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Fri Holdings Inc. v. Hartford Casualty Insurance Co.3/18/1999
g the claim. Surely the starting point in any bad faith analysis is that Judges are presumptively reasonable people, and if they, acting in a judicial capacity, conclude that an exclusion applies, it means that an insurer who concludes the same thing also acted reasonably. FRI has no evidence to rebut this strong, natural presumption.
Moreover, as mentioned above, our opinion reversing the summary judgment turned on a fine point of language, not some obvious "what-were-you-thinking?" kind of mistake which, even on the merits, arguably might call into question the reasonableness of the trial court's decision. The Supreme Court, for example, might have concluded that we parsed the word "material" too finely in our decision so as to unreasonably favor the insured, and reversed us. That it didn't does not prove the trial Judge was unreasonable in granting summary judgment.
So much, therefore, for FRI's argument that the trial Judge erroneously precluded evidence of FRI's lost profits and nonsuited its punitive damage claim. Obviously a company that reasonably denies a claim does not act despicably for purposes of punitive damages. We need only note in passing that the essence of FRI's argument is predicated on an unreasonable approach to an insurer's duty to "investigate" a claim. In FRI's model, the duty to investigate is a strict liability trap for the unwary insurer and an opportunity for a windfall for the policyholder: If the insurer doesn't put some gumshoe on the case and conduct all sorts of interviews (FRI points to, for example, all the people who Hartford didn't interview before the claim was denied), and if a court later concludes that the denial of coverage was incorrect, the insurer must be assessed tort (and possibly punitive) damages.
Manifestly, an insurer's duty to "investigate" a claim before denying it must turn on the nature of the claim and the information that necessarily bears on its validity. The famous case of Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809 involved a disability claim where an agency claims adjuster summarily decided, on just workers' compensation and surgical records, that a back injury was really the result of a pre-existing condition of degenerative osteoarthritis; the adjuster did not have the claimant examined by a doctor or even talk to the plaintiff's treating doctors. Obviously there is a large difference between a fact-intensive disability claim -- where the insurer itself must make a determination as to the nature of a disability -- and a third party liability claim, where the universe of relevant facts is mostly, if not completely, contained in the complaint against the insured and controlled by a third party, and any additional facts are within the insured's own knowledge and can easily be submitted to the insurer. Here, there is no question that Hartford had enough information to reasonably, even if erroneously, deny the claim on the prior material exclusion from the investigation (evaluation would be a better word) it conducted. (See Brinderson-Newberg v. Pacific Erectors (9th Cir. 1992) 971 F.2d 272, 283 ["Egan is inapposite when an insurer does not conduct a more thorough investigation because the insurer already has good reason to dispute liability."].)
That leaves Hartford's cross-complaint, in which it contends it did not even have a potential contract obligation to FRI. On this point, however, we must agree with FRI.
The airlines' first amended complaints mention several different types of advertising injury, including misappropriation of advertising ideas and misappropriation of style of doing business. "Advertising ideas" and "style of doing business" have been defined as the "wrongful taki
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