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Court of Appeal, Fourth District, Division 1, California.

Salvador GARCIA, Plaintiff and Appellant, v. CALFARM INSURANCE COMPANY, Defendant and Respondent.

No. D013249.

Decided: April 30, 1992

Winters & Associates, Jack B. Winters, Jr., and Robert E. Adams, San Diego, for plaintiff and appellant. Wingert, Grebing, Anello & Brubaker and Michael M. Anello, San Diego, for defendant and respondent.

In this case an insurer refused to provide a defense in a wrongful death action on the grounds the decedent was an employee of the insured and therefore excluded from coverage under two policies the insurer had issued.   In a bad faith lawsuit brought after the insured settled with the wrongful death plaintiffs, the insurer moved for summary judgment on the grounds the exclusions in its policies for injuries to employees barred coverage as a matter of law.

Because we find the decedent's possible status as an independent contractor may have given rise to coverage under the policies, the employee exclusions did not relieve the insurer of its duty to defend as a matter of law.   Moreover, because in declining to provide a defense to the tendered claim the insurer did not assert any other grounds for its refusal to defend, we find the insurer's may have waived its right to rely on separate exclusions for injuries to additional insureds and injuries involving the operation of motor vehicles presents a question of fact.   Thus we reverse the summary judgment entered in favor of the insurer.


According to a complaint filed by his heirs, on May 13, 1986, Joe Sims was killed when a water truck he was operating went out of control and turned over.   The truck was owned by plaintiff and appellant Salvador Garcia and Garcia was named as a defendant in the wrongful death action.

Defendant and respondent Calfarm Insurance Company (Calfarm) had issued Garcia two policies which were in effect at the time of Sims's death.   The first policy was a general liability policy and the second policy was an automobile policy.   On August 8, 1986, Garcia's counsel tendered defense of claims growing out of Sims's death to Calfarm.   In her letter to Calfarm, Garcia's counsel described Sims as an employee of Garcia.

On September 4, 1986, Calfarm declined the tender of defense.1  In his letter to Garcia's counsel, Calfarm's claims representative cited the employee exclusion in the auto policy and a similar exclusion in the general liability policy.   The representative stated “[g]iven that Mr. Sims' death did occur in the course of his employment, CalFarm has no choice but to take the position that there is no coverage in regard to this injury claim.”   In denying coverage, the representative's letter did not cite any other provision of either policy.

On May 20, 1988, Garcia's counsel wrote to Calfarm again and advised the company “[s]ince we last corresponded, the attorney for plaintiff widow has amended the complaint to allege that in the alternative Sims was either an employee of Garcia, or an independent contractor.”   In light of the amendment, the letter asked Calfarm to again consider Garcia's request for a defense.

In a June 15, 1988, memorandum entitled “COVERAGE QUESTION,” and evidently prepared in response to counsel's May 20 letter, a Calfarm employee stated:  “The issue here is that Mr. Garcia is a forest ranger and moonlights in this water truck business․   The status of the deceased, Joe Sims, as an employee [versus] independent contractor has been contested by Mr. Garcia in the Worker's Compensation appeals board proceeding case number 86–R3D2–92526.   The attorney representing him on this matter is Shawn Kelly.   No findings have been made to date but it is thought that there will be a large chance that Mr. Sims would be thought to be an independent contractor rather than an employee.   Under these circumstances our exclusion in the liability policy would no longer apply.”

On July 21, 1988, Calfarm wrote to Garcia's counsel.   The July 21 letter does not mention the employee exclusions.   Rather, the letter raises for the first time exclusion (m) of the auto policy, which excludes claims by additional insureds, and exclusion (b) of the general liability policy, which excludes claims growing out of the operation of motor vehicles.   The letter states that “[w]hile it appears” these exclusions bar coverage, “we are seeking the advice and recommendation of independent, impartial counsel.   Our purpose is to seek out and hopefully find coverage under one or both policies which, at first blush, does not appear to be available.”

On February 21, 1989, Garcia initiated the instant action against Calfarm.   He alleged claims for breach of contract breach of the covenant of good faith and fair dealing and declaratory relief.

