Waller V. Truck Ins. Exchange

We granted review to decide the recurring issue whether a commercial general liability insurer is required to defend a third party action that seeks incidental emotional distress damages caused by the insured's noncovered economic or business torts. The Court of Appeal below concluded that allegations of incidental emotional distress damages flowing from noncovered causes of action fall outside the scope of a commercial (formerly called comprehensive) general liability (CGL) policy and present no potential for coverage under the policy. Accordingly, the Court of Appeal reasoned, because there is no potential for coverage, there is no duty to defend on the part of the insurer. (Gray v. Zurich Insurance Co. (1966) 65 Cal. 2d 263, 54 Cal. Rptr. 104, 419 P.2d 168 (hereafter Gray).) The Court of Appeal also concluded that if the insurer is under no obligation to defend or indemnify the third party action, it cannot be found liable for either statutory bad faith (Ins. Code, § 790.03) or breach of the implied covenant of good faith and fair dealing, for its denial of a defense. (See e.g., Love v. Fire Ins. Exchange (1990) 221 Cal. App. 3d 1136, 1152, 271 Cal. Rptr. 246 [bad faith claim cannot be maintained unless policy benefits are due].) As we explain, we affirm the Court of Appeal judgment.