The Letter of the Law: August 2012


CONSTRUCTION: Service and Repair Agreements in California

INSURANCE: When Do You Settle a Policy Limits Case?

ESTATE PLANNING: When to Update Your Estate Plan

Service and Repair Agreements in California
By: Anna Greenstin Kudla

The California Contractors State License Board (“CSLB”) requires contractors to include specific language in each Service and Repair Contract between a contractor and an owner or tenant for the performance of a home improvement. Both the contractor and the buyer need to be aware of the important rules regarding these agreements.

Every service contract to repair, remodel, alter, convert, modernize, or add to a residential property, signed by a homeowner or tenant, must include specific language outlining the consumer’s rights. California Business and Professions Code § 7159.10 (e) (12)(A) states that every service contract must identify the buyer’s right to cancel the work when 1) the buyer receives the contract signed and dated by the contractor and 2) at any time before the contractor starts the work.

However, even if the work has begun, the buyer may still cancel the contract within three business days of signing the contract for normal service and repairs, or within seven business days of signing a contract to repair or correct conditions resulting from any sudden or catastrophic event for which a state of emergency has been declared by a governmental entity. In such a situation, the buyer may still have a right to cancel if any of the following is true:

  1. The buyer may cancel the contract if the price, including all labor and materials, is more than $750;
  2. The buyer may cancel the contract if the buyer did not initiate the contact with the contractor to request the work;
  3. The buyer may cancel the contract if the contractor sold the buyer goods or services beyond those reasonably necessary to take care of the particular problem that caused buyer to contact the contractor; or
  4. The buyer may cancel the contract if the payment was due or the contractor accepted any money before the work was complete.

A contractor’s failure to provide a home solicitation contract to a homeowner with a proper notice of cancellation is grounds for disciplinary action and fines by the Contractors’ State License Board. Handyman Connection of Sacramento, Inc. v. Sands (2004) 123 Cal.App. 4th 867.

There are many more important rules governing the required content of Service and Repair Contracts, and each situation is unique. Many contractors have been surprised by consumers who intentionally sign agreements without the proper buyer’s notices, and then refuse to pay for services performed. Kring & Chung has over 25 years of experience representing both contractors and homeowners. Should you need assistance in preparing enforceable home improvement agreements, if you have a question about an agreement you have been asked to sign, or if you simply want to review the contracts you currently present to consumers, please do not hesitate to contact us.

When Do You Settle a Policy Limits Case?
By: John Schroeder

The Federal Ninth Circuit Court of Appeal, applying California law, has held that an insurance company may breach its implied duty of good faith and fair dealing by failing “to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand.” Du v. Allstate Insurance Company, et al. (2012) 681 F.3d 1118. The Court found this duty despite affirming the trial court’s refusal to give a jury instruction requested by plaintiff’s counsel to instruct the jury on the carrier’s purported refusal to accept a reasonable settlement demand within policy limits.

In June 2005, appellant Yang Fang Du and three other occupants were injured when a car driven by Joon Hak Kim collided with their vehicle. Mr. Kim had a $100,000 per person, $300,000 per accident Deerbrook Insurance Company policy. Deerbrook, a subsidiary of Allstate Insurance Company, became aware in early 2006 that this was an adverse liability case with serious injuries. Almost one year after the accident, the attorney for all four injured plaintiffs sent Deerbrook a $300,000 policy limit demand to settle the four claims. His demand included $108,742.92 in medical bills for Ms. Du, and nearly $34,000 in medical bills for the other three passengers. Deerbrook rejected the $300,000 demand but offered $100,000 for Ms. Du’s injuries.

This suit went to trial and the jury returned a verdict in favor of Ms. Du in the amount of $4,126,714.46. Mr. Kim thereafter assigned his bad faith rights to Ms. Du in exchange for a covenant not to execute. Ms. Du then filed her bad faith case against Deerbrook, alleging that they had violated their implied duty of good faith and fair dealing by not settling Ms. Du’s claim within Mr. Kim’s policy limits. Ms. Du requested a jury instruction that did NOT include language requiring plaintiff in the underlying action to make a demand before the Deerbrook had a duty to make an offer. The court refused to give the instruction and instead gave an instruction requiring a plaintiff’s demand before the duty arose.

