Central District Grants O&N Motion Finding that American Casualty Breached Its Duty to Defend

On December 21, 2015, United States District Court for the Central District of California granted O&N’s motion for partial summary judgment holding that American Casualty Company of Reading, PA breached its duty to defend two O&N clients, KM Strategic Management, LLC and Hemet Community Medical Group, Inc., in two underlying lawsuits. While there are legions of decisions addressing the “duty to defend” under California law, Judge Snyder’s order is significant in at least two respects.

First, Judge Snyder rejected American Casualty’s argument that a “personal and advertising injury” offense must be committed by the insured itself, and not by a non-insured “agent.” Judge Snyder held, “There is simply no requirement in the policies that the insured’s liability arise not only out of the insured’s business, but also out of its direct actions or the actions of another insured (as opposed to merely the actions of an individual alleged to have been acting as the insured’s agent and on behalf of the insured’s business).”

Second, it is significant insofar as the law that is developing around the Breach of Contract exclusion. Judge Snyder’s order makes clear three things: (1) she held that the Breach of Contract exclusion cannot be read so broadly as to apply to a claim merely because it arises out of a contractual relationship; (2) she made clear the Breach of Contract exclusion applies only to “actual” breaches of contract, not merely “alleged” breaches; and (3) she held that the Breach of Contract exclusion will not apply to a tort claim that is potentially “independent of any prior contractual relationship or any alleged breach of contract.” Judge Snyder’s opinion provides a comprehensive analysis of this dangerous exclusion.

Click Here to read the Court's ruling.

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