Emotional Distress Damages Without Physical Injury Insufficient to Support Direct Claim Against Insurer Under California Statute

The United States District Court for the Eastern District of California, applying California law, has held that without physical injury, emotional distress damages alone are insufficient to establish standing for a direct claim against an insurer under California Insurance Code § 11580(b)(2). Fiorentino v. Philadelphia Indem. Ins. Co., 2024 WL 5047256 (E.D. Cal. Dec. 9, 2024).   

In an underlying action, an employee brought various employment-related claims against her employer. The employer tendered the lawsuit to its management liability insurer, but the insurer denied coverage. The employee obtained a judgment for emotional distress damages and brought a direct action against the insurer, claiming: (1) breach of the implied covenant of good faith and fair dealing; (2) collection of the judgment from the insurer as the employer’s judgment creditor; and (3) breach of the insurer’s duties to the employer.

The court granted the insurer’s motion to dismiss counts (1) and (2) for lack of standing under Cal. Ins. Code § 11580(b)(2). To sufficiently allege a direct cause of action under that section, a third party must plead, among other things, that “it obtained a judgment for bodily injury, death, or property damage[.]” Although the employee asserted that emotional distress damages that manifest in physical symptoms may be considered “bodily injury,” the court rejected that argument, holding that the term “bodily injury” as used in liability policies under California law means only “physical injury and its consequences,” noting “[i]t does not include emotional distress in the absence of physical injury.”

The insurer further argued that count (3) must be dismissed because neither the employer nor the employee (as assignee) provided timely notice of the underlying action. The employee argued that the claims in the underlying action “arise out of the same interrelated wrongful act” as those alleged in a prior lawsuit that was timely noticed to the insurer. The court rejected the employee’s argument, holding that the allegations in the prior lawsuit were “much more detailed and may be distinct” from the instant action. While the court dismissed the third cause of action, it granted the employee leave to amend to show that the policy’s “interrelated wrongful acts” provision applied.