Navigating the complex landscape of California’s insurance regulations, particularly when dealing with non-admitted insurers, is a challenge many policyholders face. At the heart of the non-admitted insurer challenge lies a powerful but underutilized tool: The Unauthorized Insurers Process Act, codified at California Insurance Code Section 1610, et seq. Section 1616, is a key component of the Act and yet is often overlooked by policyholders faced with a coverage dispute involving a non-admitted insurer.  

Admitted versus non-admitted insurers in California

An “admitted” or “licensed” insurer is an insurance company that must file its rates with the Department of Insurance (“DOI”) and is required to participate in the California Insurance Guarantee Association (“CIGA”). In the event that an admitted insurer becomes insolvent, CIGA is supposed to step in and pay covered claims, subject to various statutory limitations. 

Conversely, a “non-admitted” or “surplus lines” insurer is allowed to conduct business in California but is not required to file its rates with the DOI and is not a member of CIGA. By not filing rates with the DOI, non-admitted insurers sometimes have more flexibility in the coverage offered and the prices charged.  The DOI maintains a List of Approved Surplus Lines Insurers (“LASLI”) that has met certain capitalization requirements, but the DOI also permits non-U.S. domiciled alien insurers to issue coverage in California that has not met those standards. Thus, the financial strength and stability of a non-admitted insurer can sometimes be significant issues.Continue Reading Empowering policyholders: Forcing non-admitted insurers to post a bond before answering a complaint

When James W. Marshall found gold in 1848 in California, over 300,000 prospectors migrated to California to take part in the new financial economy. The Oregon gold rush started a few years later at Josephine Creek, and a smaller rush happened in Washington State in the early 1880s starting at Swauk Creek. As a result of this influx of prospectors to the gold-rich West Coast, and the high risk/high reward nature of the business, appetite for risk in the region increased dramatically. Prospectors knew that it was a big risk to get a big reward.

This appetite for risk continues to this day in the realm of third-party liability coverage. When you purchase a general liability policy, the insurer agrees that it will pay any covered settlement or judgment up to the “policy limits,” an amount negotiated when the policy is purchased. But the insurance policy does not typically require an insurer to settle a case before trial. Courts have changed that.Continue Reading The Gold Rush – Risks and Rewards When an Insurer Prospects for a Defense Verdict

In Deere & Co. v. Allstate Ins. Co., 2019 WL 912151 (Cal. Ct. App. Feb. 25, 2019), a California Court of Appeal recently held that an insured’s self-insured retention (SIR)[1] was considered part of the underlying limit of liability such that it need not be satisfied again and again just to access excess insurance policies. This case represents another example of the California appellate courts shooting down an insurance company’s attempt to overreach. Nonetheless, insurance companies will continue to look for ways to avoid providing the coverage they contracted to provide, and policyholders must always be vigilant.

This particular dispute arose over insurance coverage for several asbestos personal injury claims made against manufacturer Deere & Company arising from products it manufactured from 1958 to 1986. During that period, Deere had coverage in place via a series of first-layer umbrella policies[2] for personal injury claims; several layers of excess insurance provided additional coverage above the limits of the first-layer umbrella policies. In all, there were 49 policies at issue representing $200 million in policy limits. In all of its first-layer umbrella polices, Deere contracted to pay an SIR before the coverage limits would be reached. Deere’s excess policies “followed form” to the first-layer policies, except the excess policies had different limits of liability.
Continue Reading Self-insured retentions are not a windfall for excess insurers looking to avoid coverage

On Monday, June 4, 2018, the California Supreme Court ruled that an insurance company must provide liability coverage to its corporate insured against claims of negligent hiring, retention, and supervision of its employee, who allegedly sexually assaulted a 13-year-old child. The case is Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc., Case No. S236765 (June 4, 2018). This decision is “of exceptional importance to injured parties, employers, and insurance companies doing business in California,” wrote the U.S. Court of Appeals for the Ninth Circuit, in an order certifying the issue to the California Supreme Court.

In 2002, Ledesma & Meyer Construction Co. (L&M) entered into a contract with the San Bernadino School District for a construction project at a local middle school. L&M hired Darold Hecht to work on the project. In 2010, a 13-year-old student at the school (Jane Doe), filed suit asserting numerous claims against L&M, alleging that she was sexually abused by Hecht. One of Doe’s claims against L&M alleged negligent hiring, retention, and supervision of Hecht. L&M’s insurer, Liberty Surplus Insurance Corporation, agreed to defend L&M under a reservation of rights.Continue Reading California Supreme Court rules broadly in favor of insureds

Since the President’s February 2013 Executive Order directing the National Institute of Standards and Technology (NIST) to lead the development of a voluntary framework to address and reduce cyber risks, the agencies and stakeholders involved have been exploring whether to tie the February 2014 Framework for Improving Critical Infrastructure Cybersecurity (the NIST Framework) to incentives such as cyberliability insurance. For example, in a Report to the President on Cybersecurity Incentives, the Treasury Department suggested that “[c]yber insurance can promote adoption of stronger security measures” because, among other reasons, “insurers could require policyholders to comply with minimum security standards as a condition of insurance coverage, including adoption of the Framework.”

The Treasury Department held a public meeting on November 6 that included a discussion of developments in the market for cyberliability insurance and the NIST Framework.
Continue Reading As Federal and State Agencies Warn of Increased Cyber Threats, Insurance Incentives for Compliance with NIST Cybersecurity Framework May Be on the Horizon