Defendant insured appealed a judgment from the Superior Court of Sacramento County (California). The trial court held that plaintiff insurer did not have a duty to pay for independent counsel engaged by defendant in a defamation suit against defendant.
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A party filed a defamation suit against defendant insured. Plaintiff insurer advised defendant that punitive damages were not covered under liability insurance policies and that defendant might wish to engage independent counsel. Plaintiff sought declaratory relief that plaintiff was to be in exclusive control of the litigation and that plaintiff was not obligated to pay for defendant’s counsel. The trial court granted summary judgment in favor of plaintiff. The court affirmed. Even assuming that plaintiff was reserving its rights when it asserted that punitive damages were not covered under liability policies, there was no conflict of interest between defendant and plaintiff. Thus, plaintiff did not have a duty to pay for defendant’s counsel. The coverage dispute was unrelated to any issue being litigated in the underlying action. Under the policy, plaintiff was obligated to indemnify defendant for damages in the defamation action. Plaintiff was prohibited from indemnifying defendant for punitive damages pursuant to Cal. Civ. Code § 1668 and Cal. Ins. Code § 533. However, it was in plaintiff’s interest to vigorously defend the suit to avoid liability for compensatory damages.
The court affirmed the summary judgment in favor of plaintiff insurer. Plaintiff did not have to pay for independent counsel engaged by defendant insured in a defamation action because there was no conflict of interest between plaintiff and defendant.