197 Cal. App. 4th 424
Cal. Ct. App.2011Background
- Ulta was insured by Travelers under a $10 million CGL policy covering March 15, 2006 to March 15, 2007, which obligated Travelers to defend suits seeking damages Ulta becomes legally obligated to pay for bodily injury or property damage.
- The underlying action, Deubler v. Ulta, alleging Proposition 65 violations, sought civil penalties and injunctive relief for DBP in nail products; it did not allege bodily injury or property damage.
- Travelers denied coverage for the Deubler action; Ulta then filed a bad faith action asserting Travelers breached the policy and acted in bad faith.
- The trial court sustained Travelers’s demurrer without leave to amend, ruling the Deubler action did not plead damages within the policy’s coverage and there was no potential for coverage.
- Ulta appealed, arguing the Deubler pleading or potential amendments could create a covered liability, and that extrinsic facts could establish potential bodily injury or penalties within the policy.
- The appellate court affirmed, concluding there was no potential for coverage under the policy and thus no duty to defend, and directing dismissal nunc pro tunc.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the Deubler action plead or create a potential for coverage under the policy? | Ulta argued Deubler’s exposure allegations could yield bodily injury claims and thus potential coverage. | Travelers argued the Deubler pleading sought only civil penalties and injunctive relief, not covered damages, so no potential for coverage. | No potential for coverage; no duty to defend. |
| Can extrinsic evidence create a duty to defend where the complaint does not plead covered damages? | Ulta contends extrinsic evidence shows possible bodily injury and thus potential coverage. | Travelers contends extrinsic facts known at inception cannot manufacture coverage, especially when unpled and speculative. | Extrinsic evidence cannot create coverage; no duty to defend. |
| Was the trial court’s denial of leave to amend an abuse of discretion? | Ulta claimed amendment could cure pleading defects and reveal coverage. | Travelers argued conditions for leave to amend were not met and amendment would be speculative. | No abuse; amendment would not cure lack of potential coverage. |
| Was the standard of review and the Montrose/Gunderson framework properly applied? | Ulta urged broader duty to defend due to potential coverage under policy. | Travelers urged the exclusive reliance on facts known at the outset and no potential for coverage. | Standard applied correctly; no potential coverage identified. |
Key Cases Cited
- Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (Cal. 1993) (duty to defend broader than indemnity; extrinsic facts can create duty if known at inception)
- Gray v. Zurich Insurance Co., 65 Cal.2d 263 (Cal. 1966) (duty to defend depends on potential coverage and facts at the outset)
- Gunderson v. Fire Insurance Exchange, 37 Cal.App.4th 1106 (Cal. App. 1995) (insurer may not rely on speculative amendments to create coverage)
- Hurley Construction Co. v. State Farm Fire & Casualty Co., 10 Cal.App.4th 533 (Cal. App. 1992) (duty to defend limited by known facts; not arbiter of potential amendments)
- DiPirro v. Bondo Corp., 153 Cal.App.4th 150 (Cal. App. 2007) (civil penalties under Prop 65 are not damages from bodily injury or property damage)
- Donohue v. State of California, 178 Cal.App.3d 795 (Cal. App. 1986) (use of appellate record to determine scope of demurrer and dismissal)
- Milligan v. Golden Gate Bridge Highway & Transportation Dist., 120 Cal.App.4th 1 (Cal. App. 2004) (evidence on appeal may be considered to determine leave to amend)
- Donohue v. State of California, 178 Cal.App.3d 795 (Cal. App. 1986) (treats notice on appeal regarding demurrer and dismissal standards)