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When an insurer argued that an animal liability exclusion in the insured’s homeowner’s policy (the policy) barred all liability because third-party plaintiffs sued the insured for injuries they and their dogs sustained when their dogs were bitten by two pit bulls on a public street, the district court summary judgment to insurer and insured appealed.
IN Poonam Dua v. Stillwater Insurance CompanyB314780, California Court of Appeals, Second District, Second Division (May 5, 2023), the California Court of Appeals explained why the duty to defend is greater than the duty to indemnify and why the insurer should conduct a thorough investigation before denying a claim for defense.
The insurer reviewed the underlying complaint and determined that the exclusion applied because the underlying complaint alleged that the pit bulls resided at the home of the insured, who was covered by an animal liability exclusion and therefore had no obligation to pay an excluded claim. The insured denied any ownership or control of the pit bulls, which were owned by her boyfriend, who did not live at her home.
The insurer, which ignores basic rules of interpretation for insurance, equated its obligation to compensate with its obligation to defend. The insurer denied the insured a defense because, if the exception applies, the insurer has no duty to defend.
Even if the insured was correct and the pit bulls were not in her possession, did not live in her home, and were not under her control when the attack occurred, the appellate court noted that the third party could still have brought a claim potentially covered by the policy. An insurer may be relieved of the duty to defend only if the third-party complaint cannot in any way raise an issue within the policy’s coverage.
The insured allegedly knew the dogs were dangerous and the insurer knew the dogs were being walked by the insured’s boyfriend near her home. Even if, as presently pleaded, the third-party suit was frivolous and without merit, that does not mean that there was no possibility of coverage and thus no duty to defend. Ignoring the California Fair Claims Settlement Practices Regulations, the insurer did nothing to investigate and concluded that there was no possible coverage based solely on the animal liability exclusion.
Poonam Dua (Dua) argued that the trial court erred in granting summary judgment in favor of Stillwater on her claim based on Stillwater’s refusal to defend Dua in the third-party suit.
Dua was the named insured on a homeowner’s policy issued by Stillwater that provided her with personal liability coverage. The policy made three references to an “animal liability exclusion.”
Third party suit against Dua
Simeon and Roslyn Peroff sued Dua and Eric Taylor (Taylor) for personal injury and property damage caused by Taylor’s dogs. In their complaint, the Peroffs alleged that while they were walking their two dogs on a street in Calabasas, California, Taylor was also walking his dogs, and Taylor’s dogs attacked Peroff’s dogs. Taylor was alleged to be the owner and the only person walking the dogs when the attack occurred.
As to Dua, Peroff’s complaint alleged that Taylor and his dogs lived at Dua’s home, that Dua knew the “TAYLOR PIT BULLS” were dangerous and that their attack was reasonably foreseeable to her, but that she did not prevent it, and that Dua therefore was responsible because she was the “owner of the property and/or a relative [sic] who housed or w[as] otherwise aware of TAYLOR PIT BULLS,” and had a “duty of care” to take steps to prevent the attack and failed to do so.
The district court granted Stillwater’s motion for summary judgment.
Since the duty to defend is contractual (Bus towards Superior Court (1997) 16 Cal.4th 35, 47.) A liability insurer has a broad duty to defend its insureds against claims that create a potential for compensation. The duty to defend applies to claims that are baseless, false or fraudulent. Where there is no possibility of coverage, however, there is no duty to defend.
If the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint indicate potential liability. This is because the duty to defend, although broad, is not unlimited.
When Dua sought Stillwater’s defense against Peroff’s lawsuit, she informed Stillwater that she did not own the dogs and that the dogs were in her boyfriend’s care, custody and control when the dog attack occurred because Taylor was walking the dogs. There was no evidence that Stillwater took any steps to investigate or otherwise deny facts indicating that an animal liability waiver might not apply and that potential coverage existed, and therefore the company had a duty to defend Dua.
Stillwater confused the possibility of Dua’s liability with Stillwater’s duty to defend. The Court of Appeals concluded that Stillwater had not established that there was no conceivable theory to bring the third-party complaint within the scope of coverage, and the facts Dua provided to Stillwater suggested that there might be coverage. In sum, Stillwater failed to meet its burden of establishing that it was entitled to summary judgment on Dua’s breach of contract claim, and the trial court erred in granting summary judgment.
However, a mere breach of contract, as alleged, is insufficient to establish bad faith. Dua has presented facts giving rise to a material dispute of fact as to whether Stillwater unreasonably or wrongfully failed to defend itself when presented with facts indicating that the animal liability exemptions did not apply.
The Court of Appeals concluded that the summary judgment in favor of Stillwater was improper and, on remand, required the court to enter an order denying Stillwater’s motion for summary judgment on Dua’s second cause of action for bad faith and breach of the good faith agreement. and fair dealing.
California’s Fair Claim Settlement Practices rules require the insurer to conduct a thorough investigation of a claim against an insured before making a decision to defend or indemnify an insured. Stillwater decided to rely on an exclusion that, had it made a thorough investigation and believed the reports of its insureds, would have defended its insureds. The trial court’s decision was a Pyrrhic victory because, on appeal, the appellate court followed the law and forced the insurer to defend, and possibly indemnify, its insured against a false claim against a person who neither owned nor controlled the Pit Bulls that caused the injury.
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