Grammar and the Law: Use the Restrictive Comma; It Adds Clarity: Fail to Use It, And Pay the Price


Many of us had an English teacher that taught us that adding the final comma to a list was not necessary so we didn’t need to do it. And if you writing or reading for pleasure, and dollars and cents are not determined but how your sentence or clause within your sentence are interpreted, by all means drop the restrictive comma.

But if you are an a lawyer or other person charged with the responsibility that people will be making significant financial decisions based on the clarity of your writing, add the restrictive comma.

The “restrictive comma” is the one that ends a list. In the law, we often see lists insurance policies regarding the kinds of things that are and are not covered. In corporations, whether for profit or not for profit, such as homeowner associations, they are governing documents discussing what the corporation will and will not do, and what is and is not allowed. Often we see lists of this kind in employment agreements.

As a matter of practice, including the final comma in a list never takes away clarity. Failing to add it however, creates ambiguity or at least creates greater ambiguity than what might otherwise exist. For example, suppose there is a tax that says the following fruits are taxed at 1 cent per pound: Bananas, apples, limes and pineapples. Are pineapples and limes weighed together for the tax or are they weighed separately? If the list read, “Bananas, applies, limes, and pineapples” there is no ambiguity that limes and pineapples are weighed and taxed separately.

Another example. Suppose an homeowners association provides that the following is prohibited: Tents, outbuildings, gazebos and other structures of a temporary character cannot be used as residential dwellings on lots within the Association. Does this mean tents are allowed but not if used as a residential dwelling, or does it mean tents are prohibited? Were the list to read, “Tents, outbuildings, gazebos, and other structures of a temporary character cannot be used as residential dwellings….” it is clear that tents and outbuildings and gazebos, if a “structure of a temporary character,” cannot be used for residential purposes. There still exists the ambiguity whether the drafter intended to prohibit tents, outbuildings, gazebos, and other structures of a temporary character altogether and most especially if used for a residential purposes.

Because of these kinds of ambiguities, careful legal drafting requires use of the restrictive comma. Its also a good idea to have several people read something before its finalized to get a feel on how other may interpret what the drafter is drafting. Also, often it is a good idea to have an express statement of the drafter’s intent to guide the interpretation, since some documents are not interpreted until years after the the document was drafted. Fortunately, most state and federal legislative history is fairly accessible, often for free. But private documents, such corporate, business, employment, and insurance documents often lack a readily accessible source of the drafter’s intent.

The point? If you are in the position of making a list, add the final comma before the final “and” or “or.” And, if you have to take a position in litigation, be aware that the omission of the restrictive comma may support or defeat your argument. Generally, courts will follow the rules of grammar in construing a sentence unless the judge’s “common sense” tells him or her that the drafter intended but omitted the restrictive comma.

The Best Defense Is A Good Setoff


If you got it, of course. Today, I’m talking about the common law doctrine of setoff as it applies in California litigation. Contractual offsets are a different topic for another day, such as offsetting worker’s compensation payments from uninsured motorist benefits. That’s not what I’m talking about here, though it is a related concept.

In California, setoff is a doctrine often alleged in an Answer but not actually litigated. The doctrine of setoff (sometimes also called “offset”) applies when the party being sued has or had a claim against the plaintiff/claimant that may be used to reduce the amount of money damages that the plaintiff can recover. Setoff was an equitable concept that the California Legislature codified in Code of Civil Procedure, § 431.70.

Setoff does not apply in every case. A good investigation of the facts, and especially a thorough interview with the insured defendant may disclose the existence of this defense. It applies where cross-claims for money exist or used to exist. Because it is an equitable doctrine, it has unusual characteristics. For example, even if the statute of limitations ran on the defendant’s claim against the plaintiff years before the plaintiff filed suit, the defendant can use this defense to reduce or eliminate the damages the plaintiff is presently seeking.

Take the following example, plaintiff and defendant had a “take or pay” contract for the purchase of motor fuel. In these agreements, the buyer agrees that it will take and pay the seller a minimum of X dollars per month, even if the buyer does not take any fuel. The buyer fails to pay the minimum contract price of $10,000 a month for six months. Six years later, the plaintiff buyer sues the seller for defamation, since the seller told anyone who would listen where a terrible business plaintiff ran. The seller/defendant is insured under a CGL providing a defense for defamation claims.

