A major component of our representation of insurance companies is our insurance litigation practice. On behalf of its insurance clients, Sonnenschein has been instrumental in establishing favorable precedent on numerous fronts, including cutting edge areas of insurance law. For example, our San Francisco lawyers secured an important victory in La Jolla Beach and Tennis Club v. Industrial Indemnity, when the California Supreme Court sided with Industrial Indemnity Company to rule that a workers compensation policy provides no insurance coverage for the cost of defending a civil wrongful termination action. (The negative impact on the insurance industry of an unfavorable ruling in California alone was estimated by one industry source at more than $500 million.) The firm was brought into the case by Industrial Indemnity after a decision went against the insurance company at the Court of Appeal level. Two weeks after the argument, the Supreme Court reversed a pair of lower court decisions unanimously, the justices noting that there was no duty to defend because "no reasonable construction" of the insurance contract provided for coverage against such lawsuits. This decision was the first by the California Supreme Court in nearly 20 years holding that the insurer had no duty to defend and sets significant limitations upon the duty to defend under California law.
Less than a year after La Jolla, we were involved in another pivotal insurance coverage action. In Waller v. Truck Insurance Exchange, we represented various amici curiae and presented oral argument before the California Supreme Court. The Court held there was no duty to defend a lawsuit seeking emotional distress damages associated with the insured's noncovered economic or business torts because such emotional distress does not constitutes "bodily injury" for purposes of general liability coverage. We are using the favorable precedent of Waller to secure victories in other cases. In Applied Materials, Inc. v. Industrial Indemnity Company, we prevailed on summary judgment where the insured alleged wrongful discharge, interference with prospective economic advantage and emotional distress. The trial court agreed that the insureds' allegations of emotional distress were simply incidental to his economic claims, and under Waller, were not potentially covered as "bodily injury." (Waller is momentous for its other holdings, as well, holding that an insurer cannot be liable for "bad faith" as a matter of law where there is no coverage under the insurance contract, and further holding that an insurer does not waive a coverage defense that it failed to raise at the time coverage is denied).
We have also been adept at operating behind the scenes. For example, after the Supreme Court issued Montrose v. Superior Court—a decision viewed as damaging to insurers—our San Francisco lawyers lobbied the Court via letter briefs, convincing it to remove sweeping language in that decision and lessening its blow. Our efforts were later highlighted in San Francisco legal newspapers.
We secured a significant victory for insurers in a case that overturned unfavorable precedent. On behalf of General Accident Insurance Company of America, we argued that a successor corporation which is liable for its predecessor's torts is not entitled to coverage under the liability policy issued to the predecessor company. The California Court of Appeal agreed, holding in General Accident Insurance Co. of America v. Superior Court, that a successor corporation is not a party to an insurance contract it never signed and cannot secure coverage from an insurer with whom it has no contractual relationship. Despite a previous holding to the contrary, the California appellate court held that the right to coverage under a predecessor business' insurance policy cannot transfer by operation of law.
Still more favorable precedent came by way of Collin v. American Empire Surplus Lines Insurance Company, a published decision we obtained from the California Court of Appeal on behalf of American Empire. The decision is now considered to be the definitive statement of the occurrence requirement in a general liability policy. The decision specifically holds that a conversion claim fails to constitute an occurrence, but it also provides excellent guidance as to the nature of an occurrence, the burden of proof and the requirement of a concrete factual showing by the insured to establish coverage. The decision also is unusual in holding that the insurance company suffered actual prejudice from the failure to give notice, which is a difficult requirement to meet under California law.
Lawyers in our Chicago office won a significant victory, with industry-wide implications, for a major domestic insurer in an area with little or no existing law. The Illinois appellate court's decision in Emerson Electric Company v. Aetna Insurance Company holds that no coverage is afforded under a commercial general liability policy where the named insured acquires subsidiaries or facilities after the inception of the policy, absent notice to the insurer. We defeated the insured's argument that the subject policy's adjustable premium provisions provided an appropriate mechanism to account for the increase in the risk.
