Homeowner’s Insurer Must Pay in Sex Case : Law: State Supreme Court upholds liability for damages against a policyholder who infected his girlfriend with genital herpes.

The state Supreme Court on Thursday let stand a novel ruling allowing a homeowner’s insurer to be held liable for damages obtained against a policyholder accused of infecting his girlfriend with genital herpes.

In a brief order, the justices refused to hear a challenge by State Farm Fire & Casualty Co. to a decision issued last March by a state Court of Appeal in San Jose.

Unless the policyholder deliberately tried to transmit the disease, the insurer had a duty to defend him in a lawsuit and can be forced to cover the resulting damage award, the appellate court held. The ruling, the first of its kind in California, becomes binding on trial courts throughout the state.

The company, in its appeal to the high court, had called the appellate decision “extraordinary” and “radical,” and warned that it could expose insurers to substantial financial liability in similar cases involving a wide range of sexually transmitted diseases, including AIDS.

An attorney for State Farm, Michael J. Brady of Redwood City, expressed disappointment with Thursday’s action, observing that policies were intended to protect homeowners against more conventional misfortunes--such as a falling tree that damages neighboring property.

“It seems totally bizarre for a homeowner policy to provide coverage for the consequences of someone’s sexual activities,” said Brady.

Larry J. Ince of San Jose, lawyer for the policyholder in the case, said he was both “delighted” and “shocked” by the justices’ refusal to hear State Farm’s appeal. “This is a rather conservative group,” said Ince, referring to the high court’s reputed sympathy for insurers and other businesses. “I guess we can chalk up one for our side.”

Lawyers on both sides noted that State Farm and other insurers have begun to reword homeowner policies specifically to preclude their liability for the results of voluntary sexual conduct. Nonetheless, such claims still may be brought--perhaps in substantial numbers--under previous policies.

The case before the justices emerged after Carol Greenstreet filed suit in 1986 in Santa Clara Superior Court against Mark Eddy, charging him with negligently infecting her with herpes. According to her suit, Eddy had told Greenstreet he had been exposed to herpes, but based on a recent medical exam, he did not believe he had the disease and could infect her. Eventually, Greenstreet obtained a $298,000 judgment against Eddy.

In the meantime, Eddy turned to State Farm, saying that under his $300,000 homeowner policy, he was protected against suits for “bodily injury,” including “sickness or disease.” The company must defend him in the suit and pay any resulting damages, he said.

The firm went to court, contending it had no such obligation and that it was against “public policy” for an insurer to be required to provide coverage for the consequences of voluntary sexual intercourse. Holding the company responsible under the policy, State Farm argued, would encourage promiscuous and reckless sexual conduct. Eddy should be the one to bear the burden for his actions, the firm said.

A Superior Court judge agreed with the company, finding that State Farm could not be held responsible for damages against Eddy, but the Court of Appeal reversed that decision. Eddy, the policyholder, had claimed he had not expected or intended to transmit the disease, and unless the contrary is proven in further court proceedings, State Farm may be required to pay damages, the court said.