Delgado

The appellant, Jonathan Delgado, appeals from the dismissal of his first amended complaint against the respondent Inter-insurance Exchange of the Automobile Club of Southern California (ACSC). Delgado had sued Craig Reid, ACSC's insured, for personal injuries (the underlying action). When the action was tendered to ACSC, it denied coverage and refused a defense. After settling his claim against Reid, in exchange for a stipulated judgment and an assignment of all of Reid's rights against ACSC, Delgado filed this action for declaratory relief, breach of the implied covenant of good faith and fair dealing, and for recovery on the stipulated judgment pursuant to Insurance Code section 11580, subdivision (b)(2).

In spite of the pleadings in the underlying action, which were sufficient to demonstrate a potential for coverage under the ACSC homeowner's policy issued to Reid, the trial court determined, on ACSC's demurrer, that there was no coverage under the policy and that the stipulated judgment agreed to by Delgado and Reid was "contrived." We conclude that this was error. As the underlying complaint contained allegations demonstrating a potential for coverage under the…