Insurance Law News - August 2009

• Insurer Has No Duty to Defend Insured in Assault and Battery Case, Even Though Insured May Negligently Have Believed He Was Acting in "Self-Defense"
• Insurer Must Inform First-Party Claimant of Contractual Limitation Period, Even Where Claimant is Represented by Attorney

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Insurer Has No Duty to Defend Insured in Assault and Battery Case, Even Though Insured May Negligently Have Believed He Was Acting in "Self-Defense"

The California Supreme Court has held that a homeowners insurer had no duty to defend its insured in an assault and battery case, even though the insured may negligently and unreasonably have believed that he was acting in “self-defense.” (Delgado v. Interinsurance Exchange of the Automobile Club of Southern California (2007) WL 1519893)

Facts

Craig Reid and Jonathan Delgado got into an altercation, during which Reid allegedly hit and kicked Delgado.  Delgado later filed a personal injury action against Reid, asserting two causes of action. In the first cause of action for intentional tort, Delgado alleged that Reid “in an unprovoked fashion and without justification physically struck, battered and kicked” Delgado. In the second cause of action for negligence, Delgado alleged that Reid “negligently and unreasonably believed” he was engaging in self-defense when he “negligently and unreasonably physically and violently struck and kicked” Delgado.

Reid tendered defense of the action to his homeowners insurer, Interinsurance Exchange of the Automobile Club (ACSC), under a policy with liability limits of $100,000. ACSC denied coverage and refused to defend. ACSC asserted that Reid’s alleged liability (1) did not arise from an “occurrence,” or “accident,” as required by the policy’s insuring clause, and (2) fell within the policy’s exclusion for “intentional acts” committed by an insured.

After ACSC rejected Reid’s tender, Delgado and Reid reached a settlement of the personal injury action. As part of the settlement, Delgado dismissed his intentional tort claim against Reid, and Delgado and Reid stipulated that Reid had negligently believed he was acting in self-defense. The trial court then entered a judgment of $150,000 on Delgado’s negligence claim against Reid. Thereafter, Reid paid Delgado $25,000 in partial satisfaction of the judgment and assigned to Delgado any rights Reid might have against ACSC for its refusal to defend. In return, Delgado gave Reid a partial satisfaction of judgment and a covenant not to execute on the remainder of the judgment against Reid’s own assets.

Delgado (as assignee) then sued ACSC for declaratory relief, bad faith and enforcement of the underlying judgment. After proceedings in the trial court and the California Court of Appeal, the parties ended up before the California Supreme Court.

 Holding 

The California Supreme Court held that ACSC did not have any duty to defend or indemnify Reid in the underlying action filed by Delgado. As such, Delgado (as Reid’s assignee) could not recover anything in the bad faith action against ACSC.

The Supreme Court reasoned that the ACSC homeowners policy only covered bodily injury caused by an “occurrence,” which the policy defined as an “accident.” According to the Court, in the context of liability insurance, an “accident” is “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” The Court clarified that the issue of whether there has been an “accident” is determined from the perspective of the insured, not from the perspective of the injured party. Otherwise, any injury-causing event – including sexual molestation, arson, premeditated murder, etc. – would be deemed an “accident” simply because the victim did not expect or foresee the event.

The Court further held that even if Reid (the insured) had an unreasonable, subjective belief in the need for self-defense, that did not convert his act of hitting and kicking Delgado (the claimant) into an “accident.” According to the Court, “an injury-producing act is not an ‘accident’ … when all of the acts, the manner in which they were done, and the objective accomplished occurred as intended by the actor.” Because Reid’s acts of hitting and kicking Delgado were done “with the intent to cause injury,” there was no “accident” and hence no potential for coverage. 

The Court explained that while some prior appellate cases do contain language suggesting that an insured’s acts of self-defense might be covered, those cases all dealt with exclusionary clauses for “intentional injuries”, not coverage clauses requiring an “accident.” Moreover, it was irrelevant that Delgado may have provoked Reid into attacking Delgado, since “[t]he term ‘accident’ in a policy’s coverage clause refers to the injury producing acts of the insured, not those of those of the injured party.”

In short, since Delgado’s claims against Reid in the underlying action were not potentially covered under the ACSC homeowners policy, ACSC had no duty to defend Reid in the underlying action. Therefore, Delgado (as Reid’s assignee) could not recover against ACSC in the bad faith action.

