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Case Briefs
'Intentional' Conduct Can Constitute a Covered 'Accident'
In Legacy Partners v. Clarendon American Insurance Co., a Southern District of California judge addressed a motion to dismiss filed by Clarendon with respect to Legacy Partners' breach of contract and bad faith claims against Clarendon. The underlying action involved construction defect litigation against Legacy Partners. In that litigation, the underlying plaintiff alleged that Legacy Partners among others “(1) trespassed upon [plaintiff's] property in order to make repairs to a retaining wall; (2) constructed subterranean tie-backs using Wellington's property without permission; (3) failed to exercise reasonable care and skill in performing construction work on [plaintiff's] property; (4) failed to exercise reasonable care and skill in determining the need for repair to the retaining wall; (5) caused damage by placement of heavy construction equipment and materials on the [plaintiff's] property; and (6) negligently removed storm and pollution work that [plaintiff] had completed as part of its development of the property.” Legacy Partners sought coverage from Clarendon for the underlying litigation. Clarendon denied coverage, based in significant part, upon its claim that the lawsuit did not involve any allegations of an “occurrence” as that term was used in its policy issued to Legacy Partners. Thus, Legacy Partners filed suit alleging, in part, breach of contract and bad faith.
In the coverage litigation, Clarendon moved to dismiss Legacy Partners' breach of contract claim based upon its assertion that “because [Legacy Partners'] actions with regard to the [underlying plaintiff's] property were intentional rather than accidental, they do not qualify as 'occurrences' eligible for coverage under the insurance policy.” Clarendon also sought to dismiss Legacy Partners' bad faith claim by arguing that “(1) [Legacy Partners] has failed to plead that [Clarendon] breached the insurance contract; and (2) [Legacy Partners] failed to plead how [Clarendon's] handling of coverage was unreasonable.” The court denied Clarendon's motion to dismiss on all grounds.
With respect to Legacy Partners' breach of contract claim, the court acknowledged Clarendon's argument that at least under the cases cited by Clarendon, allegations of negligence do not necessarily mean that the insured's conduct was equivalent to an “accident” as that term is used in general liability policies. The court also agreed that certain of the underlying plaintiff's allegations (such as those involving trespass upon the underlying plaintiff's property) included conduct that appeared “to be intentional actions with intended consequences, rather than accidents.” Regardless, however, the court also found that other conduct, while potentially intentional in nature, still could constitute a covered “accident.” In particular, the court stated that, by way of example, “[Legacy Partners'] intentional act of placing equipment on [the underlying plaintiff's] property could have resulted in unintended consequences if [Legacy Partners] accidentally deployed the wrong or too heavy equipment.” The court could not conclude from the allegations whether the underlying plaintiff's claimed damage resulted solely from the “intended consequences of [Legacy Partners'] actions or was also caused by the unintentional or accidental consequences of [Legacy Partners'] actions.” Thus, the court denied Clarendon's motion to dismiss Legacy Partners' breach of contract cause of action, “[b]ecause the Court cannot conclude at this juncture that [Legacy's Partners'] actions could not constitute 'occurrences' under any set of facts consistent with the allegations as pled.”
With respect to Clarendon's motion to dismiss Legacy Partners' bad faith cause of action, the court first stated that because it did not agree that Legacy Partners failed to allege a cause of action for breach of contract, that fact undermined Clarendon's first basis to seek to avoid Legacy Partners' bad faith claim. Additionally, however, the court stated that Legacy Partners sufficiently alleged a bad faith claim because, contrary to Clarendon's position, Legacy Partners was not required to “enumerate specific acts and allege why they are unreasonable. Under the liberal pleading standards for federal actions, [Legacy Partners'] general allegations are sufficient to plead a claim for breach of the implied covenant of good faith and fair dealing.” As a result, the court concluded that Legacy Partners' bad faith claim withstood Clarendon's motion to dismiss because in the complaint Legacy Partners alleged that “Clarendon acted in bad faith by wrongfully and unreasonably declining coverage.”
Linda Kornfeld, of Dickstein Shapiro LLP and a member of this newsletter's Board of Editors, contributed this month's case brief.
