Eder v. Allstate Ins. Co.
| Decision Date | 07 July 1995 |
| Docket Number | No. 93-17375,93-17375 |
| Citation | 60 F.3d 833 |
| Parties | NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. Fred J. EDER and Patricia Eder, Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before: SCHROEDER, BEEZER and THOMPSON, Circuit Judges.
Fred and Patricia Eder appeal the district court's grant of summary judgment in favor of Allstate Insurance Co. ("Allstate") on the Eders' claims for breach of an umbrella personal liability policy ("umbrella policy"), bad faith denial of coverage and intentional misrepresentation. The Eders allege that Allstate was obligated to provide a defense to a suit brought by their former landlord alleging, in part, that the Eders had damaged the leased property. The district court held that the landlord's claims were contractual in nature, and were therefore outside the scope of the umbrella policy's coverage. We have jurisdiction over the Eders' timely appeal under 28 U.S.C. Sec. 1291. We affirm in part, reverse in part, and remand.
The parties stipulated to the following facts before the district court: The Eders were covered by the umbrella policy for a period during which they leased a house from Retha Buchanan-Stellbrink ("Buchanan"). The lease contained the following term:
Tenant shall keep the premises and furniture, furnishings and appliances, if any, and fixtures which are leased for his exclusive use in good order and condition and pay for any repairs to the property caused by Tenant's negligence or misuse or that of Tenant's invitees.
After the Eders moved out of the house, Buchanan sued them in California state court for breach of the lease agreement. Buchanan's complaint alleged, in part, that the Eders breached the lease by "causing significant damage to the premises."
The Eders tendered defense of the underlying suit to Allstate. Allstate ultimately denied coverage on several grounds: (1) that the claims were contractual and therefore not covered, (2) that the suit did not allege an "occurrence," as required to invoke coverage, and (3) that the claims fell within a coverage exclusion for property in the insured's care, or for which the insured agreed to be responsible. The Eders then filed the present suit in state court, and Allstate removed it to district court on the basis of diversity.
On cross-motions for summary judgment, the district court held that the claims in the underlying suit were contractual, and thus not covered. The district court further held that where there is no coverage there can be no bad faith and that the Eders had failed to allege intentional or negligent misrepresentation with the requisite particularity under Federal Rule of Civil Procedure 9(b). Accordingly, the court denied the Eders' motion and granted Allstate's. The Eders appeal.
We review the district court's grant of summary judgment de novo. Atwood v. Newmont Gold Co., 45 F.3d 1317, 1320 (9th Cir.1995). California law applies to this diversity action. The district court's interpretation of state law is reviewed de novo. Salve Regina College v. Russell, 499 U.S. 225, 231 (1991).
The umbrella policy provides coverage "when an insured becomes legally obligated to pay for personal injury or property damage caused by an occurrence." This language has been interpreted by the California courts to cover tort, but not contract liability. See Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1365 (9th Cir.1991). An insurer must provide a defense to a suit "that raises the potential for covered losses." Id. at 1364 (citing Gray v. Zurich Ins. Co., 419 P.2d 168, 176 (Cal.1966)). We first determine whether the underlying suit raised the potential that the Eders might be liable to Buchanan in tort.
That Buchanan denominated her claim as one for breach of contract is not dispositive. The issue is whether there is any potential for the underlying complaint to assert a tort claim, rather than whether the plaintiff in the underlying suit pleaded a cause of action in tort. Devin v. United Serv. Auto. Ass'n, 8 Cal.Rptr.2d 263, 268 (Cal.Ct.App.1992). The insurer owes a duty to defend if it learns facts, from the complaint or any other source, that create a potential for the assertion of a covered claim. Id.
