USA – CALIFORNIA Trends and Developments Contributed by: Cecilia Miller and Ryan Caplan, Buchalter LLP
unless its investigation demonstrated no possibility of coverage. The court went on to reject the carrier’s reliance on the genuine dispute doctrine as a defence, finding it had no application to a third-party duty to defend case. On these facts, the court found Chicago Title acted in bad faith when it failed to assess the possibility of coverage based on available facts. Takeaways The court reaffirmed the breadth of the duty to defend under California law and further noted the ways in which the genuine dispute doctrine is incompatible with a carrier’s defence obligations. Consequently, absent a fulsome and developed investigation in which a carrier correctly determines all possibilities for coverage are precluded, carriers may well open themselves up to bad faith liability for failing to provide a defence, even in the face of a genuine dispute as to the potentiality for coverage. Where a finding of negligence is based solely on adjudicated intentional conduct, it may not constitute an occurrence under a homeowners insurance policy State Farm Fire and Casualty Company v Diblin (2025) 114 Cal. App. 5th 1245, involved a third-party claim made under a homeowners policy arising out of vio- lent attack by one housemate against another. At issue was whether the carrier owed indemnification to the insured for a verdict finding liability for the attack under both intentional tort and negligence claims. The court held that, because the attack was found by the underlying jury to be intentional, it did not constitute an “accident” under the policy’s insuring agreement, and the carrier did not owe indemnification. On a fateful morning, Curtis Diblin attacked his house- mate, Monee Gagliardo, with a rubber mallet, striking her over the head multiple times. Diblin was criminally prosecuted and pled guilty to one count of assault with intent to commit a sexual crime. Gagliardo also filed a civil action alleging numerous claims, including sexual assault, sexual battery, gender violence and negligence. Both the original and amended complaint alleged the exact same factual basis for the negli- gence claim as the other claims.
At trial, Diblin admitted to the attack but denied it was sexual in nature. He explained his plea agreement as an effort to avoid more serious criminal charges. An expert also testified on his behalf that his behaviour was due to a “hypomanic episode attributable to external testosterone” he was taking as part of his treatment for prostate cancer. The matter went to the jury, which declined to find Diblin liable under theories requiring sexual touching or intent, but did find Diblin liable for gender violence and negligence. The jury awarded over USD2.5 million in compensatory dam- ages. The jury also found Diblin acted with malice and oppression, entitling Gagliardo to punitive damages, which she ultimately waived. State Farm had provided a defence to Diblin in response to the civil action and also agreed to fund an appeal. However, Diblin and Gagliardo reached a settlement of the civil action post-trial, inclusive of an assignment of Diblin’s contractual and bad faith rights under the policy. Prior to the entry of final judgment, State Farm initiat- ed a coverage action seeking a declaration that it did not owe indemnification for the judgment. The court in the coverage action found that, because the same conduct formed the basis of the gender violence and negligence liability, and that conduct was necessarily intentional under the gender violence claim, there was no “accident” and therefore no coverage under the policy. Diblin and Gagliardo appealed. On appeal, the Fourth District affirmed. The court reviewed the policy language, jury instructions and verdict form in reaching the conclusion that Diblin’s adjudicated liability for the intentional tort of gender violence demonstrated there was no accident, even if he was separately found liable under a negligence theory. The court observed that the findings were not inconsistent, and the jury was not instructed that a negligence finding could not also be based on the same intentional conduct at issue in the gender vio- lence cause of action. The court further relied on the fact that the jury also found Diblin acted with malice and oppression, even if punitive damages were not ultimately awarded.
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