Insurer Can’t Extinguish Moonlight Fire Lawsuit

     SACRAMENTO, Calif. (CN) – Sierra Pacific Industries can sue its subcontractor’s insurer over the Moonlight Fire, a Labor Day 2007 blaze that consumed 65,000 acres in Plumas and Lassen Counties, a federal judge ruled.
     The family-owned forest-products company has accused American States Insurance Company of failing to defend and indemnify it in seven separate lawsuits.
     Claiming that Sierra Pacific’s timber harvesting caused the Moonlight Fire on Sept. 3, 2007, the United States, California and several private entities are seeking a combined $1 billion in damages.
     Because American States failed to acknowledge Sierra Pacific’s tender of defense within the requisite 15-day time period, and because the insurer attempted to hire counsel that lacked expertise, Sierra Pacific claimed that it had to hire independent counsel and that American States forfeited its right to control the defense.
     American States moved to dismiss the complaint, which alleges breach-of-contract and bad-faith claims, but U.S. District Judge Morrison England Jr. refused on July 15.
     The judge said that conflicting interests between the parties, including whether plaintiff has independent liability, “cannot be reconciled, and may be sufficient to preclude the insurer-appointed counsel from presenting a quality defense for the insured.”
     Contrary to American States’ argument that the adequacy of defense is irrelevant, England held that “under California law, the duty to defend requires that an insurer employ competent counsel to represent its insured and provide counsel with adequate funds to conduct the defense.” 

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