Rejecting Constructive Knowledge Claim, Ninth Circuit Says No Duty To Defend Without Tender
02.27.17
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(Article from Insurance Law Alert, February 2017)
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The Ninth Circuit ruled that absent formal tender, insurers had no duty to defend a policyholder in an underlying environmental contamination suit. In so ruling, the court rejected the policyholder’s argument that a duty to defend was triggered by the insurers’ constructive knowledge of the suit. M.B.L., Inc. v. Federal Ins. Co., 2017 WL 128095 (9th Cir. Jan. 13, 2017).
MBL, a defunct dry cleaning company, was insured under policies issued by Federal, Great American and Utica. MBL argued that its failure to tender the suit to its insurers was not fatal to its coverage claim because the insurers had constructive knowledge of the suit. In particular, MBL contended that its previous tender of a potential administrative proceeding was sufficient to establish tender of the lawsuit. The court disagreed.
Each policy imposed a duty to defend any “suit” against MBL. Under California law, an administrative proceeding pursuant to environmental statutory law is not the equivalent of a “suit” for insurance coverage purposes. The court therefore reasoned that MBL’s tender of the agency proceeding did not trigger a duty to defend the lawsuit. The court distinguished cases finding constructive tender, explaining that in those cases, the policyholder tendered a suit, but failed to “conform precisely to the required formalities,” whereas here, there was no tender at all. The court also ruled that the insurers’ receipt of notice from another insurer (seeking contribution) did not establish constructive tender. Finally, the court noted that MBL received a full defense from two other insurers and that California statutory law (Cal. Civ. Code § 2860(c)) forecloses MBL from seeking additional defense costs from Appellees.