Bremer Whyte Brown & O'Meara

Case Facts:      Axis Surplus Insurance Company and Glencoe Insurance Ltd. provided general liability insurance (Glencoe’s policy was a Wrap policy) to Pacifica Pointe L.P. Pacifica was sued in a construction defect suit and tendered claims to both Axis and Glencoe, both of which had SIRs on their respective polcies. Axis agreed to defend Pacifica subject to a reservation of rights. Glencoe declined the tender, asserting the $250k policy SIR provision in their reservation of rights letter and asking for evidence of satisfaction of this amount.  The case eventually settled with Axis paying $750k and Pacifica paying $250,000, which Glencoe was informed of.  Glencoe was advised in advance of the $1 mil. demand and responded a day prior to the demand lapsing that they lacked enough information to warrant contributing to the settlement and also indicated they didn’t feel the sum was for “covered” damages.  Axis then sued Glencoe for declaratory relief and contribution and was awarded a 60/40 split of the money it had paid against Glencoe

Appellate Issues:  Did the facts presented support Axis’s claim for equitable contribution against Glencoe despite the Glencoe policy SIR provision.      The two sub-issues presented by Glencoe in their argument were (1) did Axis have to prove the insured’s $250k payment toward the settlement was for “covered” damages and (2) was it an abuse of discretion to apportion the loss 60/40 rather than 50/50?  The Court said no to both.

Discussion:      Equitable contribution between carriers is based in equity and not contract. 

By standing on the sidelines and doing nothing until after their insured paid the $250k SIR, Glencoe waived its right to litigate whether the settlement payment was for “covered” damages.  That payment becomes “presumptive evidence” of the insured’s liability ad Glencoe was in no position to overcome that.  Axis was therefore not required to prove the SIR payment was for any “covered” losses.

Glencoe was correct to argue their duty to defend was triggered only after the SIR was paid.  However, as to Axis’s suit for indemnity contribution, Glencoe knew of this suit from day one and had been monitoring its progression all along.  For Glencoe to be able to stand by and use the SIR as a defense to the contribution would promote injustice against a co-carrier.  To resolve this, the Court created a limited exception to the normal rules where they held Glencoe responsible for their apportioned share of the indemnity.

As for the argument that Axis had to prove the settlement payments were for “covered” losses, the Court decline to accept that position.  Rather, the trigger was determined to be the potential for coverage and not a final determination of coverage.

Glencoe’s main support for its position it was only required to pay 50% of the Axis indemnity contribution was based on the policy provision about “other insurance”.  Those kinds of provisions typically say a carrier will share with other carriers equally.  The Court declined to adopt Glencoe’s argument that everything related to the case had to be slit between Axis and Glencoe equally.  Rather, it held that many factors can be taken into account, such as time on risk, nature of underlying claim, the carrier’s relationship with their insured, the actual policy language and other relevant factors as equity dictates.  Without too much discussion, the Court held the Trial Court didn’t do anything outside the bounds of reason in its allocation process and upheld it.

Practice Pointer: Make sure you are keeping all client carriers well and timely informed of the litigation, its progression, any and all settlement opportunities and the like and press them for their participation whenever you can. You may find more insurance available than might have been initially thought.

If you have further questions, please contact Ray Meyer at rmeyer@bremerandwhyte.comor (949) 221-1000.

How far will the California Supreme Court's seminal decision in Howell v. Hamilton Meats (2011) 52 Cal. 4th 541 extend to reduce excessive plaintiff demands and awards?  It might not just be insurance contracts that mandate a reduction, what about a personal injury lien, or uninsured patients that negotiate a discount?  There's more to come from this key decision.

In August of 2011, the California Supreme Court moved closer to clarifying an issue long plaguing the filed of personal injury law in California - to what extent can an injured plaintiff present and recover full medical "bills," even when those "bills" were resolved for less than the full amount?  The California Supreme Court in Howell v. Hamilton Meats & Provisions, Inc. expressly ruled that where a medical provider has accepted, as full payment, pursuant to a preexisting contract, an amount less than as stated in the provider's bills, an injured plaintiff may only recover that reduced amount.  (Howell, supra, 52 Cal. 4th at 548; See Also - Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, 609 [where hospital had agreed with plaintiff's health plan to accept discounted amounts as payment in full, plaintiff owed hospital nothing beyond those discounted payments]; Hanif v. Housing Authority (1988) 200 Cal. App. 3d 635, 641 [plaintiff may recover as economic damages no more than the reasonable value of the medical services received and is not entitled to recover the reasonable value if his or her actual loss was less].)

The Howell case dealt specifically with a common issue - patient/plaintiff Rebecca Howell received medical treatment following an automobile accident.  In short - the "bills" for Ms. Howell's treatment were far greater than what her private insurance (PacifiCare) actually paid pursuant to its agreement with the hospital, coupled with the fact that the hospital "wrote off" additional charges.  In all, the amounts actually "paid" were $130,286.90 less than the amounts "billed" by the hospital.  Accordingly, though plaintiff Howell prevailed in her case at trial, the court reduced her award by the $130,286.90 that was "billed" but never actually "paid."  The Supreme Court upheld the reduction.  (Howell, supra, 52 Cal. 4th at 550.)

The Supreme Court in Howell noted the simple truth in this country - that virtually no one pays the full medical "bills" as listed on the hospitals' final invoice or "charge master" (the hospital's master rate sheet).  Rather, "so many patients, insured, uninsured, and recipients under government health care programs, pay discounted rates" to the point where medical bills have been called insincere.  (Id. at 561; Citing Reinhardt, The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy (2006) 25 Health Affairs 57, 62.)  Much like the neighborhood rug center that always seems to have a "going out of business sale," hospital bills are virtually always slashed down dramatically for final payments.  No one pays "full price."  This is especially true in an insurance context, where "Medical providers that agree to accept discounted payments by managed care organizations or other health insurers as full payment for a patient's care do so not as a gift to the patient or insurer, but for commercial reasons and as a result of negotiations."   (Howell, supra, 52 Cal. 4th at 558.) 

Simply put, this is the law of supply and demand - an insurance company will say to a hospital that it will allow its insureds to treat with the hospital, in exchange, the hospital will give the insurance company discounts on the services (often dramatic discounts).  It is a mutually beneficial financial arrangement; not something a hospital or insurance company does out of altruism (these are for-profit business after all, and even those few remaining non-profit hospitals have to make money to keep the lights on). 

With this key clarification by the Supreme Court in mind, it seems that many other types of medical payment arrangements would likewise fit into this pattern.  Most obvious would be the ever-present "personal injury lien agreement," whereby a medical provider agrees with the patient/plaintiff and/or the personal injury lawyer to perform treatment for no upfront costs, but agrees to a recovery once a case is resolved.  This is not done out of altruism (for then the treatment would be free), rather, this is done as a mutually beneficial business agreement, just like the insurance agreements discussed in Howell.  Perhaps this lien is pre-negotiated, perhaps not.  Perhaps the medical provider will inflate the "bills" for purpose of the litigation, perhaps not.  Perhaps the medical provider has hundreds of personal injury cases with the same lawyer, perhaps not.  Either way, this type of arrangement seems squarely analogous to an insurance agreement like that in Howell given the medical provider is making a financial decision to accept a negotiated payment, less than the full bill, in exchange for the business, in the exact same fashion as the providers do with insurance companies. 

