of arbitration provisions in contracts with FINRA-member firms. Before engaging in activities as a registered representative for a FINRA-member firm, all registered representatives of broker-dealers, investment advisors, and securities issuers must sign a “Uniform Application for Securities Industry Registration or Transfer,” commonly referred to as Form U-4. See McManus v. CIBC World Markets Corp., 109 Cal. App. 4th 76, 88, fn. 3 (2003). Form U-4 contains an arbitration provision. By signing this form, Valentine and the defendants agreed to arbitrate every dispute required to be arbitrated under FINRA rules.
Noting that arbitration of a dispute between associated persons is required under FINRA Rule 13200 only “if the dispute arises out of the business activities of a member or an associated person . . .,” the court stated:
[T]he phrase ‘business activities of … an associated person’ must have some limitation and cannot include the activities of every possible business enterprise in which an individual, who happens to be an ‘associated person,’ might be engaged. The mandate to arbitrate disputes arising out of ‘business activities of … an associated person,’ reasonably read, must require arbitration of disputes only if they arise out of the business activities of an individual as an associated person of a FINRA member.
The court held that there was no allegation that any of the parties were acting for any FINRA-member firm or as an associated person and no relation was alleged between any FINRA-member firm and the work performed for Valentine. Further, the Court determined that none of the purported wrongdoing was alleged to have occurred in the course of the parties’ duties as associated persons with a FINRA-member firm. Instead, it allegedly occurred in connection with investment advisory firms which were not members of FINRA. The disputes thus related to Valentine and defendants, but not to their business activities as associated persons of a FINRA member.
California Insurance Commissioner Steve Poizner unveiled his proposed regulations to, according to an LA Times article dated June 3, 2009, “combat the health insurance industry practice of dropping members with costly illnesses.” According to the article, Poizner’s draft regulations would require insurers to write applications for coverage in “plain English and allow applicants a ‘not sure’ answer to questions about their preexisting medical conditions.”
According to Mr. Poizner’s news release, the new regulations will (in his words) do the following:
- Set clear and rigorous standards that insurers must meet before they issue a health insurance policy. Insurers must do their underwriting job before they issue the policy.
- Put insurers on notice that they must prove that they have met ALL of the underwriting standards before they can consider rescission.
- Put an end to lightweight sloppy underwriting if insurers want to keep the right to rescind.
- Put insurers on notice that they must be 100% sure that an individual knew the answer to a health history question and failed to provide it before considering rescinding that person.
- Require insurers to make sure that health insurance applications are accurate and complete.
- Require insurers to ask clear and unambiguous health history questions and avoid confusing applicants.
- Require agents who assist applicants with their questions to attest to the insurer regarding their assistance, at every stage of the application process.
- Encourage insurers to use Personal Health Records instead of potentially confusing health history questionnaires to underwrite applicants.
- Provide fair due process protections for consumers who are being investigated for possible rescission including early notice, opportunity to provide input to the insurers, and the chance to clarify their application. No hidden rescission investigations are allowed under the new rules and this encourages insurers to work with their insureds to resolve questions about the accuracy of their responses.
- Require insurers to share documentation used during rescission investigations with the insured under investigation.
The notice of the regulations will be officially published by the Office of Administrative Law on Friday, June 5. According to the news release, implementation of the regulations is expected by the end of 2009, following a public hearing, public comment and regulation finalization period.
The regulations would apply to individual health coverage sold by companies licensed by the Department of Insurance. A second state regulator, the Department of Managed Health Care, said more than two years ago that it would pursue rescission regulations, but has not done so. The proposed regulations can be viewed here.
On a related note, the California State Assembly is expected to vote soon on a bill that would set a high bar on rescissions for people who purchase individual insurance of all types, regardless of who regulates it.
In a pair of cases, the California Supreme Court restricted the use of California Business & Professions Code Section 17200 et seq. One case affirmed what many expected, that Proposition 64, a 2004 voter initiative, requires plaintiffs to follow strict class-action procedures when seeking to recover under California’s unfair competition law (Bus. & Prof. Code § 17200 et seq.) which prohibits “any unlawful, unfair or fraudulent business act or practice . . . .”
Before 2004, any person could assert representative claims under the unfair competition law to obtain restitution or injunctive relief against unfair or unlawful business practices. Such claims were not required to be brought as a class action, and a plaintiff had standing to sue even without having personally suffered an injury. (See Former §§ 17203, 17204; Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 561 (1998)).
