Insurer Makes Good Faith Determination that Child is not “Insured” Resident Despite Subsequent Evidence to the Contrary

A recent Second District opinion, Safeco Insurance Co. v. Parks, addresses the definition of an insured resident in the context of a child of divorced parents. The opinion also addresses the question of when an insurer’s duty to make the coverage determination arises.

Seventeen-year-old Michelle Miller became a defendant in a lawsuit after she and friends left her intoxicated boyfriend on a freeway shoulder after he became physically and verbally abusive. In his intoxicated state, the abandoned boyfriend had stumbled into freeway traffic and was severely injured.

Michelle was the daughter of divorced parents. Her father had sole legal and physical custody. At the time of the accident, Michelle’s mother lived with a boyfriend, Eddie Barnette (they later married). Safeco was the homeowners insurer for the Barnette home. The issue became whether Michelle was an “insured” under Barnette’s Safeco policy.

Safeco’s policy provided coverage for any “insured,” defined to mean, "you [the named insured] and the following residents of your household: [¶ ] a. your relatives; [¶ ] b. any other person under the age of 21 who is in the care of any person named above."

The Safeco adjuster conducted an investigation. Michelle Miller’s attorney told the adjuster that Michelle lived primarily with her father. The mother’s boyfriend, Mr. Barnette, denied that Michelle was a resident of his household, that he had any legal relationship with her, or that he provided her with financial support. Barnette said that Miller was living with her father full time at the time of the accident. She stayed the night at Barnette's house every couple of months. When she stayed over, Miller used the guest room. Although she kept some clothes on the floor of the guest room, she did not have a room of her own in the house. In interrogatories and at deposition, Michelle stated that she lived with her father. On the other hand, the injured boyfriend’s attorney told the adjuster that he believed Michelle spent about half of her time at her mother’s boyfriend’s house. However, he provided no evidence to support that assertion. Safeco declined the defense of Michelle.

After the declination letter, Michelle’s attorney sent Safeco additional information, including the deposition transcripts of friends and family. All of the witnesses confirmed that Michelle lived with her father. Although she frequently visited her mother at Barnette’s home, she kept nearly all of her belongings at her father’s home, and only occasionally spent the weekend at Barnette’s home, sleeping in a guest bedroom.

Michelle did not pay rent, food, utilities or other bills at his house. She was not expected to do chores. She did not have permission to drive Barnette's cars. Occasionally she was there when no adults were present. Sometimes she had friends over. There was conflicting testimony as to whether she had a key to the house, and whether she kept some clothes there. On one occasion, Michelle had a fight with her father and stayed at Barnette’s for almost two weeks. After reviewing the evidence, Safeco did not change its coverage decision.

The bodily injury case went to arbitration, resulting in a $2.1 million award in favor of the boyfriend and against Michelle.

A bad faith lawsuit against Safeco followed, alleging failure to defend and indemnify. At the bad faith trial, the story completely changed. Michelle and her mother testified that they had been pressured by the now-deceased Mr. Barnette to lie in their previous testimony. Barnette did not want Safeco to cover Parks' injuries because he was afraid he would have to pay a high deductible. Testimony at the bad faith trial revealed that Michelle spent much more time in the Barnette home than previously stated, kept many personal belongings there, that she was close to Barnette, that he paid for her education and other expenses. Based on this evidence, the trial court found that Michelle was an insured and that Safeco had a duty to defend.

On appeal, the issues were (1) who qualifies as a resident; and (2) when did the insurer’s duty to make a coverage decision begin and when did it end. The court made the following holdings:

• A child may have more than one residence at the same time. It is the insurer’s duty to properly and reasonably investigate this issue.

• A child who spends substantially equal amounts of time with each parent on a regularly rotating basis can be said to reside with each parent.

• A child who visits one parent only infrequently and does not maintain a room or personal belongings at that parent's home may not be a resident of that parent's home, especially where no permanent visitation schedule is in place.

• Coverage for “residents of a household” begs the question “What is a household?” It includes family members and others who live together in the same place and who recognize "a common source of authority or leadership to which the other members of the household are subject. Thus, a 'head' may be a father, a mother, both parents acting together, or some other person whom the members of the household recognize as their 'head.'"

• Here, the witnesses told Safeco that Michelle only infrequently resided at Barnette’s house. Further, they presented a unified story to

• Safeco that Michelle was not a member of Barnette’s household or under his care. Safeco made an informed coverage decision, and therefore it was final, despite the fact that the witnesses later changed their stories. An insurer "does not have a continuing duty to investigate whether there is a potential for coverage. If it has made an informed decision on the basis of the third party complaint and the extrinsic facts known to it at the time of tender that there is no potential for coverage, the insurer may refuse to defend the lawsuit."