Dua v. Stillwater Insurance Company

Filed 5/5/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
POONAM DUA, B314780
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC723434)
v.
STILLWATER INSURANCE
COMPANY,
Defendant and Respondent.
APPEAL from orders of the Superior Court of Los Angeles
County. Gregory Keosian, Judge. Reversed and remanded with
directions.
Law Offices of Marilyn M. Smith, Marilyn M. Smith;
McCormick, Barstow, Sheppard, Wayte & Carruth and Gordon
M. Park, for Plaintiff and Appellant.
Burton Kelley, Michelle L. Burton and Devin T. Shoecraft
for Defendant and Respondent.
__________________________________________
In this insurance coverage action, the insurer contends that
an animal liability exclusion in the insured’s homeowner’s
insurance policy (the policy) precludes any duty to defend because
the third party plaintiffs sued the insured for injuries they and
their dogs sustained when their dogs were bitten by two pit bulls
on a public street. The insurer reviewed the underlying
complaint and determined that the exclusion applied because the
underlying complaint alleged that the pit bulls lived at the
insured’s home, which was covered by an animal liability
exclusion and therefore it had no obligation to indemnify an
excluded claim. The insured denied any ownership or control of
the pit bulls, which were owned by her boyfriend, who did not live
at her home. The insurer did not conduct any further
investigation.
Equating its obligation to indemnify with its duty to
defend, the insurer denied the insured a defense because, if the
exclusion applies, the insurer has no obligation to defend. The
problem with the insurer’s analysis is that the duty to defend is
broader than the duty to indemnify, and the policy here
specifically includes the defense of frivolous, groundless, false, or
fraudulent claims that fall within the policy’s coverage.
This was not a situation where there was no possibility of
coverage for the third party’s claims at the time the insurer
denied coverage. Even if the insured was correct and the pit
bulls were not under her ownership, did not live in her home, and
were not under her control when the attack occurred—the third
party still might have raised a claim potentially covered by the
policy. An insurer can be excused from the duty to defend only if
the third party complaint can by no conceivable theory raise an
issue within the policy’s coverage. Yet the insured was alleged to
2
know the dogs were dangerous and the insurer knew that the
dogs were being walked by the insured’s boyfriend near her
home. There may have been a possible claim that came within
coverage. That, as currently pleaded, the third party lawsuit was
frivolous and baseless does not mean there was no possibility of
coverage and thus no duty to defend. The insurer did nothing to
investigate and concluded there was no possible coverage based
only on the animal liability exclusion. The insured was entitled
to a defense and was forced to settle to minimize her exposure
because of the insurer’s decision to focus on the policy exclusion
rather than the insured’s exposure to a frivolous lawsuit that
could fall within the policy coverage. As discussed below, our
conclusion is consistent with the holding of our Supreme Court’s
decision in Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th
1076 (Horace Mann).
Plaintiff and appellant Poonam Dua (Dua) appeals from the
summary judgment entered in favor of defendant and respondent
Stillwater Insurance Company (Stillwater). Dua argues that the
trial court erred in granting summary judgment in favor of
Stillwater on her claims based on Stillwater’s refusal to defend
Dua in the third party lawsuit. We conclude that the trial court
erred in granting summary judgment to Stillwater because there
is evidence that Stillwater breached its duty to defend. We also
reverse the trial court’s grant of summary judgment in favor of
Stillwater on Dua’s claim for breach of the duty of good faith and
fair dealing. We decline to address the issue of punitive damages
for the first time on appeal and remand that issue to the trial
court. We reverse and remand for further proceedings.
3
FACTUAL AND PROCEDURAL BACKGROUND
I. Facts
The following facts are undisputed.
A. Insurance Policy
Dua was the named insured on a homeowner’s insurance
policy issued by Stillwater that provided her with personal
liability coverage. The policy provided coverage if a “claim is
made or a suit is brought against an ‘insured’ for damages
because of ‘bodily injury’ or ‘property damages’ caused by an
‘occurrence’ to which this coverage applies.” The personal
liability provision stated that Stillwater would pay up to its limit
of liability for damages for which the insured is legally liable, and
will “[p]rovide a defense at our expense . . . even if the suit is
groundless, false or fraudulent.”
