The Insurer Is In Control: California District Court Upholds Insurer’s Right To Control Settlement and Conduct Its Due Diligence with Respect To a Coverage Investigation

In Travelers Property Casualty Co. of America v. Kaufman & Broad Monterey Bay, Inc., 2015 WL 581528 (N.D. Cal. Feb. 11, 2015), Travelers had issued commercial general liability insurance policies to Norcraft. The defendants were named as additional insureds on the policies. The defendants were sued for claims arising out of a residential development project. The defendants tendered their defense of the claims to Travelers, which accepted the tender and appointed counsel for the defendants. Travelers and the defendants asserted claims against each other regarding the insurer’s duty to defend, settlement of the claims, and right to appoint counsel.

The district court held that Travelers did not breach its obligation to provide an immediate defense and stated that although the duty to provide a defense generally arises upon the tender of the defense, an insurer does not need to provide a defense until it is provided with the necessary information to make its coverage determination. The district court recognized that the defendants tendered their defense to Travelers on July 6, 2012, but did not provide a copy of their contract with Norcraft, which was essential to determine if the defendants were additional insured on the policies, until October 29, 2012. Travelers agreed to provide the defendants a defense only one week later. Therefore, the district court found the defendants could not demonstrate that Travelers failed to provide an immediate defense.

The district court also held that Travelers did not breach its obligation to provide a complete defense. The district court initially rejected out of hand the argument that Travelers failed to provide a complete defense because it reserved its rights to disclaim coverage. The district court then rejected the defendants’ claim that Travelers breached its obligation by settling the covered claims without the defendants’ involvement and subsequently withdrawing from the defense. The district court stated that Travelers had the right to control the settlement of the covered claims without the defendants’ participation. Furthermore, simply because Travelers settled only the covered claims did not make the settlement improper or indicate that Travelers furthered its own interests. Therefore, there was no breach of the obligation to provide a complete defense.

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