Ms. Richardson sought $13,159.96, representing the total sum due to resolve her tax liability, in addition to compensatory damages, punitive damages, and attorneys' fees and costs.

ENE tendered Ms. Richardson's action to its insurer, Kinsale Insurance Company, from which it had acquired a professional liability insurance policy. Kinsale denied coverage.

At some point during the state court action, ENE agreed not to oppose Ms. Richardson's trial presentation and assigned to Ms. Richardson “all legally assignable claims that ENE might have against Kinsale” resulting from Kinsale's disclaimer of coverage to ENE, except ENE's claims for its attorneys' fees.

The trial court entered judgment in favor of Ms. Richardson for about $100,000, and she sued Kinsale.

The parties moved for summary judgment.

Ms. Richardson asserted that ENE's negligence in failing to follow the escrow instructions to pay her full tax liability was a covered event under the policy, because the policy stated that Kinsale would pay “'damages' and 'defense costs' because of a 'claim' for a 'wrongful act' arising out of 'professional services' rendered,” and the policy defined “wrongful act” as “any actual or alleged negligent act, error, omission.”

For its part, Kinsale asserted that it was entitled to summary judgment because Ms. Richardson's claims against ENE fell under the exclusion in its policy for a claim “arising out of” an alleged “failure to pay . . . any . . . tax.”

The Court's Decision

The court granted Kinsale's motion.

In its decision, the court explained that, under California law, the term “arising out of” was construed “broadly,” even where the phrase appeared in an exclusion.

The court then said that the “critical fact” was that the escrow instruction at issue was to pay Ms. Richardson's delinquent property taxes in full, and ENE's failure to pay the full amount of taxes was the act that damaged Ms. Richardson. Put another way, the court added, ENE's liability would not exist in the absence of its failure to pay the full amount of Ms. Richardson's property taxes.

The court held that Ms. Richardson's allegations against ENE arose out of its failure to pay property taxes and that those allegations fell within the exclusion and were not within the scope of coverage. Accordingly, the court concluded, Kinsale had not breached its duty to indemnify ENE for the judgment and it granted summary judgment in its favor.

The case is Richardson v. Kinsale Ins. Co., No. 18-cv-02962-DMR (N.D. Cal. May 30, 2019). Attorneys involved include: For Lillie Richardson, Plaintiff: Geoffrey Wm. Steele, Steele Law Group, Walnut Creek, CA; John B. Lytle, Law office of John B Lytle, Sonoma, CA. For Kinsale Insurance Company, Defendant: Gary Robert Selvin, LEAD ATTORNEY, Selvin, Wraith, Halman, LLP, Oakland, CA; Elizabeth A. Doyle, Susan F. Halman, Selvin Wraith Halman LLP, Oakland, CA.