Earth Elements, Inc. v. National American Insurance

An insurer failed to provide a defense to its insured for a potentially covered claim. The insured then settled the suit by agreeing to dismiss a counterclaim in exchange for a dismissal of the original suit. This case raises the issue of whether the loss of a chose in action is a contractual loss under the policy issued to the insured. The trial court entered judgment for defendant. We reverse.

Statement of Facts

Mission American Insurance Company (Mission) issued a liability insurance policy to Earth Elements, Inc., and its president, Jeffrey Bennett (collectively Earth). Nutro Products, Inc. (Nutro), a business competitor of Earth, filed a complaint in federal court against Earth and Nature’s Recipe, Inc. (Nature), a company related to Earth, for false and misleading advertising, unfair competition, dilution, trade disparagement and interference with prospective business relations. Earth and Nature filed an answer and Nature filed a counterclaim against Nutro. Earth tendered its defense to Mission. Mission failed to assume Earth’s defense and did not agree to indemnify Earth.

Subsequently, the California Department of Insurance took over the operations of Mission.…