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GMSR Successfully Defends Insurer In Bad Faith Action

An insured of GMSR’s client, Farmers Insurance, was injured when another driver rear-ended his car.  He sued the other driver, and she sued him back, not for the accident, but for an alleged verbal assault that occurred after the accident.  Farmers declined to defend the assault claim under the insured’s homeowner’s and auto policies because the alleged assault was not an “accident” or “occurrence” as defined in the policies, did not arise out of the insured’s use of his automobile, and did not cause physical injury.

Without further notice to Farmers, the insured then struck a deal with the other driver:  The other driver amended her claim to allege for the first time that she was physically injured in the collision and that the insured was at fault; the insured paid $15,000 to settle her claim; and she paid him $69,500 to settle his claim.  The insured then sued Farmers for bad faith refusal to defend him and indemnify the other driver’s claim.

The Court of Appeal agreed with GMSR’s contention that the bad faith action was properly dismissed.  There was no potential for coverage under the facts known to Farmers when it refused to defend and indemnify the insured, and the insured never gave Farmers notice of the amended cross-complaint before he settled.  The Court of Appeal emphasized that an insured “cannot create liability for breach of the insuring agreement for a claim never tendered.”

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