Chamberlain v. Allstate Ins. Co.

• Citation: 931 F.2d 1361
• Decision Date: 01 July 1991
• Docket Number: No. 89-56157,89-56157
• Parties: George R. CHAMBERLAIN, Plaintiff-Counter-Defendant-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Counter-Claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1361

931 F.2d 1361

George R. CHAMBERLAIN, Plaintiff-Counter-Defendant-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Counter-Claimant-Appellee.

No. 89-56157.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Dec. 6, 1990.

Decided May 3, 1991.

As Amended on Denial of Rehearing

July 1, 1991.

George R. Chamberlain and Philip D. Peatman, Law Offices of Philip D. Peatman, Long Beach, Cal., Kent L. Richland and Robert A. Olson, Greines, Martin, Stein & Richland, Beverly Hills, Cal., for plaintiff-counter-defendant-appellant.

Scott J. Vida, Pollak & Vida, Los Angeles, Cal., for defendant-counter-claimant-appellee.

Appeal from the United States District Court for the Central District of California.

Before FERGUSON, NORRIS and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

George R. Chamberlain appeals from the district court's summary judgments in favor of Allstate Insurance Company ("Allstate") on Chamberlain's bad faith claim and on Allstate's counterclaim for declaratory relief. We affirm.

FACTS

Chamberlain's 12 1/2-year relationship with Melinda Mackay ended badly. In February 1989, Mackay filed a lawsuit against Chamberlain in Los Angeles Superior Court (the "underlying suit"). This underlying suit asserted causes of action for declaratory relief, imposition of a constructive trust, breach of an implied contract and intentional infliction of emotional distress. Mackay alleged that the couple entered into an express oral or implied quasi-marital agreement to share equally all property acquired by the "community" during the relationship. Chamberlain tendered to Allstate the underlying suit and requested indemnity and a defense.

Allstate insures Chamberlain under its Deluxe Plus Homeowners' Policy. The policy promises that

Allstate will pay all sums arising from accidental loss which an insured becomes legally obligated to pay as damages because of bodily injury or property damage covered by this part of the policy.

The policy also provides that Allstate will defend the insured against suit, "even if the allegations are groundless, false or fraudulent."

On March 24, two days after being notified of the underlying suit, Allstate forwarded Chamberlain's request to its counsel for a coverage opinion. Allstate refused to give Chamberlain a date by which it would reach its decision. To avoid prejudice to Chamberlain's defense, however, Allstate obtained from Mackay a thirty-day extension of time for Chamberlain to respond to her complaint. On April 18, Allstate notified Chamberlain that it would provide him a defense, subject to a full reservation of its rights under the policy. In the meantime, however, on April 7, Chamberlain had filed this action in the Los Angeles Superior Court. He alleged Allstate had breached its implied covenant of good faith and fair dealing by failing to undertake his defense in a timely manner. Then, on April 28, Chamberlain filed a second state court action in which he requested a declaration that his Allstate policy afforded him coverage for Mackay's claims. This second state court action is still pending.

On May 5, Allstate removed Chamberlain's first state court action (the bad faith action) to federal court. Removal was based on diversity jurisdiction. Allstate then filed a counterclaim in federal court seeking a declaration that the policy did not cover Mackay's claims against Chamberlain. On June 12, the district court granted summary judgment in Allstate's favor on Chamberlain's bad faith complaint. On August 31, the district court granted summary judgment in Allstate's favor on Allstate's counterclaim for declaratory relief. Chamberlain appeals both judgments.

DISCUSSION

A. Chamberlain's Bad Faith Action Against Allstate

An insurer does not have the obligation to immediately defend any suit tendered to it by an insured. Instead, an insured who claims his insurer was dilatory in providing a defense bears the burden of showing that the insurer delayed "without proper cause." California Shoppers Inc. v. Royal Globe Ins. Co., 175 Cal.App.3d 1, 54, 221 Cal.Rptr. 171 (1985). Chamberlain does not carry that burden here. He clearly presented a novel claim, and Allstate reasonably took time to review its position before undertaking Chamberlain's defense under a reservation of rights.

Nor was Chamberlain prejudiced by the delay. Chamberlain first presented Mackay's suit to Allstate on March 22, thirteen days before the initial deadline to file a response. Allstate obtained an extension of time from Mackay that allowed it to fully consider its options. On April 18, seventeen days before a response was due under the extension, Allstate told Chamberlain it would provide a defense under a reservation of rights. Chamberlain made no showing that he was prejudiced in any way by this delay.

We conclude that the district court did not err in granting Allstate's motion for summary judgment in Chamberlain's bad faith action.

