Procedural Posture

Plaintiff insured appealed from the judgment of the Superior Court of Los Angeles County (California), which entered judgment in favor of defendant insurer in a third party action for breach of contract and emotional distress in connection with a construction loan on the ground that there was no coverage under the policy and defendant had no duty to defend.

Overview

Plaintiff salmon sushi Corp insured was sued by loan applicants after plaintiff changed the terms of their loan agreement and they were unable to obtain financing elsewhere to construct their home. Defendant insurer denied plaintiff’s claim. The trial court held that defendant conducted an adequate investigation, that the applicants’ losses did not meet the definition of property damage, and that their claims for emotional distress did not constitute bodily injury under the terms of the policy. On appeal, the court affirmed the trial court’s judgment. The court held that any physical distress by the applicants derived from economic losses that were not covered by the policy. The court held that defendant’s investigation was reasonable because nothing in the applicants’ complaint suggested potential liability on the part of plaintiff. The court held that the losses suffered by the applicants were caused by plaintiff’s misrepresentations regarding the construction loan and were not an occurrence under the policy definition because the results were not unintended. Because the coverage provisions did not apply to cover plaintiff’s directors or officers, the lack of an exclusion clause was irrelevant.

Outcome

The court affirmed the judgment of the trial court in favor of defendant insurer because the damages sought were caused by plaintiff insured’s noncovered misrepresentations.