A California appeals court upheld a judgment which found Travelers had the right to deny $10 million in coverage to Ulta Salon, Cosmetics & Fragrance Inc. after a customer sued the company over toxins in its nail polishes.
Ulta filed the insurance coverage suit in October 2009, accusing the insurer of breach of contract and breach of the covenant of good faith and fair dealing for refusing to defend and indemnify it against the underlying suit, filed under California's Proposition 65, which ultimately cost the cosmetics company nearly $300,000.
In affirming the trial court's dismissal of Ulta's suit, the appeals court found that the policy only covered bodily injury and property damage, neither of which the underlying suit alleged.
“We conclude Travelers did not owe Ulta a defense because neither the pleadings nor the extrinsic evidence in the underlying action revealed a possibility the Proposition 65 claim being asserted against Ulta might be covered by the Travelers policy,” the court said.
According to the opinion, Travelers issued Ulta a $10 million commercial general liability policy in April 2006 that required the insurer to cover any suit against Ulta that alleged bodily injury or property damage.
In August 2007, Christine Deubler filed the underlying suit against a number of nail product manufacturers, including Ulta, seeking civil penalties and injunctive relief, the opinion says. She alleged the companies' products contained the chemical DBP, which can cause reproductive toxicity, and that the companies were aware but failed to warn customers about its presence.
Ulta notified Travelers of the suit and requested indemnification in October 2007, but about a week later the insurer denied coverage and Ulta filed the suit, the opinion said.
Travelers sought to dismiss an amended complaint Ulta filed in January 2010, saying it was not compelled to provide coverage because the Deubler complaint did not allege bodily injury and only sought civil penalties under Proposition 65 and injunctive relief, which are not covered by the policy.
The insurer further argued that there can be no bad faith absent a duty to defend, according to the opinion.
Ulta argued that civil penalties constituted covered damages under the policy and that Deubler's suit “alleged facts giving rise to the potential for coverage.”
“Bodily injury is squarely within the realm of 'potentialities' of pleading, and it is fairly inferable that Deubler contemplated bodily harm as a result of the alleged Proposition 65 violation,” Ulta argued.
The trial court agreed with Travelers' argument that Deubler's suit did not contain allegations of personal injury. It denied leave to amend, and Ulta appealed.
The appeals court affirmed the lower court's decision, echoing the trial court's findings regarding the lack of evidence of actual personal injury.
“To reiterate the trial court's ruling, because the Deubler complaint neither alleged any facts giving rise to a claim for damages because of bodily injury nor did it allege any bodily injury or property damage, Ulta did not become legally obligated to pay damages for bodily injury and the policy was not triggered,” the appeals court said.