18th Jan 2016
A third party complaint may allege two or more deliberate and/or intentional tortious wrongdoing, which allegations, on its face may appear to be clearly noncovered under a liability policy. See § D24 DELIBERATE ACT [§ D24:2 Deliberate act defined]. Such allegations may include acts of sexual misconduct [see § S32 SEXUAL ACT], securities law violations [§ S12 SECURITIES LAW], fraudulent misrepresentation [§ F54 FRAUDULENT MISREPRESENTATION], conversion [§ C114 CONVERSION], wrongful termination of employment [§ W30 WRONGFUL TERMINATION OF EMPLOYMENT]. See also § I58 INTENTIONAL ACT [§ I58:1 Categories of intentional acts; some are covered, some are not covered].
The insured denies any wrongdoing
Where the only facts known to an insurer are fact-allegations of deliberate and/or intentional tortious wrongdoing, which wrongful acts are denied by the insured, can the insurer refuse a defense to the insured? The answer is probably no. See discussion below.
At the pleading stage of the litigation the courts have imposed rules founded in public policy requiring the insurer to give consideration to subjects not referred to, per se, in the liability policy exclusions or limitations. See § P120 PUBLIC POLICY. Such public policy rules include:
1. Duty to defend as defined by public policy [§ D85 DUTY TO DEFEND [§ D85:1]; § P120 PUBLIC POLICY [§ P120:5 Duty imposed upon insurer by “court” independent of any statute].
2. Potential liability under the policy [§ P67 POTENTIAL LIABILITY UNDER POLICY].
3. Exclusions strictly construed against the insurer [§ B22 BROAD CONSTRUCTION OF COVERAGE CLAUSES [§ B22:2.1 Exclusions, strict construction defined]; § E45 EXCLUSIONS [§ E45:13 Exclusions construed against insurer].
4. Reading the complaint by the insurer [§ R5 READING THE COMPLAINT BY INSURER; THIRD PARTY LIABILITY POLICY LITIGATION[§ R5:1 In general].
5. Reading the policy. [§ R6 READING THE POLICY, FAILURE OF INSURED AS TO].
6. Rules of interpretation. See § I75 INTERPRETATION OF AN INSURANCE POLICY; § A66 AMBIGUITY; § C83 CONSPICUOUS; § P48 PLAIN AND CLEAR.
7. A diligent search for facts. A diligent search is required of the insurer before denying coverage. See § D41.03 DILIGENT SEARCH; DUTY OF INSURER [§ D41.03:1.1 Actual knowledge of a breach not essential to establish waiver].
If an insurer in its review of the third party complaint acts in accordance with the law as referred to above, a duty to defend may well exist. See Gonzalez v. Fire Insurance (2015) 234 Cal. App. 4th 1220, 1222 (alleged sexual misconduct)]
Denial of wrongdoing by insured; “groundless”
A denial of wrongdoing by the insured regarding the performance of alleged sexual acts upon the third party plaintiff may be a sufficient basis to give rise to an insurer’s duty to defend. [Gonzalez v. Fire Insurance Exchange (2015) 234 Cal App. 4th 1220, 1239-1241] See § A72.02 AND/OR EACH; § S32 SEXUAL ACTS [§ S32:1.01 Duty to defend; inseparably intertwined with sexual acts]. Insurer must defend any claim that would be covered, if true, even though the claim is in fact false. [North American Building Maintenance v. Fireman’s Fund (2006) 137 Cal. App. 4th 627, 639-640] A suit is “groundless” within the duty to defend provision of a liability policy if the insured denies committing the act described in the complaint. [Lowell v. Maryland Cas. (1966) 65 Cal.2d 298; Burko v. Fireman’s Fund (1959) 173 Cal. App. 2d 524, 527 discussed at § T47 TREES; WRONGFUL CUTTING [§ T47:2 Duty to defend]] See § G21 GROUNDLESS [§ G21:4 Self defense].
◆ OBSERVATION: If the insured denies responsibility by contending the allegations are groundless, false or fraudulent, the alleged act described in the complaint must be otherwise covered by the terms of the policy. [Venaco, Inc. v. Gulf Underwriters Ins. Co. (2009) 175 Cal. App. 4th 750, 765] See § G21 GROUNDLESS [§ G21:5 Groundless, false or fraudulent applies only if there is potential liability under the policy].
Sexual related acts not “clearly” alleged ; multiple defendants – duty to defend
A third party complaint may allege wrongful, tortious acts along with allegations of other multiple acts of misconduct. If so, question exists as to whether the other alleged misconduct necessarily is part of the wrongful sexual act. If the defendant/insured denies performance of any wrongful act, and the record is devoid of evidence establishing a chronology or sequence of events comprising the alleged misconduct or that these actions were integral to the sexual act, there is a potential that additional alleged acts are separable from it for purposes of determining an insurance company’s duty to defend. [Gonzalez v. Fire Insurance Exchange (2015) 234 Cal. App. 4th 1220, 1241-1242, distinguishing Coit Drapery Cleaners v. Sequoia Ins. (1993) 14 Cal. App. 4th 1595, State Farm v. Century Indem. (1997) 59 Cal. App. 4th 648, 662, Jane D v. Ordinary Mutual (1995) 32 Cal. App. 4th 643] If there is a factual dispute whether the insured’s alleged misconduct should be viewed as essentially a part of a proven sexual molestation, or should instead be viewed as independent of it, there is a potential for coverage under the insurer’s policy. The factual issues exist precluding summary judgment in the insured’s favor. [Gonzalez v. Fire Insurance Exchange (2015) 234 Cal. App. 4th 1220, 1244, finding that the third party complaint did not necessarily set forth allegations that were inseparably intertwined with the insured’s purported sexual assault.] See § A72.02 AND/OR EACH; § D85 DUTY TO DEFEND [§ D85:1 In general]; S32 SEXUAL ACTS [§ S32:1.01 Duty to defend; inseparably intertwined with sexual acts].
Wrongful acts alleged against the insured are also alleged against multiple defendants
A third party-plaintiff may sue the insured in a third party action along with other defendants by pleading in each cause of action that the named insured “and/or each” of the other named defendants performed tortious conduct harming the plaintiff. Use of “and/or each” raises the possibility that the other defendants, and not the named insured committed the physical tortious act. [Gonzalez v. Fire Insurance Exchange (2015) 234 Cal. App. 4th 1220, 1238] If so, an exclusion barring coverage could possibly apply to other defendants and not the insured, thus establishing “potential liability” under the policy thereby compelling the insurer to defend the insured. [Gonzalez v. Fire Insurance Exchange (2015) 234 Cal. App. 4th 1220, 1238 (holding sexual exclusions may possibly apply only to other named defendants; umbrella policy; personal injury coverage for libel and slander thus possibly existed; insurer had a duty to defend; trial court reversed)] See § A72.02 AND/OR EACH; § E49 EXCLUSIONS [§ E49:3]; § P67 POTENTIAL LIABILITY UNDER POLICY [§ P67:1.5]; § S32 SEXUAL ACTS [§ S32:1].
References in bold are to Mr. Cornblum’s legal text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE (2015), published by ThomsonReuters (1-800-344-5008 to order 2015 3-Volume text).