District Court Holds That a Carrier May Breach its Duty to Defend by Failing to Agree to Defend a Covered Action Prior to the Responsive Pleading Deadline
Travelers Indem. Co. of Conn. v. Centex Homes, 2015 U.S. Dist. LEXIS 137898 (N.D. Cal. October 7, 2015)
In Travelers, the Northern District of California granted the insured’s motion for reconsideration and held that, under the particular facts and circumstances before it, the carrier breached its duty to defend by failing to provide a defense until after the insured’s responsive pleading was due in the underlying action.
Travelers involved two lawsuits filed against the insured, each of which the insured tendered under multiple policies issued by the insured’s CGL carrier. According to the decision, after receiving sufficient information to establish a duty to defend, the carrier delayed two and three months, respectively, to acknowledge coverage for the two actions. These acknowledgments were issued 13 and 67 days, respectively, after the insured’s responsive pleading deadline in the two actions. Because of the delay, the insured retained its own counsel to protect its interests. The Travelers court initially denied the insured’s motion for partial summary judgment regarding whether the carrier had lost the right to control the defense of the two actions, but later granted the insured’s motion for reconsideration on that issue and found that the carrier had lost the right to control the defense.
In reaching its determination, the Travelers court noted that neither the court nor the parties had found any case law discussing when a carrier’s delay in responding to a tender will result in its losing the right to control the insured’s defense. On that issue, the court found that the insured requires the “superior resources” of the carrier at least as of the date that it is required to respond to the complaint. As such, the court held that, under the facts of Travelers, the carrier had lost the right to control the insured’s defense by failing to acknowledge coverage on or before the responsive pleading deadline. In reaching this determination, the court found that under the circumstances before it, the insurer had sufficient information in its possession to conclude its investigation well before the responsive pleading deadline, and that if it required additional time it should have agreed to defend the insured while that investigation was ongoing.
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