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.