National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Interinsurance Exchange of the Automobile Club of Southern California issued a homeowners policy to Craig Reid providing liability coverage of $100,000 per occurrence.  The policy covered damages for bodily injury caused by an occurrence. An occurrence was defined as “an accident . . . which, during the policy period, results in bodily injury . . .”

During the policy period, Reid repeatedly hit and kicked Jonathan Delgado (a 17 year old), causing serious and permanent injury. Delgado sued Reid claiming in the alternative that the physical attack was unprovoked and without justification, and that the conduct was a negligent and unreasonable act of self defense. Interinsurance Exchange denied coverage and refused to defend Reid on the basis that there was no occurrence.

Reid and Delgado dismissed the intentional tort cause of action and settled. They stipulated that Reid negligently believed he was acting in self defense. They stipulated to judgment of $150,000. Reid paid $25,000 and assigned his claims against Interinsurance Exchange for a covenant not to execute on the rest of the judgment. Delgado then sued Reid’s insurer.

At the trial court level, the insurer successfully demurred.  Delgado filed a first amended complaint which alleged Reid’s actions were not willful or malicious, but overreactions to a threat of harm to him and his family, and thus an accident under the policy. The insurer again successfully demurred. No further leave to amend was granted as the court found the stipulation between the settled parties to be “contrived” to expose the insurer to liability and “disingenuous at best.” Delgado appealed. California’s appellate court reversed, holding the amended complaint alleged “nonintentional tortuous conduct” that were potentially an accident covered by the policy.

Before the California Supreme Court, Delgado argued that Reid’s actions were an accident because the actions were unexpected from the perspective of the injured party. The court rejected this argument, explaining that the injured party’s perspective is not taken into account when determining whether an event qualifies as an accident. If Delgado’s argument were accepted, any intentional act (even child molestation) would be rendered an accident simply because it was not foreseen by the injured party. 

The court also rejected Delgado’s argument that the insurer could have included language clarifying that accident was to be defined from the perspective of the insured, like when policies included in the occurrence definition “neither expected nor intended from the standpoint of the insured.” However, the court clarified that accident refers to the insured’s liability-causing conduct, and not the resulting damage or injury, the latter which was to be neither expected or intended by the insured.

Delgado argued the insured’s unreasonable, subjective belief in the need for self defense transformed an intentional act into an accident. The court also rejected this argument, holding that an insured’s mistake of fact or law does not transform a knowing and purposeful act into an accident. And the court rejected the suggestion that a provocative act by the injured party could convert the insured’s intentional physical response into an accident.

California’s highest court’s decision provides clarification to an issue that had been muddied by some recent decisions, including the appellate court’s decision in this case.

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.4^th 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.4^th 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.4^th 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.