The statute of limitations for breach of written contract in California is 4 years. The defendant seller cannot sue to recover money from the plaintiff; however, § 431.70 allows that defendant/insured to reduce plaintiff’s recovery by $60,000.

So, if plaintiff tries its case, and obtains a verdict for $50,000, the judgment will be for the defendant/insured, and the insured would be able to recover its litigation costs as “the prevailing party.” Pretty cool, right?

To raise the defense properly, it’s not going to be enough under California or federal law to just plead “Offset” or “Setoff.” When attacked, courts generally hold the defendant has to plead all the facts necessary to support the cause of action or claim that the setoff is based on. If the claim is not time-barred, this can be done by filing a cross-complaint and incorporating the cross-complaint into the setoff defense. Note however that cross-complaints for relief other than indemnity trouble insurance defense counsel (and  the insurers who hire them) because defense counsel defends insureds; they are not hired to prosecute affirmative claims the plaintiff, generally speaking.

The limit of the defense is that the setoff can only be used defensively–especially if the defendant’s claim or cause of action that the setoff is based is time-barred. One other important limitation. If this is the second lawsuit between the plaintiff and the defendant, and the defendant either raised or “should have raised” the claim in prior litigation, the defendant cannot get a second bite at the apple by raising setoff for a claim that was or should have been litigated between the same parties in earlier litigation.

Another useful way that setoff may be used is in defense of a judgment. Let’s say that a judgment against an insured exists. The insured finds someone who the judgment creditor has wronged in the past, and buys that third party’s causes of action against the judgment creditor. The judgment debtor can bring a new action for declaratory relief seeking to setoff the judgment debt by the value of the assigned claims–even if those claims would be time-barrred. This can be helpful to private businesses suffering judgments and in cases where there is a blend of insured and uninsured claims where a well-funded insured may be actively participating in its defense.

Sometimes the best defense is a good offset.

Employee’s Negligence Trumps Owner of Premise’s Knowledge of Dangerous Condition Creating Triable Issues of Fact


In premise liability cases, a tried and true defense to a customer’s slip and fall action was to argue that the spillage or other dangerous condition happened before the business knew about the spill or other condition that caused or contributed to the customer’s injury.

Recently, a California appellate reversed summary judgment in favor of a defendant jewelry store when the plaintiff established an inference that the business owner or its employees may have caused cleaning fluid to have been spilled on a backroom floor that was only accessible to plaintiff to the defendant store owner’s employees. The appellate court found that when the employee can show sufficient facts to create a reasonable inference that the store owner or the store’s employees caused the dangerous condition, notice of the condition is presumed, thereby preventing summary judgment.

The appellate court admitted that the facts were unusual in that the typical case, the customer has no idea who caused the spill and cannot prove that it is more reasonable to believe the store’s employees, as opposed to another customer, caused the dangerous condition.

Why the case certainly does not mark the end of the defense of lack of notice, it does make defending premises liability claims more difficult where the plaintiff can show either that the store or a store employee caused the dangerous condition or can at least show that a reasonable inference could be drawn that a store employee, as opposed to a third party, caused the dangerous condition.

And just because summary judgment was defeated does not necessarily mean that the trier of fact will find for the plaintiff. If the store is able to show at trial that more than just store employees had access to area the where plaintiff and had access to the cleaning fluid plaintiff slipped on, the store owner may still be able to defense the claim on the merits.

But the case does serve as a reminder of the importance of a thorough fact investigation into the accident. The more people that had access to the area where the fluid was or who could have spilled the fluid, the less likely a court would find a “reasonable” inference existed that a store employee caused the dangerous condition. And, in cases where it is clear that the employee caused the spill that the customer slipped on, the claim will likely be decided on agency or “respondeat superior” rather than on notice. There, the issue will be how reasonable and how quick the store’s response was to clean up the spill and whether there were adequate warnings, as these defenses will decide the case over a claim that the store lacked sufficient notice of the dangerous condition. In sum, employees can be more dangerous than you think to the defense of slip and fall claims.

Is California Bringing Back Statutory Bad Faith Claims? California Supreme Court Revisits Moradi-Shalal


By John Armstrong

California experimented with allowing third-party claimants to sue insurers for insurance bad faith in the landmark case of Royal Globe. The decision was decried by the Insurance Bar and commentators throughout the United States. They found that, among other problems, it created uncertainty when an insurer would be liable for such “third party” bad faith, i.e., before the insured was determined liable to the claimant? 

