Court: Different Standards Exist For Insurers, California Insurance Guarantee Association

The California Court of Appeals, Second District, held that the California Insurance Guarantee Association acted properly in denying the duty to defend because its duty is judged by a different standard than that of an insurer.  The case is Waite v. California Insurance Guarantee Association, 2006 WL 1102645 (April 27, 2006).

The insured, a Red Robin restaurant and its owners, had a Commercial General Liability policy through Reliance Insurance Co.  They were sued by a former employee for alleged sexual harassment committed by her supervisor.  The lawsuit included allegations of assault and battery resulting in bodily injury.  However, the CGL had an express exclusion for bodily inury arising out of and in the course of employment, and Reliance twice denied the duty to defend.  After the insured lost at trial to the plaintiff, it sued Reliance for breach of contract, saying the insurer wrongly denied the duty to defend because there was a potential for coverage under the policy.   Before the case got very far, Reliance was declared insolvent by Pennsylvania regulators .

Every state has a fund that, under certain circumstances, will fulfill limited obligations of insolvent insurers.  In California, it is the California Insurance Guarantee Association (CIGA).  The insured argued that Reliance’s denial was incorrect, but the court said that issue was irrelevant, because the scope of CIGA’s duty is judged by the statute that created it, not traditional insurance law.  Therefore, CIGA was allowed to consider all the evidence available at the time the claim was presented to it.  The totality of the information clearly indicated there was no coverage under the policy, the court said.

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