The California Court of Appeal ruled that an insurer does not have a duty to defend a lawsuit seeking injunctive relief and no compensatory damages. San Miguel Cmty. Assn. v. State Farm Gen. Ins. Co., 2013 Cal. App. LEXIS 836 (Cal. Ct. App. Oct. 1, 2013).
San Miguel was a nonprofit residential community association that was insured by State Farm under a comprehensive business liability policy. San Miguel was sued over a dispute regarding enforcement of parking restrictions within the San Miguel community. The underlying plaintiffs argued that San Miguel has imposed parking restrictions that were later rescinded and not enforced.
The plaintiffs demanded mediation. When San Miguel tendered the demand to State Farm, it determined there was no claim for monetary damages and denied the claim.
Mediation did not resolve the claim and the underlying plaintiffs filed suit. The complaint did not seek monetary damages, but sought a injunction to enforce the parking restrictions. Again, State Farm denied the claim.
In the second amended complaint, the underlying plaintiffs alleged they had sustained damages "in an amount to be proved at trial or nominal damages to the extent necessary." Once again. State Farm denied coverage. After speaking with the underlying plaintiffs' attorney, however, State Farm learned that the claim for monetary damages was de minimus, but there were damages. Accordingly, State Farm reversed its position and agreed to defend under a reservation of rights from the date on which the second amended complaint was tendered. State Farm refused, however, to compensate San Miguel for costs incurred in defending the underlying suit prior to the tender of the Second Amended Complaint.
San Miguel sued State Farm, arguing a defense was owed for efforts prior to the second amended complaint. San Miguel argued that because the underlying plaintiffs sustained some actual damage as a result of the alleged wrongs and thus could have sought recover of those damages from San Miguel in earlier pleadings, State Farm had to infer they had actually done so.
The Court of Appeals disagreed. The policy agreed to pay those sums that the insured became legally obligated to pay as damages. Such a claim was not made against San Miguel until the second amended complaint was filed.