On September 5, 1989, Garcia settled the wrongful death action brought by Sims's heirs.   Garcia stipulated to entry of judgment in the amount of $176,250 and gave the heirs a lien against any recovery in this action in that amount.   In return the heirs agreed not to execute on the judgment.

On June 15, 1990, Calfarm moved for summary judgment in this action.   Calfarm argued Sims had been an employee as a matter of law and therefore no duty to defend or indemnify under the policies ever arose.   In the alternative Calfarm argued the exclusions for additional insureds and operation of motorized vehicles barred coverage as a matter of law.   The trial court granted the motion and entered judgment in Calfarm's favor.   Garcia filed a timely notice of appeal.


Garcia's appeal presents two issues:  (1) Did the employee exclusions relieve Calfarm of its duty to defend?  (2) If the employee exclusions did not relieve Calfarm, may Calfarm nonetheless rely on the exclusions for additional insureds and motorized vehicles?   We answer both of these questions in the negative and reverse the judgment.


 The principles which govern an insurer's duty to defend are well established.  “The insurer's obligation to defend is not dependent on the facts contained in the complaint alone;  the insurer must furnish a defense when it learns of facts from any source that create the potential of liability under its policy.  [Citations.]”  (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 606, 222 Cal.Rptr. 276.)   Where, as here, the policies require an insurer to defend even if the suit is “groundless, false or fraudulent”, the insurer must “ ‘defend the insured when sued in any action where the facts alleged in the complaint support a recovery for an “occurrence” covered by the policy, regardless of the fact the insurer has knowledge that the injury is not in fact covered.  [Citations.]’ ”  (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 606, 222 Cal.Rptr. 276.)   Moreover “[t]he duty to defend cannot be adjudged on the basis of hindsight.   It must be determined from the facts and inferences known to an insurer from the pleadings, available information and its own investigations at the time of the tender of defense.  [Citations.]”  (Id. at p. 610, 222 Cal.Rptr. 276, italics added.)

In particular we note the following statement in Mullen v. Glen Falls Ins. Co. (1977) 73 Cal.App.3d 163, 173–174, 140 Cal.Rptr. 605:  “[S]tated in another manner, may an insurance company, without making an investigation of any kind, deny an insured a defense at a time when it has reason to believe that there is potential liability under the insurance policy, and then rely upon the results of the personal injury lawsuit and subsequent factors to prove that there was in reality no potential liability in the first instance? ․  [¶]We believe that public policy alone mandates a negative answer to the question;  otherwise an insurance carrier could refuse to defend its insured on the slightest provocation and then resort to hindsight for the justification.   Furthermore, a contrary holding would force the insured to finance his own investigation and the defense of the lawsuit, and then to seek reimbursement in a second lawsuit against the insurance company.   This, in turn, could not only impose an undue financial burden on persons who have purchased insurance protection, but it could deprive them of the expertise and resources available to insurance carriers in making prompt and competent investigations as to the merits of lawsuits filed against their insureds.”

 In arguing Sims was an employee as a matter of law, Calfarm ignores these principles.   Relying largely on information which it discovered in the course of this proceeding, Calfarm contends the factors used in determining whether an individual is an employee or independent contractor all indicate Sims was an employee.   In particular Calfarm argues because Garcia owned the truck Sims was operating, exercised control over Sims's work, had the power to terminate him and withheld income taxes from the amounts he paid Sims, Garcia was Sims's employer.   In finally resolving Sims's status Calfarm makes an impressive case.   However given the breadth of the duty to defend, ultimate determination of Sims's status in no way disposes of Calfarm's duty to defend.2

