Court of Appeals holds that an insurer must adequately investigate a lawsuit against a policyholder which may raise claims at trial not expressly asserted in the complaint

State Farm Fire and Casualty Company learned a hard lesson in the case of Eigner v. Worthington (1997) 97 D.A.R. 10847 after it wrongfully denied its insureds a defense in an action filed by a neighboring family. Left without counsel, a judgment was entered against State Farm's insureds on causes of action covered under its policy after an uncontested trial. State Farm then intervened and tried to set aside the judgment. The trial court denied State Farm's motion. The Fourth District Court of Appeal affirmed holding that State Farm could not claim it was taken by surprise because it did not adequately investigate the claims in the underlying action.

The Eigner case concerned what sounds like the neighbors from hell. The Eigner family sued their neighbors, Gloria Worthington and her son Lester, because Lester allegedly made malicious phone calls, tried to run down one of the Eigners' children with his car, was caught by the Sheriff hiding next to the Eigners' garage with a long knife, shot at the Eigners' home with a pellet gun, trampled the Eigners' garden, and theatened to kill another one of the Eigners' children. The defense of the action was tendered to State Farm. State Farm denied the claim because it believed there was no potentially covered claim being asserted. A bench trial was conducted and a judgment was entered in favor of the Eigners in the amount of $240,700 for negligence. The judgment included an award for property damage and reimbursement of the family's medical bills of $19,000 for physical injuries suffered by Lester's conduct.

Since the judgment included an award for bodily injury and property damage covered under its homeowner's policy State Farm sought leave to intervene and brought a motion to vacate the judgment. State Farm argued that it did not know potentially covered claims were being asserted when it denied the claim. State Farm's motion was denied by the trial court and affirmed by the appellate court.

The Court of Appeal emphasized that an insurer's duty to defend is not based upon the face of the complaint because the "third party's pleadings are malleable" and can be amended. The Court of Appeal found that State Farm produced no evidence that it conducted any investigation whatsoever as to the nature of the Eigners' claims other than reading the complaint before refusing to defend. State Farm could have but did not contact the Eigners' attorney regarding the "nature, type or style of damages being requested by the plaintiffs". If State Farm had contacted the Eigners' attorney it would have learned that Mrs. Eigner suffered neck and muscle strains, scratches and abrasions, in trying to get away from Lester, requiring medical treatment and that Lester had also destroyed their trees among other covered bodily and property damage claims.

The lesson to be learned is that an insurer cannot simply look at the complaint in determining its duty to defend. An insurer has an affirmative obligation to investigate the facts giving rise to the lawsuit to determine if a potentially covered claim may be asserted. Likewise a policyholder should not assume from the allegations of the complaint that the claim won't be covered. A policyholder should consider having the complaint and any other materials relating to the lawsuit reviewed by his or her coverage counsel to see if an insurer may owe a duty to defend the lawsuit.