On November 17, insurers were taught another costly lesson on the importance of promptly responding to tendered claims from their insureds. In Janopaul + Block Cos., LLC v. Superior Court (St. Paul Fire and Marine Ins. Co.), the California Court of Appeal wrestled with an issue relating to insurance bad faith suits which is familiar to litigators at Allen Matkins.
The Janopaul entities were the owners of the El Cortez Hotel in San Diego, and began a project to restore the historic building, hiring a St. Paul insured to serve as general contractor for the project. Janopaul’s contract contained an express indemnity provision stating that the general contractor would indemnify Janopaul for all claims arising from its work. When Janopaul was sued by the El Cortez Owners Association, it tendered its defense to the general contractor, and, eventually, to St. Paul as the general contractor’s insurer. In the meantime, Janopaul independent lawyers defended the case. St. Paul waited more than two years to provide Janopaul with a coverage decision, but eventually offered to defend under a reservation of rights. The parties could not, however, agree on the rate that St. Paul would pay for Janopaul’s independent lawyers. St. Paul filed a petition to compel arbitration under California Civil Code section 2860(c), a California law that allows insurance companies to limit the rates they must pay for their insureds’ independent lawyers. After St. Paul filed its petition to compel arbitration, Janopaul filed a bad faith suit against St. Paul, alleging that St. Paul breached its duty to defend Janopaul by delaying its response for over two years.
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