In practicality, a medical provider questioned on this issue will likely contend that the plaintiff/patient is responsible for the whole bill, regardless of the lien.  However, that was Ms. Howell's argument too - that irrespective of the insurance agreement, she was fully responsible for the full payment when she signed patient agreements with the hospital.  The Supreme Court rejected that contention, noting that the insurance agreements essentially overruled her patient agreements via the hospital's acceptance of the insurance money.  (Howell, supra, 52 Cal. 4th at 557.) 

Certainly the facts of each case will dictate if this issue is worth pursuit, and certainly plaintiffs' attorneys and medical providers will be cautious as to the details of the arrangements (especially what they might disclose).  Some information may, or may not, be produced in discovery.  Plaintiffs' attorney's will unlikely voluntarily disclose the information, and the medical providers might keep separate files on these issues to avoid production in standard medical record subpoenas.  Some may even contend the information is "attorney-client privilege."  However, with the right discovery requests, and the right questions asked at depositions, much of the information should be discoverable, and it is certainly relevant. 

This issue will surely be addressed by the appellate courts shortly as this firm's litigation defense attorneys and other capable defense counsel continue to refute inflated damage claims and seek the best possible resolution for their clients.

On October 11, 2011, the California Court of Appeal, Second Appellate District, published the case of Western Heritage Insurance Company v. Superior Court (2011 DJDAR 15131)

In this case, Western Heritage provided a defense to its insured, a commercial provider of home healthcare services, in an action for damages arising out of an automobile accident.  The insured’s employee, in the course and scope of her employment, drove in an allegedly negligent manner, and plaintiff’s decedent and passenger were injured.  Other claims were made as well. Western Heritage provided a defense to its insured and its employee driver, under a reservation of rights.

During the litigation, the defendant driver refused to provide discovery responses and to appear for deposition, despite court orders to do so.  As it turned out, the defense counsel retained by Western Heritage for the driver answered the complaint against the driver, but never was in communication with her.  The plaintiff moved to strike the driver’s answer, which was granted.  A default was then entered against the driver.  Western Heritage moved to intervene, which was granted.  However, the trial court ruled that Western Heritage could only litigate the issue of damages, not liability.  The trial court reasoned that Western Heritage “stepped into the shoes” of its insured, and since the driver was in default, Western Heritage was stuck with a finding of liability.  This appeal ensued.

The Court of Appeal reversed the trial court, thus permitting Western Heritage to litigate all issues, including liability.  The Court rejected the notion that an insurer is bound by the procedural issues that befall their insured when the insurer intervenes.  But the Court of Appeal went further.  The Court of Appeal held that the carrier is permitted to intervene and litigate all issues, whether or not the default against its insured has been vacated.

This ruling is critical.  Carriers oftentimes are presented with claims after their insured has been defaulted, and plaintiff attorneys are quick to resist setting the default aside in order to keep strategic advantage.  No more.  Now carriers are free to simply intervene when confronted with troublesome plaintiff lawyers, and they are permitted to litigate all issues, including liability and damages.

The California Supreme Court issued its decision in a seminal case:  Howell v. Hamilton Meats.  The Howell case and the related appellate decisions discussed what was the “reasonable value of medical services” when private insurance has paid for part of the treatment and written off part of the bill.  The big question was whether the Plaintiff could recover the full bill, including the written off sum.  In Howell, the billed medical specials were over $180,000, but private insurance had written off $130,000 of that amount. Thus, the amount Plaintiff actually “incurred” for the treatment was about $50,000.  So, you can see that this can be a very, very big issue.

The California Supreme Court upheld the principals states in Hanif v. Housing Authority, (1988) 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco, (2001) 93 Cal.App.4th 298 and found that the amount that a medical provider agrees to write off of its bill pursuant to an agreement with an insurance company is not damages and thus not recoverable in a tort action.  The Court stated:

We hold, therefore, that an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial.

This is because “Plaintiff cannot meaningfully be said ever to have incurred the full charges” when some portion of the bill is written off.  Howell, at 13.  Further, the Court found that the medical provider agrees in advance to bill a certain price under an insurance plan, and it is this price, and not the greatly inflated one on the bill, that is the provider’s actual price for his services.  Howell, at 17.  The Court also noted that:

With so much variation, making any broad generalization about the relationship between the value or cost of medical services and the amounts providers bill for them—other than that the relationship is not always a close one—would be perilous.

In the past, the defense would bring a motion post verdict under Hanif to reduce the medical specials to the amount that the medical providers accepted from the insurance carriers in full payment of their services.  The thinking behind this being a post trial function was that the jury should base the award for general damages based on the full amount charged for the medical services.  The California Supreme Court has now made the evidence of what was accepted as full payment and what amounts were written off ADMISSIBLE in the trial itself.  The Court stated:

It follows from our holding that when a medical care provider has, by agreement with the plaintiff‘s private health insurer, accepted as full payment for the plaintiff‘s care an amount less than the provider‘s full bill, evidence of that amount is relevant to prove the plaintiff‘s damages for past medical expenses and, assuming it satisfies other rules of evidence, is admissible at trial. Evidence that such payments were made in whole or in part by an insurer remains, however, generally inadmissible under the evidentiary aspect of the collateral source rule.  Howell, at 29.

The Court also left open the issue of whether agreements between the medical providers and the Plaintiff’s medical insurer would be admissible with respect to the amount for future medical treatment.  Howell, at 29.

Orange County, (along with our entire nation), is facing unprecedented times. Hardest hit by these difficult times is the area of family law, and in particular divorce. At least for the foreseeable future, the economy and financial instability will be the driving forces in the area of California divorce law.  With this in mind, family law practitioners must appropriately prepare and counsel their clients from the outset, to assist them in making decisions that minimize the impact of the current financial and economic conditions. Divorce lawyers must also think creatively to find solutions to problems and issues that divorcing couples face.  Smart case management and early identification of financial difficulties can lead to satisfied clients even in the most difficult of economies and personal upheaval.

A major financial concern for parties seeking a divorce today involves the family residence.  Often the family residence must be sold during a divorce, because neither party can afford to maintain the home individually.  Traditionally, the parties then share the profits of the sale.  However, due to the economic crisis, many divorcing parties have homes with negative equity - where the mortgage exceeds the current market value of the home.  If neither party can continue to maintain the family residence, the parties must either sell, or allow the property to fall into foreclosure.  Either way, if the family residence is the main asset of the family, the parties are often left with only debt to divide.

One option, where the marital residence has negative value, is for the spouses to agree to defer the sale of the marital home for some period of time, in the hope that the value will increase before the agreed sale date.  Under this scenario, the spouses must agree on such things as which spouse will reside in the residence during this period, and who will cover the cost of the mortgage and other expenses associated with the asset, such as property taxes and maintenance.  With some creative planning and good counsel, these issues can usually be worked out as long as there is a measure of cooperation between the parties.  This can provide a solution that hopefully will work for the financial benefit of both parties in the long run.  However, it should be noted that this option is only available as part of a stipulated resolution; the Court does not have the power to make such an order absent the agreement of the parties. If the court is required to make the decision, the options are to order the property sold, or to award the asset to one or other of the spouses, and then make appropriate orders regarding equalization payments, credit and reimbursements.

