A property manager is taking its insurer to court, claiming the company denied coverage by quoting the wrong section of its own policy.
Wasatch Property Management, Inc. filed suit against Lexington Insurance Company in the US District Court for the Central District of California on January 13, accusing the insurer of breach of contract and bad faith. At the heart of the dispute is whether Lexington should have defended Wasatch in a class action that dragged on for nearly a decade.
The underlying lawsuit, known as the Terry Action, was filed in 2015 by tenants in the Housing Choice Voucher Program. They accused Wasatch and affiliated property owners of charging unlawful fees and threatening to evict those who refused to pay. That case eventually settled for $16.5 million in July 2024, with final court approval coming in February 2025.
Wasatch held a commercial general liability policy with Lexington from August 2010 through August 2020. The policy's Coverage B provision for Personal and Advertising Injury stated that the insurer would "pay those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury'" and would "have the right and duty to defend the insured against any 'suit' seeking those damages."
The policy went on to define covered injuries as those "arising out of...the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor."
Wasatch argues that the Terry Action was full of exactly those kinds of allegations, which should have triggered Lexington's obligation to step in and defend.
But when Lexington first denied coverage back in 2017, the company allegedly cited language about "bodily injury" and "property damage" rather than the personal and advertising injury provisions that actually applied. Wasatch says this amounted to a misrepresentation of what the policy actually covered.
Seven years later, in 2024, Lexington reportedly denied coverage a second time. According to court filings, the insurer pointed to the specific legal claims in the Terry Action as justification. Wasatch counters that under California law, an insurer's duty to defend kicks in whenever the underlying facts could potentially fall within coverage, regardless of how the claims are formally labeled.
The plaintiffs in the Terry Action had originally sought up to $300 million in damages and penalties.
Wasatch is now seeking $12 million in policy benefits, plus additional damages it says exceed $8.6 million, along with punitive damages, prejudgment interest, and attorney's fees.
No determination has been made on the merits of these claims. Lexington has not yet filed a response.