In 2004, however, the California electorate passed Proposition 64, amending the unfair competition law to provide that a private plaintiff may bring a representative action under this law only if the plaintiff has “suffered injury in fact and has lost money or property as a result of such unfair competition” and “complies with Section 382 of the Code of Civil Procedure . . . .” This statute provides that “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” The Court has previously interpreted Code of Civil Procedure section 382 as authorizing class actions. See Richmond v. Dart Industries, Inc., 29 Cal. 3d 462, 470 (1981).
In Arias v. Superior Court of San Joaquin (Angelo Dairy), 46 Cal. 4th 969 (2009), the Court held that employees can pursue penalties for wage-and-hour violations under the Private Attorneys General Act, or (“PAGA”), without having to qualify their lawsuit as a class action.
Justice Joyce L. Kennard, writing for the majority, also analyzed the effect of Proposition 64. Plaintiff contended that because Proposition 64’s amendment of the unfair competition law required compliance only with “[s]ection 382 of the Code of Civil Procedure” and because that statute makes no mention of the words “class action,” his representative lawsuit brought under the unfair competition law need not comply with the requirements governing a class action. The Court rejected this assertion, explaining:
In light of this strong evidence of voter intent, we construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law only if the party “complies with Section 382 of the Code of Civil Procedure” to mean that such an action must meet the requirements for a class action. (See Fireside Bank v. Superior Court, supra, 40 Cal.4th at p. 1092, fn. 9.)
In a concurring opinion by Justice Werdegar, she disagreed with the majority’s “nonliteral interpretation of Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which forecloses a variety of representative actions the measure clearly permits. Unlike the majority, I do not believe we would frustrate the voters’ intent by enforcing the measure according to its plain language.”
Similarly, in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), 46 Cal. 4th 993 (2009), the Court ruled that the requirement that a plaintiff be one “who has suffered injury in fact,” combined with the PAGA requirement that a labor action be initiated by an “aggrieved employee,” prevents a union from bringing a UCL action based on associational standing.
In Amer. States Ins. v. Progressive Casualty Ins., 180 Cal. App. 4th 18 (2009), the California Court of Appeal addressed the “peculiar risk” doctrine in the context of an insurer’s duty to defend.
Victor Meza was a self-employed truck driver who was hired by Western Trucking LLC (“Western”) as an independent contractor. While driving a tractor trailer owned by Western and insured by Wilshire Insurance Company (“Wilshire”), Meza collided with a pedestrian, Yevdokia Bristman, seriously injuring him. Bristman later sued the grading contractor who hired Western, Vinci Pacific Corporation and the general contractor, Garden Communities (collectively “Vinci Pacific”).
Meza’s liability insurance carrier was Progressive Casualty Insurance Company (“Progressive”) and American States Insurance Co (“American”) provided the commercial auto liability policy covering Western and Vinci Pacific. American tendered its defense of the Bristman suit to Progressive who disclaimed coverage. American then sued Progressive, seeking a declaration that Progressive had a duty to defend. The trial court held that the “peculiar risk” doctrine did not apply and that Progressive did not have a duty to defend.
American appealed and the appellate court reversed the trial court’s decision, holding that the Progressive had a duty to defend American against Bristman’s lawsuit based on the “peculiar risk” doctrine. The “peculiar risk” doctrine is a form of vicariously liability where an owner or contractor can be held directly liable for damages that an independent contractor causes by negligently performing his work. Progressive argued that this was a simple automobile accident that did not implicate any special or inherent danger in connection with the subcontractor’s operation of the truck. The Court of Appeal disagreed. Instead, the court noted that the Vinci Pacific allowed its subcontractors to use an entrance that required drivers to execute a U-turn, jump a curb, cross two pedestrian crosswalks and drive on the sidewalk, all without the assistance of flagmen. This, the court reasoned, represented a level of control by the general contractor over the contractor’s work that involved a special, recognizable and inherent danger. As a result, Vinci Pacific was potentially liable for Bristman’s injuries under the vicarious liability theory of the “peculiar risk” doctrine.
Having established that potential liability existed, the court then held that Progressive had a duty to defend stating, “It is enough that a single claim is potentially covered by the policy; the insurer owes a duty to defend even if all other claims against the insured are clearly not covered […] [T]he insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot; the insurer, in other words, must present undisputed facts that eliminate any possibility of coverage.”
In holding that Progressive owed a duty to defend Vinci pursuant to the “peculiar risk” doctrine, the court noted two caveats. First, that “where more than one insurer owes a duty to defend, a defense by one constitutes no excuse of the failure of any other insurer to perform.” Second, that Progressive “may have a right to be reimbursed for defense costs allocable solely to claims for which there was no potential vicarious coverage under their policies.”
Having concluded that a duty to defend existed based on potential liability under the peculiar risk doctrine, the Court of Appeal reversed and remanded the case for further proceedings.
