Facts

Plaintiff Bann-Shiang Liza Yu owned a hotel franchise. Yu was sued by the hotel franchisor for breach of the franchise agreement and trademark infringement. The complaint was subsequently amended to dismiss the cause of action for trademark infringement. Yu then tendered the claim to Sequoia Insurance Company, which denied the claim. Yu brought a lawsuit for breach of contract and breach of the implied covenant of good faith and fair dealing.

PLAINTIFF'S CONTENTIONS:
Yu contended that a duty to defend existed at the time of tender because the amended complaint contained factual allegations of trademark infringement. Yu also contended that the intra-insured exclusion was unenforceable because it was ambiguous and because the third party complainant was not an insured at the time the amended complaint was tendered to Sequoia. Yu further contended that as a result of Sequoia's failure to defend her in this underlying action, Yu was forced to settle a $10 million claim for wrongful termination of a franchise agreement for $100,000.

DEFENDANT'S CONTENTIONS:
Sequoia contended that the underlying amended complaint against Yu asserted no covered claims under the policy because the cause of action for trademark infringement (a potentially covered claim) in the original complaint were removed from the amended complaint, which was the only complaint tendered to Sequoia. Also, because the hotel franchisor was an additional insured, the intra-insured exclusion in the insurance policy precluded coverage for Yu's claim. As a result, Sequoia had no duty to defend Yu.

Settlement Discussions

At the mandatory settlement conference, Yu asserted her damages were $10 million and made a demand of $2 million. Sequoia offered $100,000. ($10 million in lost business profits based on an alleged $10 million claim for wrongful termination of franchise agreement that she allegedly had to settle for $100,000 because she was not being defended by Sequoia in the underlying action.

Result

The court ruled tentatively in plaintiff's favor on the issue of potential for coverage and in defendant's favor on the application of an exclusion in the insurance policy. The court held that the amended complaint that Yu tendered to Sequoia alleged potentially covered claims. However, the court also held that coverage for this claim was precluded by exclusion in the Sequoia policy for claims by an insured against another insured. Based thereon, the court ruled that Sequoia was the prevailing party on the issue of whether there was a duty to defend and that Yu was to take nothing by way of her complaint.

Other Information

FILING DATE: July 26, 2010.

Length

three days