Insurer Satisfied Duty to Defend By Obtaining Dismissal of Counterclaim Without Prejudice

Insurer Satisfied Duty to Defend By Obtaining Dismissal of Counterclaim Without Prejudice

In Haskins, the court granted the insurer’s (“Wausau”) motion for summary judgment, finding that it did not breach its duty to defend the insured (“Haskins”) in connection with an underlying environmental cleanup action.

Haskins owned commercial property in San Francisco, and Wausau provided Haskins with comprehensive general liability insurance for the property. Cherokee Acquisition Corporation (“Cherokee”) purchased the property adjoining Haskins’ property in 1999, at which time Cherokee performed an environmental cleanup. Cherokee failed to complete the cleanup and entered into a “workplan” with Haskins to address remaining contamination issues. When Cherokee did not perform pursuant to the plan, Haskins sued Cherokee, and Cherokee filed a counterclaim for cost recovery and contribution.

Haskins tendered the counterclaim to Wausau on January 30, 2012. Wausau sent letters to Haskins in February and March requesting information, reserving its rights, and indicating that it was still investigating the claim. Thereafter, Wausau sent correspondence in April 2012, indicating that Wausau wanted to facilitate a settlement with Cherokee. Haskins did not object, and Wausau thereafter brokered a settlement agreement with Cherokee that contemplated a dismissal of Cherokee’s claims for past costs with prejudice and a dismissal of Cherokee’s claims for future costs without prejudice. Haskins refused to sign the settlement because the dismissal was, in part, without prejudice. Thereafter, Haskins and Cherokee entered into a stipulated judgment (without Wausau’s consent) for $1.7 million. Haskins sued Wausau, and Wausau moved for summary judgment.

The Court held that Wausau did not breach its duty to provide an “immediate defense” pursuant to 10 California Code of Regulations Section 2695.7(b), [subscribers can access an enhanced version of this regulation: lexis.com | Lexis Advance], which requires an insurer to accept or deny a claim within 40 days. Rather than apply the “rigid 40 day requirement,” the Court concluded that the inquiry is fact-bound, and that Wausau’s communications indicating that it was conducting an investigation and willing to broker a settlement satisfied any immediate duty. The Court also concluded that the settlement agreement brokered by Wausau sufficiently discharged its duty to defend because it would have resulted in a dismissal of the litigation against Haskins, and therefore granted summary judgment in favor of Wausau.

Haskins v. Emplrs. Ins. of Wausau, 2015 U.S. Dist. LEXIS 114059 (N.D. Cal. Aug. 26, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

Originally published in California Insurance Law Review - 2015

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