San Diego Housing Commission v. Industrial Indemnity Co.

This case requires us to determine the rights of a judgment creditor of an insured, in an action against an insurer seeking insurance policy proceeds under Insurance Code section 11580, subdivision (b)(2), to recover under the liability insurance policy’s supplementary payments provision (SPP). In this type of action, the judgment creditor is entitled to recover against the insurer “on the policy and subject to its terms and limitations,” pursuant to a judgment the creditor had earlier obtained against the insured. We will conclude that the SPP dealing with costs and interest, referring to “all costs taxed against the insured in any suit defended by the Company and all interest on the entire amount of any judgment therein,” should be construed as creating defense rights for the insured that are not enforceable by the judgment creditor of the insured, based on contract principles of third party beneficiary law as applied in the section 11580, subdivision (b)(2) context. (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 943-944 [ 132 Cal.Rptr. 424 , 553 P.2d 584 ] (Murphy).)

This is the second appeal arising from the dispute between plaintiffs and respondents San Diego…