Significant California Decisions in 2008: What is an "Accident" and Whether an Excess Insurer Must Pay Where the Primary Settled for Less Than Policy Limits
In reviewing California appellate decisions issued in 2008, my vote for the most significant decisions are on the issue of what constitutes an “accident” (State Farm) because it is a departure from prior law on the issue, and the issue of whether an excess insurer must pay when the primary settled for less than policy limits (Qualcomm) because it is on a subject for which there was a dearth of law.
Accident
Prior to 2008, California courts consistently held an insured's intentional or deliberate act is not an accident for purposes of the “occurrence” definition of a general liability policy, regardless of whether the insured intended to cause the resulting harm. See, e.g., Merced Mutual Insurance Company v. Mendez (1989) 213 Cal.App.3d 41 (sexual battery); Collin v. American Empire Ins. Co. (1994) 21 Cal.App.4th 787 (conversion); Ray v. Valley Forge Ins. Co. (2000) 77 Cal.App.4th 1039 (professional advice). California courts distinguished between the act and the resulting harm.
That analysis was called into question by State Farm Fire and Casualty Company v. Superior Court (2008) 164 Cal.App.4th 317 (review denied). In State Farm, during an argument, the insured intentionally threw the plaintiff into a swimming pool. The plaintiff sustained injuries when he landed on the pool's concrete step rather than in the water. State Farm declined to defend the ensuing lawsuit because the insured acted intentionally and not accidentally, regardless of whether the insured intended to harm the plaintiff or not.
The appellate court disagreed. While it acknowledged there were authorities holding an insured's deliberate or intentional conduct negates an accident, the court construed California authority as requiring that the harm also be intended. Id. at 328 (construing the test developed in Merced Mutual Insurance Company v. Mendez (1989) 213 Cal.App.3d 41 which found no coverage for a claim of sexual battery even if the insured did not intend to harm the claimant).
The Mendez court had explained that:
An accident, however, is never present where the insured performs a deliberate act unless some additional, unexpected, independent and unforeseen happening occurs that produces the damage. Clearly, where the insured intended all of the acts that resulted in the victim's injury, the event may not be deemed an "accident" merely because the insured did not intend to cause injury. Conversely, an "accident" exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity. Id. at 50.
State Farm distinguished Mendez and other authorities as involving situations where "the insured intended all of the acts in the causal chain, including the injury." State Farm, 164 Cal.App.4th at 328. Thus, the court held that, because the insured had not intended the plaintiff to land on the pool steps and had miscalculated the force needed to clear the steps, there was unintentional conduct satisfying the accident requirement.
The State Farm decision confuses the analysis and focuses on the resulting injury, when the focus should only be on the action taken by the insured. But, the debate is not over. The new year may bring additional decisions on the issue. Another accident case, Delgado v. Inter-Insurance Exchange, etc. (2007) 153 Cal.App.4th 571 (review granted), is presently pending before the California Supreme Court. Delgado focuses on whether unreasonable self-defense can create an accident, but the Supreme Court may clarify the accident rules and comment upon State Farm.
Excess Insurer Liability Where Primary Settles
As previously reported, the California appellate court held that full primary insurance limits must be paid prior to excess coverage attaching where the excess policy requires that the underlying policy “have paid or have been held liable to pay the full amount” of underlying limits. Qualcomm v. Certain Underwriters at Lloyd’s, London (2008) 161 Cal.App.4th 184 (review denied).
The primary insurer, with $20 million in liability limits, settled with Qualcomm for $16 million. Qualcomm then sued London, its excess insurer, for declaratory relief and breach of contract for the remaining $9 million owed on the claim. London successfully demurred to Qualcomm’s complaint. The appellate court affirmed this decision, finding that the “have paid or have been held liable to pay” language in the policy [the “attachment” clause], meant only actual payment of the $20 million of primary limits would suffice to meet that policy requirement. The appellate court ruled that public policy considerations, including those favoring settlements, could not supersede plain and unambiguous policy language.
The case is consistent with the literary approach taken by California’s appellate courts (or most of them) in analyzing insurance policy language. While insurers have made these arguments before, until this decision there was little published authority upon which to buttress the argument. One perhaps unfortunate ramification of the decision is that, depending on the strength of the coverage defenses and other issues that factor into settlement, it may be more difficult for primary insurers to settle for less than policy limits where there is a larger than limits potential exposure. The case has it s limits since not all excess insurance policies have the same “have paid or have been held liable to pay” requirement.
