Daily
Development for Monday, May 1 , 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
INSURANCE;
WRONGFUL ENTRY: Liability policy
covering claims arising from wrongful entry or other invasion of private
occupancY does not cover claim that insured fraudulently obtained easements
over real property. Sterling Builders, Inc. v United Nat'l Ins. Co., 93 CR2d
697 (Cal. App. 2000)
Sterling
entered into a joint venture with Caldwell to develop certain parcels of real
property. Caldwell later granted various easements over the property to
Sterling in exchange for Sterling's promise to pay a certain amount and to
convey the parcels to the joint venture. When Sterling allegedly failed to keep
its promises, Caldwell sued, asserting that Sterling had obtained the easements
from Caldwell by fraud.
Sterling
tendered the defense of the action to its commercial liability insurer, which
never responded. Sterling then sued its insurer for bad faith and breach of
contract, asserting that the policy's personal injury coverage for
"wrongful entry or eviction or other invasion of the right of private occupancy"
potentially covered Caldwell's claim. The trial court disagreed and ruled that
the insurer had no duty to defend the fraud action.
The court of
appeal affirmed. The classic example of a "wrongful entry or other
invasion of the right of private occupancy" is a trespass onto the claimant's
real property. Claims that do not involve a physical occupation of, or trespass
on, real property are not covered by the "invasion" language. Although
Sterling's alleged fraud interfered with Caldwell's right to use and possess
his property, it fell short of a physical trespass or invasion. "[T]here is
no such thing as a nonphysical invasion' of a right of private occupancy. Occupancy'
requires a physical entry upon real property." Because Caldwell was not
damaged by a trespass, intrusion, or actual occupation of his property, his
fraud claim was not covered under Sterling's liability policy.
Reporter's
Comment: I find this distinction between wrongfully entering and wrongfully
obtaining the right to enter a difficult one to make. If Sterling had walked
across Caldwell's land without permission, Sterling's insurance policy
apparently would have covered Caldwell's suit. On the other hand, if Sterling
had fraudulently induced Caldwell to give it permission to walk, there would be
no coverage because no invasion oc curred. What, then, if Sterling also walked
over the land because of the easement it had wrongly obtained? [The Reporter is
Professor Roger Bernhardt of the California Bar.]
Editor's
Comment: The editor believes that the court would give relief if an actual
invasion arose pursuant to the fraudulently obtained easement. The degree of
the insurer's exposure would be limited to actual damages from the invasion,
but presumably the legitimacy of the invasion (the existence or nonexistence of
the fraud) would be part of its defense obligation.
Unlike the
reporter, the editor doesn't see the distinction between the right to enter (or
interfere with possession) and actual entry (or interference) a distinction
that is too hard to draw. In fact, it is the distinction drawn in evaluating
recovery for present deed covenants and future deed covenants and for liability
for breach of quiet enjoyment
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
Items in the Daily Development section generally are extracted from the
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