Calfarm ignores the requirement its duty to defend be determined by looking at the potential for liability at the time the tender of defense was made by Garcia as well as the requirement Calfarm provide a defense whenever allegations are within the coverage provisions of the policy even when Calfarm knows those allegations are false.   When Garcia initially tendered defense of the Sims claim to Calfarm, it is of course true Garcia's counsel described Sims as Garcia's employee.   However when another investigation was conducted by Calfarm in 1988, one of its employees discovered Garcia only operated the water truck business as a sideline to his principal occupation as a forest ranger.   Thus with respect to the 1986 tender of defense, there is a factual question as to whether, even in light of Garcia's counsel's statement, Calfarm should have nonetheless recognized the possibility the Sims heirs would challenge his status as an employee.   On this issue it is important to recognize once again that:  “Defendant cannot construct a formal fortress of the third party's pleadings and retreat behind its walls.   The pleadings are malleable, changeable and amenable.   Although an earlier decision reads:  ‘In determining whether or not the appellant was bound to defend ․ the language of the contract must first be looked to, and next, the allegations of the complaints ․’ [citation], courts do not examine only the pleaded word but the potential liability created by the suit.”  (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 276, 54 Cal.Rptr. 104, 419 P.2d 168.)

We believe what the court in Gray v. Zurich, supra, 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168, said with respect to malleable complaints applies to proceedings, which, while initiated by way of a workers compensation claim, in fact ripen into superior court litigation.   In this case a trier of fact might be persuaded Calfarm should have been alerted to the potential for future superior court proceedings as early as 1986 because the August 8, 1986, letter advised Calfarm Garcia had no workers' compensation coverage.

In any event, when, in 1988, the Sims heirs did allege Sims was an independent contractor, Calfarm was prevented from relying any further on the employee exclusions in refusing to provide a defense to Garcia.  (See CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 606, 222 Cal.Rptr. 276.)   In light of the allegation by the heirs, the likelihood Sims was in fact an employee only permitted Calfarm to reserve its right to establish Sims's status by way of a declaratory relief action;  following the heirs' allegations, Sims's probable status did not permit Calfarm to avoid its duty to defend Garcia.  (See id. at p. 610, fn. 6, 222 Cal.Rptr. 276.)


In sum after 1988 the employment exclusion provided no justification for failing to provide Garcia with a defense;  whether the employment exclusion justified denial of a defense before 1988 is a question of fact which will largely turn on the reasonableness of Calfarm's investigation following the 1986 tender of defense.   In either event the employment exclusion did not support a summary judgment in Calfarm's favor.

As we have noted, in the alternative, Calfarm argues, as it did in the trial court, that the exclusions for additional insureds in the automobile policy and the exclusion for operation of motor vehicles in the general liability policy eliminate coverage as a matter of law and hence relieved the company of its duty to defend.   As Garcia notes, the problem with this argument is that until Calfarm moved for summary judgment in this action, it did not unequivocally rely on these exclusions.   In its response to Garcia's 1986 tender of the Sims claim, Calfarm relied solely on the employee exclusions.   In its 1988 response to Garcia's renewed tender of the Sims claim, Calfarm raised the additional exclusions but did not unequivocally advise Garcia the exclusions relieved Calfarm of its duty to defend.   Rather Calfarm told Garcia's counsel independent counsel would examine applicability of the exclusions and Calfarm would look for ways to provide coverage.

 Although we have not been cited to any California case which deals directly with the issue of an insurer's obligation to set forth all of the provisions it relies upon in refusing to provide a defense, the federal courts which have confronted the issue have uniformly found that under California law an insurer which declines to provide coverage may not assert policy exclusions and limitations on coverage which the insurer does not expressly rely upon and which would have been disclosed by a reasonable investigation.  (See Zumbrun v. United Services Auto. Ass'n. (E.D.Cal.1989) 719 F.Supp. 890, 894–895;  McLaughlin v. Connecticut General Life Ins. Co. (N.D.Cal.1983) 565 F.Supp. 434, 451;  see also Intel Corp. v. Hartford Acc. and Indem. Co. (9th Cir.1991) 952 F.2d 1551, 1559–1561;  Hydro Systems, Inc. v. Continental Ins. Co. (9th Cir.1991) 929 F.2d 472, 475–476;  Becker v. State Farm Fire and Cas. Co. (N.D.Cal.1987) 664 F.Supp. 460, 461.) 3  The waiver rule developed in the federal cases is based on an insurer's duty to thoroughly and promptly investigate claims made by its insureds.  “If an insurance company could deny a claim without thoroughly investigating it and then defend a subsequent lawsuit on grounds which it develops during discovery for trial, the company's incentive to fulfill its duty to investigate would be significantly diminished.”  (McLaughlin v. Connecticut General Life Ins. Co., supra, 565 F.Supp. at p. 451.)4

