Payne & Fears LLP won an important victory for its homebuilder client in an insurance coverage dispute when a federal district court rejected the insurer's attempt to control a construction defect lawsuit after the insurer reversed its coverage denial.
In Travelers v. Centex II, Travelers filed suit against Centex in the Northern District of California, seeking a judicial declaration that it was entitled to control Centex's defense of several construction defect lawsuits, including two cases where Travelers had previously denied Centex's claims. Despite its prior denial of Centex's claims, Travelers argued it should be permitted to appoint Centex's defense counsel when it agreed belatedly to defend Centex.
In a motion for partial summary judgment, Centex argued that Traveler's prior denial of Centex's claim constituted a forfeiture of the contractual right to defend. District Court Judge Samuel Conti agreed with Centex: "Once the insurer takes on the duty to defend, it generally has the absolute right to manage the defense, and the insured is required to surrender all control," Judge Conti ruled. "The insurer's right to control the insurer's defense extends to the right to select legal counsel. However, when an insurer wrongfully refuses to defend, the insured is relieved of his or her obligation to allow the insurer to manage the litigation and may proceed in whatever manner is deemed appropriate."
J. Kelby Van Patten and Jeffrey M. Hayes represented Centex before the federal court.