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On September 25, 2007, the California Supreme Court agreed to review the California Court of Appeal's decision in Delgado v. Interinsurance Exchange of the Automobile Club of Southern California, previously published at 152 Cal.App.4th 671 ("Delgado"). As we previously reported, the Court of Appeal held that an underlying complaint with a cause of action alleging an insured acted on an unreasonable belief in self-defense created a potential for coverage and, therefore, a complaint against the insurer adequately stated a claim for breach of contract and bad faith against an insurer that refused to defend and indemnify its insured.
The Court of Appeal's decision after rehearing in Delgado reversed a trial court order sustaining a demurrer without leave to amend and dismissing a complaint against the insurer, Interinsurance Exchange of the Automobile Club of Southern California ("ACSC"), for breach of contract, breach of the covenant of good faith and fair dealing and recovery of a stipulated judgment pursuant to Insurance Code § 11580(b)(2). ACSC had declined to defend an underlying action which involved a complaint alleging an unprovoked assault and, alternatively, negligent self-defense. The Court of Appeal's original decision had also stated it was bad faith as a matter of law for ACSC to decline to defend but the Court deleted all references to this conclusion in its decision after rehearing.
ACSC issued a homeowners policy to Craig Reid. Jonathan Delgado filed suit against Reid alleging Reid had physically attacked Delgado. Delgado alleged two causes of action. In one he alleged Reid's actions were intentional, unprovoked and without justification. In the other he alleged Reid's actions were negligent and that Reid unreasonably believed he was acting in self-defense when he struck Delgado.
Reid tendered his defense to ACSC which declined coverage on the ground there was no "occurrence" and that Reid's conduct was within the policy's intentional/willful acts exclusion or Ins. Code § 533.
Reid and Delgado later settled their dispute. Delgado dismissed his intentional assault claim and the parties stipulated Reid had engaged in a "negligent use of excessive force in the exercise of his right of self defense." The parties entered a stipulated Judgment of $150,000 and Reid agreed to pay Delgado $25,000. Reid assigned Delgado all of his rights against ACSC in exchange for a partial satisfaction of judgment and a covenant not to execute on the balance.
The trial court sustained ACSC's demurrer without leave to amend noting that merely framing the underlying incident in terms of negligence was not conclusive of the duty to defend and that characterizing an assault as an "accident" was disingenuous. In addition, the trial court noted the absence of facts to support the conclusion Reid believed he was acting in self-defense.
The Court of Appeal noted the central question was whether "the underlying complaint or other facts available to ACSC gave rise to a potential liability under the policy." The Court concluded the case was similar to Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 275, in which an insured tendered an assault claim with a letter to the insurer advising he had acted in self-defense. California's Supreme Court held that where a complaint alleging intentional excluded conduct could have been amended to allege negligent conduct within the scope of coverage of the policy there was a duty to defend. The Court of Appeal did not discuss the language of the insuring agreement at issue in Gray, which lacked an "occurrence" or other similar limitation. The only policy language at issue in Gray was an exclusion for intentionally caused bodily injury.
The Court of Appeal concluded Delgado's amended complaint alleged the potential for Reid to be found liable for "unintentional conduct" and hence gave rise to a duty to defend. The Court reasoned that when one acts reasonably in self-defense the conduct is not even tortious. From this the Court concluded excessive force used in self-defense is properly characterized as non-intentional tortious conduct and a form of negligence. Since the term "accident" is not defined in the policy, excessive force used in self-defense qualifies as an "accident" since an "accident" exists "when any aspect in the causal series of events leading to the injury . . . was unintended by the insured and a matter of fortuity." (Citing Merced Mut. Ins. Co. v. Mendez (1989) 213 Cal.App.3d 41, 50.) However, the Court held that whether ACSC had a duty to indemnify, and whether any breach of the duty to indemnify was in bad faith, involved factual issues that could not be resolved on demurrer. The Court acknowledged that if ACSC had been aware of extrinsic facts tending to negate the allegation the insured had negligently used excessive force in self-defense "[s]uch evidence may well be sufficient to conclusively negate coverage." The Court of Appeal reversed the trial court's judgment of dismissal and remanded the case to the trial court with directions to conduct further proceedings not inconsistent with its decision.
ACSC sought review of the Court of Appeal's decision to address whether allegations of an assault in the context of an unreasonable belief in self-defense present the potential for coverage where coverage is provided for bodily injury caused by an "occurrence" defined as an accident. The Supreme Court's order granting review does not specify what issues it will review and, accordingly, it may review other issues presented by the case. In light of the Supreme Court's review, the Delgado decision is no longer available for use as legal authority.
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