California Union Insurance v. Club Aquarius, Inc.

California Court of Appeal Dec 12, 1980 No. Civ. 57856Published

Before: Kingsley

AI Brief

AI-generated · verify before citing

Holding. An insurer may withdraw from the defense of an action once it is established that the claims involved fall outside the scope of the insurance policy's coverage, even if the insurer initially agreed to defend the entire action.

Issues

Whether an insurer is obligated to continue defending an action after findings of fact establish that the claims are not covered by the policy.
Whether an insurer's agreement to defend the 'entire action' creates a permanent obligation to defend even after it is determined the claims are outside policy coverage.
Whether an insurer is estopped from withdrawing from a defense after a bifurcated trial's liability phase.

Disposition. affirmed

Quotations verified verbatim against the opinion

“plaintiff had a right to withdraw from the defense once the federal court, by its findings, had made it clear that the case, in fact, did not involve the limited risk set forth in that policy.”

“The reference in the letter to the “entire action” was but a recognition of that obligation.”

“The insurer stands in the position of having shown that the expenses of defending its insured against damages expressly found to be beyond its coverage, is allocable.”

Opinion

KINGSLEY, Acting P. J.

Defendants appeal from a judgment in favor of an insurer in an action for declaratory relief. We affirm the judgment.

[246]

Defendants procured from plaintiff insurance company a policy which, by indorsement, insured them against liability in connection with two named publications—“Aquarius” and “Diving Dealer and Professional Instructor.” In 1974, defendants were sued in federal court for copyright infringement and unfair competition. The complaint in that action named as offending publications only a book referred to as the “Red Book.” Defendants, having retained counsel

tendered defense of that action to plaintiff. Plaintiff responded by a letter reading as follows:

“We acknowledge receipt of a copy of a Complaint alleging copyright infringement and unfair competition, Civil Action No. C-74-2168 filed in the U.S. District Court for the Northern District of California on October 10, 1974.

“As you are aware, Publisher’s Libel Insurance was added to your coverage by endorsement effective January 19, 1974 and much, if not all, of the issues involved in this litigation pre-date this added coverage. Additionally it is our understanding that this present litigation is essentially a continuation of a similar law suit instituted prior to January 19, 1974 and of which we had no knowledge when adding this additional coverage effective January 19, 1974.

“After a careful review of the allegations set forth in the Complaint together with attendant correspondence, all of which must be considered subject to the terms, conditions and limitations of our policy of insurance, we offer the following:

“(1) We will assume cost of defense for the entire action.

“(2) We do not cover punitive damages, and should there be any award rendered based on count (4) of the prayer for damages seeking exemplary damages, our policy will not respond.

“(3) We do not afford coverage for injunctive relief.

“(4) As applicable Publisher’s Libel Insurance coverage did not incept until January 19, 1974, should an award be rendered based on compensatory sustained, our policy will not respond for that portion of the award charged to any time period prior to January 19, 1974 and

California Union Insurance v. Club Aquarius, Inc.

AI Brief

More from California Court of Appeal

Related research

AI Brief