Plaintiff opposed Defendant State Farm's Motion for Summary Judgment on the issue of whether allegations of emotional distress from alleged defamation were covered under a homeowner's insurance policy.
Plaintiff, tendering defense of a defamation claim, argued An insurer must defend its insured against claims that create a potential for indemnity under
the policy. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose);
Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275 (Gray).) The duty to defend is broader than
the duty to indemnify, and it may apply even in an action where no damages are ultimately awarded. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy. (Montrose, supra, 6 Cal.4th 287, 295.) But the duty also exists where extrinsic facts known to the insurer suggest that the claim may be covered. (Ibid.) Moreover, that the precise causes of action pled by the third-party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability. (Gray, supra, 65 Cal.2d 263, 275-276; CNA Casualty of California v. Seaboard Surety Co.
(1986) 176 Cal.App.3d 598, 610-611.) The defense duty arises upon tender of a potentially covered claim and lasts until the underlying lawsuit is concluded, or until it has been shown that there is no potential for coverage. Montrose, supra, 6 Cal.4th 287, 295.) When the duty, having arisen, is extinguished by a showing that no claim can in fact be covered, “it is extinguished only prospectively and not retroactively.” (Buss v. Superior Court (1997) 16 Cal.4th 35, 46 (Buss); see also Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 58 (Aerojet-General).