The financial problems that divorcing couples face in today’s economy are also exacerbated by the fact that many families in recent years have lived, and continue to live, beyond their means.  Attempting to support two households with the same amount of income is difficult enough where the parties live within their means.  Doing so becomes impossible where the parties have expenses exceeding income.  Prudent financial planning requires cutting expenses to the bare minimum, and sometimes, dipping into savings or even borrowing funds in the short term to make ends meet while the divorce is being finalized.  Sometimes bankruptcy is an option of last resort.

Regardless of the negative value of the family residence and other assets, all community assets must be sold or allocated to one of the spouses.  Generally, each party is awarded an equal portion of the community debt, while balancing the award of community assets.  Sometimes a spouse is willing to take on more of the community debt if that spouse is awarded a greater share of the community assets.  This is one creative approach to dispense with negative assets; however, it is not always a feasible solution.  This approach only works when there are sufficient assets to balance out the significant debt the parties share.

In today's economy, parties are often not only in a negative financial situation with respect to the family residence, but in totality.  This can be seen when there is a lack of savings and investments, or when the debt significantly outweighs the parties’ investments.  In some circumstances, one party may have the good fortune of having separate property assets (assets acquired before marriage, after separation, or by gift or inheritance).  Sometimes the spouse with separate assets may be willing to accept an unequal division of the community assets and debts to assist the other spouse in getting back on his or her feet. Achieving this type of arrangement, which is not necessarily mandated by the law, requires the parties’ agreement and cooperation. When a divorce resolves by agreement, the parties can, for the most part, agree to anything; when the case is decided by the Court, the bench officer’s hands are tied by the constraints of the law, and there is less room for creativity and novel approaches. The bench officer must seek to do what the law mandates, not what may be morally correct.

Many parties seeking a divorce today have difficulty paying attorney's fees.  Recently, we are seeing a trend where not only the "out-spouse" (usually the spouse who stayed home to care for the children) is unable to afford counsel, the "in-spouse" or breadwinner is struggling to pay his or her attorney's fees too, not to mention contributing to the attorney's fees of the other spouse.  In these cases, the parties are faced with the prospect of handling the divorce themselves (in pro per) or accumulating more debt.  For many clients the latter is the only option, due to the complex issues that arise in most dissolutions.  It is likely that if the parties attempt to represent themselves and the issues are not handled appropriately, they will ultimately spend more on attorney's fees to fix the mistakes they created while representing themselves. 

Another common situation seen today involves spouses who are forced to continue residing together through the dissolution process, due to a lack of financial resources.  This may lead to a higher conflict rate, because the parties do not have the freedom to emotionally, mentally and physically separate from their soon-to-be ex-spouse.  If parties are faced with this issue, it is strongly recommended they seek counseling to help deal with the emotional upheaval.  In these situations, it is even more imperative that the cases get on track toward settlement so the parties can plan for their future.  If they have an understanding of what assets, debts, and support they are to receive, they can begin to move on with their lives, and thus begin the healing process.

When parties are provided with effective counsel early in the divorce process, they can make appropriate financial planning decisions to help get their case on the path toward settlement, thereby limiting the issues that must be litigated.  With early planning and creative lawyering, most divorcing spouses will be able to navigate through the dissolution process in the most cost effective and least stressful manner possible.

By:  Lisa Cappelluti, Gene Witkin, and Keith Bremer with a special acknowledgment to Sara Igdari for her collaboration on this article.

I.          Introduction

            Cost sharing agreements are, more than ever, a topic of discussion and focus in the overall strategy for cases involving construction litigation.  New economic pressures, evolving insurance products and recent legal decisions have played a role in creating the necessity for cost sharing agreements, as well as adding complications for their use and enforcement.  Typical uses for cost sharing agreements include: shared experts, use of evidence and documents, and the implementation of fee sharing arrangements under additional insured obligations and/or contractual fee obligations.  Wrap insurance carriers have also begun using cost sharing agreements to address firm retention for similarly grouped parties within the wrap and their counsel-such as general contractor representation and subcontractor representation.

            Understanding the advantages and pitfalls of different types of costs sharing agreements is thus vital to both insurers and insureds involved in the defense of construction defect litigation.

II.        Concepts and Challenges for Cost Sharing Agreements Used in Construction Cases

            Each of the types of cost sharing agreements has benefits and various purposes, with the primary objective being cost savings.  These include:

            The cost sharing agreement for joint retention of experts is a great resource to assist with sharing of information and resources for retention of expert witnesses amongst multiple parties on issues that are common to the entire group.  Specifically, in many cases the use of forensic experts to analyze financial issues such as construction delays, lost profit as well as property valuation are typically areas facing all parties on one side of a case in any given litigation.  The services of such experts can be extraordinarily helpful to deal with high costs and coordination for the review and analysis of large quantities of information.  Retention of one set of experts to analyze these issues is greatly beneficial to minimize duplication of efforts as well as to avoid inconsistent testimony at trial which might undermine co-defendants or co-plaintiffs.  Additionally, testimony by multiple experts on the exact same issues may be limited by a judge on the basis of redundancy and also may have a negative effect on a jury if multiple experts take the stand with similar views on identical issues.  It is critical to the success of these agreements that all parties share the same goals and objectives.

            Use of a joint retention agreement for medical and/or scientific experts is useful to address issues involving toxic tort or other medical claims which may arise in the context of construction litigation.  While all parties will frequently have different liability experts in construction cases relating to the means and methods of work performed as well as the standard of care for that work, it is typical for the defendants to want to share the cost and knowledge of the individual scientific and medical experts on these issues as would the plaintiffs.  It is also unlikely that any court would allow multiple independent medical examinations of a given plaintiff for 10-15 different parties and clearly undesirable to have, for example, 14 or 15 medical doctors testify as to the allergy claims of one specific plaintiff in trial.

            The challenges of these agreements include ensuring that all information obtained is protected by the typical privileges that would apply absent such agreement, and that the cost sharing arrangement is practical and manageable for all parties.  It is is difficult to enforce these agreements during the course of a case.  If a written agreement is in place amongst the parties, a motion to enforce cost sharing agreements can be made during the course of litigation or trial and, depending upon the judge, will likely be ruled upon relatively quickly to ensure cooperation amongst the parties and fair apportionment of fees to parties due to recalcitrant payments by other parties in the case.   However, even then, there are practical difficulties involved given conflicting objectives between insurers or between insureds of the same insurance company.  (See Section V, below.)

            Another concern for joint retention of experts is an agreement in advance that settlement or dismissal of any of the parties to the agreement will automatically result in reallocation of the fees to the remaining parties so that the agreement does not become void in the event that one of the parties is dismissed from the case.  Additionally, the agreement between the parties needs to clarify that any party settling out of a case or being dismissed from a case cannot turn over the information it obtained through the joint retention agreement to any other party in the case which is not a party to that agreement.  It is also a good idea for practical purposes to ensure that the expert witness being retained bill each party separately if at all possible or, alternatively,  that a lead counsel is appointed to administer the billing for the expert so that prompt attention is paid to any delays or problems before testimony is needed or reports must be produced.  This poses particular problems in the case of wrap insurance.  (See Section IV, below.)

