A general liability insurer had no duty to defend or indemnify its insured against a suit seeking civil penalties and injunctive relief arising from the insured’s alleged violation of the California Safe Drinking Water and Toxic Enforcement Act of 1986. ( Ulta Salon, Cosmetics & Fragrance, Inc. v. Travelers Property Cas. Co. of America (2011) WL 2279527)
Facts
Ulta Salon, Cosmetics & Fragrance, Inc. is a nail products manufacturer. In 2007, Christine Deubler filed an action “on behalf of the general public” against Ulta and other nail products manufacturers, alleging that the defendants had violated the California Safe Drinking Water and Toxic Enforcement Act of 1986, Cal. Health & Safety Code § 25429.5, et seq. (commonly known as Proposition 65). Specifically, Deubler alleged that the defendants’ nail products contained a reproductive toxin known as Dibutyl Phthalate (DBP); that the State of California had previously listed DBP as a chemical known to cause reproductive toxicity; and that the defendants had violated Proposition 65 by failing to give consumers a “clear and reasonable warning” regarding the reproductive toxicity caused by exposure to DBP. Pursuant to Proposition 65, Deubler sought civil penalties of $2,500 per day for each defendant’s failure to warn consumers about the reproductive toxicity caused by exposure to DBP, as well as an injunction barring defendants from offering their nail products for sale without disclosing the presence of DBP in the products.
Ulta tendered defense of the lawsuit to Travelers Property Casualty Company of America, pursuant to a general liability policy that required Travelers to defend Ulta against any suit seeking damages because of “bodily injury.” The policy defined “bodily injury” as “bodily injury, sickness or disease sustained by a person….” Travelers refused to defend Ulta against Deubler’s lawsuit, asserting there was no potential for coverage. Thereafter, Ulta incurred approximately $267,000 in defending against and settling Deubler’s lawsuit.
Ulta then filed a breach of contract / bad faith action against Travelers, alleging that Travelers had wrongfully failed to defend Ulta in the underlying lawsuit brought by Deubler. The trial court concluded that Travelers had no duty to defend Ulta in the underlying lawsuit, and the trial court thus dismissed Ulta’s lawsuit against Travelers. Ulta appealed.
Holding
The Court of Appeal affirmed the dismissal of Ulta’s lawsuit against Travelers. The appellate court noted that in the underlying lawsuit, Deubler did not allege that she had used Ulta nail products, or that she had suffered any bodily injury due to exposure to Ulta’s nail products. Rather, Deubler merely alleged that Ulta had violated Proposition 65 by failing to provide “clear and reasonable warnings” about nail products containing DPB . The appellate court emphasized that Proposition 65 was designed to notify consumers of potentially harmful products so that they could make informed decisions about using those products. Proposition 65 was not designed to compensate consumers for any actual damages sustained by them as a result of exposure to those products.
In short, the civil penalties recoverable for violations of Proposition 65 are not damages because of “bodily injury” within the meaning of a liability policy. Because Deubler’s claims against Ulta in the underlying lawsuit were not potentially covered under the Travelers policy, Travelers did not have any duty to defend Ulta in that lawsuit.
Comment
The appellate court rejected Ulta’s argument that Deubler “potentially” sought damages from Ulta in the underlying lawsuit because of “bodily injury” as defined in the Travelers policy. Rather, according to the appellate court, Deubler “pled nothing more than a failure to give clear and reasonable warnings in violation of Proposition 65 .” Any penalties resulting from a mere failure to provide required warnings cannot be considered damages because of “bodily injury.”