A general liability insurer had a duty to defend its insured, a bedding manufacturer, against a consumer class action lawsuit arising from the insured’s sale of allegedly defective mattresses. ( Hartford Fire Ins. Co. v. Tempur-Sealy International, Inc. (2016) WL 232431)
Facts
Several individual plaintiffs filed a federal court class action lawsuit against Tempur-Sealy International, Inc. (Tempur-Sealy). In their complaint, the plaintiffs alleged that Tempur-Sealy failed to inform consumers that (1) Tempur-Sealy mattresses “emit a chemical odor caused by volatile organic compounds … off-gassing from” the mattresses; (2) the odor contains formaldehyde, a known human carcinogen; and (3) exposure to the odor causes consumers to suffer bodily injury (such as respiratory problems and allergic reactions) and property damage (such as contamination of pajamas and other items of clothing). The plaintiffs alleged that if they had known the true facts, they “would not have purchased [Tempur-Sealy] products for the retail price paid.” The plaintiffs also specifically alleged that they “do not seek damages for physical injuries.” The plaintiffs’ complaint contained claims against Tempur-Sealy based on various state consumer protection statutes, including California’s Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act.
Tempur-Sealy tendered the defense of the class action lawsuit to its general liability insurer, Hartford Fire Insurance Company (Hartford), under consecutive policies which were in effect between 2004 and 2013. The policies provided that Hartford would defend Tempur-Sealy against suits seeking damages because of “bodily injury” or “property damage” caused by an “occurrence” and not otherwise excluded. Hartford agreed to defend Tempur-Sealy in the class action lawsuit, subject to a reservation of rights.
Hartford then filed a federal court declaratory relief action seeking a ruling that Hartford had no duty to defend Tempur-Sealy in the class action lawsuit. Hartford and Tempur-Sealy later filed cross-motions for summary judgment on the duty to defend issue.
Holding
The federal district court, applying California law, held that Hartford was obligated to defend Tempur-Sealy against the plaintiffs’ claims in the underlying class action lawsuit.
According to the federal district court, the plaintiffs in the class action lawsuit were potentially seeking damages against Tempur-Sealy because of both “bodily injury” (which the policies defined as “bodily injury, sickness or disease sustained by a person”) and “property damage” (which the policies defined as “physical injury to tangible property” and “loss of use of tangible property that is not physically injured”). The court reasoned that the complaint in the underlying class action lawsuit included detailed factual allegations describing the bodily injuries and property damage caused by Tempur-Sealy’s products. According to the court, on their face, the “facts alleged” in the underlying complaint “clearly demonstrate the potential for liability” under the policies. It was irrelevant that the plaintiffs in the underlying suit expressly alleged that they were not seeking damages for bodily injury, because “the third-party plaintiff cannot be the arbiter of coverage.” Moreover, while the policies’ “product” exclusions would bar coverage for any property damage to Tempur-Sealy’s own products (i.e., the mattresses themselves), the product exclusions would not bar coverage for property damage to other property (e.g., pajamas and other items of clothing).
The federal district court also concluded that the plaintiffs’ claims against Tempur-Sealy in the underlying class action lawsuit were potentially caused by an “occurrence” (which the policies defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”). According to the court, this was not a situation where Tempur-Sealy could only be held liable for purely economic damages caused by “misrepresentations” (which would not qualify as “occurrences”). Rather, the allegations in the underlying class action complaint suggested that Tempur-Sealy could also potentially be held liable for bodily injury or property damage directly caused by an allegedly “defective product” (which would qualify as an “occurrence”).
Because the plaintiffs in the underlying class action lawsuit were “potentially” seeking covered damages from Tempur-Sealy, Hartford had a duty to defend.
Comment
The federal district court liberally construed California’s already broad duty to defend standard. The court reasoned that although “product defect” causes of action were not explicitly pled in the underlying complaint, there was a “potential” that such causes of action could be added by future amendment. The court distinguished earlier cases such as Low v. Golden Eagle Ins. Co.(2002) 99 Cal.App.4th 109, The Upper Deck Co., LLC v. Fed. Ins. Co.(9th Cir.2004) 358 F.3d 608 and Sony Computer Entertainment America Inc. v. American Home Assurance Co.(9th Cir.2008) 532 F.3d 1007, all of which had held that insurers were not obligated to defend insureds in underlying consumer class action cases. According to the federal district court, in the Low, Sony and Upper Deck cases, none of the underlying complaints actually contained factual allegationsthat would support covered claims for bodily injury or property damage. Here, by contrast, the federal district court characterized the underlying complaint as being replete with factual allegations that would support covered claims for bodily injury or property damage. As such, the insurer had a duty to defend.