Elisabeth thompson

Defendant insurer appealed the judgment of the Superior Court of Los Angeles County (California), which held that defendant breached its duty to defend plaintiff driver, and which awarded to plaintiff damages in the amount of the judgment in the underlying suit.

Overview

Defendant insurer issued a policy that stated that it did not provide coverage for injuries sustained by permissive users or their resident relatives. Plaintiff driver's passenger was injured. Defendant refused to defend on the basis that the injured was a resident relative of plaintiff, even though defendant was aware of facts which, if true, indicated that plaintiff was not residing with the injured. A judgment was rendered against plaintiff and he brought suit against defendant for breach of contract. The California business law lawyers were sought as expert witnesses during trial. A jury found that the injured was a resident relative. The trial court held that defendant breached its duty to defend, and awarded damages in the amount of the judgment. The court agreed that defendant had breached its duty to defend, because that duty was determined by the information possessed by the insurer at the time it refused to defend, not by information subsequently obtained. However, the court held that the damages for the breach were limited to the cost of defense of the underlying case, because the issues upon which coverage depended were not raised in the underlying action, and because there had in fact been no coverage under the policy.

Outcome

The court affirmed the judgment of the trial court as to the breach of defendant insurer's duty to defend plaintiff driver, reversed the trial court's awarded of damages in the amount of the judgment in the underlying suit, and remanded for a determination of damages, i.e., the cost incurred in defense of the underlying suit.

Procedural Posture

Appellants, officers and an employee, alleged respondent insurer refused to defend them in an underlying defamation action. The insurer filed a demurrer claiming appellants did not act in an insured capacity when they committed the alleged defamation, which itself was not covered. The Superior Court of Orange County, California, sustained the demurrer without leave to amend, and the appeal followed.

Overview

The appellants made statements that the insured, a physician practice management company, engaged in flawed business methods that might have violated the law against the corporate practice of medicine. They were terminated; the insured sued for defamation, and the professional medical corporation owned by one of the appellants intervened. The insurer denied their claims that they were additional insureds under the comprehensive general liability policy issued to the management company, which led to the instant case. The appellate court held that the underlying allegations triggered at least a potential for coverage under the personal injury coverage for defamation under the policy. The officers' statements were made in their capacities as executive officers seeking to discharge their duties to assure that the management company fulfilled its legal obligations. Thus, there was a potential that they were acting in an insured capacity, so they stated a cause of action for breach of the duty to defend. The employee was, however, not covered under the policy. The medical corporation was not an additional named insured, so all the appellants were entitled to a defense.

Outcome

The judgment sustaining the demurrer was reversed, and appellants were granted costs on appeal.