Procedural Posture

Plaintiff insured sued defendant insurance association to recover a judgment the insured had obtained against its insurer for the insurer’s breach of the contractual duty to defend before the insurer went insolvent. The Superior Court of Los Angeles County, California, granted the association’s summary judgment motion. The insured appealed.

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Overview

The insured obtained a judgment against his insurer for the insurer’s breach of the duty to defend. The insurer then went insolvent, and the insured presented the judgment to the insurance association for payment. The trial court granted the insurance association’s summary judgment motion and held that the claim presented was not covered under Cal. Ins. Code § 1063.2(h). The appellate court reversed. The appellate court held that the insured’s judgment against the insurer was not a loss adjustment expense. Where the insured was faced with a refusal to defend by its insurer and thereafter first retained counsel to defend and later obtained a judgment against the insurer to compensate for damages caused by breach of the contractual duty to defend–damages that included compensation for monies spent on attorney fees–the insured’s judgment against the insurer could not reasonably be categorized as one for “loss adjustment expenses.” Thus, because the exclusion in § 1063.2(h), did not apply, the association was obligated to pay, as the insured’s judgment otherwise fell within the statutory definition of a “covered claim.”

Outcome

The grant of summary judgment in favor of the association was reversed, and judgment was entered in favor of the insured.