Insurance Case Law Roundup (12/20/07)

The following are some notable California insurance cases that have come out in the last few weeks.

Fraudulently Induced Settlement Actionable Without Return of Consideration  (Village Northridge Homeowners Association v. State Farm Fire and Casualty – filed December 17, 2007, Second Div.)

In Los Angeles Superior Court, the insured (a homeowners association) sued its insurer for allegedly inducing the insured's settlement of its claims stemming from earthquake damage due to the insurer's alleged misrepresentation of policy limits. The insurer demurred to the complaint on that grounds that in order to sue for fraudulent inducement, the homeowner’s association first needed to return the consideration it received for the release of their claims. The trial court agreed with the insurer holding that precedent shows that a plaintiff cannot avoid a fraudulently induced contract of release without rescinding the contract and restoring the money paid as consideration for the release.

The Court of Appeal disagreed by finding that precedent only applies to personal injury releases.  Rather, the Court of Appeal held that ordinary contract principles applied to the release agreement between the insured and insurer. As such, the Court found that a party induced by fraud to execute a contract has the option of rescinding it or affirming it and recovering damages for fraud. Therefore, the homeowners association was able to keep the money it received when it released the claims against the insurer and it still had a viable cause of action for fraud against the insurer.

Find the full opinion here:

http://www.courtinfo.ca.gov/opinions/documents/B188718.PDF

Slander Not an “Occurrence” or “Bodily Injury” under Homeowner’s Policy  (Stellar v. State Farm Fire and Casualty Co. – filed November 27, 2007, Second Div.)

The insurer had no duty to defend an insured under the terms of a homeowners policy when the insured was sued for defamation, slander per se and intentional infliction of emotional distress. In that underlying action, the insured allegedly stated that his brother was sexually molesting his son. The insurer declined to assume the defense on the grounds that the underlying action failed to allege either an “occurrence” defined by the policy as an accident or unforeseen event, or any claim for “bodily injury” defined by the policy as physical injury. The trial court and appellate court agreed that there was not a triable issue of fact and therefore entry judgment for the insurer as a matter of law.

Find the full opinion here:

http://www.courtinfo.ca.gov/opinions/documents/B188718.PDF

James Castle, Esq. is a guest contributor and is an associate at Barger & Wolen LLP.