Opinion ID: 1427037
Heading Depth: 1
Heading Rank: 2

Heading: scope of liability coverage

Text: Courts universally have interpreted liability-coverage provisions, identical to that found in appellants' policy, as referring to liability sounding in tort, not in contract. International Surplus Lines Ins. Co. v. Devonshire Coverage Corp., 93 Cal. App.3d 601, 155 Cal. Rptr. 870 (1979), is a representative case. There Devonshire, a general-insurance agent, had issued a $500,000 fire-insurance policy on a clubhouse. Under a separate contract with the insured, Devonshire had agreed either to obtain additional insurance or to indemnify the insured for damages in excess of $500,000. Devonshire failed to obtain the extra insurance. The clubhouse burned, and the insured obtained a judgment against Devonshire for more than $800,000. Devonshire sought to hold its liability-insurance carrier responsible for that judgment. In ruling for the insurer, the California Court of Appeals interpreted a comprehensive-liability provision, identical to the coverage provision in the present case, as extending to liability based only on tort claims: The phrase `legally obligated to pay as damages' as used in the    [liability] policy, is synonymous with `damages for a liability imposed by law.' That latter phrase has been uniformly interpreted as referring to a liability arising ex delicto as distinguished from ex contractu. ( Ritchie v. Anchor Casualty Co. [, 135 Cal. App.2d 245, 286 P.2d 1000 [(1955)].]) The theory that Devonshire assumed a liability    for which    [its liability insurer] provided coverage cannot be sustained by the terms of the policy or applicable law. 155 Cal. Rptr. at 875. The Supreme Court of Alaska considered a factual situation similar to the case at bar in Continental Insurance Company v. Bussell, Alas., 498 P.2d 706 (1972). In that case, an employer agreed in a union contract to purchase life insurance for his employees who traveled in aircraft in the course of business. The employer purchased a liability-insurance policy, but failed to acquire the promised life insurance. When an employee perished in an airplane crash, the estate sued for the $25,000 death benefit under the union contract. The employer filed a third-party claim against Continental Insurance Company, his liability insurance carrier. The Alaska Supreme Court held that Continental Insurance Company had no obligation to defend the employer or to pay the $25,000 death benefit. In interpreting the standard comprehensive general-liability clause with which we are concerned, as well as a contractual-liability provision not pertinent here, the court said: Neither of the coverage portions in issue applies to damages arising from an insured's breach of a contractual duty. There is no language in any section of the policy which even tangentially alludes to coverage protecting against breaches of contract. 498 P.2d at 710. Other cases reaching the same conclusion include Olympic, Inc. v. Providence Washington Insurance Company of Alaska, Alas., 648 P.2d 1008 (1982); Kisle v. St. Paul Fire and Marine Insurance Company, 262 Or. 1, 495 P.2d 1198 (1972); Boiler Brick and Refractory Co. v. Maryland Casualty Co., 210 Va. 50, 168 S.E.2d 100, 102 (1969). Rowland H. Long in his treatise, The Law of Liability Insurance, summarized the uniform judicial interpretations of standard liability-coverage provisions found in current and earlier policies: The promise in the insuring provision of the earlier liability insurance policies is to pay all sums by reason of liability `imposed upon the insured by law for damages.' In more recent editions of the policy, the promise is to pay all sums `which the insured shall become legally obligated to pay as damages.' Damages `imposed by law' and damages which a person is `legally obligated' to pay express the same thought. The law imposes upon the insured a liability to pay damages for bodily injuries or damage to property caused by his carelessness and arising out of the ownership, maintenance, care, custody, or use of property. This is the liability upon which the insurer agrees `to pay on behalf of the insured all sums which the insured shall become legally obligated to pay.' This provision limits the insurer's obligation. `Liability imposed by law for damages' or damages which the insured becomes `legally obligated' to pay exclude the concept of liability which the insured may have voluntarily assumed   . 1 Long, Law of Liability Insurance, § 1.10, p. 1-25. See also 7A Appleman, Insurance Law and Practice (Berdal ed.), § 4493, pp. 55-56 (1979). Appellants assert that such a narrow reading of the liability-coverage clause cannot be reconciled with the expansive protection contemplated by the policy titles Business Protector Policy and Comprehensive General Liability Insurance. The coverage clause, not the policy titles, controls, however, and these admittedly broad labels cannot override the express provisions of the coverage paragraph so as to protect the insured against all possible risks. Fresno Economy Import Used Cars, Inc. v. United States Fidelity & Guaranty Company, Inc., 76 Cal. App.3d 272, 142 Cal. Rptr. 681, 686 (1977). We conclude that the coverage clause at issue in the present case encompasses liability which the law imposes on all insureds for their tortious conduct and not on the liability which a particular insured may choose to assume pursuant to contract. Action Ads' potential liability in this case stemmed not from its own negligent behavior, but from a contractual obligation. Therefore, Great American had no duty under the comprehensive general-liability insurance policy to defend Action Ads. The summary judgment is affirmed.