The rule adopted in the federal cases is consistent with the well-established rule that when an insurer accepts a tender of defense and reserves its rights to contest coverage, the insurer must expressly reserve all the rights it is aware of at the time it gives notice of the reservation of rights.  (See Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754, 161 Cal.Rptr. 322;  Phoenix Ins. Co. v. United States Fire Ins. Co. (1987) 189 Cal.App.3d 1511, 1527–1528, fn. 15, 235 Cal.Rptr. 185;  see also 14 Couch on Insurance (2d ed. 1965) § 51:77, pp. 579–582, fns. omitted.)

In attempting to avoid the effect of its failure to assert the additional exclusions, Calfarm argues that because there was never any dispute Sims was operating the water truck with Garcia's permission, no investigation was necessary to determine application of the additional exclusions.   Calfarm concludes that because no investigation was necessary, the waiver rule should not apply here.

 Calfarm misperceives both the scope of investigation required of insurers and the prophylactic nature of the waiver rule.   The thorough and prompt investigation required of insurers requires not only investigation of the facts presented, but also reasonable consideration of the policy under which the claim is made.   Thus we do not accept the premise of Calfarm's argument that because there has never been any dispute as to the underlying facts, no further investigation was required.   Plainly in investigating the Sims claim, Calfarm was required to consider both the facts presented to it and the terms of the policies it issued to Garcia.   In light of the information available to it at the time, Calfarm's initial reliance solely on the employee exclusions strongly suggests its investigation did not include thorough consideration of its own policies.   Thus, contrary to Calfarm's argument, applying the waiver rule here is consistent with underlying rationale of the rule:  here the rule would have the positive effect of encouraging Calfarm to carefully consider the terms of its policies when it processes claims.

Moreover we do not accept Calfarm's conclusion that in those cases where no additional investigation is needed to establish a lack of coverage, an insurer is not required to set forth all the grounds which will defeat coverage.   Such an exception to the waiver rule, rather than encouraging thorough and prompt investigation of claims, would only encourage insurers to gamble that if the grounds they do disclose are not successful, a later, more careful reading of the policy may relieve them of liability.   Thus, the exception Calfarm suggests would diminish the incentive for thorough investigation of coverage, including review of pertinent policy provisions, which the waiver rule was designed to promote.5

 However, we recognize “where waiver has been found, there is generally some element of misconduct by the insurer or detrimental reliance by the insured.”  (Intel. Corp. v. Hartford Acc. & Indem. Co., supra, 952 F.2d at p. 1559;  see also Prudential–LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at pp. 689–690, 274 Cal.Rptr. 387, 798 P.2d 1230.)   Because at trial Garcia will bear the burden of proof on the waiver issue (see Intel. Corp. v. Hartford Acc. & Indem. Co., supra, 952 F.2d at p. 1559;  Insurance Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal.App.3d 1308, 1320, 241 Cal.Rptr. 427), he will be required to demonstrate either misconduct by Calfarm in failing to mention all the exclusions it believes are pertinent or his own detrimental reliance.   On the other hand, as a party moving for summary judgment, Calfarm bore the burden of defeating the waiver argument as a matter of law.  (See Conn v. National Can Corp. (1981) 124 Cal.App.3d 630, 639, 177 Cal.Rptr. 445;  Pena v. W.H. Douthitt Steel & Supply Co. (1986) 179 Cal.App.3d 924, 928, 225 Cal.Rptr. 76.)   Thus, because Calfarm did not set forth the additional insured and motor vehicle exclusions in its initial denial, on its motion Calfarm bore the burden of demonstrating both its own lack of misconduct and Garcia's lack of detrimental reliance.

  With respect to the issue of misconduct, we believe Calfarm makes a persuasive argument it did not mislead Garcia when it relied on the employee exclusion.   Indeed Garcia's initial tender of defense and the heirs' initial complaint all referred to Sims as an employee.   However, the record is largely silent with respect to the detriment Garcia may have suffered by virtue of Calfarm's failure to assert all the applicable exclusions more promptly and more definitively.6  Thus summary judgment in Calfarm's favor was not possible with respect to exclusions not mentioned in the company's initial rejection letter.

