Irvine Business Litigation Blog

Better Late Than Never - Late Notice May Not Be Detrimental To Coverage Under An Occurrence Policy

As anyone who has ever tried to read through an insurance policy can attest, there are pages upon pages of terms, conditions, exclusions, limitations, definitions, and ... notice requirements. Most notice requirements in policies mandate that notice of a claim be provided in a prompt or timely manner. While the failure to strictly adhere to the policy's notice requirements can result in a forfeiture of coverage, late notice may not always be detrimental. In Marty Lat v. Farmers New World Life Insurance Company (10/16/18 Court of Appeal 2nd Dist.), the Court of Appeal held that an insurance company may not deny an insured's claim under an occurrence policy based on lack of timely notice or proof of claim unless the insurer can show actual prejudice from the delay.

The facts of Marty Lat are relatively straight forward. Maria Carada purchased an "occurrence" life insurance policy from Farmers New World Life Insurance Company ("Farmers") and named her sons - Marty and Mikel Lat ("Lat") - as beneficiaries. The policy established an "accumulation account" to which Carada's premium payments and interest were added and from which the monthly costs of insurance and other amounts were deducted. If the accumulation account was reduced below the amount needed to cover the next month's deductions, a 61-day grace period began within which Carada could pay the premium needed to cover the deduction. If the grace period expired before Farmers received the necessary premium payment, the policy terminated and could not be reinstated. Importantly, the policy also included a rider under which Farmers agreed to waive the cost of insurance while Carada was totally disabled if Carada provided Farmers with notice and proof of her disability.

In August 2012, Carada was diagnosed with cancer and became totally disabled. She did not, however, notify Farmers. On May 20, 2013, Farmers sent a letter to Carada advising her that the premium payments were insufficient to pay for the coverage under the policy and gave her until July 20, 2013 to make payment or the policy would lapse. On July 23, 2013 Farmers sent Carada a letter stating that the policy's grace period had expired and coverage was no longer in force. Carada died on September 23, 2013 and Lat submitted a claim which was denied by Farmers. Subsequently, a suit was filed. Farmers moved for summary judgment which was granted. The trial court held that the 61- day grace period had expired and the premium had not been paid. Consequently, the policy lapsed. An appeal was filed and the Court of Appeal reversed.

What is the cy-pres doctrine?

During the course of your estate planning in California, you may wish to set up a trust that will benefit a particular cause or charitable organization after your death. This is a very generous gift and can ensure that your legacy lives on. However, because it is impossible to predict the future, circumstances may arise after you are gone that make it difficult or impossible to honor your intentions for the charitable trust exactly as written. In that instance, rather than allowing the trust to fail and the assets to go to waste, the court may apply the principle of the cy-pres doctrine. 

According to the Internal Revenue Service, "cy-pres" comes from a French term meaning "as near as possible." If it eventually becomes impossible or impracticable to carry out your charitable trust for its designated purpose, the court will revise the terms of the trust to benefit a charitable object that is similar to what you originally intended. 

New Appeals Court Decision Makes It Harder for Businesses to Protect Themselves from Ex-Employees

In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the Court of Appeal held that a "Nonsolicitation of employees" provision of a standard Confidentiality and Non-Disclosure Agreement signed by employees who later left to compete against their former employer was void and unenforceable as an improper restraint of the employees' right to practice in their chosen profession.

You May Have To Allow Your Employee To Bring Her Emotional Support Parrot To Work With Her

California's Fair Housing and Employment Act ("FEHA") makes it illegal to discriminate on the basis of age, religion, color, gender identity, national origin, race, marital status, familiar status, sexual orientation, or physical or mental disability. As faithful readers to this newsletter are well familiar, the FEHA applies to employers, but it also applies to property managers, lenders, public entities, realtors, rental owners and anyone working in the housing industry. The FEHA broadly prohibits the treatment of a member of any protected class unequally to others or refusing to make reasonable accommodations.