            Parties to a joint retention agreement should be aware of issues of confidentiality, privileges, and attorney work product when communicating with one another.  California recognizes the common interest doctrine.  Under the common interest doctrine, an attorney can disclose work product to an attorney representing a separate client without waiving the attorney work product privilege if (1) the disclosure relates to a common interest of the attorneys’ respective clients; (2) the disclosing attorney has a reasonable expectation that the other attorney will preserve confidentiality; and (3) the disclosure is reasonably necessary for the accomplishment of the purpose for which the disclosing attorney was consulted.  Oxy Resources California LLC v. The Superior Court, 115 Cal. App.4th 874, 891, 9 Cal.Rptr.3d 621, 636 (2004).  The common interest doctrine only protects work product relating to the defendants’ common interests as long as elements two and three are satisfied.  Attorneys to joint agreements should be aware that disclosure of work product relating to adverse interests results in a waiver of the attorney work product privilege.  Meza v. H. Muehlstein & Co., 176 Cal. App. 4th 969, 982, 98 Cal.Rptr.3d 422, 432 (2009).  Other states use different standards including joint defense privilege or common interest privilege, both of which are distinct from the common interest doctrine.  Oxy Resources California LLC v. The Superior Court, 115 Cal. App.4th 874, 888-889, 9 Cal.Rptr.3d 621, 633-635 (2004).

In Meza v. H. Muehlstein & Co., defendants entered into a Joint Defense Cost Sharing Agreement which provided that the defendants would create a common defense fund to share joint defense costs for their common defense.  176 Cal. App.4th 969, 98 Cal.Rptr.3d 422 (2009).  The common defense fees and costs included fees for depositions of percipient and expert witnesses, costs of deposition transcripts, expert preparation, site inspection costs for experts, and medical examination.  Defendants moved to disqualify plaintiffs’ law firm for hiring an attorney who had previously represented another defendant and was part of the Joint Defense Cost Sharing Agreement.  The Court upheld the trial court’s ruling disqualifying the plaintiffs’ firm because under the common interest doctrine defense attorneys were protected to disclose attorney work product to one another regarding their respective clients’ common interests.

Cost sharing agreements have also become widely used in construction litigation cases to administer the allocations and payments for additional insured carriers which are jointly defending the interests of one of the parties in the case.  Such agreements can be challenging from an accounting standpoint, and many law firms have chosen to utilize the services of a cost administrator to handle the accounting and billing in such cases.  However, this raises some of the trickiest issues affecting cost sharing agreements which involve verification to those in the cost sharing agreement that all parties that should be participating are participating either through providing a chart of insurance information showing the acceptance or declination of all additional insured tenders.  Additionally, many insurance carriers are also focused on the recovery of fees under the contractual indemnity obligation and collection of fees as owed under such provision as confirmed in the holding of Crawford v. Weather Shield Mfg., Inc., 44 Cal.4th 541, 79 Cal.Rptr.3d 721 (2008).   (See Section III, below.)

III.       Legal Issues to Consider for Use of Cost Sharing Agreements

            The use of cost sharing agreements is, as explained, quite varied in the legal practice especially as applied in construction cases.  Some agreements are created through use of an actual written agreement as exemplified by the sample agreement for retention of experts and is fully executed by all parties.  The typical terms of such agreement are clear and consideration is provided through the payment by the parties.  Other agreements, such as those for additional insured obligations are typically not formalized in a fully executed agreement by all carriers, clients, and counsel but utilized under general understanding of billing and use of agreed upon principles for cost sharing.

            There are no California statutes on point regarding joint retention agreements or cost sharing agreements currently.  However, there are statutes regarding the indemnification of parties which are discussed in detail in the Crawford case.

            A joint defense agreement is an agreement to share information and/or resources between codefendants sharing a common interest.  The Courts have applied contract theories to cost sharing agreements and joint defense agreements.  All elements of a valid contract must be present: offer, acceptance, and consideration.  California courts have held that joint defense agreements are not void as against public policy and are enforceable.  Oxy Resources California LLC v. The Superior Court, 115 Cal. App.4th 874, 9 Cal.Rptr.3d 621 (2004); City of Oxnardv. Twin City Fire Insurance Company, 37 Cal.App.4th 1072, 44 Cal. Rptr. 2d 177 (1995).  The courts uniformly void joint defense agreements that bargain to manipulate or suppress testimony or nonprivileged documents because they are against public policy. Williamson v. Superior Court 21 Cal.3d 829, 148 Cal.Rptr. 39 (1978); Smith v. Superior Court 41 Cal.App.4th 1014, 49 Cal. Rptr.2d 20 (1996).

            The discussion of cost sharing agreements also brings up various issues about apportionment and fairness.  California courts have expressly declined to formulate definitive rules for apportioning defense costs among insurers and have required that costs be apportioned according to the equitable considerations in the particular case.  CNA Cas. v. Seaboard Sur. Co. 176 Cal.App.3d 598, 222 Cal.Rptr. 276 (1986).   California courts agree that equitable considerations affecting apportioning defense costs among insurers include such considerations as the particular policies of insurance, the policy periods, the natures of the claim made, and the relation of the insured to the insurers. Signals Companies, Inc. v. Harbor Ins. Co. 27 Cal.3d 359, 165 Cal.Rptr. 799 (1980).  California courts have generally espoused the proposition that there is no specific formula to be used for cost sharing agreements and that equitable consideration will always be utilized by a court in determining allocation between insurers.  See, Centennial Ins. Co. v. United States Fire Ins. Co., 88 Cal.App.4th 105, 105 Cal.Rptr.2d 559 (2001).  There are specific cases that have addressed the apportionment of fees and costs such as those espoused in Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr.2d 366 (1997), as between insurer and insured.  However, there will likely be further appeals to address the explicit application of the sharing of fees and costs under contractual indemnity enforcement of a fee obligation similar to that in the Crawford case.

IV.       Cost Sharing Agreements for Wrap Insurance Policies

            Traditional litigation strategies and cost sharing agreements rely upon contractual and additional insurance relationships between the owner, general contractor and subcontractors.  This model typically results in the lack of control over costs between the various parties as each party weighs and determines its own fate through investigation, discovery and experts.

            The general goal of a single OCIP policy is to centralize the risks and costs arising out of the construction project.  The objective is to be able to respond to covered liability claims (such as property damage and bodily injury claims) in a unified fashion, avoiding the necessity to allocate blame among construction participants.  By avoiding the "blame game" and accomplishing a unified defense to handling a lawsuit, the OCIP provides the framework for achieving the reduction of overall costs to all participants and insurers, thus making a traditional cost sharing agreement unnecessary.

            However, when the need arises due to inherent conflict or coverage problems to fracture the OCIP participants, the participants should take every reasonable means possible to coordinate  and share any costs associated with investigation, discovery and experts.  This is most important when dealing with depleting OCIP policies.  Additionally, if possible and at the early stages of case evaluation, participants should bring the claimant into the cost sharing discussion to avoid unnecessary costs of claims.  A good example of this is relocation, mediated scope of repair, and/or life care, all of which typically the parties can agree upon.

V.        Specific Issues Arising from Cost Sharing Agreements

              Three areas of dispute are common in the context of current cost sharing agreements: (1) reporting and administration of a cost sharing arrangement, including dissemination of information, (2) method of allocation, and (3) costs for pursuing recalcitrant participants.

