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Vol. 12 - Issue 4

May 8, 2023


Duty To Defend Not Based On Potential For Lability, But Potential For Coverage


In one way, this is an unusual duty to defend case.  The underlying facts are set out by the court:

“Husband and wife Simeon and Roslyn Peroff filed suit against [Poonam] 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.”

At issue was coverage under the liability section of a Stillwater Insurance homeowner’s policy issued to Dua.  The policy contains an “Animal Liability Exclusion” as follows: “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.”

Stillwater denied coverage, citing the “Animal Liability Exclusion.”  Dua settled with the Poroffs and filed suit against Stillwater.  The trial court found for Stillwater.  But the California appeals court, in Dua v. Stillwater Ins. Co., No. B314780 (Cal. Ct. App. May 5, 2023), reversed.

The appellate court noted that, under California law, the determination of an insurer’s duty to defend allows for the consideration of extrinsic evidence.  This Stillwater did not do: “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.”

Cases involving the role of extrinsic evidence, in the determination of an insurer’s duty to defend – when permitted -- are not unusual.  Here’s where Dua v. Stillwater addresses an additional, and unusual issue.

Stillwater argued that “if Dua lacked ownership, care, custody, or control of the dogs, then there is no possibility that Dua could be held liable under the Peroffs’ complaint.”

The appeals agreed that that may be an accurate statement of tort law.  However, the court went on to state that “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.”

The court noted that Stillwater was not considering that insurers must defend groundless, false or fraudulent actions.

The court could not rule out the possibility that “Stillwater unreasonably or improperly failed to defend when it was presented with facts suggesting that the animal liability exclusions did not apply.”  Hence, Stillwater’s motion for summary judgment on bad faith was denied.





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