In Conley v. First Nat’l Ins. Co. of Am., 2012 U.S. App. LEXIS 20281 (9th Cir., Sept. 27, 2012), the U.S. Court of Appeals for the Ninth Circuit considered whether a lawsuit alleging “anxiety” qualified as “bodily injury” for purposes of triggering a duty to defend under a general liability policy.  Affirming the lower court’s order granting summary judgment in favor of First National Insurance Company and American States Insurance Company (the insurers), the Ninth Circuit held that an allegation of “anxiety” is insufficient to trigger “bodily injury” coverage under a general liability policy. 

The underlying action arose out of a dispute involving accounting and tax services provided by Silvertip Accounting, an insured under general liability policies issued by the insurers.  The plaintiffs, Dale and Karen Conley, alleged that because of Silvertip’s bad advice, they suffered severe tax penalties and disruption of their gift and estate plan.  The Conleys sued Silvertip in Montana state court, alleging breach of fiduciary duty, fraud, negligence, false advertising, and deceptive trade practices, and obtained a $3.7 million consent judgment.  The insurers had denied coverage to Silvertip because the Conleys’ lawsuit did not allege “bodily injury.”  After obtaining the consent judgment, the Conleys brought a direct action against the insurers in federal court alleging that they wrongfully denied coverage.  The district court granted summary judgment in favor of the insurers, finding that there was no covered “bodily injury.”  The Conleys appealed the district court’s order. 

The Conleys argued that their allegation of “anxiety” triggered the insurers’ duty to defend because, unlike claims of emotional distress or mental anguish, anxiety commonly includes physical manifestations.  They further argued that their pre-suit letter to the insurers – which explained, “the dread of the tax liability that the Conleys face has taken a serious toll on their health” – triggered this duty to defend. 

On appeal, the Ninth Circuit began its decision by noting that, for purposes of a general liability policy, “bodily injury” includes “mental or psychological injury that is accompanied by physical manifestations.”  This includes “conditions that are susceptible to medical diagnosis and treatment in a manner which distinguishes them from mental injuries.”  

The Ninth Circuit held that an allegation of “anxiety,” in and of itself, did not trigger a duty to defend.  Even if anxiety typically includes such things as headaches, sleeplessness, muscle tension and nausea, an insurer need not assume physical manifestations rising to the level of “bodily injury” whenever “anxiety” is alleged.  The Ninth Circuit noted that, at a minimum, there must be allegations of a physical manifestation supported by sufficient documented evidence to trigger a defense obligation.  

In this regard, the Ninth Circuit agreed with the lower court that the Conleys’ letter to the insurers failed to make even a generalized reference to physical injury, and it was reasonable to read “a serious toll on their health” in context with the rest of the paragraph, which discussed only the “emotional cost” of Silvertip’s bad advice. 

The Ninth Circuit also rejected the Conleys’ argument that their letter triggered a duty to investigate whether the Conleys actually suffered “bodily injury” and that such an investigation would have revealed their extreme weight loss and chronic diarrhea.  According to the court, it is not an insurer’s responsibility to disprove a bodily injury where none is alleged.  Therefore, the court concluded that the insurers fulfilled their duty to investigate by reading the complaint and requesting additional information, documentation, and/or authority that would support the Conleys’ claim.