Exclusions Must Apply in All Possible Scenarios
An insured and its general liability insurer wrangled over the carrier’s duty to defend a lawsuit alleging the insured engaged in an ongoing mortgage modification fraud scheme. The insured argued because at least one count did not require a showing of willfulness within the ambit of California law to impose liability, there was a sufficient “potential for liability” to trigger the insurer’s broad duty to defend under California law. Likewise, every claim was not so “inseparably intertwined” with willful conduct as to render the entire action uninsurable.
In reversing summary judgment for the insurer on the duty to defend, the court held the carrier had failed to demonstrate these exclusions applied to all of the claims alleged against the insured “in all possible worlds.” It also concluded the financial services exclusion did not completely bar coverage because at least some allegations bore an “insufficient causal nexus with financial services” thus triggering the duty to defend.