The policy made three references to an “animal liability
exclusion.” First, the policy contained a separate page entitled
“Animal Liability Exclusion” (Exclusion 1),1 which states: “This
insurance does not apply to any occurrence or damages caused by
any animal, at any time, at any premises insured hereunder, or
caused by, arising out of, or in any way related to any animal
owned by or in the care, custody, or control of the insured, or any
member of the insured’s family or household. [¶] Animal
liability coverage is provided if a specific premium is charged and
shown on the Declaration page for this coverage. . . .” On the
bottom left of this page is written: “ANIMAL EXCL 05 14.”
1The parties refer to the policy’s three references to an
animal liability exclusion as Exclusions 1, 2, and 3, so we refer to
each by the same names for clarity purposes.
4
Second, the policy contains another page that adds the
following exclusion to “SECTION II – EXCLUSIONS, E.
Coverage E – Personal Liability And Coverage F – Medical
Payments to Others” of the policy as a new “Paragraph 9,”
providing: “9. ‘Bodily Injury’ or ‘Property Damage’ caused by an
occurrence or damage by any animal at any time on any premises
insured hereunder. This exclusion applies to damages caused by,
arising out of, or in any way related to any animal owned by or in
the care, custody, or control of the insured, or any member of the
insured’s family or household. [¶] Coverage may be provided if a
specific premium has been charged and shown on the Declaration
Page for this coverage. . . . [¶] All other terms and conditions of
this policy are unchanged. . . .” (Exclusion 2.)
Relevant to Exclusions 1 and 2, there is no indication of an
animal liability premium on the “Declaration” page, and it is
undisputed that Dua did not purchase such coverage.
A third exclusion (Exclusion 3) restates Exclusion 1, except
that it is expressly conditioned on the printing of a state-specific
endorsement form number on the policy. Exclusion 3 is contained
on a document titled, “HOMEOWNERS 6 – UNIT OWNERS
FORM[,] POLICY ENDORSEMENTS.” The document begins by
stating, “IMPORTANT NOTICE [¶]–ANIMAL LIABILITY
EXCLUSION–[¶]” and then provides: “This endorsement and its
policy conditions only apply if the appliable state endorsement
form number below is listed in the back of your policy
declarations.” The number that follows for California is “Animal
Excl 04 11.” This number is not on the back of the policy’s
“Declarations” page. Only animal exclusion “05 14” is listed in
the Declarations page under the title of “Amendment Provision,”
which is the number printed on Exclusion 1.
5
B. Third Party Lawsuit Against Dua
Husband and wife Simeon and Roslyn Peroff filed suit
against Dua and Eric Taylor (Taylor) for personal injuries and
property damages caused by Taylor’s dogs. In their complaint,
the Peroffs alleged that while they were walking their two dogs
on a street in Calabasas, California, Taylor was also walking his
dogs, and Taylor’s dogs attacked the Peroffs’ dogs. The Peroffs
alleged that as they walked by Taylor, they saw two pit bull dogs
standing by him on retractable leashes. They alleged that the
dogs were “let loose by Taylor,” and Taylor’s dogs attacked the
Peroffs’ dogs. Both of the Peroffs’ dogs were physically injured.
The complaint alleged that this experience also caused mental
and emotional distress to the Peroffs as witnesses of the attack.
Dua was not alleged to be present when the dog attack
occurred, nor did the complaint allege she was an owner of
Taylor’s dogs. Taylor is alleged as the owner and the only person
walking the dogs when the attack occurred. It is undisputed that
the attack did not occur on Dua’s property, but rather on a public
street.
