Procedural Posture

Plaintiff insured appealed an order of the Superior Court of Orange County (California) that entered judgment in favor of defendant insurer. The issue was whether the loss of a chose in action was a contractual loss under an insurance policy that was issued to plaintiff. Plaintiff claimed that a contractual loss was in fact incurred.

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Overview

Defendant insurer failed to provide a defense to plaintiff insured for a potentially covered claim. Plaintiff then settled the suit. Plaintiff claimed that defendant was responsible under a breach of contract claim to recompense it for the value of an intangible, which was given to the third party claimant for purposes of settlement. The trial court found for defendant. An insurance company had a duty to defend its insured whenever it ascertained facts that gave rise to the potential of liability. If an insurer improperly refused to defend the insured, in violation of its contractual duties, the insured was entitled to make a reasonable settlement of the claim in good faith, and then maintain an action against the insurer to recover the amount of the settlement. Defendant argued that the value of the intangible was not compensable under a breach of contract theory. However, the damage incurred was a payment made to settle a covered claim, which directly resulted from a breach of the duty to indemnify. Rather than allow the matter to proceed to judgment, plaintiff was entitled to settle and sued defendant to recover such amount. The judgment was reversed.

Outcome

The judgment was reversed and the trial court was directed to enter judgment in favor of plaintiff insured. Plaintiff was entitled to have been compensated for the value of that which it gave up in return for the settlement. Whether plaintiff had given up money or a chose in action, the consideration for the settlement had a value that was compensable because of the breach of the contractual duty to indemnify.