California Court Rules That Insurer Has No Duty to Defend or Indemnify Prop. 65 Claim

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In a unanimous decision on June 10, 2011—in Ulta Salon, Cosmetics & Fragrance, Inc. v. Travelers Property Casualty Co.1 —the California Court of Appeal for the Second District held that an insurer had no duty to defend or indemnify its insured for claims against the insured’s alleging violation of Proposition 65, the California Safe Drinking Water and Toxic Enforcement Act of 1986. On July 11, 2011, the decision was certified for publication.

Travelers issued a commercial general liability (CGL) policy to Ulta, a nail-products manufacturer, for a one-year period from 2006 to 2007. The policy required Travelers to defend "any suit" seeking damages that the insured "becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage.'" An underlying action was filed against Ulta and others manufacturers, distributors and sellers of nail products, alleging that the nail products contained dibutyl phthalate (DBP), a chemical known to cause reproductive toxicity. Ulta tendered the suit to Travelers, and Travelers denied coverage. Ulta ultimately incurred more than $200,000 to defend against the suit, and settled the suit for $25,000. Ulta then sued Travelers for breach of contract and bad faith, contending that Travelers’ refusal to defend and indemnify Ulta was unreasonable.

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