860 F.2d 1089
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.
ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff-Appellant,
LETCO INC., a corporation; Letco Decorating Center, Inc., a
corporation; Letco, an Arizona corporation; David Hylen;
Jack Cook; Wendell Cook; Mark Fordyce; Jack Downes;
Sally Prince; Karen Owen; Sylvia Hallinan; Treacy
McIntyre; Terri Dingas; Builders Showcase, Inc., a
California corporation; Barbara Horowitz, Defendants-Appellees.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted March 9, 1988.
Decided Oct. 6, 1988.
Before PREGERSON, WIGGINS and BRUNETTI, Circuit Judges.
The appellant appeals from summary judgment. St. Paul brought a declaratory judgment action in U.S. District Court to determine whether it had a duty to defend its insured in various underlying actions brought in California state court. St. Paul claimed that the comprehensive general liability policy (CGL policy) it issued the defendant did not cover the various underlying wrongful termination, negligent misrepresentation, and unfair competition claims brought against the insured. Both parties moved for summary judgment. The lower court granted the defendants' motion and denied the plaintiff's. It ruled that St. Paul owed Letco a duty to defend all claims brought against it by the state court plaintiffs. We AFFIRM.
Sometime in 1982, St. Paul issued two CGL policies to Letco. The policies provided:
This agreement covers the type of claim--bodily injury or property damage--for which a limit is shown in a coverage summary. We will pay amounts you and others protected under this agreement are legally required to pay as damages for a covered bodily injury or property damage claim resulting from an accidental event.
"Accidental event" means any event that results in bodily injury or property damage that the protected person didn't expect or intend to happen.
St. Paul also broadly promised to:
defend any suit brought against you or any other protected person for covered claims, even if the suit is groundless or fraudulent. We have the right to investigate, negotiate and settle any suit or claim if we believe that is proper. We'll pay all costs of defending the suit, including interest on that part of any judgment that doesn't exceed the limit of coverage that applies.
In 1985, the state court plaintiffs filed various suits against Letco, alleging wrongful termination, tortious breach of an implied covenant of good faith and fair dealing, negligent misrepresentation, and unfair competition. All of the claims except for the unfair competition claim were brought by former employees of Letco that Letco had terminated. Each of these claims alleged physical and mental injury suffered by the claimants related to their termination. The unfair competition claim (Builders' Showcase claim) was brought by a competitor of Letco alleging that Letco tried to pressure third parties to not do business with Builders' Showcase. The unfair competition claim alleged damages for loss of business and suppliers. The unfair competition cause of action was incorporated in a complaint brought by one of the terminated employees.
The various claims against Letco were brought between February 19 and July 2, 1985. Letco tendered each claim to St. Paul for defense and coverage. St. Paul assumed the defense of each lawsuit, but did so under a reservation of rights. On April 4, 1986, St. Paul brought this action for declaratory relief asserting jurisdiction under 28 U.S.C. Sec. 1332 (diversity) and 28 U.S.C. Sec. 2201 (declaratory judgments-creation of remedy).
Both the plaintiff and defendant moved for summary judgment as to St. Paul's duty to defend the state suits. On April 6, 1987, the district court denied both parties' motions. St. Paul moved for reconsideration of the denial. Letco opposed but did not again move for summary judgment. On July 16, 1987, the district court denied the appellant's motion for reconsideration and reversed its prior ruling as to Letco, granting them summary judgment. The court found that the insurance agreement required payment for damages for bodily injury resulting from an "accidental event" and that the claims brought by the various state court plaintiffs potentially constituted covered accidental events. The appellant timely appealed.
STANDARD OF REVIEW
A grant of summary judgment is reviewed de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). The appellate court must determine whether the district court correctly applied the relevant substantive law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986).1
The appellee claims that St. Paul has waived its right to assert noncoverage. The appellee's assertion is incorrect. The first state court complaint (Downes) was filed on February 19, 1985, and presented to St. Paul for defense on March 7, 1985. On July 1, 1985, the other two state court complaints (Prince and Horowitz) were filed and the next day were tendered to St. Paul. On April 26, 1985, St. Paul reserved its rights in regard to the first complaint and on March 6, 1986, it did so as to the latter two complaints. With one exception, both reservation letters set out in detail which claims were reserved and the reasons for the reservation.
