News : Appeals Court Ruling Has Long-Lasting Effects on ISO CGL Policy Holders

APPEALS COURT RULING HAS LONG-LASTING EFFECTS ON ISO CGL POLICY HOLDERS


The California Court of Appeal recently handed-down a ruling that may have long-lasting effects on holders of ISO CGL form policies of insurance. In this case, Mirpad purchased a commercial office building and retained Allred to manage it. A pre-existing tenant of the building was POS Systems, Inc. ("POS").

After the purchase, Allred notified POS that it was in default under the terms of its lease and, about a month later, locked POS out of the premises. At about the same time, POS filed a Chapter 7 bankruptcy petition. The bankruptcy trustee then filed an advesary proceeding against Mirpad and Allred for wrongful termination on behalf of POS and, shortly thereafter, a second lawsuit was filed against Mirpad and Allred, this one naming the President and CEO of POS as the plaintiff.

Both named insureds (Mirpad and Allred) submitted the claims to United Pacific Insurance Company for defense. However, prior to responding to the tender, United Pacific was declared insolvent. Tender of the defense was then submitted to CIGA. CIGA denied coverage based on the underlying policy language, leaving plaintiffs to put up their own defense, at a cost of approximately $500,000.

Seeking to recover their loss, Mirpad and Allred filed a declaratory relief action against CIGA seeking a determination on the question of coverage. CIGA alleged plaintiffs' claims were not covered because the coverage provided applied only where the tenant was a natural "person" and not an "organization," as POS was in the instant case.

The underlying ISO CGL form policy provided coverage for wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, a dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor. The issue decided by the Court of Appeal was whether this coverage applied to the alleged wrongful termination of the lease between the named insureds (Mirpad and Allred) and a corporation (POS) that leased office space.

The Court held that the words "person" and "organization" must be given separate meanings since that was the manner in which the policy used them. It noted that the language of the policy referring to places where people live such as a room, dwelling or premises could only refer to persons and not to organizations or corporations. The Court also cited previous cases that have held this coverage is limited to breaches of the landlord-tenant relationship, and noted that while a corporation can sue for wrongful eviction, the corporate officers and employees of a corporation cannot file such a claim as individual persons. In light of these findings, the Court of Appealed ruled that no coverage exists for the claims brought by on behalf of the corporate plaintiff.

This ruling is consistent with insurance industry articles such as International Risk Management Institute (IRMI) and cases that have held that this type of wrongful eviction can only occur in the context of a landlord-tenant relationship for wrongful doing alleged by a person, not a corporation.


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Related Attorney(s):
Timothy D. Lake

Related Practice Area(s):
Bad Faith and Coverage

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