Declaratory Relief Was Neither Unnecessary Nor Improper Under The Circumstances
Post 5423
Posted on August 13, 2026 by Barry Zalma
In Fox Paine & Company, LLC, et al. v. Twin City Fire Insurance Company et al., S287404, Supreme Court of California (July 27, 2026) Fox Paine & Company, LLC, Saul Fox, and related entities sued excess insurers after a long-running dispute between the Fox and Paine factions generated substantial litigation costs.
FACTS
The issue arises here after a dispute between former colleagues at an investment firm led to lengthy — and expensive — litigation.
Insurance is sometimes procured in a series of layers, with an insured acquiring a primary insurance policy that provides an initial layer of coverage. The insurance tower included a $10 million primary policy followed by four $10 million excess layers.
Plaintiffs allege that:
1. they suffered a loss;
2. the loss is covered by specific policy provisions described in the complaint;
3. they submitted "virtually all of their invoices" to defendants, seeking reimbursement; but
4. defendants have failed to reimburse them for these losses.
LAW
In the insurance context, the implied covenant of good faith and fair dealing prevents an insurer from impairing the insured’s right to receive policy benefits.
DISCUSSION
Although there is a categorical rule requiring an insured to plead actual exhaustion of all underlying insurance before seeking declaratory relief against excess insurers the Court reasoned that insurance coverage disputes often involve contingencies, and the mere existence of an exhaustion contingency does not make the dispute hypothetical.
Requiring insureds to litigate sequentially through each layer of an excess tower would create hardship, inefficiency, and a risk of inconsistent rulings, particularly where follow-form policies require interpretation of common coverage language.
ANALYSIS
The Court’s decision draws a distinction between attachment for payment and justiciability for adjudication. Actual exhaustion remains relevant to whether an excess insurer must presently pay benefits, but it is not an absolute prerequisite to adjudicating coverage obligations or bad-faith claims.
CONCLUSION
On remand, the Court of Appeal must determine whether plaintiffs adequately pleaded covered losses sufficient to create an actual controversy as to each excess policy and whether the bad-faith allegations satisfy the proper standard.
If the pleadings are deficient but curable, plaintiffs should be given leave to amend.
The Supreme Court reversed the Court of Appeal and remanded. It held that lack of actual exhaustion is not, by itself, fatal to claims for declaratory relief or tortious breach of the implied covenant of good faith and fair dealing against excess insurers.
The Supreme Court concluded that plaintiffs' inability to allege the exhaustion of all coverage underlying the St. Paul and Liberty Mutual policies is not by itself fatal to their claims for declaratory relief against these insurers.
The Supreme Court remanded the case to the Court of Appeal to reevaluate the adequacy of plaintiffs' allegations as they bear upon the existence of an actual controversy. Once the appropriate standard has been identified that court shall determine whether it has been met.
BAD FAITH
It has long been recognized in California that '[t]here is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. An insurer's denial of or delay in paying benefits gives rise to tort damages, but only if the insured shows the denial or delay was unreasonable. Because the duty attaches at the inception of the insurance agreement, wrongful conduct by the insurer from that point forward can support a claim for bad faith.
Allegations that an excess insurer paid rival claimants a disproportionate share of the benefits available under its policy prior to the insureds' exhaustion of the primary policy stated a viable claim for bad faith.
Plaintiffs Need Not Plead Prior Exhaustion Of All Underlying Insurance To State A Claim For Bad Faith
Plaintiffs inability to plead that all underlying insurance has already been exhausted is not by itself fatal to their claims for bad faith.
But an insurer may breach the implied covenant of good faith and fair dealing while remaining in technical compliance with the express terms of its policy; indeed, that is the very reason for the implied covenant's existence.
ZALMA OPINION
When no insurer is willing to take on the entire risks of loss faced by an insured the insured buys a primary policy and a tower of excess insurance policies from multiple insurers all of whom promise to respond after each layer of insurance is exhausted by payment of claims or claims and defense clauses. When the excess insurers did not respond in accordance with their policies they claimed no coverage because the other insurers had not exhausted their limits. The California Supreme Court disagreed and allowed the declaratory relief action to go forward creating a new way to get to excess insurers without exhausting the primary and other insurers limits to seek declaratory relief.
(c) 2026 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to my substack at https://gbarryzalma.substack.com/subscribe
Go to X @bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/account/content?type=all; Go to Barry Zalma on YouTube- https://Cwww.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the InsuranceClaims Library – https://lnkd.in/gwEYk.
