The duty to defend is always broader than the duty to indemnify. California case law, and that of most states, requires that the insurer provide a defense if there is "potential" that coverage applies. This has resulted in allegations that create, through creative lawyering, a "potential" for coverage. The Supreme Court of California recently concluded that there is a line that the potentiality arguments cannot cross.
In Jonathan Delgado v. Interinsurance Exchange of the Automobile Club of Southern California (Aug. 3, 2009), a suit for damages was brought against Craig Reid, who was insured under a homeowner's insurance policy issued by the Interinsurance Exchange of the Automobile Club of Southern California (ACSC). The homeowners policy provided coverage for, among other things, Reid's liability to others from "accidents" resulting in bodily injury. Reid, while the policy was in effect, "hit and kicked...Jonathan Delgado" with the intent to cause injury to Delgado.
When Delgado sued, Reid asked ACSC to defend him. ACSC denied coverage and refused to provide Reid with a defense on the basis that assault and battery is never accidental and therefore, because there was no accident, there was no obligation to defend or indemnify Reid.
Delgado and Reid later settled. They stipulated, in an attempt to bring the assault and battery into a covered accident, that "Reid's use of force" was due to his "unreasonable belief of having to defend himself." Reid assigned his claim against ACSC to Delgado. Delgado sued ACSC for the tort of bad faith.
The trial court granted ACSC's demurrer without leave to amend, finding that Reid's assault and battery of Delgado was not an accident warranting defense or indemnity. The Court of Appeal reversed on the grounds that "unreasonable belief in self-defense" involved "nonintentional tortious conduct."
The Supreme Court reversed the Court of Appeal and affirmed the trial court, because an accident is "an unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown cause." Punching and kicking someone is invariably expected, foreseen and designed to injure.
California law, according to the Supreme Court, applies "accident" to the conduct of the insured. Therefore, the Supreme Court rejected Delgado's argument that determination of the accidental nature of the event must be from "the perspective of the injured party." Instead, the Supreme Court concluded that Reid, regardless of whether he had an unreasonable belief in the need for self-defense, acted with the intent to inflict physical harm. His actions did result in such injury and was, therefore, not an accident.
The trial court, in fact, concluded that the settlement and stipulated judgment between Reid and Delgado were "contrived" to expose ACSC to liability, that it was "disingenuous at best" to characterize Reid's assault and battery as an "accident," and that there were no facts alleged to support Delgado's claim that Reid believed he was acting in self-defense.
At issue was whether the insurer had a duty to defend its insured in an action brought by a third party. To prevail in an action seeking declaratory relief on the question of the duty to defend, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. The duty to defend exists if the insurer "becomes aware of, or if the third-party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement." The courts in California must look first to the terms of the policy and while doing so, the Supreme Court concluded that in the context of liability insurance, an accident is "'an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.' This common law construction of the term 'accident' becomes part of the policy and precludes any assertion that the term is ambiguous." Discarding all of the plaintiff's arguments about the lack of intent it explained:
Were we to accept Delgado's argument that any interpretation of the policy term "accident" should be based solely on whether the injury-causing event was expected, foreseen, or designed by the injured party, then intentional acts that by no stretch could be considered accidental nevertheless would fall within the policy's coverage of an "accident." Under Delgado's reasoning, even child molestation could be considered an "accident" within the policy's coverage, because presumably the child neither expected nor intended the molestation to occur. (See J. C. Penney Casualty Ins. Co. v. M. K. [1991] 52 Cal.3d 1009, 1028, fn. 17 ["[T]he very notion of 'accidental' child molestation is implausible."]) Other examples that come to mind are arson, robbery, and premeditated murder, which are acts that do not fit the common understanding of the word "accident" because they involve acts intentionally done with the intent to cause harm.
Under California law, the word "accident" in the coverage clause of a liability policy refers to the conduct of the insured for which liability is sought to be imposed on the insured. This is consistent with the purpose of liability insurance that is a contract between the insured and the insurance company to provide the insured, in return for the payment of premiums, protection against liability for risks that are within the scope of the policy's coverage.
Reid's assault and battery on Delgado was committed with the intent to cause injury. The Supreme Court concluded that the injuries were not, as a matter of law, accidental, and consequently there was no potential for coverage under the policy.
Delgado's argument that the insured's assault was an accidental act because a provocative act by the injured party was unforeseen is inconsistent with California case law. Similar conclusions were found in:
o Lyons v. Fire Ins. Exchange, supra, 161 Cal.App.4th 880: Holding that false imprisonment relating to alleged sexual attack was not an accident even when the insured may have acted under mistaken belief victim would not rebuff his advances
o Modern Development Co. v. Navigators Ins. Co. (2003) 111 Cal.App.4th 932, 942: "A mistake of fact in an employment termination does not transform the intentional act of terminating an employee into an accident"
o Swain v. California Casualty Ins. Co., supra, 99 Cal.App.4th 1: The insured's belief that he was entitled to inflict harm does not transform wrongful eviction into an accident
o Merced Mutual Ins. Co. v. Mendez, supra, 213 Cal.App.3d 41: The unreasonable belief in the victim's consent did not make an act of oral copulation and an act of attempted oral copulation an accident.
The Supreme Court concluded that an insured's unreasonable belief in the need for self-defense does not turn the resulting purposeful and intentional act of assault and battery into "an accident" within the policy's coverage clause. Therefore, the insurance company had no duty to defend its insured in the lawsuit brought against him by the injured party.
This case teaches that lawyers, who have stretched the meaning of a court decision for many years to turn black into white and impossible into a "potential for coverage," should stop while they're ahead. This case went too far and the California Supreme Court unanimously concluded that there was no coverage available for a battery which, by definition, can never be an accident any more than child molestation can ever be accidental.