As to Dua, the Peroffs’ complaint alleged that Taylor and
his dogs lived at Dua’s home, that Dua knew the “TAYLOR PIT
BULLS” were dangerous and their attack was reasonably
foreseeable to her but she did not prevent it, and that Dua was
therefore liable because she was “the owner of the property
and/or related [sic] that housed or w[as] otherwise aware of the
TAYLOR PIT BULLS,” and had a “duty of care” to take measures
to prevent the attack and did not do so.2
2 In Dua’s complaint against Stillwater, Dua denied that
Taylor lived with her at the insured property. She said that
Taylor was her boyfriend who lived out of state but was visiting
6
II. Procedural Background
Sometime around September 2016, Dua notified Stillwater
of the Peroffs’ lawsuit and sought defense of the suit under the
policy. Dua reported to Stillwater that her boyfriend, Taylor, had
been walking his dogs when they attacked the Peroffs’ dogs, and
that Taylor was the owner of the dogs.
Stillwater employee Tracy Hull (Hull) reviewed the Peroffs’
complaint and the information provided by Dua, and determined
that there was no coverage for the Peroffs’ lawsuit based on “the
Animal Liability Exclusion endorsement.” In the denial letter,
Hull quoted Exclusion 2. In her deposition, Hull testified that
this was a mistake and that she meant to quote Exclusion 1. The
denial letter further provided that it is “not meant to detail every
basis upon which coverage might be declined. Stillwater
specifically reserves its right to decline coverage on any basis
which may exist under these circumstances. Nothing in this
correspondence should be construed as a waiver of any terms,
conditions, exclusions, and rights under the policy.”
Dua settled the Peroffs’ lawsuit. The settlement agreement
stated that the parties acknowledged that “TAYLOR was the
owner of the two dogs that were involved in the September 18,
2015 incident which gave rise to the lawsuit.”
Dua filed suit against Stillwater in September 2018. She
alleged claims for breach of contract and for breach of the
covenant of good faith and fair dealing. The basis for these
claims were allegations that Stillwater failed to conduct an
adequate investigation into the claims against Dua in the Peroffs’
his relatives in the Los Angeles area at the time of the dog
attack.
7
lawsuit and Stillwater’s failure to defend Dua in the action and
pay for her settlement because it “unreasonably and narrowly”
interpreted the policy. Dua asserted that had Stillwater
conducted a reasonable investigation of the Peroffs’ claims, it
would have discovered the following facts: (1) she was not
married to Taylor; (2) Taylor did not live with her nor was he
staying with her at the time of the dog attack; (3) the attack did
not occur on her premises; and (4) at the time of the dog attack,
the dogs were leashed and under the care, custody, and control of
Taylor.
Stillwater moved for summary judgment. Stillwater
argued that Dua’s first cause of action for breach of contract had
no merit because Stillwater had no duty to defend or indemnify
Dua against the Peroffs’ suit, citing Exclusion 1. Stillwater
argued that Dua’s second cause of action for breach of the implied
covenant of good faith and fair dealing had no merit because
Stillwater did not wrongfully deny coverage, and its refusal to
defend or indemnify was reasonable as a matter of law. Finally,
Stillwater asserted that Dua’s prayer for punitive damages had
no merit because there was no evidence that Stillwater engaged
in any malicious, oppressive, or fraudulent conduct that would
support damages under Civil Code section 3294.
In opposition, Dua argued that for an insurer to decline to
defend against a third party lawsuit based on a coverage
exclusion, the insurer needs to “prove” the facts in the case that
would trigger the exclusion. Dua also argued that the Peroffs’
could have amended their complaint to allege a covered claim,
and that the policy was ambiguous.
The trial court granted Stillwater’s motion for summary
judgment. The court concluded that because Dua’s liability for
8
the Peroffs’ lawsuit could be established only on facts that would
trigger Exclusion 1, which would negate coverage, there was no
duty to defend because there was “no possibility that [Dua] could
be found liable on facts that would have required [Stillwater] to
indemnify her.” The court considered Exclusions 1, 2, and 3 and
the policy as a whole and found no ambiguity. Because it granted
Stillwater’s motion on the breach of contract cause of action, the
trial court also granted the motion on the remaining cause of
action for breach of the implied covenant of good faith and fair
dealing. It thus granted Stillwater’s motion for summary
judgment in its entirety.
This appeal by Dua followed.
