Case Briefs

In Delgado v. Interinsurance Exchange of the Automobile Club of Southern California, 2007 Cal. App. LEXIS 838 (Cal. Ct. App. May 24, 2007), the insured was sued for intentionally battering the claimant and for negligently believing that he was acting in self-defense and acting unreasonably on that belief in battering the claimant. The insurer refused to defend its insured, claiming that there was no 'occurrence' because the attack could not be characterized as an accident. The insured then settled with the claimant, and assigned to the claimant his claims against the insurer for refusing to defend the insured. The trial court sustained a demurrer to the claimant's complaint, finding no duty to defend and no bad faith. The California court of appeal reversed. It found that the underlying complaint 'pled facts showing that a potential for coverage existed under the ' policy.' It explained that the complaint 'showed potentially covered conduct because it alleged plainly that [the insured] acted in self-defense. Therefore, it held that at the time the insured tendered the action for a defense, the insurer 'was clearly aware of facts that gave rise to potential liability under its policy triggering its duty to defend [the insured] … As a matter of law, [the insurer's] duty to defend was thus manifest at the outset.'

The court next addressed the question of whether the insurer had acted in bad faith. It rejected the insurer's argument that it had acted reasonably because there was a 'genuine dispute' as to whether there was coverage. The court stated: 'When the dispute is factual in nature, the potential for coverage arises and exists until that dispute is conclusively resolved … Indeed, the very existence of a factual coverage dispute establishes the potential for coverage and thus the duty to defend.' It then held: '[A] potential for coverage establishes the duty to defend. Such a potential necessarily arises from the existence of a factual dispute as to coverage under the policy. Thus, an insurer faced with a pleading such as the one filed against the insured … in this case, would have no reasonable basis for concluding that a defense obligation is not owed. It could not assert that it had a legitimate or reasonable argument that its insured's actions were intentional and thus not covered under the policy. It was the very existence of the unresolved factual dispute over whether [the insured's] actions were intentional or negligent that created the potential for coverage in the first place, thereby establishing the duty to defend. Thus, [the insurer], in refusing its insured a defense, acted unreasonably and without proper cause, as a matter of law.'