            (1)        There are different views as to how and when to have sharing agreements administered by third party cost administrators.  However, in practice this effort as a whole seems to be efficient since it can be difficult for a specific law firm to handle the accounting of multiple carriers for the legal services, the expert services and other vendor bills associated with such agreements.  Additionally, computer-based mathematical allocations, together with impartiality, are helpful to streamlining the otherwise complicated approval and payment process.  One key for cost sharing agreements is to ensure that reports are regularly provided to the additional insured (AI) carriers or parties in the agreement as well as budgets and any other standard information provided to a client in a case.  A concern is always present when reporting to carriers which are defending subcontractor parties and also providing a defense to the developer or general contractor under an additional insured obligation that communication provided to that carrier through its representative may waive attorney-client privilege or allow the disclosure of information protected by the attorney-client privilege or as work product.  In this regard, it is always prudent to make sure that key communications are protected and counsel are careful about disclosure of sensitive case information.

            (2)        Methods of allocation also remain an area of contention in many cases.  Following the Crawford decision, subcontractor counsel were quick to voice their concern that the case raised more questions than it answered.  Included among these questions are (a) whether a developer or general contractor (collectively, the developer) is entitled to any payment without disclosure of its bills, (b) whether Crawford payments deplete policy aggregate, and if so, (c) whether an insurer could choose to make a Crawford payment rather than an additional insured payment to the detriment of the named insured, and (d) whether a subcontractor whose insurer accepts an additional insured tender is still exposed for a Crawford demand.  On the other side of the argument, developer counsel were quick to respond that the contractual duty to defend cannot now be delayed pending waiver of work product in unredacted invoices or resolution of ultimate issues of allocation, much less on potential conflicts between subcontractors and their insurers.  Of course, the arguments on both sides beg the question of how defense are to be allocated among those agreeing to participate where there are both contractual defense obligations and additional insured defense obligations.

            Even among AI carriers alone, disputes continue between proponents of equal share allocation, time on risk, and other methods of allocation.  See, Centennial Ins. Co. v. United States Fire Ins. Co., supra.  Similar debates continue between the developer and subcontractors as to the nature of the defense obligation triggered by an indemnity agreement.  See, e.g., UDC-Universal Development v. CH2M Hill, 181 Cal.App.4th 10, 103 Cal.Rptr.3rd 684 (2010).  In a somewhat ironic twist, some subcontractor insurers have begun arguing a case that developers had previously argued against them -- Presley Homes, Inc. v. American States Ins. Co., 90 Cal.App.4th 66, 108 Cal.Rptr.2d 715 (2001)(duty to defend an additional insured requires an immediate and entire defense per Buss).  The argument goes that because AI insurers must provide a complete defense, the claim for Crawford fees should not belong to the developer, which has no standing per Bramalea California, Inc. v. Reliable Interiors, Inc., 119 Cal.App.4th 468, 14 Cal.Rptr.3rd 302 (2004).  Again, the developers are quick to reject that argument, countering that in actuality a complete defense is rarely provided, let alone an immediate and complete defense.  The debate goes on.

            (3)        Finally, the question is often raised as to whose burden it is to chase recalcitrant insurers or subcontractors.  Some insurers are often their own “worst enemies” on this issue, taking inconsistent positions between cases.  For example where a single insurer has all or most of the accepting coverage for a case, it may pay developer counsel or developer coverage counsel without objection to aggressively pursue Crawford and/or other AI participation.  Yet in the next case, where that insurer is only funding, say, 10% of the defense, bills for efforts to secure Crawford participation are now reduced or rejected.  Interestingly, and to the frustration of many claims managers, this is more often an issue of contention where the developer has direct insurance – in other words, more often a by-product of intra-carrier dispute than of dispute between insurer and insured.  What remains to be seen is whether these disputes will diminish in light of the recent decision in Interstate Fire and Cas. Ins. Co. v. Cleveland Wrecking Co., 182 Cal.App.4th 23, 105 Cal.Rptr.3d 606 (2010) (insurer’s subrogation rights arising out of insured’s status as indemnitee may survive the granting of a good faith motion in favor of indemnitor).

VI.       Conclusion
            As it is clear from recent cases and rulings in the California courts, we believe that cost sharing agreements will have a larger and larger role in construction cases due to the challenging economic issues facing our clients and insurance carriers as well as the increasing need for efficiency in our cases.  We expect that the case law and statutes will evolve in some of the grayer areas and expect to see the use of such agreements in the pre-litigation repair efforts by builders and their subcontractors.  We are also aware that the needs and practices of our clients will be changing as the statutory obligations are changing regarding indemnification obligations and potentially insurance obligations.  We are sure that cost sharing agreements will continue to be a main focus for all parties in complex litigation and advise those practicing in complex cases to continue to keep themselves apprised of new cases or statutes affecting such agreement.

SO WHAT IS A PATENT DEFECT, ANYWAY?

    The California Court of Appeal has just made this question more difficult to answer in its opinion in Creekside Townhome Owners Association, Inc. v. C. Scott Whitten, (2009) Superior Court Case Number 04AS02481.

    In Creekside, the Homeowner's Association of a townhome development sued a roofer, an inspector and a roofing supplier based on the re-roofing of eleven (11) buildings involving sixty-one (61) units.  The Defendants argued that Creekside failed to file suit prior to the expiration of the four (4) year patent defect statute of limitations (C.C.P. section 337.1).  Defendants brought a Motion for Summary Judgment based on the statute of limitations, arguing that an interrogatory response which referenced a letter sent by one homeowner to the Association's board of directors concerning a water intrusion problem inside one (1) of the unit's bedroom, and reporting several broken roof tiles, evidenced a patent defect condition.  The interrogatory admitted that the letter was discussed in open session at a board meeting.  The Complaint was filed more than four (4) years from the date of the meeting.

    Based on this evidence, the trial court granted Defendants' Motion for Summary Judgment, relying largely on the prior Court of Appeal decision in Landale-Cameron Court, Inc. v. Ahonen, (2007) 155 Cal. App. 4th 1401, wherein another Court of Appeal granted a Motion for Summary Judgment on a similar basis.

    The Court of Appeal reversed the trial court, finding that one (1) reported leak by one (1) of sixty-one (61) homeowners is insufficient to result in a finding that the roof defects were patent and not latent as a matter of law. 

    In finding against the Defendants, the Court considered a declaration filed by an expert for Creekside which stated that there were multiple roof defects which could not have been readily apparent to a lay person.  The Court also noted what it described as a "sharp distinction" between the facts of the instant case, and those in Landale. 

    Specifically, in Landale, the townhome development had eight (8) units, there were roof leaks reported in three (3) of them (including the unit owned by the President of the Association), and roof repairs were attempted.  Basically, the Court of Appeal found the evidence of leaks was more likely to put a Homeowner's Association on notice of the existence of possible construction defects than in the instant case (1 unit leak out of 61 units).

    Finally, the Court stated that finding for Defendants would "force property owner associations across the state to conduct extensive investigations for possible construction defects based on any report of a small problem.  This could prove very expensive for the associations, and would often be futile.  We decline to impose such a burden".