Because, as we have explained the employee exclusions did not relieve Calfarm of its duty to defend, the summary judgment entered in Calfarm's favor must be reversed.

Judgment reversed;  appellant shall recover his costs.

In metaphorical terms, Justice Mosk's dissent in Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 described the generosity of his colleagues on the California Supreme Court towards the insurance industry:  “The insurance industry asked for a loaf of bread.   The majority, with remarkable magnanimity, gave it the whole bakery.”  (Id. at p. 314, 250 Cal.Rptr. 116, 758 P.2d 58.)   Here, with similar unsought magnanimity, the majority gives part of a different bakery back to certain insureds by placing what I think are startling, counterproductive and heretofore unrecognized burdens on an insurer.   If I read the majority opinion correctly, an insurer may no longer respond accurately to a fact-specific inquiry as to coverage made by an insured's lawyer before the filing of a third party action against the insured without waiving other unmentioned exclusions and breaching its duty to defend where the information provided by the insured turns out to be incorrect.

Interestingly, even the insured here does not argue this extreme position.   Garcia recognizes that the insurer's duty to defend does not arise until it is given notice of a complaint since “the duty to defend must be determined by the allegations of the complaint tendered to the insurance company and the facts known to the insurer at the time the tender is made.”

Thus, even though I agree the summary judgment must be reversed, I strongly disagree with the majority's determination that as a matter of law the August 8, 1986 letter from the insured's lawyer imposed a duty on Calfarm to defend Garcia.   That letter unequivocally told Calfarm that Sims was Garcia's employee.   Having no reason to question the accuracy of that statement, Calfarm responded there was no coverage but expressly conditioned its response on Sims' employee status.

In my view, Calfarm's responsibility was triggered on May 20, 1988 when it first learned of the amended superior court pleading.   Accordingly, its failure to mention other applicable exclusions in its response to Garcia's 1986 inquiry did not preclude Calfarm relying on these additional exclusions in 1988.   I nonetheless conclude that reversal is required because there remains an unresolved question of material fact under Calfarm's general liability policy.   I therefore agree with the result reached by the majority, but quite obviously on a different basis.1


Although the majority's statement set out in that part of the opinion entitled “FACTUAL AND PROCEDURAL BACKGROUND” is generally accurate, it is incorrect or at least misleading in one critical respect.   The initial action was filed by Sims' heirs against Garcia on February 13, 1987.   Calfarm never received a copy of that complaint and there is nothing in the record to suggest it was ever apprised of its contents.

The majority's reference to Garcia's August 8, 1986 letter as a “tender of defense” (maj. opn., ante p. 505)—regardless of loose language in earlier filings by Calfarm 2 —is thus questionable to say the least.   Unlike the majority, I think it incorrect or at least intellectually awkward to refer to a tender of defense or refusal to defend at a time when there is no lawsuit pending and obviously nothing to defend.   The action against Garcia was filed on February 13, 1987 and I do not understand how Calfarm can be in bad faith for failing to defend a non-existent action.   It is indeed anomalous for the majority to accuse Calfarm of “construct[ing] a formal fortress of the third party's pleadings and retreat[ing] behind its walls” (maj. opn., ante p. 507, citing Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 276, 54 Cal.Rptr. 104, 419 P.2d 168) at a time when the third party action had not been filed.


Clearly Garcia's August 8, 1986 letter and Calfarm's September 4, 1986 response are critical to the majority's analysis.   They view Calfarm's response as a breach of the insurer's duty to defend because Calfarm did not independently investigate the incident and conclude there was a possibility Sims was an independent contractor rather than an employee.  (Maj. opn., ante pp. 507–508, 509.)   They also fault Calfarm for failing to identify other applicable exclusions in the September 4 letter and conclude this omission may prohibit Calfarm from invoking those exclusions.  (Id. at p. 509.)

