Gray v. Zurich Insurance

Supreme Court of California · 1966 · Contracts

ContractsInsuranceDuty to defendExclusion clausesinsurance policy interpretationduty to defendintentional injury exclusionreasonable expectations

Facts

Dr. Gray was insured under a comprehensive personal liability endorsement stating that the insurer would pay damages for bodily injury and would defend any suit alleging such bodily injury, even if the allegations were groundless, false, or fraudulent. The endorsement also contained an exclusion stating that it did not apply to bodily injury caused intentionally by or at the direction of the insured. Jones sued Gray in Missouri alleging that Gray wilfully, maliciously, brutally, and intentionally assaulted him; Gray notified Zurich, asserted self-defense, and requested a defense. Zurich refused to defend, Gray defended unsuccessfully, and a judgment for actual damages was entered against him.

Issue

Whether the insurer had a duty to defend an action alleging that the insured intentionally caused bodily injury, despite a policy exclusion for bodily injury caused intentionally by the insured. Also, whether public policy, estoppel from the adverse judgment, conflict of interest, or damages principles relieved the insurer of liability for refusing to defend.

Rule

An insurer must defend when the policy, construed according to the insured's reasonable expectations and against the insurer, does not clearly and conspicuously exclude that duty. Even if the duty to defend is tied to indemnity coverage, the insurer must defend whenever the suit potentially seeks damages within the policy's coverage, and that determination depends on the facts known from the complaint, the insured, or other sources, not solely on the pleading's labels.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Sacramento, Lila Moreno bought a "Personal Liability Shield" policy from Redwood Crest Insurance. The policy promised that the insurer would "defend any suit seeking damages because of bodily injury, even if groundless, false, or fraudulent," but a later fine-print exclusion stated that the policy did not apply to injury "caused intentionally by the insured." After a dispute at a farmers market, a shopper sued Lila for intentional battery, and Lila immediately told Redwood Crest that she had only shoved the shopper away after being grabbed.

If Redwood Crest refuses to defend solely because the complaint labels the conduct intentional, which result is most consistent with the majority rule?

Explanation. The majority held that where a policy broadly promises to defend bodily injury suits, and an exclusion for intentional injury is not conspicuous, plain, and clear as to the duty to defend, the insured may reasonably expect a defense. The insurer cannot avoid that duty merely because the complaint uses intentional-tort language, especially when known facts suggest possible nonintentional liability.