848 F2d 199 State Farm Fire and Casualty Company v. Plutsky

848 F.2d 199

Unpublished Disposition

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff-Appellee,
v.
Melvin PLUTSKY, dba T & M Financial; Tadeusz M. Bugaj,
Defendant-Appellant.

No. 87-5679.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 6, 1987.
Decided May 23, 1988.

Before TANG, WIGGINS and KOZINSKI, Circuit Judges.

1

MEMORANDUM*

2

Plutsky appeals from the district court's grant of summary judgment to State Farm in State Farm's declaratory judgment action seeking to limit its duty to defend Plutsky in an underlying suit based on allegations of race and age discrimination through the use of an "Adults Only" sign at an apartment building. We affirm.

Standard of Review and Legal Standards

3

A summary judgment is reviewed de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). Summary judgment is inappropriate if there is a genuine dispute about a material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The grant of declaratory relief is a matter of discretion and this court "must exercise its own sound discretion to determine the propriety of the district court's grant or denial of declaratory relief." United States v. Washington, 759 F.2d 1353, 1356-57 (9th Cir.), cert. denied, 474 U.S. 994 (1985).

4

As explained in Nichols v. Great American Ins. Cos., 169 Cal.App.3d 766, 772-73, 215 Cal.Rptr. 416, 419 (1985), the California courts have developed three basic principles for determining the obligation of a liability insurer to its insured. First, any doubts as to the meaning of the policy, including the extent or fact of coverage, the peril insured against, the amount of liability, and the persons protected, must be resolved against the insurer. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 269 n. 3, 54 Cal.Rptr. 104, 419 P.2d 168 (1966). Second, the duty to defend is broader than the duty to indemnify. Although the duty to defend is not unlimited, it arises whenever the insurer ascertains facts which give rise to the possibility or potential of liability to indemnify. Fresno Economy Import Used Cars, Inc. v. United States Fiduciary & Guar. Co., 76 Cal.App.3d 272, 278, 142 Cal.Rptr. 681 (1977). Finally, courts must ascertain that meaning of the contract which the insured would reasonably expect. Id. at 279, 142 Cal.Rptr. 681 (citing Zurich Ins. Co., 65 Cal.2d at 269-70, 54 Cal.Rptr. 104, 419 P.2d 168).

5

I. "Other Invasion of the Right of Private Occupancy"

6

The insurance contract between State Farm and Plutsky defines personal injury claims for which State Farm provides coverage as "injury which arises out of one or more of the following offenses committed in the conduct of the named insured's business: ... C--wrongful entry or eviction or other invasion of the right of private occupancy."

7

The question is whether the right of occupancy encompasses the right of prospective tenants to take possession of property so that those deterred from renting by allegedly illegal discrimination state a claim covered by the policy. We agree with the district court that the right of private occupancy is clearly a right enjoyed only by current tenants, not prospective ones. See Giddings v. Indus. Indem. Co., 112 Cal.App.3d 213, 218, 169 Cal.Rptr. 278, 280 (1980) (give words used their plain and ordinary meaning); Larson v. Continental Cas. Co., 377 N.W.2d 148 (S.D.1985) (coverage for personal injury arising out of eviction or other invasion of right of private occupancy found not to include coverage for race discrimination claim).

II. Wrongful Eviction

8

The district court held, on the basis of FHCC counsel's declaration, that there was no duty to defend on any wrongful eviction claims after January 28, 1987, although there had been previously. Plutsky argues that the declaration is legally irrelevant because the duty to defend arises at the outset of litigation based on the facts alleged in the pleadings and known at that time. See CNA Casualty v. Seaboard Surety Co., 176 Cal.App.3d 598, 222 Cal.Rptr. 276 (1986). He also argues that once the defense obligation exists a carrier cannot withdraw its defense even if its investigation shows that no acts within the policy coverage actually occurred. The last argument is extrapolated from cases in which courts have rejected insurers' efforts to withdraw from a defense. E.g. Ohio Casualty Ins. Co. v. Hubbard, 162 Cal.App.3d 939, 208 Cal.Rptr. 806 (1984) (carrier cannot avoid defending for non-covered portions of third party's claims after settling the covered portions); Cathay Mortuary (Wah Sang) v. United Pac. Ins., 582 F.Supp. 650 (N.D.Cal.1984) (liability carrier breached defense obligation by refusing to appeal the punitive damage portion of the verdict).

9

As State Farm indicates, these cases do not support the broad proposition that an insurer may never withdraw its defense. As long as there is a potential claim covered by the policy, the insurer may not withdraw, Hubbard, 162 Cal.App.3d at 947, 208 Cal.Rptr. at 811, but if it is clearly established by a court's findings that a case does not involve the risk set out in a policy, the insurer may withdraw, California Union Ins. Co. v. Acquarius, 113 Cal.App.3d 243, 246, 169 Cal.Rptr. 685, 686 (1980). The district court did not err in finding that there are no existing claims for wrongful eviction, and thus no duty to defend.

III. Bodily Injury

10

The district court held there were no claims of bodily injury based on FHCC counsel's declaration that there would be no claims for emotional distress. Bodily injury under the contract is "bodily injury, sickness or disease." Although there are no allegations of physical bodily injury, there were claims that could be construed as intentional infliction of emotional distress, which is considered to meet the definition of bodily injury. Sloane v. Southern California Ry. Co., 111 Cal. 668, 680, 44 P. 320 (1896). Plutsky argues that: (1) the declaration is legally incompetent because it is based on sheer speculation at variance with deposition testimony of class members; (2) the declaration is without legal effect because counsel for FHCC did not obtain approval of the court before compromising the action in that manner, as required by Fed.R.Civ.P. 23(e); and unknown class members may have bodily injury claims that will be asserted by the new class representative.

11

We are satisfied that FHCC counsel is competent and that Plutsky's depositions from class members alleging emotional injury are insufficient to raise a factual question about counsel's statement.

12

Further, we are aware of no authority suggesting that court approval is required before an attorney can stipulate that certain claims are not being pursued in an action. Finally, the mere conjecture or speculation that unknown class members may assert bodily injury claims is insufficient to create a duty to defend.

IV. Property Damage

13

The district court found that without the eviction claims there could be no claims within the definition of property damage. Property damage under the contract means physical injury to or destruction of or loss of use of tangible property. We agree that there are no property damage claims as there are no eviction claims.

14

V. Abuse of Discretion not to Stay Action?

15

The decision to render a declaratory judgment is discretionary. United States v. Washington, 759 F.2d at 1356. Declaratory judgment relief is available to liability carriers to adjudicate issues of coverage. Allstate Ins. Co. v. Harris, 445 F.Supp. 847, 850 (N.D.Cal.1978). Plutsky argues that the issue of what damages are being asserted is one for the second stage of litigation but that the court has improperly ruled on these factual questions as issues of law and that the declaratory relief will have a res judicata effect on the subsequent litigation. It was not an abuse of discretion to decide the defense duty question first. If subsequent developments reveal that an individual claimant does have a claim for injury covered by the policy, State Farm will then have a duty to defend. The summary judgment is binding only as to the claims as identified in the current class action.

16

The grant of summary judgment by the district court is AFFIRMED.

*

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3