Because of the majority's conclusion that Garcia's letter triggered Calfarm's duty to defend, I have included it in its entirety as an appendix to this opinion.   I cannot read the letter other than as asking Calfarm to assume Sims was an employee and determine whether there was coverage.   Calfarm, in my view, responded promptly and accurately on September 4 when it wrote to Garcia's counsel.   After quoting the policy exclusion for injuries to employees including claims governed by workers' compensation, Calfarm's letter concludes:  “Given that Mr. Sims' death did occur in the course of his employment, CalFarm has no choice but to take the position that there is no coverage in regard to this injury claim.   If you have any questions or any additional information, please contact us.”

I have no quarrel with the majority's suggestion that an insurance company must deal fairly with an insured even before a lawsuit has been filed.   Here, however, Calfarm correctly responded to the insured's inquiry, reasonably relying on the accuracy of the information provided by the insured.   It then told Garcia to provide any additional information if it became available.   There was no complaint it had been provided with which it could analyze consistent with the dictates of Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 276–277, 54 Cal.Rptr. 104, 419 P.2d 168.   Under these circumstances, I would conclude as a matter of law that Garcia's August 8, 1986 letter created no duty to defend on the part of Calfarm.


As I have noted, Calfarm never received a copy of the original Sims' complaint when it was filed in February 1987.   It was not until May 20, 1988 that Calfarm was informed of the amended complaint and asked to reexamine the coverage question.   At that point, clearly Calfarm could no longer rely on the employee exclusion in refusing to defend Garcia.   A duty to defend therefore arose unless other policy exclusions necessarily precluded coverage.   Calfarm in fact responded by citing other exclusions it contended relieved it of any duty to defend Garcia.   The majority, however, conclude that Calfarm may be precluded from relying on these additional exclusions because it failed to identify them in the September 4, 1986 letter initially denying coverage.   I respectfully disagree.

The majority rely on a line of federal cases which they assert stand for the proposition that “an insurer which declines to provide coverage may not assert policy exclusions and limitations on coverage which the insurer does not expressly rely upon and which would have been disclosed by a reasonable investigation.”  (Maj. opn., ante pp. 508–509.)   The circumstances of those cases, however, are unlike the facts of this case.   Typically, an insurer denies coverage relying on Exclusion A.   Later, when it turns out Exclusion A is inapplicable, the insurer seeks to raise Exclusions B, C and D.  (See, e.g., McLaughlin v. Connecticut General Life Ins. Co. (N.D.Cal.1983) 565 F.Supp. 434.)   Federal courts reviewing this sort of gamesmanship have held that before denying a claim, an insurer must conduct a reasonable investigation and inform the insured of all relevant policy exclusions which appear to be applicable.   Otherwise, an insurer could “sandbag” the insured “by constantly raising additional exclusions.”  (Intel Corp. v. Hartford Acc. & Indem. Co. (9th Cir.1991) 952 F.2d 1551, 1560.)   These courts have made clear, however, that the “waiver” doctrine is not to be applied automatically or unthinkingly.   Application must be consistent with its underlying purpose to protect insureds from being misled and to encourage insurers to conduct reasonable investigations.  (Id. at pp. 1560–1561.)

I have no trouble concluding there are circumstances where an insurer which incorrectly invokes an exclusion should be precluded from later raising additional policy limitations when the first exclusion proves inapplicable.   Here, however, Calfarm correctly invoked the employee exclusion when Garcia first alerted it to a possible claim based on information proved potentially incorrect, Calfarm reviewed the claim under the new set of facts and found additional applicable exclusions.   Certainly Calfarm's conduct cannot be said to have misled Garcia.   Indeed, it was Garcia's information which misled Calfarm.   Moreover, the majority's holding means that in order to avoid a later waiver argument, insurers must routinely conduct an expensive, time-consuming and frequently useless review of the policy language even where some exclusion clearly precludes coverage based on information provided by the insured.   I see these significant increased costs being passed on to all insureds with little if any concomitant benefit.


Under these circumstances, I would hold as a matter of law there was no “waiver” of the additional exclusions, exclusion (m) of the automobile policy and exclusion (b) of the general liability policy.   In deciding if the summary judgment was properly granted, I would then have to reach the question whether any issue of material fact remains as to the applicability of either of these exclusions.

