Failure of Insurer to Defend An Action by a Third Party
In Vandenberg v. Superior Court (1999) the plaintiff filed an action against his insurers, alleging various causes of action arising out of their failure to defend, settle, or indemnify an action by a third party.
The insurers sought summary adjudication on the ground that the third party action had resulted in an award of damages for breach of a lease, a contractual cause of action.
The trial court granted summary adjudication, but the Court of Appeal issued peremptory writs of mandate, reversing the summary adjudication order.
The order of the Court of Appeal was based on the reasoning that, "when there is damage to property, the focus of the inquiry should be the nature of the risk or peril that caused the injury and the specific policy language, not the form of action brought by the injured party".
Affirming the decision of the Court of Appeal, our Supreme Court held, "In holding that coverage for property damage losses is not necessarily precluded because they are pled as contractual damages, the Court of Appeal properly focused on the property itself and the nature of the risk causing the injury. . . . Coverage under a commercial general liability insurance policy is not based upon the fortuity of the form of action chosen by the injured party.
Thus, as the Court of Appeal stated, determination of coverage must be made individually by considering 'the nature of the property, the injury, and the risk that caused the injury, in light of the particular provisions of each applicable insurance policy.' " (Vandenberg v. Superior Court, supra, 21 Cal. 4th at p. 838).
The Supreme Court further explained, "Nothing in the respective policies between Vandenberg and any of the insurers suggests any special or legalistic meaning to the phrase 'legally obligated to pay as damages.' a reasonable layperson would certainly understand 'legally obligated to pay' to refer to any obligation which is binding and enforceable under the law, whether pursuant to contract or tort liability." (Id. at p. 840).