Commercial Underwriters v. Superior Court

• Decision Date: 16 October 2000
• Docket Number: No. B139105.,B139105.
• Citation: 100 Cal.Rptr.2d 699,84 Cal.App.4th 181
• Court: California Court of Appeals Court of Appeals
• Parties: COMMERCIAL UNDERWRITERS INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Gulf Underwriters Insurance Company et al., Real Parties in Interest. [And four other petitions.<SMALL><SUP>*</SUP></SMALL>]

100 Cal.Rptr.2d 699

84 Cal.App.4th 181

COMMERCIAL UNDERWRITERS INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Gulf Underwriters Insurance Company et al., Real Parties in Interest. [And four other petitions.^*]

No. B139105.

Court of Appeal, Second District, Division 7.

October 16, 2000.

Ordered Not Officially Published February 14, 2001.^**

Roper & Folino and Joseph L. Stark, Los Angeles, for Petitioner and Real Party Commercial Underwriters Insurance Company.

Shupe, Reagan & Wyne and Elaine W. Reagan, for Petitioner and Real Party Fireman's Fund Insurance Company.

Perlstein & Robbins, John J. Perlstein, Lisa A. Perrott, Los Angeles; Musick, Peeler & Garrett, David A. Tartaglio and Cheryl A. Orr, Los Angeles, for Petitioner and Real Party Royal Insurance Company of America.

Zimmerman & Kahanowitch, Brian F. Zimmerman and Dee-Ann Jenkins, Woodland Hills, for Petitioner and Real Party Gulf Underwriters Insurance Company.

No appearance for Real Party in Interest Continental Insurance Co.

Hanson, Bridgett, Marcus, Vlahos & Rudy and Linda E. Klamm, San Francisco, for Real Party Arnold Siegel.

No appearance for Respondent.

WRIT OF MANDATE

JOHNSON, J.

This is an insurance coverage dispute among five insurers. The five consolidated petitions present two questions, one procedural and the other substantive. First, did Judge Valerie Baker have jurisdiction to rule Fireman's Fund Insurance Company (Fireman's Fund) and Commercial Underwriters Insurance Company (Commercial Underwriters) did not have a duty to defend in the underlying case, when Judge Hugh C. Gardner III had ruled, just two weeks earlier, all the defendant insurers did have such a duty? Second, which ruling regarding coverage was correct? We hold Judge Gardner was correct in finding potential coverage based on Abigail Adams's alleged "bodily injury" caused by a potentially covered "occurrence." However we hold Judge Gardner erred in finding Commercial Underwriters and Fireman's Fund had a duty to defend because we find coverage was barred by the "business pursuits" exclusions in their policies (though not by the "employee" exclusion in Royal Insurance Company of America (Royal's) policy). We also hold Judge Baker exceeded her jurisdiction in ruling on Fireman's Fund's and Commercial Underwriters' motion. Accordingly, we vacate all the orders at issue in these consolidated petitions, with the exception of Judge Gardner's order granting summary adjudication in favor of Gulf and against Royal.

FACTS AND PROCEEDINGS BELOW

The Underlying Complaint

In 1983, Abigail Adams worked for EST and was supervised by Arnold Siegel. In a lawsuit filed in 1996, Adams alleged for 12 years she and Siegel had a "many-faceted relationship" in which he was her "teacher, therapist, counselor, tutor, employer and a person who undertook the responsibility, for money, to psychologically rescue and make her a better person, psychologically." Adams characterized this as a "consumer" relationship. She alleged by commencing a "sexual but non-dating" relationship with her, Siegel took advantage of her vulnerability as an employee and her need for psychological help from EST.

In 1985, Siegel opened an offshoot of EST called The Conversation, and asked Adams to move to New York and open an office for The Conversation.¹ Adams alleges she was "told to work from 9:00 a.m. to 9:00 p.m. on a small budget, thus placed under psychological strain that was counterproductive to the psychological needs for which help had been promised" by Siegel. She further alleges Siegel promised he would be committed to her and their relationship.

The gravamen of the complaint was Siegel controlled, manipulated, and sexually and psychologically abused Adams while providing "diagnostic and therapeutic procedures of a therapeutic nature for which a license is required under California law," despite the fact Siegel was not licensed as a therapist. The complaint asserted causes of action for negligence, fraud, sexual harassment, battery, breach of contract, and intentional infliction of emotional distress. In the first cause of action for negligence, Adams alleged Siegel "owed a special duty not to act in any way that would cause damage" to her, because Siegel had made a promise to "provide an environment and services designed to make her a better person, increase [sic] and deal with her psychological problems, and increase her wealth." She alleged Siegel breached this duty by sexually abusing her, creating hopes he would one day marry her, counseling her not to have children, impeding her ability to develop an independent life, making her dependent upon him, engaging in dual relationships, taking advantage of her by employing her as a recruiter for The Conversation, failing to provide proper therapeutic treatment, and failing to refer her to "proper therapeutic help of which Defendants were not qualified to provide."

