Exclusions Defeat Claim for Defense & Indemnity
Genuine Dispute Dispels Claim of Bad Faith
Post 5167
See the full video at https://lnkd.in/gvGAeT7t and at https://lnkd.in/gh67UEyB.
In Diversified Restaurant Group, LLC, et al. v. Houston Casualty Company, et al., No. 25-cv-02344-EMC, United States District Court, N.D. California (July 31, 2025) Diversified Restaurant Group, LLC (DRG) and Golden Gate Bell, LLC (GGB) sued Houston Casualty Company (HCC), Pennsylvania Manufacturers Indemnity Company (PMIC), and Manufacturer’s Alliance Insurance Company (MAIC) around the denial of insurance coverage for a lawsuit filed by a former employee who alleged sexual harassment and assault by a supervisor.
Insurance Policies and Denial of Coverage:
DRG and GGB had insurance policies with PMIC and MAIC, which included general liability, workers’ compensation, and employer’s liability coverage. Both PMIC and MAIC denied coverage for the underlying lawsuit, citing various exclusions in their policies.
Exclusions:
The PMIC policy included Employment Related Practices (ERP) and Employment Liability (EL) exclusions, while the MAIC policy had a C.7 exclusion. These exclusions were used to justify the denial of coverage for the claims made in the underlying lawsuit.
UNDERLYING LAWSUIT:
The former employee’s lawsuit included claims of negligence, workplace sexual harassment, discrimination, and other related issues. The document details the specific allegations and the legal arguments surrounding the applicability of the insurance policy exclusions.
DUTY TO DEFEND:
The court emphasized that the duty to defend is broader than the duty to indemnify, but it is measured by the nature and kinds of risks covered by the policy. The court concluded that the insurers had no duty to defend the insureds in the underlying lawsuit due to the applicability of the exclusions .
The insurer’s duty to defend is not extinguished until the insurer negates all facts suggesting potential coverage. Thus, an insurer may be excused from a duty to defend only when the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage. However, the duty to defend is not not unlimited; it is measured by the nature and kinds of risks covered by the policy.
Insurance Coverage Interpretation
Under California law, interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation. Therefore, the mutual intention of the parties at the time the contract is formed governs interpretation. If the policy language is clear and explicit, it governs. The clear and explicit meaning of these provisions, interpreted in their ordinary and popular sense, unless used by the parties in a technical sense or a special meaning is given to them by usage, controls judicial interpretation.
In determining whether a claim creates the potential for coverage under an insurance policy, the court is guided by the principle that interpretation of an insurance policy is a question of law and the mutual intention of the parties at the time the contract is formed governs interpretation.
DISCUSSION
Finally, although Insureds attempt to impose a new carve-out to the “arising out of” phrase in the ERP Exclusion, arguing that only claims between an employee and an employer (as opposed to harassment between two co-employees) are “employment related,” the Insureds fail to cite to any case that imposes such an exception. Instead, courts have repeatedly construed “arising out of” broadly, even when it is present in an exclusion.
Because all alleged conduct in the Underlying Action against Moreno falls under the ERP Exclusion coverage, the Insureds have failed to establish any potential coverage under the PMIC Agreement and thus have failed to state a claim for breach of contract with PMIC.
The False Imprisonment and Sexual Assault Claims are subject to the ERP Exclusion
The Court need not address Insurers’ argument contesting whether the claims of the Underlying Action are “occurrences” within the scope of coverage under Coverage A: whether or not they are “occurrences,” they would still be precluded by the ERP Exclusion.
Breach of Implied Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing
A bad faith claim is subject to dismissal if the insurer shows a genuine dispute as to coverage. Given that ERP Exclusion and EL Exclusion of the PMIC Agreement and C.7 Exclusion of the MAIC Agreement apply to exclude coverage to DRG and GGB, the Insurers’ denial to continue defense and indemnification under its policy was reasonable and legally justified. As such, the Insureds cannot maintain a statutory bad faith claim against Insurers for its refusal to defend and indemnify. Accordingly, the claims for breach of implied contract and claim for breach of the implied covenant cannot proceed against MAIC or PMIC.
Court’s Decision:
The court granted the motion to dismiss filed by PMIC and MAIC, agreeing that the exclusions in the insurance policies precluded coverage for the claims made in the underlying lawsuit.