DISCUSSION
I. Standard of Review
Summary judgment is appropriate if there are no triable
issues of material fact and the moving party is entitled to
judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c);
Regents of University of California v. Superior Court (2018) 4
Cal.5th 607, 618.) “ ‘ “ ‘ “We review the trial court’s decision de
novo, considering all the evidence set forth in the moving and
opposing papers except that to which objections were made and
sustained.” ’ [Citation.] We liberally construe the evidence in
support of the party opposing summary judgment and resolve
doubts concerning the evidence in favor of that party.” ’ ”
(Hampton v. County of San Diego (2015) 62 Cal.4th 340, 347.)
A defendant moving for summary judgment has the initial
burden of presenting evidence that a cause of action lacks merit
because the plaintiff cannot establish an element of the cause of
action or there is a complete defense. (Code Civ. Proc., § 437c,
subd. (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th
9
826, 853.) If the defendant satisfies this initial burden, the
burden shifts to the plaintiff to present evidence demonstrating
there is a triable issue of material fact. (Code Civ. Proc., § 437c,
subd. (p)(2); Aguilar, at p. 850.)
II. Relevant Insurance Law Principles
Interpretation of an insurance policy is a question of law
that follows the general rules of contract interpretation. (TRB
Investments, Inc. v. Fireman’s Fund Ins. Co. (2006) 40 Cal.4th 19,
27.) If the language of a policy is clear and explicit, then it
governs. (Foster-Gardner, Inc. v. National Union Fire Ins. Co.
(1998) 18 Cal.4th 857, 868.) “A policy provision will be
considered ambiguous when it is capable of two or more
constructions, both of which are reasonable.” (Ibid.) Provisions
must be interpreted in context, giving effect to every part of the
policy with “ ‘each clause helping to interpret the other.’ ”
(Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.)
The insured has the initial burden of showing that a claim
falls within the scope of coverage, and a court will not “ ‘indulge
in a forced construction of the policy’s insuring clause to bring a
claim within the policy’s coverage.’ ” (Waller v. Truck Ins.
Exchange, Inc. (1995) 11 Cal.4th 1, 16 (Waller).) But the burden
is on the insurer to show the claim falls within an exclusion to
coverage, and exclusions are narrowly construed. (Ibid.) An
exclusionary clause must be “ ‘conspicuous, plain and clear.’ ”
(De May v. Interinsurance Exchange (1995) 32 Cal.App.4th 1133,
1137, quoting Steven v. Fidelity & Casualty Co. (1962) 58 Cal.2d
862, 878, italics omitted.)
III. Breach of Contract
“[T]he duty to defend is contractual.” (Buss v. Superior
Court (1997) 16 Cal.4th 35, 47.) “[A] liability insurer owes a
10
broad duty to defend its insured against claims that create a
potential for indemnity.” (Horace Mann, supra, 4 Cal.4th at
p. 1081.) A “ ‘carrier must defend a suit which potentially seeks
damages within the coverage of the policy.’ ” (Ibid., quoting Gray
v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275 (Gray).)
“Implicit in this rule is the principle that 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, at p. 1081.) The duty to defend
applies to claims that are groundless, false, or fraudulent.
(Waller, supra, 11 Cal.4th at p. 19, citing Gray, supra, at p. 267.)
“However, ‘ “where there is no possibility of coverage, there is no
duty to defend.” ’ ” (Waller, at p. 19, quoting Fire Ins. Exchange
v. Abbott (1988) 204 Cal.App.3d 1012, 1029.)
“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, supra, 4 Cal.4th at p. 1081; see also
Waller, supra, 11 Cal.4th at p. 19.) “Conversely, where the
extrinsic facts eliminate the potential for coverage, the insurer
may decline to defend even when the bare allegations in the
complaint suggest potential liability. [Citations.] This is because
the duty to defend, although broad, is not unlimited; it is
measured by the nature and kinds of risks covered by the policy.”
(Waller, at p. 19.) The duty to defend arises under the facts
alleged, and any doubts are resolved in favor of the insured.
(Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59
Cal.4th 277, 287 (Hartford Casualty).)
