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April 25, 2024
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April 23, 2024
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April 22, 2024
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The California Supreme Court, on March 26, 2008, granted State Farm's petition for review of Village Northridge Homeowners Association v. State Farm Fire and Casualty Co., No. B188718 (Cal.App. Dist.2 12/17/2007). The Court of Appeals decision is not authority for any proposition and will not be so until the California Supreme Court rules.

I can only hope that the Supreme Court agreed to review the case because of the problems put forth in the article I wrote at http://www.zalma.com/FRAUDULENT-RELEASE.htm that was written before the Supreme Court Agreed to review. Since, the fraud alleged was that State Farm failed to advise the proper limits available to the insured, the suit seems ridiculous on its face. The insured received – in the normal practice of insurance companies – a copy of the policy. How could it be deceived by its insurer about the limits of its policy printed on the form in its possession?

If the plaintiff Association, probably with legal advice, signed a general release of all claims, known and unknown, The insurer should be able to have the peace for which it paid. If this case stands insurers who settled with their insureds with a general release may not ever be able to close their books on the claim.

A first party property insurer may not require a general release from an insured when paying a claim because the payment is one of contractual indemnity where the amount is certain. At most the insurer is entitled to a proof of loss or a receipt acknowledging receipt of payment. The only reason for a general release between a first party property insurer and its insured, is when the amount of loss is in dispute and a compromise is entered into between the insured and the insurer. When there is such a dispute additional consideration is paid the insured for the signed release that protects the insurer from litigation and allows it to buy its peace. The insurer, in accordance with the requirements of the California Fair Claims Settlement Practices Regulations, explains to the insured the effect of signing a release.

Forgetting about the Law of Unintended Consequences, the California Court of Appeal, allowed an insured to force a trial on a claim that the insurer fraudulently induced the insured to sign a release. In so doing it allowed the insured to keep the money it was paid and take the matter to trial on its allegations of fraud in the inducement of the release. This decision in Village Northridge Homeowners Association v. State Farm Fire and Casualty Co., No. B188718 (Cal.App. Dist.2 12/17/2007), will, if allowed to stand, bring about multiple lawsuits where dissatisfied insureds need merely allege fraud in the inducement to force the reopening of closed property claims where they signed a release because they were paid consideration greater than the amount owed by an insurer. The cost of defending such suits, whether meritless or not, will increase the cost all insurance buyers in California pay.

The California Supreme Court should maintain the sanctity of settlements or every case brought must be taken to trial.