As another example of Sonnenschein's success in establishing favorable precedent, our lawyers have worked to obtain decisions properly limiting the extent of coverage for "advertising injury." For example, on behalf of a major domestic insurer, we obtained rulings from the Northern District of California and the Ninth Circuit Court of Appeals that patent infringement does not constitute "advertising injury." On behalf of the same insurer as amicus, we were instrumental in securing a similar decision from the California Court of Appeal in Aetna Ins. Co. v. Superior Court (Watercloud Bed). The Court's decision incorporated much of our brief. In a case in which we are representing Industrial Indemnity Company, we secured a ruling that the misappropriation of trade secrets does not constitute "advertising liability." We represented Industrial Indemnity in the subsequent appeal to the California Court of Appeal, which affirmed the decision in the insurer's favor.
Our lawyers represented a major domestic insurer in another matter with widespread implications to advertising injury coverage. The issue in Advance Watch Company v. Kemper National Insurance Co. was whether coverage for "misappropriation of style of doing business" applied to trade dress or trademark infringement. The Fifth Circuit held that the insured's alleged copying of another pen manufacturer's design failed to involve any "advertising" activities by the insured. Although the infringing product was indeed "advertised," the court recognized that design of the product was wrongful, rather than the advertising itself. Accordingly, there was no "advertising" injury and the court held that the insurer properly denied coverage. We also achieved an important victory for Industrial Indemnity Company in the California Court of Appeal establishing no advertising injury coverage for theft of trade secrets. We represented Industrial Indemnity against claims that an insured's use of a competitor's trademark was covered by the "advertising injury" provisions of the insurer's policy.
We also have carved out favorable case law holding that California public policy, as encompassed by various state statutes, prohibits insurance coverage for intentional wrongdoing. Sonnenschein lawyers represented certain amici curiae in J.C. Penney v. Superior Court, significantly broadening the definition of uninsurable misconduct under California law.
In a matter of importance to all insurers, our San Francisco lawyers obtained summary judgment for a major domestic insurer, where the court held that insurers have no duty to pay policyholders for defense costs that policyholders voluntarily incur before tendering a claim to their carrier. Faust had been sued, and defended the suit for several months before tendering the claim to the insurer, then sought to be reimbursed for legal defense costs incurred before tendering the claim. We prevailed on appeal to the Ninth Circuit Court of Appeals, which issued a published opinion on this issue. The case also confirms that there is no requirement for an insurance company to show that it was harmed by the tender being late, as long as the policyholder incurred costs voluntarily. Our Los Angeles lawyers achieved another excellent result for the insurer in a rare trial court victory for an environmental damage coverage claim brought by Warner Brothers. We showed that the environmental property damage alleged by Warner Brothers did not occur during the coverage period of the policy.
On behalf of American Empire Surplus Lines Insurance Company, our San Francisco lawyers secured the first published decision of its kind in California. The decision from the California Court of Appeal, entitled Rothschild v. Silar, holds that an "assault and battery" exclusion in a commercial general liability policy bars coverage for any claim arising out of an assault—regardless of who committed the assault, which insured is sued and under what legal theory. The Court of Appeal agreed with the position of our client, American Empire, that the exclusion was clear and unambiguous and barred coverage for any claim related to an assault and, indeed, incorporated much of American Empire's brief discussing the importance of context in interpreting policy language. Perhaps more significantly, the opinion also holds that a purely legal dispute over the meaning of policy language does not, in and of itself, create a potential for coverage, even when there is no directly controlling authority. Finally, the opinion resolves the longstanding ambiguity concerning the scope of the "concurrent causation" doctrine, holding that the insured's allegedly negligent hiring and supervision of the driver was not a separate, concurring cause of the loss but only an alternative legal theory under which to recover damages.
We also won a series of significant coverage cases in the Illinois appellate court. Our clients in these matters, Country Mutual Insurance Company and a major domestic insurer, faced suits from school districts seeking to recover substantial costs for the remediation of asbestos contamination found in the late 1970s and early 1980s. However, the school districts did not file suits with the insurers until many years later, long after the expiration of the policies' one-year limitation periods for filing such suits. The districts contended that these limitation provisions were not enforceable against them under the doctrine of nullum tempus occurit regi (time does not run against the king). Arguing that this doctrine applies only to statutory limitations periods, not contractual ones, we won the first of these cases in the Fifth District, generally an unfavorable venue for insurers. Later in 1995, we prevailed in similar cases in the First and Fourth Districts, establishing significant precedent on an issue of importance to the insurance industry.