11
Here, the policy’s personal liability provision applied to a
claim or suit brought against the insured for damages because of
‘bodily injury’ or ‘property damages’ caused by an ‘occurrence’ to
which this coverage applies,” and stated that Stillwater would
“[p]rovide a defense at our expense . . . even if the suit is
groundless, false or fraudulent.”
When Dua sought Stillwater’s defense against the Peroffs’
lawsuit, she informed Stillwater that she did not own the dogs
and that the dogs were in the care, custody, and control of her
boyfriend when the dog attack occurred because Taylor was
walking the dogs. Stillwater responded with a letter stating
there was no coverage, citing Exclusion 2. Stillwater ignored the
facts provided by Dua suggesting that the policy’s animal
exclusions did not apply because she did not own the dogs, nor
were they in her care, custody, or control. The duty to defend
exists where extrinsic facts, both disputed and undisputed, that
the insurer knows or becomes aware of from any source at the
time of the inception of the third party lawsuit or at the time of
tender, suggest there may be coverage. (Hartford Casualty,
supra, 59 Cal.4th at p. 287.) “Thus, ‘[i]f any facts . . . 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.’ ” (Ibid.) There is no evidence that Stillwater
took any measures to investigate or otherwise negate the facts
suggesting that an animal liability exclusion may not apply and
there was potential coverage, and therefore it had a duty to
defend Dua.
Stillwater argues that the trial court was correct in finding
it had no duty to defend as a matter of law. It argues that if Dua
12
lacked ownership, care, custody, or control of the dogs, then there
is no possibility that Dua could be held liable under the Peroffs’
complaint. It also argues that if Dua did have ownership, care,
custody, or control of the dogs, then there would be no coverage
under the policy because Exclusion 1 would apply. Following this
reasoning, which was the reasoning of the trial court, Stillwater
argues there was no possibility of coverage under the policy.
We disagree. Stillwater conflates the possibility of Dua’s
liability with Stillwater’s duty to defend. Even if Dua cannot be
found legally liable under the Peroffs’ complaint as pleaded, and
is therefore not entitled to indemnity coverage under the policy,
Stillwater may still be required to defend her. The Peroffs’
claims, when evaluated in light of the facts presented by Dua to
Stillwater when she tendered the claim, may have been frivolous
and unmeritorious, but did not come within the animal liability
exclusion. They thus created at least a possibility of coverage
and the duty to defend. (Horace Mann, supra, 4 Cal.4th at
p. 1086 [“An insured buys liability insurance in large part to
secure a defense against all claims potentially within policy
coverage, even frivolous claims unjustly brought”].) The duty to
defend is broader than the duty to indemnify. (Horace Mann, at
p. 1081; Gray, supra, 65 Cal.2d at p. 278.) An insurer can be
excused from the duty to defend “only when ‘ “the third party
complaint can by no conceivable theory raise a single issue which
could bring it within the policy coverage.” ’ ” (Hartford Casualty,
supra, 59 Cal.4th at p. 288.) Stillwater has not established that
there was no conceivable theory to bring the third party
complaint within the possibility of coverage, and the facts Dua
provided to Stillwater suggested that there may be coverage.
13
In sum, Stillwater failed to meet its burden of establishing
it was entitled to summary judgment on Dua’s breach of contract
claim, and the trial court erred in granting it summary judgment.
IV. Breach of the Covenant of Good Faith and Fair
Dealing
The trial court granted summary judgment in favor of
Stillwater on Dua’s second cause of action for good faith and fair
dealing because it concluded that Stillwater had not breached its
contract with Dua. Bad faith actions require a determination
that the insurer breached its obligations under the contract. (See
California State Auto. Assn. Inter-Ins. Bureau v. Superior Court
(1986) 184 Cal.App.3d 1428, 1434 [before proceeding to
adjudicate insured’s bad faith claim, it must first be established
that insurer breached its obligations under insurance contract];
Kopczynski v. Prudential Ins. Co. (1985) 164 Cal.App.3d 846,
849.) For the reasons above, we conclude that the trial court
erred in holding that Stillwater had not breached the parties’
contract.