Calfarm's automobile policy excluded coverage for “liability for bodily injury to any insured.”   Thus if Sims were an insured under the policy the exclusion would apply.   I believe he clearly was.   The policy defines an insured as “any other person using [the vehicle] ․ with the permission of the named insured.”   This court in State Farm Mutual Auto. Ins. Co. v. Ammar (1981) 126 Cal.App.3d 837, 179 Cal.Rptr. 146 held that an automobile liability insurer could expressly exclude claims of liability coverage brought by an insured.   (Id. at p. 840, 179 Cal.Rptr. 146.)   Here, Sims was the permissive user of Garcia's vehicle and consequently the exclusion applies.   The fact that the language of the policy does not track the most recent amendment to Insurance Code section 11580.1 is immaterial since the insurer could increase the scope of coverage as it did in this policy even though it was not legally obligated to do so.

Exclusion (b) of the general liability policy presents a more difficult question.   That exclusion precludes coverage arising out of the use of an automobile.   The policy defines “automobile” as any land motor vehicle, not including “mobile equipment.”  “Mobile equipment” is defined as a land vehicle, whether or not self-propelled, not subject to motor vehicle registration or designed for use principally off public roads.   Whether the water truck in this case had to be registered or was designed for use principally off public roads is unknown.   As the moving party Calfarm had to establish that the water truck was not only a motor vehicle, but that it did not come within the definition of mobile equipment.   Having failed to do so, the summary judgment must be reversed.

Accordingly, I concur in the result.

August 8, 1986


Cal Farm Insurance Company

c/o Dave Dewitt

1672 East Valley Parkway

Escondido, CA 92127

Re: Cal Farm Insurance Policies No. 286776, and GL 1005236

Dear Mr. Dewitt:

I have been retained by Mr. Sal Garcia to represent him in connection with matters arising from the death of one of his employees, Joe Sims, at a time when Mr. Sims was working for the business, and operating a motor vehicle apparently covered under one of the above-referenced policies. Sims' death occured May 13, 1986. He was injured when the water truck he was driving rolled backwards; Sims received head injuries and died pursuant to that accident. Mr. Garcia has referred to me copies of the sheets on two different policies, as above-referenced. We have attempted to identify existing Workmans Compensation Insurance, but to date have been unsuccessful.

The widow of decedent filed an application for adjudication of claim before the Workmans Compensation Appeal Board in May of 1986. We have received no notification from the Board with regards to action taken on the claim, but our investigation appears to establish that there was no Workmans Compensation Insurance in effect at that time. Pursuant to that, we are seeking to locate other possible sources of insurance. The purpose of this letter is to put Cal Farm on notice of the injury, and to request a statement from Cal Farm regarding coverage or non-coverage with regards to claims for damages relating from Mr. Sims' death.

Please advise me at your earliest convenience regarding Cal Farm's position with regards to liability under the policy. If you require further information about the details of the accident, please contact me.

Thank you for your courtesy and cooperation.



A Professional Corporation





1.   Although the concurring and dissenting opinion suggests the August 8, 1986, letter was not a “tender of defense” because Sims's heirs had not yet filed a superior court action, we respectfully disagree.   Both in the trial court and in the brief it filed in this court, Calfarm itself has treated the letter as a tender of defense.   Moreover, we note the letter advised Calfarm Sims's widow had made a workers' compensation claim but that no workers' compensation coverage was in effect at the time of the accident.   The letter then states “Pursuant to that, we are seeking to locate other possible sources of insurance.   The purpose of this letter is to put Cal Farm on notice of the injury, and to request a statement from Cal Farm regarding coverage or non-coverage with regards to claims for damages relating from Mr. Sims' death.”   Calfarm of course responded to the request by denying coverage.   Given these circumstances we believe the August 8, 1986, letter was a tender of the defense of any claim growing out of Sims' death.

2.   Had Calfarm accepted Garcia's tender of defense to the Sims action and reserved its right to assert the employee exclusion, final determination of Sims's status would certainly be pertinent in resolving Calfarm's duty to indemnify Garcia.  (See CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 610, 222 Cal.Rptr. 276.)

