USA – CALIFORNIA Trends and Developments Contributed by: Cecilia Miller and Ryan Caplan, Buchalter LLP
be applied, as Another Planet acknowledged that physical alteration need not be visible to constitute physical damage. In that vein, the Northern District of California reached a contrary determination and rec- ognised direct physical loss or damage on a summary judgment motion earlier in the year in Bottega, LLC v National Surety Corporation-Chicago, IL (N.D. Cal., Jan. 10, 2025, No 21-CV-03614-JSC) 2025 WL 71989, which involved a business interruption claim arising out of smoke and debris damage from nearby fires. Perhaps in an effort to temper an overapplication of Gharibian , the California Insurance Commissioner issued a bulletin following the decision making clear that neither Another Planet nor Gharibian remove cov- erage for smoke damage claims, emphasising that Gharibian was limited to the facts presented in that case. To that end, it is notable that the claim in Ghar - ibian did not involve a fire at the insured’s home, so there was no other “direct physical loss to property” other than the alleged debris and smoke damage, and the insured’s own expert opined the debris could be cleaned. Indeed, in a different case pending in Los Angeles County, the California’s FAIR Plan policy was found not to provide the fire coverage required by Insurance Code Section 2070 because, inter alia, it sought to limit coverage to smoke damage that is visible only to the “unaided human eye” (see Aliff v California FAIR Plan, et al , California Superior Court, County of Los Angeles, Case No 21STCV20095)). A genuine dispute will not excuse a liability insurer’s defence obligations, and may give rise to bad faith exposure Bartel v Chicago Title Insurance Company (2025) 111 Cal. App. 5th 655, involved a third-party claim under a title insurance policy. At issue was the title insurer’s denial of its duty to defend a complicated and convo- luted underlying claim, for which the carrier asserted there had been a genuine dispute as to coverage. The court rejected the carrier’s contention, finding that the principles governing the duty to defend, along with an insurer’s duties to investigate and consider all potentialities for coverage, precluded application of the genuine dispute doctrine to excuse the carrier’s defence obligations.
A dispute arose between adjacent property owners regarding an easement over the plaintiff’s property. The plaintiff had a title insurance policy with Chicago Title that contained certain exclusions, including one for claims arising out of an agreement among various neighbours in 1970. The adjacent neighbours filed a lawsuit alleging easement rights based on the 1970 agreement, but also attached a 1971 recorded deed as an exhibit. The plaintiff tendered, and the carrier denied a defence. The neighbours ended up dismiss- ing their lawsuit without prejudice, but continued to assert the easement rights. The plaintiff ultimately ini- tiated his own lawsuit, and the neighbours asserted a cross-complaint largely identical to their dismissed complaints. Following the plaintiff’s tender of the cross-complaint, Chicago Title reopened the claim and again denied coverage, taking the position that the “gravamen” of the neighbours’ dispute arose from the 1970 agree- ment. The neighbours subsequently sought summary adjudication, which expressly asserted rights under the 1971 deed. In response, Chicago Title for the first time accepted a defence, commencing from the sum- mary adjudication motion. Ultimately, the court found in favour of the neighbours based on the 1971 deed. A dispute arose regarding the extent of Chicago Title’s defence obligations. The plaintiff contended it arose from his initial tender of the neighbour’s earlier lawsuit, and the carrier contended it did not arise until the sum- mary adjudication motion explicating asserting rights under the 1971 deed. In a bifurcated coverage action, the judge found Chicago Title’s defence obligations commenced from the tender of the neighbour’s initial lawsuit, but that it did not act in bad faith due in part to the convoluted nature of the underlying claim. Both parties appealed. On appeal, the Sixth District affirmed the court’s ruling on the duty to defend and reversed the ruling on the carrier’s bad faith, finding the carrier acted in bad faith when it unreasonably denied its defence obligations from the initial tender. Of note, the court cautioned that “the complexity of the underlying facts does not shield the insurer from the risk of erroneously denying the tender of defense”. Going further, the court noted the carrier had the obligation to accept the tender
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