A mere breach of contract, however, is insufficient to
determine bad faith. To prevail at trial, the insured must also
show that insurer withheld that benefit unreasonably or without
proper cause. (See, e.g., Gruenberg v. Aetna Ins. Co. (1973) 9
Cal.3d 566, 574; Congleton v. National Union Fire Ins. Co. (1987)
189 Cal.App.3d 51, 58.) Stillwater argues that Dua cannot make
this showing because its denial of coverage based on the animal
liability exclusion was reasonable. Dua has introduced facts
giving rise to a material dispute of fact as to whether Stillwater
unreasonably or improperly failed to defend when it was
presented with facts suggesting that the animal liability
exclusions did not apply. (See Wilson v. 21st Century Ins. Co.
14
(2007) 42 Cal.4th 713, 721, 724 [stating that an “insurer is not
entitled to judgment as a matter of law where . . . a jury could
conclude that the insurer acted unreasonably” and “[a] trier of
fact may find that an insurer acted unreasonably if the insurer
ignores evidence”].)
We conclude that summary judgment in favor of Stillwater
was improper as to Dua’s second cause of action for breach of the
duty of good faith and fair dealing. On remand, the trial court
should enter an order denying Stillwater’s motion for summary
judgment on Dua’s second cause of action for good faith and fair
dealing.
V. Punitive Damages
Stillwater also moved for summary judgment on Dua’s
claim for punitive damages, arguing there is no clear and
convincing evidence that Stillwater engaged in any malicious,
oppressive, or fraudulent conduct to support an award under
Civil Code section 3294. (See PPG Industries, Inc. v.
Transamerica Ins. Co. (1999) 20 Cal.4th 310, 319.)
The trial court did not address punitive damages in its
order granting summary judgment to Stillwater. On appeal, Dua
argues that we should not address the issue of punitive damages
because the trial court did not address it. We agree with Dua
and decline to address the issue for the first time on appeal. An
appellate court may decline to resolve in the first instance issues
that a trial court’s initial erroneous ruling made it unnecessary
for the trial court to address. (Ruegg & Ellsworth v. City of
Berkeley (2023) 89 Cal.App.5th 258, 268.)
We remand to the trial court for consideration of
Stillwater’s motion for summary judgment on the issue of
punitive damages.
15
DISPOSITION
The summary judgment order in favor of Stillwater is
reversed. The cause is remanded and the trial court is directed to
enter a new order denying Stillwater’s motion for summary
judgment on Dua’s claims for breach of contract and breach of the
duty of good faith and fair dealing. On remand, the court shall
consider Stillwater’s motion for summary judgment on punitive
damages. Dua is entitled to costs on appeal.
CERTIFIED FOR PUBLICATION.
LUI, P. J.
I concur:
CHAVEZ, J.
16
Dua v. Stillwater Insurance Company, B314780
ASHMANN-GERST, J., Concurring in the judgment.
I agree with the majority that the trial court erred in
granting defendant and respondent Stillwater Insurance
Company’s (Stillwater) motion for summary judgment. I write
separately because I reach that conclusion through a different
analysis.
I. Factual and Procedural Background
The undisputed facts are set forth in the majority opinion.
Plaintiff and appellant Poonam Dua (Dua) was insured by
Stillwater. The policy provided coverage if a “claim is made or a
suit is brought against an ‘insured’ for damages because of ‘bodily
injury’ or ‘property damages’ caused by an ‘occurrence’ to which
this coverage applies.” “‘Occurrence’” is defined as an accident
that results in bodily injury or property damage. As set forth in
the personal liability provision, Stillwater agreed to “[p]rovide a
defense at [its] expense . . . even if [a third party] suit is
groundless, false or fraudulent.” The policy also contains an
animal liability exclusion,1 excluding coverage for damages
caused by “any animal owned by or in the care, custody, or
control of” Dua.
Simeon and Roslyn Peroff (the Peroffs) filed a lawsuit
against Dua and Eric Taylor (Taylor) for personal injuries and
property damages caused by Taylor’s dogs on a public street. As
to Dua, the Peroffs’ complaint alleges that Dua knew that
1 The majority opinion explains in detail the policy’s
reference to three animal liability exclusions. (Maj. Opn., at
pp. 4–5.) To avoid repetition, I do not set forth the terms of each
exclusion here.
