Cause of Action for Breach of Fiduciary Duty Seeking Only Injunctive Relief and Punitive Damages Does Not Trigger A Carrier’s Duty To Defend Under A Policy That Provides A Duty To Defend Against Claims Seeking “Damages” Due To A “Wrongful Act”
San Miguel Community Ass’n v. State Farm General Ins. Co., 220 Cal. App. 4th 798 (2013).
In San Miguel, the California Fourth District Court of Appeal held that an insurer had no duty to defend its insured prior to the claimants’ assertion of a claim for covered damages, and that a suit for injunctive relief and punitive damages did not qualify as a covered claim.
The San Miguel case involved a policy issued by State Farm to San Miguel Community Association (“San Miguel”) providing that State Farm would defend any claim or suit seeking damages under the policy. Residents of San Miguel complained that parking rules were not being enforced and demanded non-binding mediation. After San Miguel tendered its defense to State Farm, State Farm contacted the residents’ attorney to determine whether the residents sought damages. The attorney explained that the residents were solely seeking injunctive relief. After an unsuccessful mediation, the residents filed suit seeking injunctive relief and punitive damages. The residents later filed a first amended complaint that added a cause of action for breach of fiduciary duty. The first amended complaint did not allege that the residents were seeking compensatory damages. Instead, they claimed that they suffered irreparable injury that could not be fully compensated by damages. The residents continued to only seek injunctive relief and punitive damages. After a successful demurrer by San Miguel, the residents filed a second amended complaint in which they now alleged that they had sustained damages and sought compensatory or nominal damages. State Farm took the position that coverage was first triggered by the filing of the second amended complaint, but the insureds argued that coverage was triggered from the date the residents sought non-binding mediation. The trial court ruled in State Farm’s favor, and the appellate court affirmed.
In issuing its ruling, the appellate court held that, prior to the filing of the second amended complaint, the residents were not seeking to recover “damages” for a “wrongful act,” as those terms were defined in the policy issued by State Farm. According to the court, “San Miguel failed to demonstrate the existence of even a triable issue of fact to support its contention that the plaintiffs in the underlying case were seeking an award of damages that might be covered by State Farm’s policy prior to the filing of their second amended complaint—and thus failed to demonstrate State Farm had any obligation to provide San Miguel with a defense in the underlying case prior to that time.” 220 Cal. App. 4th at 810 (emphasis original).
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