If the reservation of rights is not timely, then the insurer is estopped from asserting a policy defense to coverage. Equity Gen. Ins. Co. v. C & A Realty Co., 148 Ariz. 515, 715 P.2d 768, 771 (Ariz.Ct.App.1985); Bogle v. Conway, 199 Kan. 707, 433 P.2d 407, 412 (1967); see 14 G. Couch, Insurance Law, Sec. 51:88 (1982). To prove an estoppel the insured must show that he was prejudiced by the delay of notice of reservation of rights. Transamerica Ins. Group v. Chubb & Son, Inc., 16 Wash.App. 247, 554 P.2d 1080, 1081 (1976). In Transamerica, the court held, as a matter of law, that a ten-month delay in notifying the insured that the insurer intended to deny liability was prejudicial. Id. at 1083. Likewise, in Meirthew v. Last, 376 Mich. 33, 135 N.W.2d 353, 355 (1965), a fifteen-month delay in sending a reservation of rights letter was found to prejudice the insured in the preparation of his defense. In contrast, in Insurance Co. of N. Am. v. McCleave, 462 F.2d 587, 588 (3d Cir.1972), an eleven-month delay in sending a reservation of rights letter was found not to have prejudiced the insured. See also R.A. Hanson Co. v. Aetna Cas. & Sur. Co., 15 Wash.App. 608, 550 P.2d 701, 703 (1976) (two and one-half month delay not prejudicial).
Here, Letco was not informed of St. Paul's reservation of rights for some eight months after Letco tendered the Horowitz and Prince claims. The time period seems to be close to the upper end of the "reasonable" time period allowed for notice. However, Letco simply asserts that it was prejudiced by the delay and does not demonstrate how. St. Paul assumed defense of all claims made against Letco. It did nothing overt prior to pursuing its action for declaratory judgment to prejudice Letco's interests. Letco below did not object to St. Paul's reservation of rights or evidence any desire to obtain other counsel for either the Downes claims or the later claims.2 St. Paul timely reserved its rights.
II. Policy Language.
An insurer's duty to defend litigation brought against its insured is broader than its duty to indemnify. Giddings v. Industrial Indem. Co., 112 Cal.App.3d 213, 217, 169 Cal.Rptr. 278, 280 (1980). An insurance company must defend any lawsuit brought against its insured which potentially seeks damages within the coverage of the policy. Mullen v. Glens Falls Ins. Co., 73 Cal.App.3d 163, 170, 140 Cal.Rptr. 605, 609 (1977); Val's Painting and Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 582, 126 Cal.Rptr. 267, 270 (1975). The insurer must furnish a defense when it learns facts creating the potential of liability under the policy. Gray v. Zurich Ins. Co., 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 113, 419 P.2d 168, 177 (1966). The insurer's obligation, however, is not unlimited; the duty to defend is measured by the nature and kind of risks covered by the policy. Giddings, 112 Cal.App.3d at 218, 169 Cal.Rptr. at 280.
St. Paul argues that the definition of "accidental event" in the policy does not cover the types of claims made by the state court plaintiffs. The appellant notes that the terminations and the alleged unfair competition by Letco were intentional acts and they therefore are not covered by the policy.
The language of the "accidental event" clause does not bear out St. Paul's assertion. "Accidental event" is defined as "any event that results in bodily injury or property damage that the protected person didn't expect or intend to happen." Thus, an accidental event may be any event that results in bodily injury or property damage not intended or expected to happen. St. Paul argues that the event causing damage must itself be accidental. However, the clause "didn't expect or intend to happen" grammatically modifies the preceding clause "bodily injury or property damage" and not the "any event" language.
St. Paul's reading of the "accidental event" clause, though not the best interpretation, is nevertheless a possible construction of its terms. However, this possible ambiguity in the policy does not work in St. Paul's favor. Under California law, an ambiguity in an insurance policy is strictly construed against its drafter, the insurance company. Gray, 65 Cal.2d at 268, 54 Cal.Rptr. at 107, 419 P.2d at 171 (1966); Mullen v. Glens Falls Ins. Co., 73 Cal.App.3d at 171, 140 Cal.Rptr. at 610 (1977) (rejects a reading of Gray based on an adhesion contract analysis). Thus, even if St. Paul's interpretation of the "accidental event" language is considered possible, the resultant ambiguity must be read in Letco's favor.
III. California Insurance Law.
St. Paul relies on four cases which it claims dispositively define "accidental event" for the purposes of this appeal. St. Paul Mercury Ins. Co. v. Ralee Eng'g Co., 804 F.2d 520 (9th Cir.1986); Commercial Union Ins. Co. v. Superior Court (Walker), 196 Cal.App.3d 1205, 242 Cal.Rptr. 454 (1987); Royal Globe Ins. Co. v. Whitaker, 181 Cal.App.3d 532, 226 Cal.Rptr. 435 (1986); St. Paul Fire & Marine Ins. Co. v. Superior Court (Yuba), 161 Cal.App.3d 1199, 208 Cal.Rptr. 5 (1984). In each case, the courts found no coverage or duty to defend in interpreting an "accidental events" provision of a policy.