Royal Globe authorized a private right action to recover damages for an insurer’s violation of the California Department of Insurance’s insurance regulations, codified in the California Code of Regulations. The portion of these regulations dealing with good faith claims handling were based on California Insurance Code, § 790 et seq., styled the “Unfair Insurances Practices Act” or “UIPA.” Based on these statutes, the California Insurance Commissioner adopted a series of regulations styled “good faith claims practices,” which the California Insurance Commissioner may still enforce against insurers issuing policies to California insureds.

Years after Royal Globe, the California Supreme Court expressly overruled Royal Globe in Moradi–Shalal v. Fireman’s Fund Insurance Companies (1988) 46 Cal.3d 287, at 292, by holding that that there was no private right of action to recover damages for violations of the California Department of Insurance’s regulations.

Subsequent California appellate court decisions thereafter repeatedly held that there was no private right action for violations of the California Department of Insurance’s insurance regulations. Appellate courts expansively applied this bar to even first party claims though factually Royal Globe and Moradi-Shalal involved third party claims. And, though not considered in Moradi-Shalal, appellate courts have barred claims under California’s broad Unfair Competition Law (“UCL”), codified at Business & Professions Code, § 1700, et seq., when a private right of action was based on Insurance Commissioner regulations.

In the last few years, however, courts have carefully examined the holding in Moradi-Shalal and determined that it did not outright bar claims against insurers based on regulatory violations. Similarly, the Ninth Circuit has also limited the holding of Moradi-Shalal as barring only private damage claims against insurer for regulatory violations.

To summarize the problem, though appellate courts have applied Moradi-Shalal to first party cases, the California Supreme Court never has decided this. Also, Moradi-Shalal did not decide or discuss whether a plaintiff has a private right of action for restitution or injunctive relief under California’s Unfair Competition Law (“UCL”) [Business and Professions Code, § 17200 et seq.]. In the last few years, the Supreme Court has applied § 17200 broadly because the remedies are more limited, that is the return or money or property that defendant obtained from the plaintiff and injunctive relief versus compensation from the harm sustained from an alleged regulatory violation. Finally, Moradi-Shalal never discussed whether a private right of action under California’s UCL exists for insurance regulatory violations other than claims handling or for express statutory violations of the California Insurance Code.

Presently, two cases are pending before the California Supreme Court addressing these issues raised above; namely, Zhang v. Superior Court (2009) and Hughes vs. Progressive (2011). Both opinions are presently unpublished and not citable as authority until the California Supreme Court decides these cases. 

In Hughes, the appellate court found that the plaintiff stated a private cause of action under the UCL for alleged statutory violations of Insurance Code, § 758.5, which prohibits insureds from being required to use a specific auto repair facility designated by the insurer and from suggesting the use of a specified auto repair facility without telling the insured in writing that the insured may select another repair facility. Though § 758.5 was not part of the UIPA, it authorizes the Insurance Commissions to enforce its provisions along with the UIPA.

In Zhang, the appellate court allowed allowed a UCL false advertising claim against an insurer for allegedly falsely representing that the insurer would properly and promptly pay claims though it allegedly had no intention of doing so.

The above cases are important to insurers doing business in California in that these companion decisions are likely to change the landscape for what insurers may be sued for in California. There is a good chance for a modest expansion of Moradi-Shalal—especially since the California Legislature narrowed the standing requirements for UCL claimants to only those persons directly affected, and because of the limited remedies a UCL plaintiff may recover.

Restitution would ordinarily be a return of the insured’s premium for successful fraudulent advertising plaintiff under Zhang. A Hughes plaintiff, may be entitled to recover whatever the insured pay to the company designated/recommended repair facility and possibly the return of the insured’s insurance premiums. These remedies are far less drastic than the Royal Globe remedy allowing claims for money damages, including all detriment and losses the insured suffered, plus emotional distress, and other damages. On the other hand, Supreme Court would be within its rights to take an expansive of Moradi-Shalal and eliminate claims based on statutory or regulatory violations, other than common law claims for insurance bad faith.

The lesson? It’s a safer and better practice to do what the California Insurance Code requires and to follow the the California Insurance Commissioner’s regulations. It’s also a good idea to have insurer-related advertising run by experienced lawyers familiar with insurance bad faith to avoid potential problems. Regardless whether a “separate” cause of action exists, experienced insurance bad faith counsel will use the Insurance Code and Insurance Regulations to establish the floor of good faith insurer conduct in insurance bad faith actions, making an ounce of prevention worth a pound of cure in this evolving area of law.

