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Ericksen Arbuthnot’s Appellate Practice Group Achieves Significant Victory for Insurer

Ericksen Arbuthnot’s Appellate Practice Group prevailed in a recently published appellate decision. On January 27, 2015, California’s Third Appellate District affirmed the trial court’s order granting a motion to quash service of summons in favor of Ericksen Arbuthnot’s client, Auto-Owners Insurance Company. (Greenwell v. Auto-Owners Insurance Company (2015) 233 Cal.App.4th 783 (“Greenwell”).)

This case arose from property damage to the plaintiff’s commercial apartment building in Little Rock, Arkansas. The plaintiff, a California resident, insured the property through Auto-Owners, a Michigan based insurance company. Two fires occurred in the building on consecutive days. The plaintiff claimed two losses under the policy but Auto-Owners determined that the policy covered only one loss.

The dissatisfied plaintiff sued Auto-Owners in California state court, asserting claims for breach of contract and bad faith. Auto-Owners filed a motion to quash service of summons, contending that it did not have the required “minimum contacts” with California to establish jurisdiction in that state. The trial court granted Auto-Owners’ motion to quash and the plaintiff appealed.

In its appellate decision, the Third Appellate District agreed with the trial court that California lacked jurisdiction over Auto-Owners, noting:

The company is not licensed or authorized to do business in California, does not write policies for California, does not have any agents licensed to sell its policies in California, does not solicit business, does not have any employees in California, does not pay taxes in California, and has never commenced any legal action in California. So far as the record shows, Auto-Owners’ only contact with California is that it agreed to write a commercial policy for [plaintiff] who does business in Tracy [California] . . .

(Greenwell, supra, 233 Cal.App.4th at 884.) In view of Auto-Owners’ minimal contacts with California, the Court of Appeal affirmed the trial court’s order granting Auto-Owners’ motion to quash for lack of jurisdiction.

The Greenwell decision leaves open the possibility that out-of-state insurers may be subject to jurisdiction in California if there is a closer connection between the insured’s loss and California. For example, the Court hypothesizes that, if an out-of-state insurer insured real property in California and the loss occurred to that property, the insurer could be subject to California jurisdiction. (Greenwell, supra, 233 Cal.App.4th at 881-882.) Each case will be decided on its own facts.

It should also be noted that while the Greenwell Court reached the correct result, its reasoning is unprecedented. Prior to this decision, the Courts analyzing this issue have used a different jurisdictional analysis, and held that out-of-state insurers did not “purposefully avail” themselves of California’s benefits by entering into insurance contracts with California residents. (E.g., Malone v. Equitas Reinsurance (2000) 84 Cal.App.4th 1430, 14401441; Elkman v. National States Ins. Co. (2009) 173 Cal.App.4th 1305, 1318; Tri-West Ins. Servs. Inc. v. Seguros Monterrey Aetna, S.A. (2000) 78 Cal.App.4th 672, 678-680.)

The Greenwell Court did not address these cases, but it did find that the “purposeful availment” prong was met, while also finding that there was an insufficient nexus between the plaintiff’s loss and California. (Greenwell, supra, 233 Cal.App.4th at 882-883.) Regardless of its reasoning, the Greenwell Court reached the same conclusion.

Plaintiff Greenwell has vowed to seek review before the California Supreme Court. We will report any further developments as they occur.

Greg Mase and William Jenkins handled the case in the trial court and Court of Appeal. Mr. Mase can be reached at 415.887.8071 or ; Mr. Jenkins can be reached at 916.483.5181 or .