The FEHA's reach is so extensive that California courts have found that it even protects individuals who need emotional support animals. An emotional support animal is not a service animal, which is recognized under Federal law and may only be a dog or miniature horse that is specifically trained to perform a task for a disabled person. On the contrary, an emotional support animal may be any type of animal, and that animal does not have to be trained to perform any specific task. Although it may not be treated as a "'pet", in reality it is difficult to find a difference.

Authority for deeming emotional support animal users to be members of a protected class derives from Auburn Woods I Homeowner's Assoc. v. FEHC (2004) 121 Cal.Appp.4th 1578. In that case, owners of a condominium unit were sued by their homeowners association for violating a CC&R provision that prohibited them from keeping a dog at their condo. A year after purchasing their condo, the owners bought a small dog, hoping that it would help them with their depression. After bringing the dog home, the owners noticed that their agitation lessened, their interpersonal relationships improved, their sleeping and concentration improved, and they stopped engaging in acts of depression-related self-mutilation. When the HOA demanded that they remove the dog, the owners asked for a reasonable accommodation under the law.

Preventing employee rights violations as an employer

In some workplaces, the rights of employees are disregarded, and this can be problematic for workers who are subjected to various forms of mistreatment as well as the companies that employ them. Rights violations take on numerous forms, such as cases involving discrimination, wage violations and sexual misconduct. Sometimes, employee rights violations are so serious that an employee comes to the conclusion that filing a lawsuit is necessary. These situations cannot always be avoided in all instances, but there are many steps employers can take to stamp out employee rights violations in the workplace.

For starters, it is very important to make sure that all staff members are trained on key issues such as sexual harassment, discrimination and other violations. Some people may not realize that certain behaviors constitute sexual harassment, for example, and others may not think about the impact of their behavior. Aside from training and awareness programs, employers should immediately take action if they discover that an employee's rights have been violated in any way. The incident should be carefully reviewed and any problem areas in the workplace should be addressed at once.

Steps to creating a business succession plan

As a small business owner, you realize that there will come a time when you're no longer willing or able to run your company. This happens for a number of reasons, including but not limited to retirement, incapacitation and death.

Creating a business succession plan is a must, as it can help prevent time-consuming and costly issues when the time comes.

3 Items For Your Winter Corporate Check-Up

One of BKCG's main goals is to help our clients avoid legal problems from occurring in the first place and, with that in mind, based on our clients' experiences and recent legal developments, we suggest you consider doing the following 3 things to help your company stay out of legal peril.

1. Conduct a Cybersecurity Audit. The time to do this is now, before your company experiences a data breach, whether it be an outside hack, a ransomware demand or the loss of valuable proprietary company information to a competitor. Not only can any one of these events cause massive disruption to your business, but the costs can be devasting. For example, since 2015, California has required businesses to provide 12 months of free credit monitoring services to persons whose personal information has been subject to a data breach. Disclosure of a person's name and social security number or driver's license number can trigger this monitoring requirement. Assuming a modest monitoring cost of $100/year, if your business has a database of 1,000 such consumer records that is breached, the monitoring cost alone would be $100,000. Among the most common causes of company data breaches are: (1) not regularly installing security patches issued by Microsoft, Google, etc.; (2) giving employees administrator rights, for example, so they can install their own software updates; and (3) failing to properly train employees so as to avoid computer viruses and malware.

While a consultation with an IT professional is the best way to determine any additional steps you need to take to protect your company, here are a few simple things you can do immediately:

· Consider hiring an outside specialist IT consulting company to conduct a thorough audit of your company's current cybersecurity measures. Many such companies will do so at a low or nominal cost, and there are obvious advantages to having someone other than your regular IT services provider or in-house IT person undertake the audit.

· Conduct an inventory of employees who remotely access your company's servers and ensure that the devices they use to do so employ appropriate security protocols and have regularly updated security software. Your data is only as safe as your weakest link.