'Intentional' Conduct Can Constitute a Covered 'Accident'
In Legacy Partners v. Clarendon American Insurance Co., a Southern District of California judge addressed a motion to dismiss filed by Clarendon with respect to Legacy Partners' breach of contract and bad faith claims against Clarendon. The underlying action involved construction defect litigation against Legacy Partners. In that litigation, the underlying plaintiff alleged that Legacy Partners among others “(1) trespassed upon [plaintiff's] property in order to make repairs to a retaining wall; (2) constructed subterranean tie-backs using Wellington's property without permission; (3) failed to exercise reasonable care and skill in performing construction work on [plaintiff's] property; (4) failed to exercise reasonable care and skill in determining the need for repair to the retaining wall; (5) caused damage by placement of heavy construction equipment and materials on the [plaintiff's] property; and (6) negligently removed storm and pollution work that [plaintiff] had completed as part of its development of the property.” Legacy Partners sought coverage from Clarendon for the underlying litigation. Clarendon denied coverage, based in significant part, upon its claim that the lawsuit did not involve any allegations of an “occurrence” as that term was used in its policy issued to Legacy Partners. Thus, Legacy Partners filed suit alleging, in part, breach of contract and bad faith.
In the coverage litigation, Clarendon moved to dismiss Legacy Partners' breach of contract claim based upon its assertion that “because [Legacy Partners'] actions with regard to the [underlying plaintiff's] property were intentional rather than accidental, they do not qualify as 'occurrences' eligible for coverage under the insurance policy.” Clarendon also sought to dismiss Legacy Partners' bad faith claim by arguing that “(1) [Legacy Partners] has failed to plead that [Clarendon] breached the insurance contract; and (2) [Legacy Partners] failed to plead how [Clarendon's] handling of coverage was unreasonable.” The court denied Clarendon's motion to dismiss on all grounds.
With respect to Legacy Partners' breach of contract claim, the court acknowledged Clarendon's argument that at least under the cases cited by Clarendon, allegations of negligence do not necessarily mean that the insured's conduct was equivalent to an “accident” as that term is used in general liability policies. The court also agreed that certain of the underlying plaintiff's allegations (such as those involving trespass upon the underlying plaintiff's property) included conduct that appeared “to be intentional actions with intended consequences, rather than accidents.” Regardless, however, the court also found that other conduct, while potentially intentional in nature, still could constitute a covered “accident.” In particular, the court stated that, by way of example, “[Legacy Partners'] intentional act of placing equipment on [the underlying plaintiff's] property could have resulted in unintended consequences if [Legacy Partners] accidentally deployed the wrong or too heavy equipment.” The court could not conclude from the allegations whether the underlying plaintiff's claimed damage resulted solely from the “intended consequences of [Legacy Partners'] actions or was also caused by the unintentional or accidental consequences of [Legacy Partners'] actions.” Thus, the court denied Clarendon's motion to dismiss Legacy Partners' breach of contract cause of action, “[b]ecause the Court cannot conclude at this juncture that [Legacy's Partners'] actions could not constitute 'occurrences' under any set of facts consistent with the allegations as pled.”
With respect to Clarendon's motion to dismiss Legacy Partners' bad faith cause of action, the court first stated that because it did not agree that Legacy Partners failed to allege a cause of action for breach of contract, that fact undermined Clarendon's first basis to seek to avoid Legacy Partners' bad faith claim. Additionally, however, the court stated that Legacy Partners sufficiently alleged a bad faith claim because, contrary to Clarendon's position, Legacy Partners was not required to “enumerate specific acts and allege why they are unreasonable. Under the liberal pleading standards for federal actions, [Legacy Partners'] general allegations are sufficient to plead a claim for breach of the implied covenant of good faith and fair dealing.” As a result, the court concluded that Legacy Partners' bad faith claim withstood Clarendon's motion to dismiss because in the complaint Legacy Partners alleged that “Clarendon acted in bad faith by wrongfully and unreasonably declining coverage.”
Linda Kornfeld, of
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