There are two issues that Public Adjusters are facing today. The first is, what happens

when you follow all of the proper rules in your attempted adjustment of a loss and either the loss

is underpaid and/or denied by the insurance company and your insured has to hire an attorney?

What is the legal status of your fee on the final result? As a general rule, the attorney is using

your work product in dealing with the insurance company. Now the attorney achieves a result

which also includes extra contractual damages even though most insurance companies in a

settlement will not so label them.

There is no settled law on the right of the Public Adjuster to get a fee on the additional

funds obtained by the attorney. Joseph Khoshlesan has handled two of these cases. In the first

case, he convinced the trial judge to not only award the Public Adjuster a fee on the additional

sums obtained on the structure, but also to collect his fee on the extra contractual portion

obtained by the insured’s attorney. Unfortunately, the insured never appealed our victory so

there is no appellate decision one way or the other. From the feedback we received, the trial

judge did not like the insured and perhaps that is why he awarded the Public Adjuster a fee on

the extra contractual damages.

Another trial judge in the same courthouse had a different opinion. Her opinion was that

the Public Adjuster was only entitled to a fee on the portion of the settlement that solely related

to the property damage and not any extra contractual amounts obtained either in settlement or

trial. Again no appeal, so no quotable authority.

Another area of contention that has come up recently is the interpretation of Cal. Code of

Civil Procedure Section 1282.2 regarding whether the procedure in an Appraisal is formal or not

formal. Insurance Code Section 2071 sets forth that it is informal. The dispute arises under

Section 1282.2(2). There are insurance companies that are taking the position that since all

appraisals involve more than $50,000.00 that changes the proceeding from an informal to a

formal proceeding. That position is wrong. When you read the first sentence of 1282.2 it

provides “Unless the arbitration agreement otherwise provides”. Insurance Code Section 2071

is the agreement and it “otherwise provides”. The Appraisal provision in 2071 is not voluntary

on the part of either the carrier or the insured. The provision is part of the Code and is standard

in every policy. Therefore, that provision governs the course of the Appraisal. The confusion

comes in because our State has a fulltime legislature and every time a case comes down and if it

deems proper, it adopts a new code provision. There was a property insurance case where one of

our appellate courts held that Appraisal is a form of Arbitration. However, since the Appraisal

Panel can only decide actual cash value of the loss, the formal provisions of discovery do not

apply.

Lately, in California, many innocent landlords come to find that their tenants have been

operating illegal marijuana growing operations in and on the premises rented to them.

In order to convert a premises for the cultivation of marijuana significant changes are made to

a property’s structural, electrical and HVAC systems. Structural alterations and damage to a

premises are usually extensive and include holes in walls, floors, ceilings and roofs, and large

electrical panels and wiring is mounted in the property and boards nailed on the ceiling.

Extensive damage is also found in the bathrooms and to air ducts as well.  Aside from the

obvious structural damage, toxic mold may also be present from the excess moisture introduced

into the building due to irrigation systems used to provide water to the marijuana plants and

increased humidity due to the number of plants. The structural and electrical alterations along

with the possibility of water damage and toxic mold may make the premises unsuitable for

human habitation unless proper repairs and remediation are undertaken. If the necessary remedial

measures are not taken the premises may be permanently damaged and property value of other

homes in the area may be lowered. Needless to say, major remedial measures are required to

make the premises structurally sound and safe for occupants.

In such situations, landlords look to their insurance carriers to get the property back to normal.

Unfortunately, lately, many landlord policies contain language specifically excluding vandalism

for “illegal growing operations.” Under such language, many landlords are finding their claims

for vandalism as a result of a tenant’s acts of illegal growing operations on the property are not

covered, leaving upwards of hundreds of thousands of dollars unpaid for repairs and policies

rendered useless for the unsuspecting landlord.

However, for those policies in which “illegal growing operations” are not specifically excluded,

such claims are, or at least should be, covered under the peril of Vandalism. This is especially

true if the policy does not contain a specific definition for Vandalism, in which case the plain and

normal definition would be used and would be interpreted broadly, protecting the objectively

reasonable expectations of the insured.

Lastly, if for whatever reason insurance benefits cannot be obtained for repairs for such

vandalism, the landlord should also be mindful that the tenant is a source of recovery for their

wrongful conduct and should be pursued

This month’s topic is “innocent co-insureds” and the court decision establishing that

policy exclusions for intentional or criminal acts of “any insured” in fire insurance policies are

inapplicable to innocent co-insureds. Such was the ruling in Century-National Ins. Co. v. Garcia,

et al., (2011) 51 Cal.4th 564, which was argued before the California Supreme Court by our very

own Stephen M. Losh, Esq.

The California Supreme Court held that an exclusion in a fire insurance policy precluding

coverage for losses caused by the intentional or criminal acts of “any insured” did not apply to

innocent co-insureds, because it impermissibly provided more narrow coverage than that

statutorily mandated for fire insurance policies under the California Insurance Code.

In Century-National Ins. Co. v. Garcia, et al., Jesus Garcia and his wife incurred damage to

their home when their adult son set fire to his bedroom.  Mr. Garcia was the named insured under

the insurance policy issued by Century-National, under which his wife and son also qualified as

insureds.  Century-National denied the Garcias’ claim and sought a declaration of no coverage

from the trial court based on a provision excluding coverage for the intentional act or criminal

conduct of “any insured.”  The Garcias filed a cross-complaint for breach of contract, breach of

the implied covenant of good faith and fair dealing, and reformation.  The trial court granted

Century-National’s demurrer to the cross-complaint.  The appellate court affirmed.  The

Supreme Court reversed.

Under the Supreme Court’s analysis, the coverage dispute turned on the question of whether

Century-National’s use of the phrase “any insured” within its intentional acts exclusion meant

that if any one insured committed an intentional or criminal act, coverage would be precluded for

all insureds, including any innocent co-insureds who did not participate in the excluded conduct.

With that backdrop, the Supreme Court stated that under California’s Insurance Code, carriers

providing fire insurance must utilize the standard forms set forth under section 2071 or provide

“substantially equivalent” coverage.

While the Court acknowledged that the statutory forms contain no express exclusion for

losses caused by an intentional or criminal act, it reasoned that Insurance Code section 533 is

statutorily read into every California insurance policy (including the 2071 statutory fire form)

and precludes coverage “for a loss caused by the willful acts of the insured.”  However, in

reviewing the exclusionary language of section 533 and the statutory fire form, the Court found

that each consistently used the phrases “an insured” or “the insured” as opposed to “any

insured.”  As such, the Court reasoned that the Legislature’s choice in wording represented an

“intent to ensure coverage on a several basis and protect the ability of innocent insureds to

recover for fire losses despite neglectful or intentional acts of a coinsured.”  In so reasoning, the

Court stated that when viewed in its entirety, the fire protection contained in Century-National’s

policy, which purported to deny coverage to innocent insureds when a co-insured intentionally

sets fire to their home, provided markedly less favorable coverage to insureds than that provided

in the 2071 standard fire form.  Consequently, the Court held that the Century-National exclusion

was to that extent invalid.