However, the language in all four policies in these cases is materially different from that in the present case. In Commercial Union, the policy defined "occurrence" as " 'an accident ... which results in bodily injury or property damage. This injury or damage must be neither expected nor intended by you ...' " Commercial Union, 242 Cal.Rptr. at 454. In Ralee, the policy stated that "for us to pay a claim, the accidental event must take place while this agreement is in effect and must be something you didn't expect or intend to happen." Ralee, 804 F.2d at 522. In Royal Globe, the insurer only promised to indemnify or defend actions involving bodily injury caused by "an accident ... which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured, ..." Royal Globe, 181 Cal.App.3d at 535, 226 Cal.Rptr. at 435 (emphasis added). In Yuba, the policy stated that the " 'accidental event ... must be something [the insured] didn't expect or intend to happen.' " Yuba, 161 Cal.App.3d at 1201, 208 Cal.Rptr. at 6. The policy language in all four cases defines "accidental event" differently from the present case. They all clearly state that the event itself must be accidental as well as its results. None of these policies defines "accident." Rather, they define an "occurrence" as an accident. Here, in comparison, an accident is defined as an event, the consequences of which are unintended. The present policy provides coverage for both accidental or intentional events as long as their results, their attendant damages, were unintended or unexpected. The cases relied on by the appellant are thus inapposite to the present case. This conclusion comports with a long line of California insurance law.
California case law recognizes that "an act of the insured may carry out his 'intention' and also cause unexpected harm." Gray, 65 Cal.2d at 268, 54 Cal.Rptr. at 110, 419 P.2d at 174. In Mullen v. Glens Falls Ins. Co., 73 Cal.App.3d 163, 140 Cal.Rptr. 605 (1977), the insured perpetrator of a vicious attack brought an action to determine his insurance company's duty to defend him in a suit brought by the victim of the attack. Though the events were certainly "intentional," the court held that the insurance company had a duty to defend because it possessed knowledge of facts that gave rise to potential liability under the policy. Mullen, 73 Cal.App.3d at 170, 140 Cal.Rptr. at 609. The court stated:
Thus, when a comprehensive personal liability policy excludes from its coverage injuries and damages that are either "intended" or "expected," the policy is construed merely to exclude from coverage injuries and damages resulting from acts involving an element of wrongfulness or misconduct, even though the acts otherwise are performed intentionally.... It is possible that an act of the insured may carry out his "intention" and also cause unintended harm.
Id. at 171, 140 Cal.Rptr. at 610 (citations omitted); see also Congregation of Rodef Sholom v. American Motorists Ins. Co., 91 Cal.App.3d 690, 696, 154 Cal.Rptr. 348, 351 (1979); Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 887, 151 Cal.Rptr. 285, 297, 587 P.2d 1098, 1110 (1978) (construing Cal.Ins.Code Sec. 533 which precludes insurance coverage for willful and wanton acts); Gray, 65 Cal.2d at 269 n. 13, 54 Cal.Rptr. at 111 n. 13, 419 P.2d 168, 175 n. 13 (1966) ("reasonable expectation" of insured that unintended consequences of intentional acts would trigger duty to defend); Meyer v. Pacific Employers Ins. Co., 233 Cal.App.2d 321, 327, 43 Cal.Rptr. 542, 547 (1965).
In the present case, the insured's termination of its employees was intentional. However, the consequences of these acts, for the purposes of summary judgment, were probably not expected or intended. Though it is foreseeable that some adverse results might occur from a termination of an employee, it is doubtful that the insured intended the kinds of physical and mental damages alleged in the complaints of the state court plaintiffs. If the consequences of an intentional act are not substantially certain to result but will only probably result, they are "accidental." 7A J. Appleman, Insurance Law & Practice, Sec. 4492.02, at 29 (1979 & Supp.1987).
The "unfair competition" claim brought by Letco's competitor, Builder's Showcase, was part of a complaint brought by one of the terminated employees. California law requires that if one claim in a multiple claim complaint is covered by the policy, the insurer must defend the entire action. St. Paul Fire & Marine Ins. Co. v. Sears, Roebuck & Co., 603 F.2d 780, 783 (9th Cir.1979) (citing Gray v. Zurich ). The Sears court held that the possibility of any potential recovery under the policy obligated the insurer to defend the entire action even if the majority of potential recovery will probably not be covered. See also Hogan v. Midland Nat'l Ins. Co., 3 Cal.3d 553, 564, 91 Cal.Rptr. 153, 159, 476 P.2d 825, 831 (1970).
St. Paul did not waive its policy defenses by reserving its rights to do so eight months after Letco tendered the Prince and Horowitz claims. The "accidental events" coverage reaches the state court claims and triggers St. Paul's duty to defend all claims. We AFFIRM.
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
California law applies to this diversity case
Letco also claims that St. Paul inadequately reserved its rights as to the Builders Showcase "unfair competition" claim. Letco argues that a reservation of rights is inadequate unless it makes specific reference to the policy defense being relied on by the insurer. Such specificity is not required. In its reservation of rights letters, St. Paul noted that it was reserving its rights as to the complaints in their entirety. It also stated that it generally reserved all its policy defenses to any claims made. See St. Paul Mercury Ins. Co. v. Ralee Eng'g Co., 804 F.2d 520, 522 (9th Cir.1986)