Reed Smith Client Alerts

When liability insurers dispute coverage it is often necessary for insureds to bring coverage actions while the underlying liability suits are pending. In those cases, there frequently will be overlapping factual issues between the coverage case and the underlying lawsuit. Insurance companies should look out for the interests of their insureds and not seek to discover evidence in coverage actions that might be used against their insureds in underlying litigation. Many times, however, insurance companies will disregard this basic principle. A recent California Court of Appeal decision makes clear that discovery in the coverage action should be stayed when it might interfere with the insured’s ability to defend itself in underlying liability litigation. Insureds should feel more comfortable now pursuing coverage litigation without having to worry that their insurers will look to do them harm through their litigation conduct.

Auteurs: David E. Weiss

On August 23, 2017, the Second Appellate District of the California Court of Appeal reaffirmed the principle that even in the midst of coverage litigation filed by the insured, insurance companies must still “do no harm” to their insured’s interests. In Riddell, Inc. v. Superior Court, 2017 WL 3614305 (Cal. App. 2017), the court held that a liability insurance company should not be allowed to pursue discovery against its insured in a coverage lawsuit, even one filed by the insured, if that discovery might prejudice the insured in ongoing, underlying third-party litigation. Insurance companies cannot put their litigation interests ahead of their insured’s interests in defending against underlying litigation.

The case involves a dispute over coverage for underlying lawsuits against Riddell, alleging that former professional football players “suffered long-term neurological damage from repeated head injuries as a result of wearing Riddell helmets while playing football.” Id. at *2. The underlying lawsuits for the most part have been consolidated in a federal MDL proceeding, and all discovery in the MDL proceeding has been stayed while certain issues are being resolved. Riddell filed suit against its insurers, claiming they owe it defense and indemnity coverage for the underlying actions. Id.