CASE ANALYSIS

    The definition of a patent defect pursuant to C.C.P. section 337.1 is whether the average consumer, during the course of a reasonable inspection, would discover the defect.  Geertz v. Ausonio, (1992) 4 Cal. App. 4th 1363.  While the test is usually a question of fact, it may be determined as a matter of law, such as in Landale.  Other examples include Tomko Woll Group Architects v. Superior Court, (1996) 46 Cal. App. 4th 1326 (cracked concrete causing a person to trip and fall is a patent defect) and Preston v. Goldman, (1986) 42 Cal. 3d 108 (backyard pond built with a one foot wall causing toddler to fall in is a patent defect).

    It is my opinion that the Court in Creekside did not follow the logic in Landale, Tomko and Preston.  In Tomko and Preston, the Court found a patent defect even though there was no formal "inspection".  The alleged defects were visible, and that was enough.  But most interesting is the manner in which the Court of Appeal picked the facts of Landale which supported its opinion, and ignored the rest.
   
    In Landale, virtually all of the complaints at the project concerned leaking roofs.  There was evidence similar to that in the instant case of isolated reports of stairway and deck issues, but the overwhelming number of complaints concerned the roofs.  Yet the court in Landale granted Defendant's Motion for Summary Judgment as to all sources of water intrusion at the complex which concerned Ahonen, who installed the waterproofing, the decks and the roofs.  The Court of Appeal in Landale found that the significant issues pertaining to the roofs put the Association on notice of all potential sources of water intrusion.

    At the oral argument in the Court of Appeal in Landale, this issue was hotly debated amongst counsel and the justices.  I know this because I was there.  Bremer Whyte Brown & O'Meara represented Ahonen and successfully argued that the trial court was justified in granting Summary Judgment as to all waterproofing issues even though the complaints were mainly specific to the roofs.

    I believe that the Court of Appeal in the instant case is confusing actual notice of a defect with whether there is sufficient evidence to warrant an inspection, and whether that inspection would reveal the defect.  Water leaking into a unit is not normal.  Something must have been amiss or the water intrusion would not have happened.  The Association ignored the problem, but then investigated later and, according to the Association's expert, they found "multiple construction defects".

    The burden on the Association to investigate the source of a unit leak would have been minimal.  Yet the Court of Appeal bought the Association's argument that the investigation could involve an "extensive investigation" based on the report of a small problem.

    This case will make obtaining Summary Judgment based on the existence of a patent defect more difficult since the Court of Appeal has blessed the acceptance of declarations from  experts on the issue of whether a defect is patent or latent (thus creating an issue of material fact sufficient to defeat a Motion for Summary Judgment), and creating a blurred line between sufficient inquiry notice (as in Landale) and not enough notice (Creekside).

AN INSURER'S DUTY TO DEFEND - THE NEVADA SUPREME COURT'S OPINION,  AND A LESSON FOR US ALL

    On July 30, 2009, the Nevada Supreme Court issued its opinion in an insurance bad faith lawsuit entitled Allstate Insurance Company v. William Miller, Case Number 49760.  The State of Nevada is an interesting jurisdiction.  Because it has so few published legal opinions, it regularly looks to and evaluates case law in other jurisdictions.  Therefore, the Nevada Supreme Court opinions regularly give a national perspective on issues.  This case is no different.

FACTS OF THE CASE

    The primary issue of the case concerns the obligation of an insurance carrier to inform its insured of the opportunities that exist to settle a claim.

    The case at issue concerned an automobile accident.  William Miller ("Miller") struck and injured Mark Hopkins ("Hopkins").  Miller had an automobile insurance policy with Allstate Insurance Company ("Allstate") with policy limits of $25,000.  It is undisputed that liability was adverse to Miller, and that the reasonable settlement and verdict potential exceeded the $25,000 policy limits.
    Allstate notified Miller that there was potential damages in excess of the policy limits and that he had the right to retain his own counsel at his own expense.  Allstate then, within 13 days of the accident, offered its $25,000 policy limits.  This offer was rejected by Hopkins' then lawyer, Steven Karen.  Thereafter, through new counsel, Hopkins made a $25,000 policy limits demand, but with an important caveat.  There was a substantial medical lien, and the prior attorney's fee lien, and, as a result, the lien holders were required to be named as joint payees on the settlement draft along with plaintiff and his new counsel.  

    Hopkins' counsel objected to the listing of the lien holders on the settlement draft.  Despite the objection, Allstate issued a settlement draft made payable to plaintiff, his new counsel and the lien holders.  This check was rejected by Hopkins.

    Hopkins' counsel then agreed to release Miller from all liability if Allstate would file an interpleader action to determine the rights of Hopkins, the lawyers and the medical provider to the settlement funds, or to interplead the settlement funds to the District Court with the agreement that the lien holders would abide by the District Court's ruling on disbursement.  This offer was rejected by Allstate without discussing the matter in detail with its insured, and then Hopkins filed suit against Miller.

    Several weeks later, Allstate agreed to file the interpleader action.  However, by this time, the settlement proposal had expired, and Hopkins refused to reinstate it.  Hopkins then agreed to release Miller if Miller would stipulate to an excess judgment.  Allstate refused to consent to the proposal.  

    The case proceeded to trial, and Hopkins received a verdict against Miller for $703,619.88.

    Miller then filed a bad faith lawsuit against Allstate, alleging that Allstate had breached the covenant of good faith and fair dealing by failing to inform Miller of the settlement options, that Allstate had the obligation to file the interpleader action, and that Allstate had the obligation to permit Miller to consent to the stipulated excess judgment.  A jury awarded Miller damages against Allstate in the amount of $1,079,784.88 (without being required to identify which theory of the three they were accepting as the trial judge refused to require the jury to answer special interrogatories).  Allstate appealed.

    The Nevada Supreme Court held that Allstate had a duty to fully advise Miller of the settlement options, thus giving Miller the opportunity to make an informed decision, which was one of the bad faith "options" that the jury was provided.  The court rejected the theories that Allstate was required to file the interpleader action or to consent to the stipulated judgment.

DUTY TO DEFEND - THE CARRIER'S DUTY

    The Nevada Supreme Court first discussed the covenant of good faith and fair dealing, noting that the duty is implied in the law, and is not a function of the insurance contract.  The standard is not a contract term, but rather is defined as whether the carrier has an "actual or implied awareness of the absence of a reasonable basis for denying benefits of the insurance policy".

    In the duty to defend context, the insurer has 2 rights, which the court admitted are potentially "conflicting":

        1. The insurer's right to control settlement discussions; and,
        2. The insurer's right to control the litigation against the insured.

    While these rights exist, they create the duty for the carrier to act in good faith during settlement negotiations and during their control of the litigation.  The duty arises upon notice of a claim, and continues through the final resolution of the claim.  As a result, if the insurer fails to adequately inform an insured of a known settlement opportunity, either prior to or during the pendency of litigation, the insurer may have breached the covenant of good faith and fair dealing.

    In the instant case, there was testimony at trial that the claim's professional from Allstate did discuss the settlement proposal, but stated that "Mr. Hopkins' attorney was asking her to do things that they (Allstate) would not do".  Mr. Miller testified that the concept of the "interpleader" was not discussed, nor was he given the option of paying for or initiating the interpleader action himself.  Mr. Miller also testified that he was not given the option of contributing to the settlement on top of the policy limits to get the case settled.