B. Allstate's Declaratory Relief Counterclaim

California law requires an insurer to defend lawsuits against its insured if one of two conditions is satisfied. An insurer must provide a defense if the claim brought against the insured raises the potential for covered losses, Gray v. Zurich Ins. Co., 65 Cal.2d 263, 266-67, 419 P.2d 168, 54 Cal.Rptr. 104 (1966), or if ambiguous language in the policy leads the insured reasonably to expect that a defense will be provided. Producer's Dairy Co. v. Sentry Ins. Co., 41 Cal.3d 903, 912, 718 P.2d 920, 226 Cal.Rptr. 558 (1986).

1. Potential Coverage Under the Policy

By its terms, Chamberlain's policy covers only "sums arising from accidental loss which an insured becomes legally obligated to pay...." (emphasis added). Allstate argues that because any loss to Mackay resulted from Chamberlain's intentional act in ending their relationship, there is no potential for coverage under the policy and no duty to defend. Chamberlain argues that although he may have acted intentionally in ending the relationship, any resulting losses to Mackay occurred accidentally. He likens his position to that of a speeding driver involved in an accident: he may have intended to speed, but he never intended to hurt anyone.

An insured bears the burden of proving that a claim falls within the scope of the policy. Royal Globe Ins. Co. v. Whitaker, 181 Cal.App.3d 532, 537, 226 Cal.Rptr. 435 (1986). Where no potential for coverage exists, the insurer need not provide the insured with a defense. Giddings v. Industrial Indem. Co., 112 Cal.App.3d 213, 219, 169 Cal.Rptr. 278 (1980). In the present case, Chamberlain grounds his coverage argument, and his entitlement to a defense, on the contention that the losses allegedly suffered by Mackay constitute "accidental losses" rather than losses resulting from Chamberlain's own intentional acts.

The difference between accidental and intentional acts was explained in Merced Mut. Ins. Co. v. Mendez, 213 Cal.App.3d 41, 50, 261 Cal.Rptr. 273 (1989). There, the California court stated:

[W]here the insured intended all of the acts that resulted in the victim's injury, the event may not be deemed an "accident" merely because the insured did not intend to cause injury. Conversely, an "accident" exists when any aspect in the causal series of events leading to the injury or damage was unintended by the insured and a matter of fortuity.

The following is illustrative. When a driver intentionally speeds and, as a result, negligently hits another car, the speeding would be an intentional act. However, the act directly responsible for the injury--hitting the other car--was not intended by the driver and was fortuitous. Accordingly, the occurrence resulting in injury would be deemed an accident. On the other hand, where the driver was speeding and deliberately hit the other car, the act directly responsible for the injury--hitting the other car--would be intentional and any resulting injury would be directly caused by the driver's intentional act.

Here, the district court supported its summary judgment by analogy to cases in which the insurance claim arose in the context of wrongful discharge. This is an appropriate analogy. California courts have consistently held that damages resulting from wrongful termination necessarily constitute non-accidental losses. See, e.g., Commercial Union Ins. Co. v. Superior Court, 196 Cal.App.3d 1205, 1209, 242 Cal.Rptr. 454 (1987) ("[a]n intentional termination is not an 'occurrence' under the policy because it is not an accident."). Even where the wrongful termination spawns emotional suffering and negligence claims, California courts have refused to consider these losses "accidental." See Dyer v. Northbrook Property & Cas. Ins. Co., 210 Cal.App.3d 1540, 259 Cal.Rptr. 298 (1989); Commercial Union, 196 Cal.App.3d at 1205, 242 Cal.Rptr. 454. Similarly, Chamberlain's refusal to share the alleged quasi-community property with Mackay should not be considered accidental merely because he did not intend Mackay to be hurt by his intentional acts. The sundering of the relationship, like termination of an employment relationship, remains the crucial act for coverage purposes.

Chamberlain argues the true nature of Mackay's claims can be gleaned from a second amended complaint Mackay filed and in which she included a cause of action for negligence. We reject this argument. This second amended complaint provides absolutely no explanation of the nature of Chamberlain's alleged negligence. We read this pleading as a mere reinterpretation of the facts set forth in the original complaint. That is, it has as its factual core alleged intentional acts by Chamberlain that deprived Mackay of "her" property.

Moreover, the assertion of a negligence claim in the underlying suit would not alter the fundamental nature of Mackay's claims. Once again, the wrongful termination cases are illustrative. In Hartford Fire Ins. Co. v. Karavan Enters., Inc., 659 F.Supp. 1077,...