When a complaint specifically denies that the plaintiff is seeking damages covered by an insurance policy, it seems logical that the insurer would not have a duty to defend. However, taking a very broad view of the duty to defend, a California federal court recently held that an insurer did, in fact, have to provide a defense even though the complaint, on its face, did not include a claim for damages covered under the policy. (Hartford Fire Ins. Co. v. Tempur-Sealy Int’l, Inc., 2016 U.S. Dist. LEXIS 6706 (N.D. Cal. Jan. 20, 2016))
Tempur-Sealy, a mattress manufacturer, sought coverage for a class action complaint in which the plaintiffs alleged that Tempur-Sealy failed to inform its customers that mattresses released formaldehyde, exposure to which was alleged to cause allergic reactions and asthma. Although the plaintiffs alleged they suffered physical injuries due to this exposure, they specifically stated that they were not seeking damages for these injuries. Accordingly, the insurer argued that it had no duty to defend because the complaint did not seek damages for which the policy provided coverage. The insurer reasoned that in plaintiffs’ expressed disavowal of a claim for any and all damages covered by the policy negated any duty to defend.
The court disagreed. The court was influenced by the Sony v. American Home Assurance case in which the 9th Circuit Court of Appeals recognized there is no duty to defend when the complaint does not allege the type of damages covered by the policy and the plaintiff disavowed any claim to the type of damages covered by the policy. The court distinguished Sony by emphasizing the word “and” — stating that a duty to defend is negated only when both criteria exist: no allegations of injury covered by the policy and no claim for damages for such injuries. The court found that only the second requirement was met in the complaint against the mattress manufacturer. The fact that the plaintiffs alleged that they had suffered bodily injury, which was sufficient to support a covered claim, “revealed a clear potential for liability” through potential amendment of the complaint, notwithstanding the express disavowal of any claim for damages for these injuries. According to the court, the fact that the complaint disclaimed recovery for covered injuries did not mean that a claim for these damages could not be asserted in the future.
One could be critical of the court’s reasoning — especially the way it distinguished the Sony case. It seems illogical that a complaint would both lack a claim for bodily injury and disavow damages for such injuries. Why would it be necessary to disavow damages for injuries that are not alleged? Nonetheless, the court’s decision is significant in that it shows how broadly a court could interpret the duty to defend in situations where amendment to a claim that, on its face, would not appear to be covered could bring a claim within coverage in the future. The Tempur-Sealy case could lead to restless nights for insurers.