Litigation
Jul. 20, 2002
Panel Makes Exception to Don't-Tell Rule
LOS ANGELES - Jurors can be told that a defendant has liability insurance, if the policy is an integral part of the case, a state appellate court said Wednesday.
In a published decision, the 2nd District Court of Appeal said the evidence rule against telling a jury about a defendant's insurance can be bent if the insurance is a central topic in the litigation. The court also ruled that the insurance company can be listed as a co-defendant. Royal v. Ranger, 2002 DJDAR 7998 (Cal. App. 2nd Dist. July 16, 2002).
"My understanding was that this is an important decision," said Ilona Gordon of Marrone Robinson Frederick & Foster, counsel for Royal Surplus Lines Insurance Co., plaintiff in the suit.
The don't-tell rule is aimed at preventing jurors from voting extra damages because they know it will come out of the insurance company's deep pockets.
The court's ruling carving out an exception stems from another suit brought in 1998 against the owner of a Santa Monica apartment building by a group of tenants who claimed that the dust, noise and length of building renovations were a nuisance intended to drive them out so the owner could raise the rents on the rent-controlled apartments. The tenants sued for illegal eviction, breach of warranty of habitability, negligence and emotional distress. The property owner, 1915 Ocean Front Walk, settled the suit for $446,000.
The property owner and its insurance company, Royal, sued the seven subcontractors it had hired to do the construction work and their insurance companies. The owner claimed that the subcontractors had agreed in advance to provide a defense for owners if the work ran into trouble.
Ultimate Construction, a subcontractor that did some framing on the building, and its insurance company, Ranger Insurance, successfully asked Los Angeles Superior Court Judge Lara Parnell to be dismissed as defendants, saying they were improperly joined together in the same suit.
Reversing Parnell, the appellate court found that Royal's suit against a construction company's insurance carrier, Ranger Insurance, was an exception.
In the 14-page opinion, the court said that Ranger had not been improperly joined with Ultimate and sent the pair of companies back to court to face the breach of contract suit.
"We conclude that although there might be some prejudice to Ultimate [the construction company] if Ranger remains in the action, there is also some possible prejudice to Ocean [the property owners] if Ranger does not. Most of the issues alleged against Ultimate and Ranger concern coverage issues, and the answers to those issues lie in interpretation of the Ranger policy and Agreement and are inextricably intertwined," Judge Norvell F. Woods Jr. wrote.
"The message I think the court is trying to send is there should not be a hard and fast rule that insurers and insureds should not be joined in the same action, period," said George Yaron, who represented Ranger.
Yaron warned, however, that the court's decision jeopardized his client's ability to get an unprejudiced jury. Royal could sue Ranger separately after the other litigation ends, he said. Yaron said he planned to recommend that Ranger ask for Supreme Court review of the decision.
"I do think it sets up a troublesome potential precedent that can lead to some rather disturbing attempts at improper joinder of insureds with their insurer," Yaron said.
Gordon said that the rule against introducing information about a defendant's insurance policy usually applies to cases like car accident injury suits. Cases like Royal's suit against Ultimate and Ranger, she said, were an exception because they turn on the terms of the insurance policy.
"The indication we got just by the justices' comments was that this was an issue that should have been addressed that needs to be addressed and hasn't been in any of the cases," Gordon said.
Royal also is appealing the dismissal of another contractor and its insurance company from the suit, who like Ranger and Ultimate were dismissed because of a claim of misjoinder. That appeal is pending before the same appellate court division.
"We're going to look into trying to get the court to acknowledge its decision," Gordon said.
Katherine Gaidos
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