Introduction

A California federal court has ruled a California insurer must defend a habitability lawsuit based on potential coverage under the insurer’s commercial general liability policies. In Associated Industries Insurance Co. Inc. v. Ategrity Specialty Insurance Co., Inc., the court granted a partial motion for summary judgment. The court held the pending lawsuit included allegations of claimed injuries or damages to tenants which were not precluded by any policy exclusion available in the only applicable insurance policy at the time, thereby affording potential coverage.[1]

The Facts

Associated Industries, along with three other insurers, has been defending Veritas Investments, Inc., and its subsidiaries in an underlying lawsuit in San Francisco Superior Court for over three years.[2] Veritas Investments owns several residential real estate buildings in the San Francisco area and was insured by Associated Industries and Ategrity among others.[3] Accordingly, plaintiffs in the underlying action allege Veritas and its subsidiaries engaged in “bad faith conduct, intimidation, harassment and abuse of the rent-controlled tenants in possession,” the effect of which was to “substantially interfere with and disturb the tenants’ comfort, repose, peace and quiet in their units” and to “cause the tenants to vacate” or to “surrender or waive their rights in their respective tenancies” over the course of several years.[4]

Associated Industries sued Ategrity following their refusal to participate in Veritas’ defense in San Francisco Superior Court.[5] Associated Industries provided evidence showing Ategrity insured Veritas under three commercial general policies during the time of its tenants’ allegations of misconduct—all of which were applicable to the underlying claims.[6] No other insurer provided similar policies to Veritas during this time.[7] Therefore, Veritas had a duty to defend, according to Associated Industries.[8]

Ategrity argued that, although it had three commercial general policies in place at the time of the allegations, they excluded the conduct cited in support.[9] Specifically, the conduct was what Ategrity referred to as an “ongoing scheme to drive out tenants” which they claimed was barred under an exclusion for continuous and progressive injuries.[10] In response to Associated Industries’ position the suit included occurrences of non-excluded conduct, Ategrity responded to Associated Industries allegations with numerous evidentiary objections which were subsequently overruled.[11]

Under California law, a liability insurer owes a broad duty to defend its insured against claims that create a potential for coverage.[12] This broad duty encompasses claims that are “merely potentially covered” in light of the facts alleged.[13]

In reaching its decision, the court said Associated Industries identified allegations in the underlying suit of bodily injury and property damages, but Ategrity failed to offer a substantive response and establish any applicable exclusions.[14] The court concluded: “In comparing the cited allegations in the complaint to the relevant policy language, the court finds there is no genuine dispute that ‘the underlying claim may fall within coverage,’ which is all that is necessary here.”[15]

Conclusion

The Associated Industries decision is a reminder to policyholders that coverage for a particular loss or event often may be available under multiple insurance policies, and policyholders may therefore consider all potentially available insurance when faced with a loss. The decision also reiterates the breadth of an insurer’s defense obligation and should serve as a reminder that insurers must defend their policyholders against all claims, even where some appear unlikely to merit coverage.

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Sources

[1] Associated Indus. Ins. Co., Inc. v. Ategrity Specialty Ins. Co., No. 22-CV-04008-HSG, 2023 WL 3874021 (N.D. Cal. June 6, 2023).

[2] Id. at *1.

[3] Id.

[4] Mot. for Partial Summ. J. as to Ategrity’s Duty to Defend, at 8, Associated Indus. Ins. Co., Inc. v. Ategrity Specialty Ins. Co, No. 22-cv-04008-HSG, Doc. 23; Id., ¶22 at 35:20-26.

[5] Associated Indus. Ins. Co. v. Ategrity Specialty Ins. Co., 22-cv-04008-HSG, at *1 (N.D. Cal. June 6, 2023)

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at *3-4.

[12] See Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 P.2d 792 (1993), as modified on denial of reh’g (May 13, 1993); See also Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 276 (1966).

[13] See Buss v. Superior Ct., 16 Cal. 4th 35, 46 (1997);

[14] Id. at *4.

[15] Id. at *3. (emphasis added).