Insurer Found Liable for Settlement Negotiated by Insured

San Diego Apartment Brokers prohibited riding bikes in the complex’s parking lot and other common areas after receiving complaints from several residents. Despite the new changes in policy, Juse Urista’s child continued to ride his bicycle in common areas. Brokers noticed that Urista was not complying with the new policy and served him an eviction notice. Urista sued Brokers claiming the eviction was wrongful and discriminatory. He also claimed negligence and violations of the Federal Fair Housing Act. Urista said the eviction also caused him depression and bodily injury.

Brokers received the claim and tendered it to its general liability insurer California Capital Insurance Company (CCIC). Brokers had not yet evicted Urista from his apartment at this point. CCIC refused to defend Brokers because Urista had not been evicted. Brokers’ attorney said CCIC could not refuse to defend his client without a valid defense. CCIC reviewed the case once again, but concluded that they did not have the authority to defend Brokers under the policy. They provided four reasons for not defending Broker’s action.

  1. Urista did not claim a separate physical injury
  2. Broker’s actions leading to the incident were decisions, not accidents
  3. A wrongful eviction had not taken place
  4. Even though Urista’s family had moved out, Urista’s continued residence precluded coverage

After CCIC refused to defend Brokers, Brokers ended up settling the case with Urista for $20,000. Then, Brokers sued CCIC for breach of contract and bad faith. The jury found in Brokers’ favor and awarded them $30,552. CCIC appealed the verdict by arguing that they never acted in bad faith because there was no genuine coverage dispute. However, the court rejected CCIC’s argument by saying Broker’s wrongful evictions claim clearly fell under potentially covered lawsuits.CCIC was being unreasonable by not defending Brokers. CCIC also ignored many of the other claims made by Brokers. CCIC’s refusal to defend Brokers was not in good faith. This case showed that an insurer can be held liable for settlement costs of its insured when the insurer refused to fends it insured in bad faith.

Sources referenced:

  1. JD Supra
  2. San Diego Apartment Brokers, Inc. v. California Capital Ins. Co., No. D062945, 2014 WL 1613449 (Cal. Ct. App. Apr. 22, 2014).
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