· With your IT professional's help, develop an internal company security plan which includes employee training on security training and limiting access to legally sensitive information to higher level employees on a "need to know" basis.

· Ask your commercial insurance broker precisely what types of cybersecurity insurance coverage you have under your business' existing commercial general liability policy, and what the limits of coverage are. Do not just assume that your existing coverage is adequate for your business' needs, you may need to purchase supplemental coverage.

· Determine exactly what employee and customer information your company gathers and how and where it is stored. Avoid complacency, as the law is evolving rapidly in this area. For example the California Consumer Privacy Act of 2018 will go into effect in January 2020 and will impose significant new obligations on companies' use and retention of consumers' personal information. As is always the case, ignorance of the law will not shield you from liability.

2. Immediately Review Your Company's Use of Independent Contractors. As has been widely reported in the press and online, the decision issued a few months ago by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, makes it even harder than it previously was for companies in California to legally justify characterizing a service provider as an independent contractor, rather than as an employee.

The Dynamex court adopted a three-part test used in other jurisdictions for determining whether a worker is properly considered an independent contractor under the "suffer or permit to work" standard in the California wage order in question. Commonly referred to as the "ABC test," this test "presumptively considers all workers to be employees", and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions:

Litigation after recently starting a business

Entrepreneurs launch businesses all the time, some of which grow into very successful companies. There are many challenges associated with starting a new business, from financial matters to those which involve staff and business partners. Many key decisions need to be made in the early stages of starting a business and our law firm realizes that this can be a hectic time, especially for business owners who may be doing this for the first time. Unfortunately, unexpected challenges can arise as well, and these can make things very complicated for a newly-formed business regardless of its size or industry.

If your new business is being taken to court, it is critical for you to protect what you have worked so hard for. Being hit with a lawsuit can be incredibly overwhelming for any business, whether it has been successful for decades or was recently formed. However, a business in its early stages may be hit particularly hard by a lawsuit and the consequences of an unfavorable outcome could deal a death blow to a venture that had so much potential. As a result, it is paramount for business owners to know the options they have at this time.

Estate planning during a health crisis

There are various things to consider with respect to creating an estate plan. First, everyone's personal circumstances are unique and different types of estate plans work better for some people than others. Some people may be hesitant to set up a trust or a will, while others may have confidence in their decision. Moreover, some people may be going through a health crisis, such as a cancer diagnosis, that makes it difficult for them to concentrate on estate planning matters. For others, a serious health crisis may motivate them to set up an estate plan.

If you are going through any type of health crisis, our law office knows that your daily life may be very challenging. From doctor visits to medical costs and other hardships, there are all sorts of ways in which health problems can complicate life. Setting up an estate plan may be beneficial, however. Not only could it help ensure that your loved ones are able to receive your estate as you wish, but it could also give you a sense of relief knowing that your assets will be handled appropriately in the future. If you are facing a very serious health issue that may even claim your life, this could be especially important.

Employee slip-and-fall suits

Workers are hurt on the job in all sorts of ways and these accidents can be incredibly difficult for workers and those who employ them. Whether a worker is hurt in a medical facility or injured while using dangerous machinery, many different types of workplace accidents take place. Some were genuine accidents and leave workers with devastating injuries that they need to recover from physically and financially, while others may be fabricated or exaggerated by a worker in an attempt to secure compensation. For example, someone may move forward with a lawsuit and claim that they were hurt in a slip-and-fall accident that their employer was responsible for.

Sometimes, these slip-and-fall accidents may result in a workers' comp claim. In other cases, an employee may believe that someone else was directly responsible for their accident and they might decide to take their case to the courtroom. For example, they may blame the accident on an employer who allegedly failed to properly maintain the premises. Moreover, some of these slip-and-fall incidents are not even valid and are based on a worker's lies. For example, someone may purposely fall down and pretend that the accident was caused by some other factor.

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