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Anaheim Hotel Owner Sues Insurer for Bad Faith

An insurance bad faith claim against Sequoia Insurance Company is moving forward in the California court system. Sequoia was sued by an Anaheim hotel owner named Bann-Shiang Liza Yu, who alleged that Sequoia failed to properly defend her in a lawsuit brought by a franchise.

Yu initially operated the hotel was a Candlewood Suites through a license agreement with Holiday Hospitality Company (HHF). That company entered into an agreement with Six Continents, Inc. which allowed to license the name Candlewood Suites® hotels to Yu.

Yu eventually lost her license to operate as a Candlewood Suites® hotel because of various operation violations, including non-standard bed linens and failure to provide fire alarm reports. HHF and Six Continents subsequently sued Yu for trademark infringement.

Although Yu had removed all Candlewood signs from the building, she allegedly failed to let the companies into the hotel so they could inspect whether all use of proprietary rights had ceased.

Yu asked her insurance company to defend her against the lawsuit, but it denied coverage citing an exclusion in the policy.

Insurance policy exclusions are very narrowly read by courts. In this case, the court found that an “intra-insured” exclusion did not apply to the policy. This was because although HHF was listed as an “additional insured” under the policy, the intra-insured exclusion only applied to certain types of claims: property damage, bodily injury, and “personal and advertising injuries.”

In this case, the underlying claim was for trademark infringement, therefore the exclusion did not apply and Yu’s insurance bad faith claim could proceed against Yu.

CitationBann-Shiang Liza Yu v. Sequoia Insurance company, 2014 WL 2735324.
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