ZALMA OPINION
The USDC in an exceedingly long opinion reached the decision called for by the clear and unambiguous exclusions in the policies issued by the three insurer defendants resulting in the dismissal of the suit. The mere fact that a plaintiff sues for the tort of bad faith is not enough, facts and evidence, are required. Since the exclusions created a genuine dispute thereby eliminating the cause of action for bad faith.
You can find a permanent public version of the document here: https://public.fastcase.com/jaEE2PXzRXmZ99jOLMt1Iqfrihk%2bzXYKQAQqMk84Z%2bGq%2fci2oKl%2bGLBe8SNEAKEvYQtwr1H8F%2bUlbzuvGUGvLQ%3d%3d
(c) 2025 Barry Zalma & ClaimSchool, Inc.
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The Largest Residential Burglary of All Time
Post 5407
Fraud & the Fear of Bad Faith Suits
Posted on July 22, 2026 by Barry Zalma
See the full video at https://lnkd.in/gWQQEySW and at https://lnkd.in/gyhdK6wv
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
After ...
Chutzpah is not Enough
Post 5397
Posted on July 20, 2026 by Barry Zalma
See the video and at https://lnkd.in/gNUs2XzT and at https://lnkd.in/g2MawyzX
Magistrate Issues a Search Warrant if there is a Fair Probability that Contraband or Evidence of a Crime will be Found in a Particular Place.
In United States Of America v. Frank Suess, et al., CRIMINAL No. 3:24-308, United States District Court, M.D. Pennsylvania (July 16, 2026) a federal grand jury indicted Frank Suess, Melissa Driscoll, and others in a 55-count health care fraud and anti-kickback prosecution arising from an alleged scheme involving medically unnecessary prescription “foot baths.”
As part of the investigation, the FBI obtained an August 19, 2022 warrant to search Driscoll’s Sterling Pharmacy Yahoo email account for emails from January 1, 2018 through December 31, 2020. Driscoll moved to suppress the resulting evidence, arguing that the warrant lacked probable cause, was overbroad, and rested on material misstatements and omissions.
LAW:
The ...
Fraud Shouldn’t Pay
Post 5396
See the video and at https://rumble.com/v7ctgmq-the-great-jewel-theft.html at https://youtu.be/aRbQ2sJfGwA
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ¬¬¬Perpetrators than any Other Crime.
The Insured purchased, for the first time in his life, a policy of Personal Articles Floater Insurance (PAF) scheduling $125,000 worth of ladies jewelry. He advised the insurer that the jewelry was always kept in a class E safe at his residence. He also told the insurer that he was employed full time as the owner of a gasoline service station and that he had never been canceled or suffered a previous loss.
One month after the policy was ...
Day Care Owner Loses Subsidies Because She Criticized State
Post 5421
Posted on August 11, 2026 by Barry Zalma
First Amendment Right Will be Allowed to Go to Trial
In Betsey J. Grant v. Maine State Department Of Heath And Human Services, No. 1:25-cv-00490-JAW, United States District Court, D. Maine (August 6, 2026), Betsey J. Grant, a licensed childcare provider and operator of Tiny Tikes Daycare in Trenton, Maine, sued Maine DHHS and several employees after she publicly criticized DHHS before Maine’s Government Oversight Committee and alleged that officials retaliated against her.
She claimed DHHS imposed and extended a conditional license, published stigmatizing information, interfered with subsidies and program funding, removed her from a food program, rescinded an expansion grant, and used biased or falsified evidence in licensing proceedings. Following the March 10, 2023, GOC testimony, Ms. Grant alleges that foster children's subsidies (approximately $30,000) were withheld; she was removed from the ...
Rescission for Material Misrepresentation
Post 5418
Posted on August 5, 2026 by Barry Zalma
An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.
In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units. After an underlying personal injury action was filed, Union Mutual determined that the property actually contained three apartment units and rescinded the policies on the ground that the defendants had made a material misrepresentation in the applications.
LAW:
A misrepresentation is material if the insurer would not have issued the same policy, or would have issued it only on different terms, had the true ...
Rescission for Material Misrepresentation
Post 5418
Posted on August 5, 2026 by Barry Zalma
An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.
In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units.
LAW:
A misrepresentation is material if the insurer would not have issued the same policy, or would have issued it only on different terms, had the true facts been disclosed. To establish materiality as a matter of law, the insurer must submit documentation of its underwriting practices, such as manuals, guidelines, bulletins, or rules addressing similar risks.
DISCUSSION/ANALYSIS:
As a result, the...
