1. Ninth Circuit Enforces ‘Consent To Settle’ Provisions

Vizio, Inc. v. Arch Ins. Co., No. 22-55755, 2023 WL 7123784 (9th Cir. Oct. 30, 2023).

Takeaway: Courts enforce “consent to settle” provisions strictly, even when incorporated into

a follow-form excess policy, and even when the breach results in a significant loss of coverage

(here, a $17 million settlement of a privacy class action against Vizio). Vizio’s efforts to justify

its breach failed. In particular, this decision supports an argument that the California claim

regulation requiring a decision in 40 days does not usually apply to third-party claims because

the regulation requires a “proof of claim” (generally a first-party condition).

The Ninth Circuit recently upheld the dismissal of Vizio’s coverage claims to recover a $17 million

settlement of privacy class actions alleging that Vizio secretly tracked what people were watching

on their smart TVs. The Court found that Vizio breached the ‘consent to settle’ provisions

incorporated into the excess follow-form policy, and that Vizio’s arguments to justify the breach

failed. Two of Vizio’s failed arguments are noteworthy.

First, Vizio argued that the notice provisions of the excess policy conflicted with the ‘consent to

settle’ provisions of the primary policy, such that the excess policy would not follow form. The

court found that the notice “provision merely ensures that Vizio would notify Arch of its claims,”

which is not a conflict. Therefore, the excess Arch policy incorporated the ‘consent to settle’

provisions.

Second, the court rejected Vizio’s argument that its breach was excused by Arch’s failure to

respond to Vizio’s February 2016 notice. The court disagreed that a California claim handling

regulation, Section 2695.7(b), requires an insurer to accept or deny a claim within 40 days of

tender. The court interpreted this regulation to apply only when an insurer receives a “proof of

claim,” which is generally a first party claim requirement. Vizio’s February 2016 email was merely

a “notice of claim.” This gives carriers an argument that the 40-day requirement does not

generally apply to third-party claims. Rather, a “proof of claim” is required, which is defined as

evidence of a claim that “reasonably supports the magnitude or the amount of the claimed loss.”

Carriers should therefore look out for a claimant’s use of the “proof of claim” terminology in an

effort to trigger the 40-day requirement.

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Serving up your favorite coverage litigation updates from the California bar, best enjoyed with coffee or tea.

2. California Court Narrows Statutory Exclusion of Willful Conduct

City of Whittier v. Everest National, _ Cal.Rptr.3d _, 2023 WL 8441663 (Cal. App. Dec. 6, 2023).

Takeaway: The statutory exclusion for willful acts under Insurance Code § 533 may only apply

to inherently harmful conduct, such as sexual molestation, as opposed to statutory violations

that are premised on intentional acts but not inherently harmful. This case involved an illegal

employment practice, but the Court of Appeal found that the policyholder may have not

intended to violate the law, rendering the act not “willful” under § 533. This precedent could

extend coverage to other statutory claims, such as the violation of habitability, copyright, or

privacy laws. Similarly, an act of defamation could avoid the exclusion if not inherently harmful.

On December 6, 2023, the California Appellate Court issued a published decision limiting

California’s statutory exclusion of coverage for willful conduct. The City of Whittier sought

indemnification for settlement of a lawsuit alleging retaliation under Labor Code section 1102.5.

Police officers alleged retaliatory discipline when they objected to a purported illegal citation

and arrest quota system. The trial court concluded the police officers' complaint necessarily

involved willful conduct, thus barring indemnification under section 533.

The Appellate Court determined that the trial court erred because the insured might be found

liable “despite making concerted and reasonable efforts to avoid violating the law.” This

addresses a complicated question under § 533 – is it the act that must be willful or the damage?

The court distinguishes sexual molestation claims to find that willful acts only lose coverage if

(a) the act is inherently harmful or (b) the damage is known to be highly probable.

3. The California Commissioner’s Power To Dictate Coverage

Ruling on Verified Petition for Writ of Mandate, California Fair Plan Association v. Ricardo Lara,

No. 21STCV38060, (Cal. Super. Ct., Nov. 27, 2023).

Takeaway: The California Insurance Commissioner asserted expanded power to dictate

coverage to the state’s last resort homeowner’s carrier, which was upheld by a trial court. This

touches ongoing tensions with carriers in California over the Commissioner’s refusal to grant

rate increases and the resulting exodus of insurance.

Judge Curtis A. Kin upheld the Insurance Commissioner’s assertion of power to dictate coverage

to the FAIR Plan: specifically mandating that the last resort homeowner’s coverage include

premises liability and workers’ compensation. The FAIR Plan is required to provide “basic property

insurance,” which includes “other insurance coverages as may be added with respect to that

property . . . with the approval of the commissioner or by the commissioner . . . .” Although

premises liability and workers’ compensation coverage would not normally be considered

property insurance, the Court elected to give deference to the Commissioner. Thisruling granting

deference to the Commissioner to mandate expansive insurance terms comes in the wake of

many insurers exiting the state over frustrations with high costs and regulatory hurdles in

California.

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