The Largest Residential Burglary of All Time
Post 5407
Fraud & the Fear of Bad Faith Suits
Posted on July 22, 2026 by Barry Zalma
See the full video at https://lnkd.in/gWQQEySW and at https://lnkd.in/gyhdK6wv
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
After ...
Chutzpah is not Enough
Post 5397
Posted on July 20, 2026 by Barry Zalma
See the video and at https://lnkd.in/gNUs2XzT and at https://lnkd.in/g2MawyzX
Magistrate Issues a Search Warrant if there is a Fair Probability that Contraband or Evidence of a Crime will be Found in a Particular Place.
In United States Of America v. Frank Suess, et al., CRIMINAL No. 3:24-308, United States District Court, M.D. Pennsylvania (July 16, 2026) a federal grand jury indicted Frank Suess, Melissa Driscoll, and others in a 55-count health care fraud and anti-kickback prosecution arising from an alleged scheme involving medically unnecessary prescription “foot baths.”
As part of the investigation, the FBI obtained an August 19, 2022 warrant to search Driscoll’s Sterling Pharmacy Yahoo email account for emails from January 1, 2018 through December 31, 2020. Driscoll moved to suppress the resulting evidence, arguing that the warrant lacked probable cause, was overbroad, and rested on material misstatements and omissions.
LAW:
The ...
Fraud Shouldn’t Pay
Post 5396
See the video and at https://rumble.com/v7ctgmq-the-great-jewel-theft.html at https://youtu.be/aRbQ2sJfGwA
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ¬¬¬Perpetrators than any Other Crime.
The Insured purchased, for the first time in his life, a policy of Personal Articles Floater Insurance (PAF) scheduling $125,000 worth of ladies jewelry. He advised the insurer that the jewelry was always kept in a class E safe at his residence. He also told the insurer that he was employed full time as the owner of a gasoline service station and that he had never been canceled or suffered a previous loss.
One month after the policy was ...
Guilty of Misprison of a Felony Admitted by Owner of Insurers
Posted on August 12, 2026 by Barry Zalma
Second Trial of Coram Nobis Relief Fails
Post 5422
Coram Nobis is an Extraordinary Remedy
In United States Of America v. David Judd Disiere, Criminal Action No. 99-151-SDD-SDJ, United States District Court, M.D. Louisiana (August 10, 2026 David Judd Disiere was convicted in 2000 after pleading guilty to misprision of a felony under 18 U.S.C. § 4 in connection with allegations involving a scheme to influence the resolution of an investigation into insurance companies he owned.
He was sentenced to probation and a fine, did not directly appeal, and completed probation in 2003. After an earlier unsuccessful postconviction challenge, Disiere filed a second petition for writ of error coram nobis in 2024, claiming his plea was coerced by prosecutors’ threats relating to an employee allegation, that those threats were concealed from the court, that his counsel was ineffective, and that the factual basis did...
Day Care Owner Loses Subsidies Because She Criticized State
Post 5421
Posted on August 11, 2026 by Barry Zalma
First Amendment Right Will be Allowed to Go to Trial
In Betsey J. Grant v. Maine State Department Of Heath And Human Services, No. 1:25-cv-00490-JAW, United States District Court, D. Maine (August 6, 2026), Betsey J. Grant, a licensed childcare provider and operator of Tiny Tikes Daycare in Trenton, Maine, sued Maine DHHS and several employees after she publicly criticized DHHS before Maine’s Government Oversight Committee and alleged that officials retaliated against her.
She claimed DHHS imposed and extended a conditional license, published stigmatizing information, interfered with subsidies and program funding, removed her from a food program, rescinded an expansion grant, and used biased or falsified evidence in licensing proceedings. Following the March 10, 2023, GOC testimony, Ms. Grant alleges that foster children's subsidies (approximately $30,000) were withheld; she was removed from the ...
Rescission for Material Misrepresentation
Post 5418
Posted on August 5, 2026 by Barry Zalma
An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.
In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units. After an underlying personal injury action was filed, Union Mutual determined that the property actually contained three apartment units and rescinded the policies on the ground that the defendants had made a material misrepresentation in the applications.
LAW:
A misrepresentation is material if the insurer would not have issued the same policy, or would have issued it only on different terms, had the true ...