There exists an implied covenant of good faith and fair dealing in every liability insurance contract. Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654. This covenant includes the duty to accept a reasonable offer of settlement. PPG Indus., Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310. This implied covenant requires the insurance company to settle within policy limits when there is a substantial likelihood of recovery in excess of those limits. Kransco v. American Surplus Lines (2000) 23 Cal.4th 390. In Johansen v. California State Auto Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, the California Supreme Court held that where it is likely that the judgment against the insured will exceed the policy limits, the covenant of good faith requires the carrier to settle the claim. In essence, public policy does not allow for an insurance carrier to gamble at trial with the policy holder’s money.

The Du holding expands an insurance company’s duty to offer to settle within the policy limits where liability has become reasonably clear. It will be interesting to see if there will be a reduction in policy limits demands in light of this court’s finding that a plaintiff’s demand is no longer required where liability is reasonably clear. For insurers and their clients, it becomes all the more important to reasonably identify cases of probable liability where policy limits might be exposed, and to perform diligent and early investigations.

When to Update Your Estate Plan
By: Christina L. Rogers

Most people invest a great deal of time and thought into putting together the proper estate plan to protect their families and their hard earned assets in the event of their death or incapacity. However, initially putting the estate plan together is just the first step in making sure that your estate planning goals continue to be met in the future. As we all know, one of the only constants in life is change, and your estate plan should be examined periodically to accommodate for it. A properly drafted estate plan should be reviewed every 3-5 years to accommodate for changes in your family, financial or personal circumstances.

Below are some common items that could prompt a change to your existing estate plan:

  • An individual that you have named as Trustee, Executor or as a beneficiary in your estate plan dies;
  • A birth or adoption of a child by you or a beneficiary;
  • Marriage or divorce of either you or a beneficiary;
  • Children or grandchildren reaching the age of 18;
  • A substantial increase or decrease in the value of your estate;
  • The acquisition or disposition of a significant asset;
  • A change in the personal relationship or circumstances with an individual named as Trustee, Executor or beneficiary;
  • Changes in relevant state or federal laws;
  • Disability or illness of you or an individual that you have named as a Trustee, Executor or as a beneficiary; and
  • Changes in debts or liabilities.

But are you putting the right people in charge of you and your estate if something should happen to you? Beyond changes in circumstances, there are other reasons to evaluate your estate plan to make sure that it is right for you. Given the uncertainty in the status of the estate tax laws, your living trust may need flexibility to accommodate for and protect your estate and family from future tax law changes coming at the end of 2012. Also, there are provisions you can add to your existing trust to protect your loved ones’ inheritance from divorce claims of spouses, lawsuits, creditors and a potential second estate tax. You should also think about who has the right to amend your existing trust after you are gone, whether or not you are properly dealing with inheritances for step children and children, and whether you have chosen the appropriate person to manage your trust estate in the event that you are not able to do so. Fortunately, there are many quick ways to correctly address these and other common trust problems before they explode into a public and expensive dispute in probate court.

Registration Opens for Newport Beach Triathlon

Registration is now open for the Kring & Chung Newport Beach Triathlon, which is scheduled to take place on October 21, 2012 in Back Bay in Newport Beach, California. The course includes a 1/2 mile swim, 15 mile cycle, and a three mile run.

This year marks the 35th year of the event. Visit for more information and to register.

Kring & Chung Partners Named “Top Attorneys” in O.C.

Congratulations to Kring & Chung Managing Partner, Kenneth W. Chung and Partner, Laura C. Hess, on being named two of the top attorneys in Orange County for 2012 by Churm Media and OC METRO Business Magazine have partnered with for three years to spotlight the leading attorneys in Orange County every August. The “Top Attorneys” list will be featured in OC METRO Magazine’s August issue.

Kring & Chung Welcomes New Family Law Associate

Kring & Chung is proud to announce the addition of Hoang-Anh Zapien to its Irvine, CA office. Ms. Zapien joins the firm with three years of experience successfully practicing family law and civil litigation in her own private practice. Ms. Zapien has assisted clients in all types of family law matters including, but not limited to, marital dissolutions, child support and visitation, spousal support and property division matters. She has a genuine passion for the field of family law. Ms. Zapien has proven to be an aggressive advocate for her clients in the courtroom and strives to be a strong source of guidance and support for her clients through their time of family crisis.