A common misconception is that insurance applies only to specific types of claims that are formally pleaded. For example, most people know that their automobile insurance policy should provide some type of coverage when a “negligence” lawsuit is filed against the insured driver after a car accident. But it is actually the facts underlying the claims, rather than the title of the claim itself, that determines if the insurance company is required to defend the lawsuit or pay for any liability or settlement.

One example is an early case in California, Gray v. Zurich Insurance Company , which concerned a claim of “intentional battery”: The policyholder had beaten a man, who later sued. The insurance company refused to defend the policyholder, because the plaintiff’s claim of battery was an intentional tort, and insurance companies generally do not insure against “willful acts.” The California Supreme Court held that, even though the plaintiff’s claim was for a willful act, it was possible on the facts involved that the policyholder might be held liable for a negligent act, such as if the policyholder had a good faith but unreasonable belief that he was acting in self defense when he committed the beating. In such a case, the policyholder might be held liable for a negligent act, rather than a willful act. Because of this possibility, the facts of the case present a potentially covered claim, even though the plaintiff had pleaded his case as one based on willful acts that would not be covered. In short, the exact claim chosen by the plaintiff does not in itself control whether there is a potential for insurance coverage, and whether the insurance company owes its policyholder an obligation for a defense, settlement or liability.

This means, in effect, that many claims that might not seem to be within an insurance policy, may involve facts that are potentially within the coverage of an insurance policy. For example, it is not uncommon that claims labelled “sexual harassment” include allegations that the defendant “blocked the door” or “grabbed” the plaintiff and made sexual advances. Even though the claim is titled “sexual harassment” and insurance policies may not cover sexual harassment claims, the facts pleaded may also potentially present a “false imprisonment” claim that is often within the potential coverage of an insurance policy. Similarly, claims that are pleaded as “unfair competition,” “unfair business practices,” “interference with contract” or other titles may allege facts that suggest defamation or disparagement claims that are frequently within homeowners or Commercial General Liability policies that are commonly held by individuals and businesses.

Often, it takes a trained eye, experienced in insurance coverage matters, to determine whether a potentially covered claim is involved. Parties who are named as defendants or cross-defendants in lawsuits are well advised to seek the specific advice of an attorney experienced in handling insurance coverage and insurance bad faith issues.

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