    The Nevada Supreme Court focused heavily on disclosure, and stressed that the carrier has a duty to discuss all phases of the settlement process (presumably all demands and all offers, as well as settlement strategies), that the carrier must advise the insured of potential liability in excess (and presumably, outside of) available coverage, and that the carrier must advise the insured of its ability to contribute to the settlement if the insured desires.

ALLSTATE'S FAILURE TO DISCLOSE WAS THE PROXIMATE CAUSE OF DAMAGE TO ITS INSURED

    In the instant case, the Nevada Supreme Court held that Allstate's recognition of the potential excess liability coupled with the failure to inform its insured of the opportunity for settlement "may have prevented" its insured from obtaining a release.
    At trial, Miller testified that had he been informed of his options, he would have paid the costs of the interpleader (although he testified that he had no idea how much those costs could have been).  Regardless, the Nevada Supreme Court held that even if Miller did not have the financial resources to fund the interpleader action (and, presumably could not have afforded to pay settlement monies out of his own pocket to bridge the gap between a settlement demand and available policy limits), the obligation to notify the insured and give the insured a chance to make an informed decision still rests with the carrier, and opens the carrier up to bad faith liability.  The fact that the lack of information "prevented Miller from considering his available options" was the key fact.

    Therefore, the court held that the failure to advise the insured was the proximate cause of the $703,619.88 judgment.

EVALUATION

    There are numerous cases Nationwide where insurers are held liable for excess verdicts where the carrier does not avail itself of an opportunity to settle a case within policy limits.  Nevada has now taken it to the next level, and held that the failure to even disclose a settlement opportunity where the case cannot be settled within policy limits opens the carrier up to exposure beyond the policy limits.

    This case is a cautionary tale and provides a teachable moment for those who insure and represent insureds.  This case illustrates that the insured has the ultimate say in whether a case settles in that the insured always reserves the right to pay a settlement out of its own pocket, or make any other arrangement to get itself out of harm's way.  And importantly, even if the insured would have had no desire to settle a case because of financial resources or otherwise, the duty to inform the insured of its options continues to exist from the date of notice of claim through the end of the litigation.  The duty exists even though the carrier in the instant case informed the insured of the potential for an excess judgment, advised the insured of his right to independent counsel, and actually paid its limits within 13 days of the accident.
    

In today's world of unemployment and negative home equity, individuals contemplating or currently involved in a divorce are significantly affected.  Many of these individuals are either postponing their dissolutions in the hope of more favorable economic conditions in the future, while others are unable to sell their assets even once Judgment of Dissolution has been entered. 

According to the S&P/Case-Shiller Home Price Index, home values dropped 19.4% in the past year.  As a result, divorcing spouses, already enduring difficult times, must be prepared for the possibility they may be unable to re-finance their home and may be forced to sell their real property in order to buy out the other spouse.  Given the significant decline in home values, many spouses are facing excessive debt compounded by a negative home equity situation.  These spouses may simply decide to stay in the home, and often in the marriage, in an effort to weather the economic storm and await better times.

When dividing the community assets, 401(k) plans and other stock accounts are often used to offset an interest in other assets.  These plans and retirement accounts are now worth significantly less, making it more difficult to separate the assets and equalize the parties.  Many professionals who previously received bonuses based upon a company's profitability are now receiving smaller bonuses or none at all.  This makes the job of dividing up the community estate much more difficult.

Perhaps the most concerning situation a party can face in the midst of divorce is that of unemployment, either with respect to him or herself or with respect to a spouse.  Despite best efforts, it may be impossible to find alternative employment that compensates the party at the same level as the prior employment.  These spouses may then become locked in a heated Court battle, seeking a Court order imputing a salary to one spouse for spousal or child support purposes.  When the Court imputes a salary, it assigns a salary to a party as if they were earning a specific income.  This is based on the theory that the spouse should be able to earn the imputed amount of income should they chose to work.  However, given the current economic conditions, the question for the Court becomes whether or not the unemployed spouse should be "imputed" for the amount of income they could have made prior to the economic crisis, or if they should be imputed based on the current economic climate.  These questions are handled by the Court on a case by case basis.

Despite the bleak prognosis for the economy and employment situation, there are still ways to achieve a favorable outcome during divorce.  The parties should avail themselves of the mediation programs available through the Court.  Most of these programs are available free of charge.  There are also many community mediation programs available.  Spouses who retain attorneys but are still able to communicate should try to reach agreement with their spouse on as many controverter issues as possible.  Many attorneys will adopt a collaborative approach in working with the opposing party and counsel to reach a mediated settlement.  It is incumbent upon the parties to recognize that the less time and money spent on small or relatively unimportant issues, the more affordable the dissolution will be.  Parties should also be reasonable.  Ultimately the Court will view these parties more favorably if there are unresolved issues that have to be tried. 

In some cases, spouses may be able to delay their divorce and stay in the home, perhaps living on separate floors.  While this may not be the first choice, it has worked for couples in the past, and may be beneficial to the children.  When lawyers are involved, parties should be wise and circumspect with respect to the time they spend with their attorneys.  Parties should limit their communications with attorneys to legal issues and seek assistance from a therapist or counselor with respect to emotional problems. 

Another option for reducing attorney fees is to seek specific and isolated services from an attorney.  Many attorneys will agree to handle only isolated aspects of dissolution, such as only child visitation and custody.  This leaves the party to represent himself or herself with respect to the remainder of the issues in the case, either on their own or with the assistance of the Court's self help services.  Much of the paperwork can be completed by the party with the Court's help.

Particularly in the current economic climate, a party should properly interview his or her attorney before proceeding.  The party should ensure that the attorney is a good fit, and that client and attorney are like-minded with respect to settlement and negotiation.

With careful analysis and planning, and with good legal representation, an individual  may effectively navigate divorce and the related processes despite the current economic conditions.

California Assembly Bill 2738, which amends and add to CC 2782, was created to reform problems associated with defense obligations under residential construction contracts, and to reform the huge exposures under poorly designed wrap insurance programs that threaten trade contractors' solvency.

On September 29, 2008, California Governor Arnold Schwarzeneggar signed California Assembly Bill 2738 into law to become effective January 1, 2009.

Assembly Bill 2738 will likely reduce the defense costs of lawsuits filed against trade contractors in construction defect claims. It also will ensure that builder-controlled insurance policies are fair and equitable and include adequate limits to protect trade contractors and consumers in construction defect situations. The highlights of this new legislation are as follows:

*  For Wrap Commencing Construction after January 1, 2009 for Residential Construction (a limited number of these items apply to public works projects)

*  Disclosure Prior to Signing Contract of the calculation of any credit or compensation for premium required by the subcontractor

*  Indemnification for sole negligence is unenforceable

*  Indemnification for reimbursement of insurance or defense costs for claims unrelated to your scope of work is unenforceable

*  Sub Contractor owes no defense or indemnity obligation unless the GC provides written tender of the claim including all documentation that they have regarding the claim.  This must includes the subs scope of work at which point the sub can 1) defend the claim with counsel of his choice 2) share in defense and judgment of the claim with proper allocation to the parties involved in the loss including the GC. There are time limits and penalties for not complying for both the Sub and GC

*  Contract must disclose the insurance premium credit or compensation required by the subcontractor – failure to do so results in the participant not being legally bound by the bid

*  Contract must disclose the policy limits

*  Contract must disclose the scope of policy coverage

*  Contract must disclose the policy term

*  Contract must disclose basis upon which the deductible or occurrence is triggered by the insurance carrier

*  Contract must disclose if the policy covers more than one work of improvement, the number of units, if any, indicated on the application for the insurance policy

*  Contract must disclose a good faith estimate of the amount of available limits remaining under the policy as of the date indicated in the disclosure from the insurer.