Buchanan's complaint against the Eders alleged that they had breached the lease agreement by "causing significant damage to the premises." Discovery revealed that the alleged damage included carpet stains, cracked tile floors, water damage in the kitchen, and other physical damage to the house. Importantly, under the terms of the lease, the Eders were liable only for damage that was the result of negligence. In alleging that the Eders had breached the lease by causing the damage, Buchanan's complaint impliedly alleges that the Eders caused the damage negligently. Buchanan's complaint therefore raises the potential for the assertion of a cause of action in tort. Irrespective of the terms or existence of the lease, the Eders would be liable to Buchanan for damage to the leased property proximately caused by their negligence. Under California law, this potential was enough to invoke Allstate's duty to defend.
Allstate nevertheless argues that it had no duty to defend because, even if Buchanan could have pleaded a cause of action in tort, such a tort claim would inescapably have arisen from the existence or breach of the lease. This argument is unpersuasive on the facts of this case. Allstate relies on several cases where no liability coverage was found because torts alleged in the underlying complaints were tortious only because the conduct complained of was also a breach of contract. 1 See Chamberlain, 931 F.2d at 1364-65 (); Fragomeno v. Insurance Co. of the West, 255 Cal.Rptr. 111, 116-17 (Cal.Ct.App.1989) (); Fireman's Fund Ins. Co. v. City of Turlock, 216 Cal.Rptr. 796, 800-01 (Cal.Ct.App.1985) ().
Turlock is instructive in this regard. In determining that the underlying suit was solely contractual, the court stated: "The critical point is that absent the promise not to disclose [the insured] could not have been liable for the disclosure." Turlock, 216 Cal.Rptr. at 800. By contrast, absent the terms of the lease the Eders could have been liable to Buchanan for damage they negligently caused to the leased property. The allegedly negligent actions complained of would be tortious regardless of whether they were also a breach of the lease.
Allstate argues in the alternative that it owed no duty to defend because Buchanan's complaint did not allege an accidental "occurrence" within the meaning of the umbrella policy. This argument is without merit. As argued, this is simply a recast of Allstate's primary theory: that the Eder's liability to Buchanan was solely contractual. Allstate contends that the Eders' liability to Buchanan arose not from their alleged negligent acts causing damage to the house, but rather from their failure to pay for that damage as required by the lease. This strained gloss on Buchanan's complaint does not help Allstate; a failure to pay presupposes a duty to pay. In this case, any duty the Eders allegedly had to pay for damage to the house arose, at least potentially, due to their negligence. A negligent act causing damage to another's property is an accidental, not intentional, "occurrence." See Chamberlain, 931 F.2d at 1364.
Buchanan's complaint and other facts subsequently available to Allstate potentially gave rise to a covered claim. Unless an exclusion applied, Allstate had a duty to defend the Eders from Buchanan's suit.
Allstate argues that the Buchanan's claim fell within an exclusion in the umbrella policy covering property of others for which the Eders agreed to be responsible. The district court did not reach this argument, but we can affirm on any legal ground supported by the record. New Kids on the Block v. News Am. Publishing, Inc., 971 F.2d 302, 305 (9th Cir.1992). This exclusion does not apply.
The exclusion applies to "property damage to any ... property owned by others which an insured agreed to insure or for which an insured agreed to be responsible." The proper interpretation of this provision is that it excludes coverage only where the insured's liability arises from the agreement to be responsible for another's property (i.e. where the insured's liability under the agreement is greater than it would have been absent the agreement). Allstate urges a broader reading that would exclude from coverage any claims for damage to property subject to such an agreement, regardless of the source of liability.
The narrower interpretation more faithfully gives effect to the reasonable contemplation of the parties. See Bank of the West v. Superior Court, 833 P.2d 545, 552 (Cal.1992) (). The umbrella policy's primary purpose was to indemnify the Eders against liability imposed upon them by law. Allstate contracted to provide this indemnity, and received a premium for its promise. As the exclusion at issue reflects, however, Allstate was not contracting to indemnify the Eders against additional liability for damage to others' property that they voluntarily took upon themselves.
The crux of the issue is whether the lease term was an "agree[ment] to be responsible" within the meaning of the...
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