Taylor’s dogs were dangerous and their attack was reasonably
foreseeable to her but she did not prevent it. The complaint
further alleges that Dua is liable to the Peroffs because she had a
“duty of care” to take measures to prevent the dog attack and did
not do so.
Dua notified Stillwater of the Peroffs’ lawsuit and sought
defense of it under the terms of her insurance policy. Stillwater
denied Dua’s claim pursuant to the animal liability exclusion.
Dua eventually settled with the Peroffs, and then filed the
instant action for breach of contract and breach of the covenant of
good faith and fair dealing against Stillwater. As is relevant
here, Dua alleges that Stillwater breached its duty to defend her.
Stillwater moved for summary judgment, or, in the
alternative, summary adjudication of each cause of action and
Dua’s prayer for punitive damages. The trial court granted
Stillwater’s motion for summary judgment. In so doing, it did not
reach Stillwater’s request for summary adjudication of Dua’s
demand for punitive damages.
II. Analysis
A. Relevant law
“The principles governing determination of an insurer’s
duty to defend are well established, and were reiterated in
Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081:
‘[A] liability insurer owes a broad duty to defend its insured
against claims that create a potential for indemnity. [Citation.]
As we said in [Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 275
(Gray)], “the carrier must defend a suit which potentially seeks
damages within the coverage of the policy.” [Citation.] Implicit
in this rule is the principle that the duty to defend is broader
than the duty to indemnify; an insurer may owe a duty to defend
2
its insured in an action in which no damages ultimately are
awarded. [Citations.] [¶] 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.’” (Westoil Terminals Co., Inc. v. Industrial
Indemnity Co. (2003) 110 Cal.App.4th 139, 152–153 (Westoil).)
“The insurer must defend any claim that would be covered
if it were true, even if in fact it is groundless, false, or fraudulent.
[Citation.]” (North American Building Maintenance, Inc. v.
Fireman’s Fund Ins. Co. (2006) 137 Cal.App.4th 627, 637.)
“‘Under such a clause it is the duty of the insurer to defend the
insured when sued in any action where the facts alleged in the
complaint support a recovery for an “occurrence” covered by the
policy, regardless of the fact that the insurer has knowledge that
the injury is not in fact covered. [Citations.]’ [Citation.]” (Borg
v. Transamerica Ins. Co. (1996) 47 Cal.App.4th 448, 455; see also
Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287,
298 (Montrose) [“the insurer may not decline to defend a suit
merely because it is devoid of merit, but instead must assert
appropriate defenses on the insured’s behalf in the underlying
action”].)
“However, ‘the obligation to defend is not without limits.
[Citation.] Rather, such a duty is limited by “the nature and kind
of risk covered by the policy.” [Citation.] For example, “the
insured could not reasonably expect protection under an
automobile insurance policy for injury which occurs from defect in
a stairway.” [Citations.] [¶] . . . [¶] Alternatively in Gray, we
held that there was also a duty to defend whenever the
underlying action potentially sought damages covered by the
indemnity provisions of the policy. [Citations.] . . . [¶] We
3
recognized, however, that “the insurer need not defend if the
third party complaint can by no conceivable theory raise a single
issue which could bring it within the policy coverage.”
[Citations.]’ [Citation.] In other words, if ‘there is no potential
for coverage, the insurer may refuse to defend the lawsuit.’
[Citation.]” (Westoil, supra, 110 Cal.App.4th at p. 153; see also
Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59
Cal.4th 277, 287 [“An insurer owes a broad duty to defend
against claims that create a potential for indemnity under the
insurance policy”].)
Generally speaking, “doubt as to whether an insurer owes a
duty to defend ‘must be resolved in favor of the insured.’
[Citation.]” (Hartford Casualty Ins. Co. v. Swift Distribution,
Inc., supra, 59 Cal.4th at p. 287.)
