Newsletter

Unnamed Individual Insureds Not Obligated to Pay Deductible

October 2011

The United States District Court for the Northern District of California, applying California law, has granted individual insureds' motion to dismiss a coverage action against them because the individuals were not parties to the insurance policy and were therefore not obligated to pay the policy's deductible. Carolina Cas. Ins. Co. v. Lanahan & Reilley, LLP, 2011 WL 3741004 (N.D. Cal. August 25, 2011).

The insured, a law firm, purchased a Lawyers' Professional Liability Insurance Policy that provided malpractice insurance to the law firm and its employees. The employees were not named insureds under the policy. The insured and several of its employees were sued for malpractice, and the insurer agreed to defend the claim subject to the policy's $150,000 deductible and a reservation of rights. The insureds failed to pay any amounts within the deductible, prompting defense counsel to move to withdraw. The insurer proposed to the firm that it would continue to defend the insureds provided that the firm tendered payment of the $150,000 deductible within 30 days. The firm accepted the proposal but failed to pay the deductible.

The insurer filed suit, alleging that the insureds breached the policy and the separate agreement by failing to pay the deductible. The insurer sought a declaratory judgment that it had no duty to defend or indemnify the named insured or the individual insureds. The individual insureds moved to dismiss all claims alleged against them on the grounds that they were not parties or signatories to the policy and therefore cannot be liable for any obligations contained in that agreement.

In granting the individual insureds' motion to dismiss, the court found that although California law has not addressed the issue of whether an additional insured may be liable to pay the deductible in a policy, courts have held that a beneficiary under an insurance policy has no legal obligation to pay for costs imposed by the policy absent a specific agreement to do so. The court rejected the insurer's argument that the individual insureds are parties to the policy because they were entitled to coverage, finding that being a beneficiary under the policy did not transmute them into parties subject to contractual obligations imposed by the policy.

The insurer pointed to a policy provision that explicitly required the individual insureds to pay the deductible if the named insured failed to do so, but these allegations were not pled in the complaint, and the insurer failed to attach a copy of the policy to its complaint.

Lastly, the insurer argued that even if the individual insureds are not parties or signatories to the policy, they can be compelled to pay as a matter of law. The court rejected this argument on the basis that there is no California law directly on point and that following such authority from another jurisdiction would run afoul of California law. Therefore, the court granted the individual insureds' motion to dismiss with leave to amend.

Read Time: 2 min
Jump to top of page

Wiley Rein LLP Cookie Preference Center

Your Privacy

When you visit our website, we use cookies on your browser to collect information. The information collected might relate to you, your preferences, or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. For more information about how we use Cookies, please see our Privacy Policy.

Strictly Necessary Cookies

Always Active

Necessary cookies enable core functionality such as security, network management, and accessibility. These cookies may only be disabled by changing your browser settings, but this may affect how the website functions.

Functional Cookies

Always Active

Some functions of the site require remembering user choices, for example your cookie preference, or keyword search highlighting. These do not store any personal information.

Form Submissions

Always Active

When submitting your data, for example on a contact form or event registration, a cookie might be used to monitor the state of your submission across pages.

Performance Cookies

Performance cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.

Powered by Firmseek