*  Upon written request of the participant a copy of the policy must be given.  If the policy is not available the binder including coverage terms can be provided.  The participant can show this to their broker and legal counsel but no other 3rd parties.  Their broker and legal counsel cannot show this to another 3rd party.

In a recent celebrity divorce splashed across the headlines, Christie Brinkley fought for her divorce proceedings to be made public, against the wishes of her soon-to-be ex-husband and her childrens’ counsel. Why would anyone want their dirty laundry aired out across national headlines? Maybe its anger, revenge, or simply a feeling of having nothing to hide, but at Bremer Whyte Brown & O’Meara, we considered how a similar case in California would be treated.

The California version of the Brinkley case would look very different from the New York case. California is a no-fault divorce state whereas New York recognizes divorces based on fault-based criteria. Because of the need to find fault to allow the granting of a divorce in New York, Brinkley’s divorce case was plagued with accusations of Peter Cook’s infidelity, obsession with internet porn, and secret supplying of a mistress with thousands of dollars. In addition, the child custody evaluator’s report was widely quoted by both attorneys in the media.

In California, none of these topics would be admissible unless they happened right in front of the children. The legislature in California has declared that public policy of the state is to ensure that each child's health, safety, and welfare be the court's primary concern. Specifically, in Marriage of Wellman, 104 CA3d 992, 164 CR 148, the court held that a Party's sexual conduct is not relevant in awarding custody unless there is compelling evidence that it has a significant bearing on the child's welfare. Additionally, the 730 evaluator is to file his written confidential report with the court which must be served on the parties or their attorneys. It is so strictly protected, it cannot be photocopied.

It seems that celebrities in California struggle for the very privacy Brinkley fought off during her divorce. Judges in California have been requested to seal alimony agreements, child custody and support agreements and close court rooms. Most recently, Britney Spears, a regular in the media spotlight, requested her alimony agreement and child custody agreement sealed, and all hearings were held in a closed courtroom.

There is a scenario that has become, unfortunately, very familiar. A subcontractor wants a particular job and signs a subcontract with a developer. The subcontract language provides that the sub will pay the developer's legal fees and costs in defending the case against the plaintiff homeowners. The homeowners sue the developer for various defects they claim have resulted from the construction of their residences. The developer sues the subcontractors and in doing so, they can support their defense.

As a subcontractor, what can you do to protect yourself? One idea that has surfaced is wrap insurance policies. In a wrap up program, a developer acquires an insurance policy that insures claims against the developer and the included subcontractors on the projects covered by the policy. Subcontractors are included in the programs by making premium payments to the developer as part of their contracts. The idea of wrap policies was a good one as they are meant to resolve many of the insurance and defense issues associated with construction defect litigation, including presenting a sole source of funding and a unified defense in a lawsuit.

However, as things often times do not translate well from paper to reality, it is not a surprise that there are issues with the wrap policies. In practice, most wrap up programs are neither well designed nor well funded. What we mean by this is wrap policies do not necessarily reject plaintiffs or developers who bring everyone involved in the construction of their homes into a lawsuit in an effort to obtain mega participation of counsel and insurance carriers. Or also, policy funds are not enough to cover the costs to repair defects in the homes, so lines between policy limits, excess exposure, responsibility for excess finding, responsibility for extra contractual findings, responsibility for deductible (e.g. more money from the insured) become fuddled.

Fortunately, recent legislation has recognized some issues with the wrap policies and will attempt to correct the issues we face. Assembly Bill 2738, which is making its way through the government now, will make changes under the current system to contracts entered into after January 1, 2009 by supporting subcontractors' rights in several ways. It will provide that subcontractor indemnification provisions are enforceable only to the extent that the defect claims made are caused by the negligence or fault of the subcontractor. The subcontractors who are tendered for the defense will be allowed to choose lawyers, if they wish to exercise the option, and maintain “control” over their defense. Indemnity requirements in subcontracts will not be applicable when there is a wrap policy in effect. Finally, the wrap owners will have to inform the subcontractor about compensation amounts and terms the policy at the time of bidding.

As stated above, ideas on paper do not necessarily translate well to practice. However, this legislation was created as a response to how the involved parties were carrying out the wrap policies. Enactment and practice will dictate the effect, but it seems the new legislations will result in subcontractors having more power and less risk when construction defect claims arise.

On July 25, 2008, the California Court of Appeal for the Fourth Appellate District issued its long-awaited decision in the Brinker v. Superior Court case.  The decision in that case has potentially significant ramifications for the way in which employers provide meal breaks to their non-exempt employees.  Employers must provide meal periods by making them available, but need not ensure that they are taken.  Employers, however, cannot impede, discourage or dissuade employees from taking meal periods.

Employers are not required to provide a meal period for every five consecutive hours worked.  There is no "rolling five-hour" meal period requirement.  Instead, employers simply must make a thirty minute meal period available to an employee who is permitted to work more than five hours per day (certain exceptions apply).

Rest periods must be authorized and permitted every four hours or major fraction thereof.  The rest period is based on the total hours worked daily and each period must be at least ten consecutive minutes for each four hour work period.  A rest period is not required for employees who total daily work time is less than three and one-half hours.  During this time, the employer has an affirmative duty to ensure the employee is relieved of all work related duties.  If an employer fails to give a proper rest break, the employee can recover one hour of pay at their regular rate of pay for each day they are not provided a proper rest break.  As long as employers make rest periods available to employees and strive, where practicable, to schedule them in the middle of the first four-hour work period, employers are in compliance with the Wage Orders.

One of the most important cases to be decided in the construction defect industry over the last year is Kirk Crawford v. Weather Shield Mfg., Inc.,  Case No. S141541. The Court ruled that, pursuant to the subcontract agreement at issue, Weather Shield had an immediate contractual obligation to defend, from the outset, any lawsuit against the developer-builder, J.M. Peters, Inc., alleging damage or loss arising from Weather Shield's role in constructing a residential project, even if Weather Shield was later absolved of liability.

The Court expressly disapproved Regan Roofing Co. v. Superior Court, 24 Cal.App.4th 425, 29 Cal.Rptr.2d 413 (Cal.App. 4 Dist. 1994), insofar as it concluded that, under the agreements at issue therein, the subcontractors' duties to provide a defense arose only if the subcontractors themselves were determined to be liable for indemnity.

In other words, even if the subcontractor is found to NOT to be negligent in the underlying  matter, the subcontractor  would still owe a duty to defend the developer to the express indemnity provision in the contract.”

Expect that developers' counsel will continue to issue letters to the subcontractors, demanding an immediate defense if the subcontracts contains language which provide for a defense.  The subcontractors must read the subcontract and determine the extent that the subcontract language provides for a defense upon the developer's request. The questions is, "How much defense is owed by the subcontractor?" Does the subcontractor owe a complete defense or only defense to the extent that the litigation is about the subcontractor's work? The subcontractor whose work was only one percent of the overall claim would then argue that he would only be responsible for one percent of the developer's defense cost.