B. Analysis
Applying these legal principles, the trial court erred in
granting Stillwater’s motion for summary judgment. There was a
potential for indemnity under the theory alleged by the Peroffs
against Dua because their claims for bodily injury and/or
property damage arose out of an “‘[o]ccurrence’”; thus, Stillwater
owed Dua a duty to defend her against the Peroffs’ claims.
The Peroffs alleged that Dua knew that Taylor’s dogs were
dangerous and did nothing to prevent their attack. While this
potential theory of liability may be a stretch under the current
state of the law,2 that is not to say that there was no potential for
indemnity.
2 “California courts have explicitly rejected the concept of
universal duty.” (The MEGA Life & Health Ins. Co. v. Superior
Court (2009) 172 Cal.App.4th 1522, 1527.)
4
“In general, courts have imposed a duty to prevent the
harm caused by a third party’s animal when a defendant
possesses the means to control the animal or the relevant
property and can take steps to prevent the harm.” (Cody F. v.
Falletti (2001) 92 Cal.App.4th 1232, 1236; see also Chee v.
Amanda Goldt Property Management (2006) 143 Cal.App.4th
1360, 1369; Donchin v. Guerrero (1995) 34 Cal.App.4th 1832,
1838.) “‘When it becomes clear that the plaintiff’s interests are
entitled to legal protection against the conduct of the defendant,
the mere fact that the claim is novel will not itself operate as a
bar to the remedy.’” (Smith v. Superior Court (1984) 151
Cal.App.3d 491, 496, overruled on other grounds in Cedars-Sinai
Medical Center. v. Superior Court (1998) 18 Cal.4th 1, 18.)
Applying the logic and reasoning of these cases, there is the
possibility that a court could have found Dua liable to the Peroffs
under a novel theory premised upon Dua’s alleged duty to take
steps to prevent foreseeable injury and damage, such as by
instructing her invited guests not to bring vicious animals to her
home because it was reasonably foreseeable that the guests
would walk the animals and that the animals would attack. This
sort of claim would have fallen within the scope of the nature and
kind of risk covered by Dua’s policy.3 (See, e.g., Westoil, supra,
110 Cal.App.4th at p. 153; Montrose, supra, 6 Cal.4th at p. 298
[“the insurer may terminate its defense obligation by proving
3 And, such a claim would not implicate the animal liability
exclusion because it does not arise out of Dua’s ownership,
custody, control, or care of Taylor’s dogs. (Westoil, supra, 110
Cal.App.4th at p. 146 [exclusions in insurance policies are strictly
construed].) Rather, it would arise out of Dua’s alleged ability to
somehow control her invited guests.
5
that the underlying claim falls outside the scope of policy
coverage, but not by demonstrating that the claim lacks merit, or
might have merit only on some theory outside the scope of
coverage”].)
I acknowledge that under the current state of the law this
seems to be a groundless claim. But, as my colleagues recognize,
pursuant to the terms of the insurance policy and well-
established insurance law, Stillwater was obligated to defend
Dua against groundless claims. In other words, while the Peroffs’
claim against Dua may have been baseless, that did not excuse
Stillwater’s duty to defend her. (See Delgado v. Interinsurance
Exchange of Automobile Club of Southern California (2009)
47 Cal.4th 302, 314, fn. 2 [an insured could reasonably expect a
defense when the policy indicates that the insurer would defend
against groundless claims].) Instead, Stillwater should have
undertaken the defense and asserted appropriate defenses on
Dua’s behalf. (Montrose, supra, 6 Cal.4th at p. 298.)
It follows that Stillwater did not negate all facts suggesting
potential coverage. As such, it was not entitled to summary
judgment or summary adjudication of either the claim for breach
of contract or breach of the implied covenant of good faith and
fair dealing. (Hartford Casualty Ins. Co. v. Swift Distribution,
Inc., supra, 59 Cal.4th at p. 287.)
6
In light of this determination, I agree with the majority
that the matter should be remanded to the trial court for
consideration of Stillwater’s motion for summary adjudication of
the issue of punitive damages. (Planet Bingo, LLC v. Burlington
Ins. Co. (2021) 62 Cal.App.5th 44, 58.)
________________________, J.
ASHMANN-GERST
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