Facts

State Farm Fire and Casualty Company ("State Farm") issued an errors and omissions liability insurance policy to Drake Real Estate Group (DREG). DREG and Charles Drake (Drake parties) were sued by Wong Properties, and DREG tendered its defense to State Farm. State Farm declined the tender on the grounds that the claims alleged in the Wong lawsuit were first made before the policy's effective date, and the Drake parties were aware of facts and circumstances that might lead to the claim before the policy's effective date, as evidenced by email exchanges between the Drake parties and Wong. State Farm also rescinded the policy based on the Drake parties' failure to disclose the pre-litigation dispute with Wong in the application for insurance. The Drake parties disputed State Farm's denial of a defense and contended that State Farm wrongfully rescinded the policy.

State Farm then filed for declaratory relief, seeking a declaration that it owed no duty to defend or indemnify the Drake parties in the Wong Properties' lawsuit and that it had properly rescinded the policy. DREG filed a counterclaim for breach of contract, insurance bad faith and declaratory relief. The Drake parties countered that the pre-policy dispute with Wong Properties did not amount to a "claim" under the policy or the law, and they did not know of facts or circumstances that might give rise to a claim, given that the emails made no mention of litigation and were a mere expression of dissatisfaction. The Drake parties also countered that the insurance application was completed by plaintiff State Farm's agents.

Result

The court agreed with plaintiff State Farm, granting its motion for summary judgment and finding, as a matter of law, State Farm had no duty to defend the Drake parties in the underlying Wong Properties action. The court also dismissed the Drake parties' counterclaims against State Farm.