Changes to Federal Diversity Law for Liability Insurance Companies Raises Federal Jurisdictional Problems for the Insurance Bar


By John Armstrong

Congress made significant changes to the laws allowing the removal of actions filed in local state courts to be removed to federal court. Two kinds of cases have historically been allowed to proceed in federal court—even if filed and served in state courts, namely, “subject matter jurisdiction” where a federal law or policy is the gravamen of the claim and “diversity jurisdiction” where the dispute involves more than $75,000 and all of the plaintiffs and all of the defendants are residents of different states.

Congress changed what are known as the “removal statutes,” namely Title 28 U.S.C. § 1332 and § 1441. Section 1332 makes every corporate insurer, as a matter of law, a “citizen” of the state in which the insured resides, as well as the state of the insurer’s corporate incorporation, and where the insurer’s principal place of business. This is important because insurers can no longer bring declaratory relief actions against their insurers in federal court, and because insurers can no longer remove insurance bad faith actions to federal courts

Some states, like Louisiana,  allow a tort victim to sue the defendant’s liability insurer directly. In response to a large number of federal suits filed in the federal courts in Louisiana, Congress expanded the definition of “citizenship” for insurance companies. Liability Insurance companies are now a resident of the state in which they are incorporated, where their principal place of business [the corporation’s “nerve center” where its chief executive operations take place], and are deemed a resident of the same state that their insureds reside in if:

1) There is a “direct action” against a liability insurer; and

2) The insured is not joined as a party-defendant.

See the problem? “Direct action” is not defined. If the insured sues the insurance company directly for declaratory relief or for insurance bad faith, does this mean that the insurer can no longer remove to federal court? If the insurer cross-complains against the insured, is the insured now “joined” as a party-defendant? If an insurer sues in federal court first, can the insured move to dismiss for lack of diversity? The answer? Only time will tell. The answer will depend on how each court faced with these issues decides it.

A purely literal interpretation seems to preclude an insurer from removing the insured’s declaratory relief or insurance bad faith action since the insured is not a “party-defendant” at the time of the attempted removal, and the action would be a direct against an insurance company. Though the Congressional history shows that Congress intended to limit victims from suing insurers in federal court, the plain language in the Act does not contain such a limitation.

Oddly, if the insurer sues the insured first, the insured may not be able to dismiss for lack of diversity jurisdiction, since a literal interpretation of the Act only makes a liability insurer a citizen of the same state as its insured when the insured is “not joined as a party-defendant.”

If the changes to the Act are read in view of the Congressional history, a court should interpret the Act as defeating diversity jurisdiction only in actions where state law allows a victim to sue the wrongdoer’s insurer directly, which interpretation is consistent with the text’s reference to applying where insureds are not joined as party-defendants.

It’s worth noting that changes don’t apply to property insurers, i.e., “non-liability” insurers. Or do they? What if a property policy provides a defense or indemnity for a certain kind of liability claim? Would the court look to the type of policy issued or to the insuring provision? Again, only time will tell. Now, the insurance bar is free to argue either way until we get some judicial interpretation of these new changes.

Changes to Federal Diversity Law for Liability Insurance Companies Raises Federal Jurisdictional Problems for the Insurance Bar


By John Armstrong

Congress made significant changes to the laws allowing the removal of actions filed in local state courts to be removed to federal court. Two kinds of cases have historically been allowed to proceed in federal court—even if filed and served in state courts, namely, “subject matter jurisdiction” where a federal law or policy is the gravamen of the claim and “diversity jurisdiction” where the dispute involves more than $75,000 and all of the plaintiffs and all of the defendants are residents of different states.

Congress changed what are known as the “removal statutes,” namely Title 28 U.S.C. § 1332 and § 1441. Section 1332 makes every corporate insurer, as a matter of law, a “citizen” of the state in which the insured resides, as well as the state of the insurer’s corporate incorporation, and where the insurer’s principal place of business. This is important because insurers can no longer bring declaratory relief actions against their insurers in federal court, and because insurers can no longer remove insurance bad faith actions to federal courts

Some states, like Louisiana,  allow a tort victim to sue the defendant’s liability insurer directly. In response to a large number of federal suits filed in the federal courts in Louisiana, Congress expanded the definition of “citizenship” for insurance companies. Liability Insurance companies are now a resident of the state in which they are incorporated, where their principal place of business [the corporation’s “nerve center” where its chief executive operations take place], and are deemed a resident of the same state that their insureds reside in if:

1) There is a “direct action” against a liability insurer; and

2) The insured is not joined as a party-defendant.