Adams's complaint alleged as damages only "emotional and financial harm[,] lost direction in life and [loss of] ten years of independent life." However, in her discovery responses Adams also claimed Siegel's conduct caused her to suffer various physical ailments including stomach pain, headaches, skin problems, and infertility.

The Coverage Action

Siegel tendered the defense of the action to his five insurers: Gulf Underwriters Insurance Co., Commercial Underwriters Insurance Co., Royal Insurance Co., Fireman's Fund Insurance Co., and Continental Insurance Co.² Gulf, as Siegel's errors and omissions carrier, agreed to provide a defense and immediately sued the other insurers for declaratory relief when they refused to contribute to the defense. Gulf alleges all the insurers are obligated to provide a defense because there was a potential for coverage under the "bodily injury" and "personal injury" provisions of the various policies.

The "Duty to Defend" Motions

On October 5, 1999, Gulf filed a motion for summary adjudication against the defendant insurers, seeking to establish their duty to defend Siegel in the Adams action. In its motion, Gulf argued because Adams separately pleaded negligence, under Gray v. Zurich (1966) 65 Cal.2d 263, 277, 54 Cal.Rptr. 104, 419 P.2d 168, there was a potential for coverage and thus a duty to defend. It further argued there was a potential for coverage for "bodily injury" because Adams's discovery responses described physical symptoms caused by Siegel's conduct. Finally, it argued there was an "occurrence" because "although it appears that much of the conduct alleged is intentional and may not constitute an `accident' giving rise to an `occurrence,' for purposes of the duty to defend it is sufficient that there is at least one allegation of conduct that is not intentional creating the potential that a claim may be covered under the policy. In the underlying action, Ms. Adams's first cause of action against Siegel is negligence. By definition, negligent acts are not intentional and fall squarely within the policy definition of `occurrence.' Since Siegel could potentially be found liable for negligent conduct, there is the potential for coverage under the Defendants' policies."

On or about October 21, 1999, Commercial Underwriters filed a motion for summary judgment, asking the court to find it had no duty to defend or indemnify Siegel in the Adams action. In its motion, Commercial Underwriters argued there was no "occurrence" within the meaning of the policy, because the conduct alleged in the Adams complaint was intentional. It further argued even if there was an "occurrence," it had no duty to defend or indemnify because as an excess carrier, it could not have any defense obligation as long as any other carrier had such an obligation, and Gulfs admitted defense obligation precluded any defense obligation on the part of Commercial Underwriters. Finally, it argued as an excess carrier it had no possible duty to indemnify Siegel because the Adams lawsuit had already settled for an amount less than any primary carrier's policy limits.

The motions were assigned for hearing to Judge Gardner, who according to Commercial Underwriters was primarily assigned to traffic court matters in Department T at the Santa Monica courthouse. Judge Gardner heard Gulfs motion for summary adjudication on November 10, 1999, and took the matter under submission.

On December 9, 1999, while the parties were still waiting for a ruling on Gulfs motion, Fireman's Fund filed its own motion for summary judgment, arguing it had no duty to defend because Gulf could not establish the Adams action sought recovery for "bodily injury" caused by a covered "occurrence." Fireman's Fund also argued there could be no potential for coverage because of various exclusions in its policies.

Judge Gardner heard Commercial Underwriters' motion for summary judgment on December 10, 1999, and denied the motion because "this is the Montrose case, where it says the insured need only show that it may have coverage. The insurer has to prove it doesn't. So I'm going to put down `denied' on this one." He declined to take Commercial Underwriters' motion under submission pending his decision on Gulfs and Fireman's Fund's motions.

On January 3, 2000, Commercial Underwriters joined in Fireman's Fund's motion. In its joinder, Commercial Underwriters stated "It should be noted that CUIC's own Motion for Summary Judgment was denied in this matter upon what CUIC considers to be erroneous legal grounds.... Were this court to grant Fireman's Motion without granting CUIC's joinder, such an action would create the very real existence of contradictory verdicts upon the same essential facts and circumstances."

On January 28, 2000, almost three months after taking Gulfs motion under submission, Judge Gardner issued his order thereon. The order stated defendants had a duty to defend because there was a potential for damages from "bodily injury" as the result of an "occurrence."...