Potentially Covered Claims and the Duty to Defend
November 14, 2016
The insurer filed a motion for summary judgment seeking a declaration that it had no duty to defend the insured in an underlying action. This case is Hartford Fire Insurance Company v. Tempur-Sealy International, 2016 WL 232431.
Hartford Fire Insurance Company issued nine general liability policies to Tempur-Sealy covering the time period from 2004 to 2013. In 2014, a number of individual consumers filed a class action complaint against Tempur-Sealy alleging that Tempur-Sealy failed to inform consumers that pillows and mattresses manufactured and sold by Tempur-Sealy emit a chemical odor containing formaldehyde which can and did trigger serious allergic reactions and asthma attacks in consumers. The complaint contained numerous allegations regarding the injuries to person and property.
The insurer informed the insured that it did not have a duty to defend because the claims asserted in the complaint were not potentially covered by the general liability policies. Hartford then filed this lawsuit seeking a declaration that it had no duty to defend.
The United States District Court for the Northern District of California noted that the underlying complaint contains almost 18 pages of detailed factual allegations describing the bodily injuries and property damage caused by Tempur-Sealy's defective mattresses. The court said that the facts alleged in the underlying complaint clearly demonstrate the potential for liability under the terms of the policies. However, the insurer said that because the underlying complaint does not allege specific claims for bodily injury or property damage, it had no duty to defend. The insurer contended that the otherwise broadly construed duty to defend does not extend to any imaginable amended claim. The District Court disagreed.
The court reiterated that the underlying complaint includes 18 pages of allegations ds products, detailing the factual basis for a potential covered claim, so this is not a case where the underlying complaint fails to allege the nature and kind of risk or injury covered by the insured's policy. The court said that the insurer cannot protest that the insured has no reasonable expectation of coverage given the thirty paragraphs of factual allegations against the insured that describe the exact type of bodily injury and property damage covered by the policies.
The insurer also argued that, even if the underlying complaint alleges a potential for liability, the exclusions in the policies prevent coverage. The insurer said that the damage to the named insured's product and the damage to impaired property exclusions would apply. The court replied that the damage to the named insured's product is not applicable because the underlying complaint alleges extensive damage to property other than that of the insured. As for the impaired property exclusion, the court said that did not apply since the underlying complaint contains numerous allegations of loss of use of property due to the off-gassing odor produced by the insured's products, an injury that is explicitly carved out of the impaired property exclusion.
The court denied the insurer's motion and granted the insured's motion asserting a duty to defend.
Editor's Note: In this case, the U.S. District Court, N.D. California, rejected the insurer's contention that potential claims, as opposed to actual specific claims, do not provoke the duty to defend. In finding that the insurer owes a duty to defend the insured, the court notes that while the insured need only show that the underlying claim may fall within policy coverage, the insurer must prove it cannot. The court rules that the insurer may be relieved of its duty to defend only when the facts alleged in the underlying lawsuit can by no conceivable theory raise a single issue that could bring it within the policy coverage.