Insurer Not Obligated To Speculate A Plaintiff Might Allege A Covered Claim
In the unpublished case of Innovay, Inc., et al, v. The Hartford Casualty Insurance Company, No. B215357 (July 30), plaintiff Innovay and its directors filed a claim against Hartford after Hartford denied Innovay’s tender of defense of a third party complaint for fraud, deceit, and negligent misrepresentation. After filing the action, Innovay provided Hartford with extrinsic evidence, and Hartford concluded the third party might be able to amend his complaint to allege a covered claim of defamation. Hartford then agreed to provide a go-forward defense. The third party did not amend his complaint. Innovay settled the action and paid the third party.
Innovay claimed that Hartford was obligated to provide a defense from the date of initial tender and was required to reimburse Innovay for the defense costs and the settlement amount it had paid. After a bench trial, the trial court found in favor of Hartford, concluding that Hartford did not have a duty to defend or indemnify under the facts before it and therefore Hartford did not breach the policy or the implied covenant of good faith and fair dealing. Innovay appealed.
Division One of the Second Appellate District affirmed. To be covered under the personal and advertising injury provisions of the policy upon which Innovay relied, the injury must have arisen out of one or more enumerated offenses. Innovay maintained the allegations in the complaint establish a potential for coverage for the enumerated offenses of libel or slander and humiliation. The appellate court disagreed. There were simply no allegations of libel or slander. Nor could Innovay rely on the covered ground of “humiliation.” The core claim was fraud; while the injury alleged may have been “humiliation,” it is the offense that triggers coverage. Harm that results from a noncovered offense is not covered. See American Motorists Insurance Company v. Allied-Sysco (1993) 19 Cal. App. 4th 1342, 1351, disapproved on another ground in Buss v. Superior Court (1997) 16 Cal. 4th 35, 50, fn. 12. And while remote facts buried within causes of action may establish a defense duty, Barnett v. Fireman’s Fund Insurance Co. (2001) 90 Cal. App. 4th 500, 510, here there were no facts alleged that could provide a basis for a potential for coverage. Hartford had never owed a defense duty in the underlying action.
The appellate court also rejected the claim that there was any inadequacy in Hartford’s investigation. It was only obligated to act on the basis of the fact it knew at the time the claim was tendered. See Gunderson v. Fire Insurance Exchange (1995) 37 Cal. App. 4th 1106, 1114. Hartford was not under a duty to speculate as to what plaintiff might claim.
July 30, 2010
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