Actual Possession Not Required in Personal and Advertising Injury Coverage Dispute

The Insurer moved for summary judgment on a breach of contract and breach of the implied covenant of good faith claims made by the insured. The dispute over coverage centered around part of the definition of personal and advertising injury as found in the CGL form. This case is Sell v. Nationwide Mutual Insurance Company, 2010 WL 4720882 (E.D.Cal.).

Sell is a trustee and beneficiary under the trust of Nancy Muhs. The trust includes real property located in Stockton. As a beneficiary, Sell was entitled to reside at the property and to eventually own the property free of the trust if she complied with certain trust terms. Specifically, the trust required Sell to commence residing on the property within ninety days of being offered possession, and to reside and maintain her principal residence at the property for a five year period.

One of the other beneficiaries listed in the trust (Ocegueda) argued that Sell did not satisfy the occupancy condition precedent and filed a lawsuit demanding to be provided possession of the property. Sell tendered defense of the lawsuit to National Mutual insurance. The insurer denied coverage and argued that it did not owe Sell a duty to defend under the personal and advertising injury provision. The insurer claimed that the word "occupies" in the definition of personal and advertising injury unambiguously means a claimant must have actual possession and control of the property, and since Oceguada did not have actual possession and control of the property, the claim against Sell is not covered under the terms of the policy. The insurer filed a motion seeking a judgment that it did not owe a duty to defend.

The United States District Court for the Eastern District of California noted that National had not shown that its argued definition of the word "occupies" is consistent with how some California courts have construed the word in similar phrases. Courts in the state have construed the "wrongful entry or eviction … of the right of private occupancy (phrase) as applying to tort claims arising out of the interference with an interest in real property". In other words, California courts have interpreted the word "occupancy" as meaning the right of occupation, not the actual occupation and possession of the property. Therefore, the court found that there was potential for coverage and the insurer's motion for summary judgment was denied.

The court did find, however, that National's interpretation of the personal and advertising injury definition was not arbitrary or unreasonable and so, the denial of coverage was not a breach of the implied covenant of good faith and fair dealing.

In summary, the court denied the insurer's motion for summary judgment on Sell's breach of contract claim (since there was a potential for coverage under the terms of the policy), and granted the insurer's motion on Sell's breach of the implied covenant of good faith and fair dealing. (since the insurer did not act arbitrarily and unreasonably in its denial).

Editor's Note: The definitions in the CGL form are meant to clarify the meaning and intent of the policy language. However, particular words and phrases in those definitions can still cause coverage disputes between insured and insurers. In this instance, the word "occupancy" in the definition of personal and advertising injury was interpreted by the insurer to mean actual possession of the property and since the claimant did not have actual possession, the insurer interpreted the definition as meaning there was no defined offense and so, no coverage.

This court made it clear that, at least in California, one does not have to actually occupy and possess the property for the definition to be invoked. The right of private occupancy (as it is actually worded in the definition) means having an interest in or a right to occupancy.

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