3.   However the waiver rule does not apply with respect to a limitation period in a policy if the period has expired at the time a claim is made.  (See Prudential–LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 690, fn. 5, 274 Cal.Rptr. 387, 798 P.2d 1230;  Becker v. State Farm Fire and Cas. Co., supra, 664 F.Supp. at pp. 461–462;  see also Velasquez v. Truck Ins. Exchange (1991) 1 Cal.App.4th 712, 722–723.)

4.   Because it is designed to promote an insurer's duty to investigate and requires either misconduct or detrimental reliance (see p. 509, post), the rule developed in the federal cases is more akin to equitable estoppel than waiver which requires an intentional relinquishment of a known right.  (See Prudential–LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d at pp. 689–690, 274 Cal.Rptr. 387, 798 P.2d 1230.)   Nonetheless so it is clear we are following the federal cases rather than adopting any new variant of our own, we will continue to use the federal description of the rule which requires disclosure of defenses to coverage which can be identified through reasonable investigation.

5.   Calfarm's reliance on Becker v. State Farm Fire and Cas. Co., supra, 664 F.Supp. at pages 461–462, is misplaced.   In Becker an insurer, in denying a claim, failed to assert a 12–month limitation period which appeared in its policy.   In finding that the insurer had not waived its right to assert the limitation period, the court stated:  “An insurer waives any defense that a reasonable investigation would have uncovered.   [Citations.]   The rationale is that a waiver rule gives the insurer incentive to investigate claims before denying them.   The defenses subject to the waiver rule go to whether the claimed loss is covered by the policy.   Here, the twelve-month limit for bringing suit is unrelated to any investigation of whether the claimed loss is covered by the policies.”  (Ibid;  see also Prudential–LMI Com. Insurance v. Superior Court, supra, 51 Cal.3d 674, 690, fn. 5, 274 Cal.Rptr. 387, 798 P.2d 1230;  Velasquez v. Truck Insurance Exchange, supra, 1 Cal.App.4th at pp. 722–723, 5 Cal.Rptr.2d 1.)   Unlike the insurer in Becker, the additional insured exclusion and the motor vehicle exclusion Calfarm asserts are defenses to coverage which a thorough investigation would have disclosed.

6.   We share many of the concerns articulated so vigorously in the concurring opinion.   We part company only in how those concerns should be accomodated.   Thus we agree the parties' mutual understanding, as of August 8, 1986, that Sims was Garcia's employee will be significant in determining whether Calfarm may assert the additional exclusions.   As we have explained we believe the parties' understanding will make it difficult to prove any misconduct on Calfarm's part.   Likewise since Garcia's own counsel apparently believed Sims was an employee, Garcia will probably also have some difficulty demonstrating how an earlier assertion of the other exclusions would have permitted a more favorable disposition of the heirs' claims or otherwise benefitted him.   We note in 1989 Garcia settled the Sims wrongful death case by giving the heirs a $176,260 lien against Garcia's claims in this action.   The record does not suggest whether a better or earlier settlement could have been obtained had Calfarm asserted the additional exclusions more promptly.Unlike our colleague we are unwilling to relieve insurers of their duty to thoroughly investigate claims in every case where insureds themselves are not fully cognizant of the nature of the claims against them.   Where the insurer has failed to raise exclusions which would have been disclosed upon a reasonable investigation, and the insurer failure's to do either involves misconduct or has harmed the insured, we believe the waiver rule articulated in the federal cases is an appropriate means of ensuring prompt and thorough investigation of claims.

1.   Because it is analytically unnecessary I do notinclude all of the ramifications of the majority decision in my dissent.   I would like to point out, however, that the majority's conclusion that Calfarm's duty to defend was triggered by counsel's August, 1986 letter significantly impacts Calfarm on remand.   Regardless of Garcia's failure to tender the defense of the initial complaint to Calfarm, the trial court must rule the insurer has liability for the attorney fees incurred by Garcia in the defense of that action.  (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 38–39, 221 Cal.Rptr. 171.)   To merely state the result highlights the unfairness to Calfarm.

2.   In fairness to Calfarm, I believe the August 8, 1986 letter probably qualifies as a “tender of defense” for some purposes but not others.   My point is that it cannot be viewed as a tender for purposes of an insurer's obligations which depend on a complaint having been filed.

BENKE, Associate Justice.

NARES, J., concurs.

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