California Insurance Litigation Blog

A recent California Court of Appeals decision served as a reminder of the long-standing rule in California that the mutual intent of the parties will always control the interpretation of potentially conflicting provisions in an insurance contract.  In its recent decision in Gemini Ins. Co. v. Delos Ins. Co. (Dec. 5, 2012, B239533) __ Cal.App.4th __ [2012 WL 6050774] [Second Dist., Div. Five], the Court of Appeals was faced with the task of interpreting the inter-insured exclusion (i.e., an exclusion for claims between two insureds) in a liability policy as it applied to an additional insured named in the policy when the additional insured’s property has been damaged.

The Facts:  A restaurant owner, and tenant to the property, negligently caused a fire which caused damage to property of the landlord.  The landlord was an additional insured under the policy at issue, which insured him from liability for acts caused by the restaurant.  The policy also contained an exclusion for claims asserted between two insureds.  After the fire, the landlord sought relief from the restaurant for damage to his property.  On a motion for summary judgment by the landlord’s insurer, the landlord argued that he was not an insured under the policy, and therefore the inter-insured exclusion did not apply.  The trial court granted the motion.

In Lee v. West Coast Life Insurance Company, 2012 U.S. App. LEXIS 15768 (9th Cir. July 31, 2012), the Ninth Circuit Court of Appeals ruled that a stakeholder insurance company cannot use an interpleader filing to shield itself from tort liability for its negligent actions.  With this holding, the Court of Appeals confirmed that “where the stakeholder may be independently liable to one or more claimants, [an] interpleader does not shield the stakeholder from tort liability, nor from liability in excess of the stake.”

In 1998, West Coast Life Insurance Company issued a policy on the life of Steve Lee, Sr.  Over the next ten years, West Coast received numerous change of ownership and change of beneficiary forms from members of the Lee family.  However, in 2005, West Coast’s Director of Policy Administration gave erroneous instructions regarding who should sign particular forms, and in what capacity those forms should be signed.  Assuming that West Coast had properly instructed them in completing those forms, the Lee family made several subsequent changes to the policy’s ownership and beneficiaries.  When Mr. Lee died in 2009, West Coast realized that the 2005 changes were not properly executed, and informed certain members of the Lee family that they were not entitled to the life insurance benefits.