Gray v. Zurich Insurance Co.
54 Cal. Rptr. 104, 419 P.2d 168, 65 Cal. 2d 263 (1966)
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Rule of Law:
An insurer's duty to defend is broader than its duty to indemnify and arises whenever an action against the insured potentially seeks damages within the policy's coverage. Ambiguities in an insurance policy, particularly exclusionary clauses, must be construed in favor of the insured's reasonable expectation of coverage.
Facts:
- Dr. Vernon D. Gray held a 'Comprehensive Personal Liability' insurance policy issued by Zurich Insurance Company.
- The policy obligated Zurich to defend any suit against Gray for bodily injury but contained an exclusionary clause stating it did not apply to bodily injury 'caused intentionally by... the insured.'
- Following a near-miss car incident, Dr. Gray got into an altercation with another driver, Mr. John R. Jones.
- Jones approached Gray's car menacingly and jerked open the door, at which point Gray, stating he feared for his safety, struck Jones.
- Jones sued Dr. Gray, alleging that Gray 'wilfully, maliciously, brutally and intentionally assaulted' him.
- Dr. Gray notified Zurich of the lawsuit, explained that he had acted in self-defense, and requested that the company defend him.
- Zurich refused to provide a defense, citing the policy's exclusion for intentional acts.
Procedural Posture:
- John R. Jones sued Dr. Vernon D. Gray in a Missouri trial court for assault.
- The jury in the Missouri case found in favor of Jones, awarding him $6,000 in actual damages but denying punitive damages.
- Dr. Gray then filed suit against Zurich Insurance Company in a California trial court for breach of contract based on its failure to defend.
- The California trial court entered a judgment in favor of the defendant, Zurich.
- Dr. Gray, the plaintiff, appealed the trial court's decision.
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Issue:
Does an insurer have a duty to defend its insured in a third-party lawsuit that alleges an intentional tort, when the insurance policy contains an exclusion for intentionally caused injuries but also a broad promise to defend any suit alleging bodily injury?
Opinions:
Majority - Tobriner, J.
Yes. An insurer has a duty to defend its insured under these circumstances because the duty to defend is broader than the duty to indemnify and is triggered by any potential for coverage. The court's reasoning is twofold. First, applying the doctrine of adhesion contracts, any ambiguities in an insurance policy must be interpreted according to the reasonable expectations of the insured. The policy's broad promise to defend 'any suit' alleging bodily injury would lead an insured to expect a defense, and the exclusionary clause was not conspicuous, plain, or clear enough to defeat that expectation. Second, even if the duty to defend depends on potential indemnification, that potential existed here. The insurer cannot rely solely on the third-party's pleadings; the duty is fixed by facts the insurer learns from the complaint, the insured, or other sources. Because Jones's complaint could have been amended to allege negligence, or the facts could have supported a finding of non-intentional tortious conduct (such as unreasonable self-defense), there was a potential for coverage that triggered the duty to defend from the outset.
Dissenting - McComb, J.
No. The judgment should be affirmed for the reasons expressed by the District Court of Appeal in its opinion.
Analysis:
This landmark decision establishes the 'potentiality rule' for the insurer's duty to defend in California, making the duty to defend significantly broader than the duty to indemnify. It solidifies the application of the 'reasonable expectations of the insured' doctrine to insurance contracts, viewing them as contracts of adhesion where ambiguities are resolved against the insurer. The ruling puts a heavy burden on insurers, often requiring them to defend suits where coverage is questionable or may not ultimately exist. This forces insurers to either defend under a reservation of rights to later contest coverage or risk being held liable for breach of contract, including the costs of defense and any subsequent judgment against the insured.
