- A commercial general liability insurance policy does not cover property
damage to an insured’s own completed work under the plain language of a “your work”
exclusion, which applies to work included in the “products-completed operations hazard.”
- A Miller-Shugart settlement agreement that does not allocate between claims
that are covered and not covered by the insurance policy is not per se unreasonable and
unenforceable against the insurer.
- Determining the reasonableness of an unallocated Miller-Shugart settlement
agreement is a two-part inquiry that first examines the overall reasonableness of the
settlement and then determines how a reasonable person in the position of the insured
would have valued and allocated the covered and uncovered claims at the time of the
The facts in this case involve medical malpractice but the ruling has ramifications beyond medical malpractice. It is instructive as to multiple causes, i.e. “but for” v. “substantial factor” standards, and legal (proximate) causation v. cause-in-fact.
“…we conclude that the traditional but-for factual causation standard is the appropriate standard to be employed in most cases, including those involving multiple alleged causes.“
Simply, insurer has duty to defend additional insured due to potential for coverage given “caused in whole or in part” language in the policy. When that potential ended, a duty to defend no longer existed.
Insurer has right to reimbursement of defense expenses, if properly reserved, based on law of restitution notwithstanding absence of specific language in policy asserting this right.
- No duty to defend
- Reservation of rights to seek reimbursement of defense and indemnity expenses
- California Civil Code Section 2860 – no duty to provide independent counsel
- No interference by Scottsdale in PTB’s counterclaim in underlying action
- PTB purchased CGL policy from Scottsdale in 2016.
- In 2017, Scottsdale funded PTB’s defense in action between PTB and Brooks.
- Scottsdale contributed to settlement.
- Scottsdale sued PTB seeking declaratory relief and reimbursement of defense costs and settlement expenses.
- PTB countered for breach of contract and bad faith.
- Scottsdale moved for summary judgment on its claims and on PTB’s counterclaims.
- PTB opposed Scottsdale’s motion but did not itself move for summary judgment.
- District court granted Scottsdale’s motion.
- PTB appeals.
- Affirmed/not for publication
- Scottsdale had no duty to defend PTB.
- Underlying allegations either not potentially covered under the personal and advertising injury coverage, or were excluded.
- Duty to defend when there is a potential for coverage.
- PTB failed to show a potential for coverage.
- Scottsdale properly reserved its rights to recoup its defense costs and settlement expenses.
- An insurer “properly reserve[s] its rights” to recoup its defense costs by advising its insured that it would provide a defense under a reservation of certain rights, including “[t]he right to seek reimbursement of defense fees paid toward defending causes of action which raise no potential for coverage.”
- It repeated that reservation of rights in three subsequent communications with PTB.
- To recoup its settlement expenses, an insurer must make “a timely and express reservation of rights.”
- After an unsuccessful attempt to settle during the first mediation, Scottsdale sent PTB a letter reserving “the right to seek reimbursement for any judgment or settlement paid.”
- During the second round of settlement negotiations, Scottsdale twice offered to “contribute $300,000 toward settlement of this matter, subject to its reservation of rights,” in response to Brooks’ $850,000 settlement demand.
- Brooks then reduced its demand to $725,000 and Scottsdale increased its settlement offer to $350,000.
- A reasonable party in PTB’s position would have understood Scottsdale’s reservation of the right to seek reimbursement for “any settlement” to apply to its offer to contribute $350,000, as both were made during the second attempt at settlement negotiations.
- Scottsdale did not breach a duty to fund independent counsel for PTB under California Civil Code § 2860.
- Under Section 2860, an insurer must provide independent counsel to the insured “[i]f the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises.”
- District court properly concluded that this claim failed as a matter of law because Scottsdale owed no duty to defend.
- There was no conflict of interest, which arises “when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim.”
- Coverage depended simply on a comparison of the allegations in Complaint against the terms of the Policy. In this case, that is a solely legal issue, and the provisions of the Complaint and the Policy are fixed and not susceptible to manipulation by appointed counsel.
- District court did not err in granting summary judgment in Scottsdale’s favor on PTB’s counterclaim for bad faith interference with the prosecution of PTB’s counterclaims against Brooks.
- PTB voluntarily settled its counterclaims against Brooks in exchange for $250,000.
- PTB entered into the settlement agreement with notice that Scottsdale had reserved its rights to recoup any settlement expenses, yet PTB asked Scottsdale to fund the settlement, which it did.
- There is simply no evidence that Scottsdale interfered with PTB’s successful and self-initiated effort to settle its claims against Brooks for $250,000.
- The district court properly granted Scottsdale’s motion for summary judgment on PTB’s counterclaims against Scottsdale.