Stewart v. USAA General Indemnity CA4/1
D076992
| Cal. Ct. App. | Jul 13, 2021Background
- Stewart held a USAA renter’s policy (Personal Liability and Loss of Use coverages) covering "occurrence" (accident) causing bodily injury or property damage; Loss of Use had no dollar limit and covered additional living expenses or fair rental value while premises uninhabitable.
- In Dec. 2016 a grease fire at Stewart’s apartment was deemed accidental and USAA accepted financial responsibility for the fire damage under the Policy.
- The landlord filed an unlawful detainer in Feb. 2017 alleging Stewart caused the fire and committed a non-curable lease breach, seeking possession and per-day damages; Stewart tendered defense to USAA, which denied coverage for the UD action and later refused additional loss-of-use payments.
- Judgment entered against Stewart in the unlawful detainer; Stewart sued USAA for breach of contract (including failure to pay loss-of-use and failure to defend), breach of the covenant of good faith and fair dealing, and negligence (as insurance agent).
- The trial court sustained USAA’s demurrer without leave to amend and dismissed; Stewart appealed.
- The Court of Appeal reversed: it held Stewart adequately pleaded a breach of contract claim based on denial of loss-of-use benefits and a bad-faith claim tied to that breach, and directed the trial court to grant leave to amend the negligence claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend/unlawful detainer | Stewart: UD was "a suit for damages because of property damage caused by an occurrence," so Policy triggers defense. | USAA: UD seeks possession and lease-based damages, not covered "bodily injury or property damage" claims; no occurrence-based coverage. | Court: ambiguity exists; plausibly the UD was caused by the covered occurrence—demurrer improperly sustained on duty-to-defend theory (but decision rests on other breach theory). |
| Breach of contract (loss-of-use) | Stewart: USAA wrongly denied additional loss-of-use payments while premises remained uninhabitable. | USAA: no contractual obligation to pay beyond what it already paid; impliedly denied coverage scope. | Court: Complaint sufficiently alleges breach by denial of additional loss-of-use benefits; demurrer should be overruled on this theory. |
| Breach of covenant of good faith and fair dealing | Stewart: USAA misrepresented coverage, delayed/failed reasonable investigation, denied defense and benefits unreasonably. | USAA: Bad-faith claim fails absent contract breach or duty to defend. | Court: Because breach of contract (loss-of-use denial) is adequately pleaded, related bad-faith claim also survives demurrer. |
| Negligence (as insurance agent) | Stewart: USAA (as agent) owed duty to recommend fair practices and exercise reasonable care; alleged inadequate training/business practices. | USAA: Insurers/adjusters generally owe no tort duty to insureds; claims conclusory. | Court: Agent negligence not foreclosed as a matter of law; plaintiff must be allowed leave to amend negligence claim. |
Key Cases Cited
- Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076 (1993) (duty to defend arises if complaint potentially seeks covered damages; ambiguities resolved for insured)
- Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643 (2005) (insurer owes duty to defend where there is potential for coverage)
- Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5th 744 (2017) ("because of" denotes causal connection in insurance wording)
- City of Stockton v. Superior Court, 42 Cal.4th 730 (2007) (leave to amend: original complaint need not request leave; deny only if complaint shows amendment impossible)
- Sanchez v. Lindsey Morden Claim Services, Inc., 72 Cal.App.4th 249 (1999) (discusses limits on negligence liability for insurer-retained adjusters)
- Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Services West, Inc., 203 Cal.App.4th 1278 (2012) (insurance agents owe limited duty to use reasonable care in procuring insurance; additional duties may be assumed by representation)