Comment

The Delgado case clears up confusion generated by prior California cases involving whether a liability insurer has a duty to defend an insured who is sued for assault and battery. In several of those prior cases, courts had suggested that an insured’s unreasonable belief in the need for self-defense could result in a finding of coverage. However, Delgado now makes it clear that an insured’s unreasonable belief in the need for self-defense does not turn the insured’s deliberate act of assault and battery into an “accident” within a policy’s coverage clause.

The Delgado case represents a significant victory for insurers, who have long resisted the notion that a standard liability policy might cover an insured’s alleged act of assault and battery. At least under standard policies covering injuries caused by “accident,” such conduct should not be covered – even if the insured claims he was acting in “self-defense.”

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Insurer Must Inform First-Party Claimant of Contractual Limitation Period, Even Where Claimant is Represented by Attorney

The California Court of Appeal has held that the Fair Claims Settlement Practices Regulations require an insurer to inform a first-party claimant of a policy’s one-year contractual limitation period even where the claimant is represented by an attorney, and that failure to do so may later estop the insurer from raising the limitation period as a defense. (Superior Dispatch, Inc. v. Insurance Corp. of New York (2009) 176 Cal.App.4th 12)

Facts

Superior Dispatch, Inc. (Superior), a trucking company, purchased an insurance policy from Insurance Corporation of New York (Inscorp). The policy included a cargo form that provided all-risk property coverage relating to loss of or damage to cargo in transit. The cargo form included contractual limitations provision that required the insured to file suit within one year of the date of loss.   

Matson Navigation Company (Matson) hired Superior to carry freight by truck from one location to another.  Superior’s truck struck an overpass, causing damage to the freight on the truck. Thereafter, Matson demanded payment from Superior, and Superior submitted both a first-party claim and a third-party claim to Inscorp. 

Ultimately, Inscorp’s claims adjuster sent a letter to Superior stating that Inscorp had denied the claim. However, Inscorp’s adjuster’s letter did not refer to the one-year contractual limitations provision contained in the cargo form. 

Superior retained an attorney, who sent a letter to Inscorp challenging the claim denial and alleging that the denial was in bad faith. Inscorp then retained an attorney, who sent a letter to Superior’s counsel and reiterated the prior denial of coverage. Inscorp’s counsel’s letter did not refer to the one-year contractual limitations provision contained in the cargo form. 

Superior filed a complaint against Inscorp more than one-year after Inscorp’s adjuster had given written notice of the denial of the claim and more than one year after Inscorp’s counsel had reaffirmed, in writing, the denial of the claim. Inscorp filed a motion for summary judgment, asserting that the one-year contractual limitations period barred the complaint in its entirety. The trial court concluded that the entire action was barred by the one-year contractual limitations period, and Superior appealed. 

Holding

The Court of Appeal reversed, relying on the fact that the Fair Claims Settlement Practices Regulations (enacted by the Department of Insurance) require certain disclosures by insurers in connection with claims. Among other things, Section 2695.4, subdivision (a) requires that  “[e]very insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant.” 

In addition, Section 2695.7, subdivision (f) requires an insurer to notify a “claimant” of any statute of limitations and any “other time period requirement upon which the insurer may rely to deny a claim, but also provides that “[t]his subsection shall not apply to a claimant represented by counsel on the claim matter.” The term “claimant” is defined to include both a “first party claimant” and a “third party claimant.”

The Court of Appeal held that Section 2695.7, subdivision (f) – which applies to a “claimant” – exempts the insurer from giving notice of a limitation period if the claimant is represented by counsel. However, the Court held that Section 2695.4, subdivision (a) – which specifically applies to a “first party claimant” – does not exempt the insurer from giving notice of a limitation period if the first-claimant is represented by counsel. 

The Court held that triable issues of fact existed as to whether Superior and/or its attorney had actual notice of the policy’s one-year contractual limitation period and that, if they could establish that they did not have notice, then Inscorp would be estopped to raise the limitation period as a defense.

Comment

In Spray, Gould & Bowers v. Associated International Ins. Co. (1999) 71 Cal.App.4th 1260, the Court of Appeal held that, where an insurer fails to inform the insured that the policy contains a contractual limitation period, and where the insured is not otherwise aware of the shortened limitation period, the insurer may be estopped from raising the limitation period as a defense in litigation.

The Superior Dispatch ruling expands somewhat upon the Spray, Gould & Bowers ruling and holds that, if the insured is represented by an attorney, the insurer does not need to give notice of any statutory limitation period but does need to give notice of any contractual limitation period. Generally, this exception should only apply in the context of first-party insurance.

Although the Court noted that the insured would still need to establish detrimental reliance (i.e., that the insured and the insured’s attorney did not have actual knowledge the contractual limitation provision), that typically should be easy for an insured to prove.

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