See the problem? “Direct action” is not defined. If the insured sues the insurance company directly for declaratory relief or for insurance bad faith, does this mean that the insurer can no longer remove to federal court? If the insurer cross-complains against the insured, is the insured now “joined” as a party-defendant? If an insurer sues in federal court first, can the insured move to dismiss for lack of diversity? The answer? Only time will tell. The answer will depend on how each court faced with these issues decides it.

A purely literal interpretation seems to preclude an insurer from removing the insured’s declaratory relief or insurance bad faith action since the insured is not a “party-defendant” at the time of the attempted removal, and the action would be a direct against an insurance company. Though the Congressional history shows that Congress intended to limit victims from suing insurers in federal court, the plain language in the Act does not contain such a limitation.

Oddly, if the insurer sues the insured first, the insured may not be able to dismiss for lack of diversity jurisdiction, since a literal interpretation of the Act only makes a liability insurer a citizen of the same state as its insured when the insured is “not joined as a party-defendant.”

If the changes to the Act are read in view of the Congressional history, a court should interpret the Act as defeating diversity jurisdiction only in actions where state law allows a victim to sue the wrongdoer’s insurer directly, which interpretation is consistent with the text’s reference to applying where insureds are not joined as party-defendants.

It’s worth noting that changes don’t apply to property insurers, i.e., “non-liability” insurers. Or do they? What if a property policy provides a defense or indemnity for a certain kind of liability claim? Would the court look to the type of policy issued or to the insuring provision? Again, only time will tell. Now, the insurance bar is free to argue either way until we get some judicial interpretation of these new changes.

Dealing With Difficult People-Kill ‘Em With Kindness Is The Best Policy—No Matter How Much It Hurts You


By John Armstrong

Being in business means dealing with people. Being involved in insurance claims means dealing with difficult people. Normal, good, decent people tend to be difficult or impossible when under stress. You and your company may be wrongly accused of all kinds of things. You may be threatened with lawsuits or worse. What to do? Turn the other cheek! Don’t given into the temptation to write about how you really feel to the claimant, in your claimants, or to anyone. If you really feel the need to do, write what you want to say on waste paper, and then shred your personal thoughts. While valid, they have no place in the insured’s claim file. 

Why? Well… I began my career defending insurance bad faith property cases arising out of the 1994 Northridge Earthquake. The most difficult cases to defend where ones in which the claims adjuster wrote “less than nice things” about the insured.The lawyers armed with the claims correspondence all obtained recoveries and better ones, than where there wasn’t this added “bad fact” in defending the claim. (Of course only this information was only produced after valiant efforts were made to protect the claims file.) The sad part was that if you carefully reviewed the entire file, you understood where the adjuster was coming from. But all that anyone on a jury would be focused on would be the “bad”  comments by the adjuster.

From a juror’s perspective, the claims adjuster, as the insurer’s agent, has all the cards in his or her favor. The claimant has suffered a loss, and may be out thousands of dollars or more and may even have sustained permanent bodily injury from the event giving rise to the claim. In contrast, the claims adjuster’s stress “only” has to deal with fairly adjusting the loss. No doubt the adjuster must deal with the verbal and written threats by the insured and insured’s attorney. No doubt it its unpleasant. But adjusters are held to a higher level. They are expected to be professional at all time because, after all, claims is their profession. 

To illustrate what I’m writing about, I once had to defend a claimant who was also an attorney. I had to copy all of correspondence to the handling and senior claims adjuster and coverage counsel since there was such a high chance of the insured suing for bad faith. But not matter how nasty the multiple tomes of single-spaced emails I received every day, I always responded with kindness and professionalism. The result? We got the claim resolved, and when it was all over, the insured sent me a very nice and unexpected thank you. That is a much happier result than trying to defend your words once your company is sued for bad faith. The moral? Kill ‘em with kindness. It’ll save you and your employer countless headaches and plenty of $$$ in the long run.

Digg This