Insurance Law
Duty to Defend
California Law
Bartel’s title insurance policy, obtained from Chicago Title in 1998, states in relevant part as to coverage: “Subject to the exclusions from coverage, the exceptions from coverage contained in schedule B and the conditions and stipulations ...[Chicago Title] insures, as of [the policy date] against loss or damage...sustained or incurred by the insured by reason of: 1. Title to the estate or interest described in schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title.”
Regarding the defense and prosecution of actions, the policy states: “Upon written request by an insured and subject to the options contained in ...these conditions and stipulations, [Chicago Title] at its own cost and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured.” In the event of any litigation, the policy provides that Chicago Title “shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title...as insured.” As to the exceptions from coverage, the policy states: “This policy does not insure against loss or damage ...which arise by reason of” certain matters specified in parts I and II of schedule B, including “3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records”; and “5. A road maintenance agreement, including the terms, covenants, provisions and assessments, as contained in the agreement entered into by and between: Mary Swafford, et al. Recorded: September 2, 1970 in Book 2039, Page 369, Official Records of Santa Cruz County Instrument No. 23843” (followed by a list of recorded amendments to the road maintenance agreement).
“The duty to defend is guided by several well-established principles.” (Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 287 (Hartford).) “An insurer owes a broad duty to defend against claims that create a potential for indemnity under the insurance policy. (Gray [, supra,] 65 Cal.2d 263, 277–278.) An insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’ (Montrose [, supra,] 6 Cal.4th 287, 299.)” (Ibid.) “Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured’s favor.” (Horace Mann, supra, 4 Cal.4th at p.1081.) “The insurer has a duty to defend the insured as to the claims that are at least potentially covered.” (Buss, supra, 16 Cal.4th at p.49.) “The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy.” (Horace Mann, at p.1078; accord Hartford, at p.287.) “This includes all facts, both disputed and undisputed, that the insurer knows or ‘“becomes aware of”’ from any source [citation] ‘if not “at the inception of the third party lawsuit,” then “at the time of tender.”’ ” (Hartford, at p.287.)
The California Supreme Court has recognized that its opinion in “Gray made clear that facts known to the insurer and extrinsic to the third party complaint can generate a duty to defend, even though the face of the complaint does not reflect a potential for liability under the policy. [Citation.] This is so because current pleading rules liberally allow amendment; the third party plaintiff cannot be the arbiter of coverage.” (Montrose, supra, 6 Cal.4th at p. 296.) Stated differently, “‘That the precise causes of action pled by the third party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.’ [Citation.] Thus, ‘if any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer’s duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.’” (Hartford, supra, 59 Cal.4th at p. 287.) To determine whether the insurer owed the insured a duty to defend, the reviewing court examines the insurance policy at issue. (Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, 21 (Hameid).) “Insurance policy interpretation is a question of law.” (Ibid.; accord, Hartford, supra, 59 Cal.4th at p. 288.) Appellate courts “apply an independent standard of review to decisions interpreting, constructing, and applying insurance policies to determine the scope of actual or potential coverage.” (Food Pro Internat., Inc. v. Farmers Ins. Exchange (2008) 169 Cal.App.4th 976, 984–985 (Food Pro); see also Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1031.)
(…) See Howard v. American National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 520 (Howard) [“‘If coverage depends on an unresolved dispute over a factual question, the very existence of that dispute would establish a possibility of coverage and thus a duty to defend.’”].)
(…) As our Supreme Court has repeatedly emphasized, “the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.” (Horace Mann, supra, 4 Cal.4th at p.1081; Buss, supra, 16 Cal.4th at p.46.)
(…) While it may be true that Chicago Title was not required to speculate about unpleaded theories of easement, it was obligated to investigate whether the extrinsic facts known to it at tender raised a possibility of liability within the scope of the policy’s coverage. “The carrier must defend a suit which potentially seeks damages within the coverage of the policy” (Gray, supra, 65 Cal.2d at p.275) and “cannot construct a formal fortress of the third party’s pleadings and retreat behind its walls. The pleadings are malleable, changeable and amendable.” (Id. at p.276.)
(…) General rule that a liability ‘“insurer who has had an opportunity to defend [the underlying action brought against its insured] is bound by the judgment against its insured as to all issues which were litigated in the action,”’” provided the insurer had proper notice of the pendency of that action. (Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 515 (Pruyn); see Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 564.)
(…) In Foster-Gardner, the California Supreme Court confirmed the distinction between insurance policy terminology pertaining to a “‘suit’” (referring to “actual court proceedings initiated by the filing of a complaint”) (id. at p. 878) and a “‘“claim”’” (referring to “any number of things” that “‘may ultimately ripen into a suit’”) (id. at p.879). The court held that due to these differences, a precomplaint notice to an insured party regarding its responsibility for environmental pollution remediation does not trigger the insurer’s duty to defend a “‘suit.’” (Id. at p. 880.)
(…) These cases reinforce the proposition that an insurer who wrongfully refuses to provide its insured with a defense will be bound by the outcome based on the insured’s good faith efforts to resolve the matter. (See Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 660 [“An insurer who denies coverage does so at its own risk, and, although its position may not have been entirely groundless, if the denial is found to be wrongful it is liable for the full amount which will compensate the insured for all the detriment caused by the insurer’s breach of the express and implied obligations of the contract.”].)
(…) Bartel maintains that he was not required to renew tender after Chicago Title wrongfully refused to defend him in the first two underlying actions. The cases cited by Bartel for this point are factually distinguishable in that they involve a single underlying action, in which the insurer denied coverage, and the insured was “thereby relieved of his obligation to notify the insurance company of the progress of the action against him.” (Samson, supra, 30 Cal.3d at p. 238.) The cases cited by Bartel that absolve an insured of the need to renotify the insurer after the wrongful denial of a tender for defense do not address circumstances in which the alleged liability for the insured’s attorney fees and expenses extends to preparations for a separate action from that in which the insurer had notice. (See, e.g., Samson, at pp. 238–239; Stalberg, supra, 230 Cal.App.3d at p. 1233 [holding that when insurer refused plaintiffs’ tender of their appeal in the underlying action, it “gave up the right to control the litigation and could not insist that plaintiffs use” a specific law firm to cover the attorney’s fees on appeal]; Moe, supra, 21 Cal.App.3d at p. 302 [declining to enforce notice clause in insurance contract absent a showing of prejudice to the insurer due to the delayed notice and where insurer was aware of the pending claim].)
(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)
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