Devin v. United Services Auto. Assn.

• Decision Date: 22 May 1992
• Docket Number: No. D011407,D011407
• Citation: 8 Cal.Rptr.2d 263,6 Cal.App.4th 1149
• Court: California Court of Appeals Court of Appeals
• Parties: Robert F. DEVIN et al., Plaintiffs and Appellants, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Defendant and Respondent.

Page 263

8 Cal.Rptr.2d 263

6 Cal.App.4th 1149

Robert F. DEVIN et al., Plaintiffs and Appellants, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Defendant and Respondent.

No. D011407.

Court of Appeal, Fourth District, Division 1, California.

May 22, 1992.

Review Denied Aug. 20, 1992.

Post, Kirby, Noonan & Sweat, David J. Noonan and Stephanie Sontag, San Diego, for plaintiffs and appellants.

Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Michael J. Brady, Lawrence M. Guslani and Robert P. Andris, Redwood City, for defendant and respondent.

FROEHLICH, Associate Justice.

Robert and Susan Devin (Devins) appeal from a judgment entered in favor of United Services Automobile Association (USAA) after USAA's motion for nonsuit was granted. Devins' complaint sought recovery based on the allegedly wrongful refusal by USAA to defend or indemnify Devins in a third party action brought against them by the purchasers of Devins' house in Huntington Beach, the purchasers being Robert and Marilyn McNair (McNairs). We conclude USAA had no duty to defend Devins in the underlying lawsuit, and therefore the order granting nonsuit was proper.

I FACTUAL AND PROCEDURAL BACKGROUND

1. The Third Party Lawsuit

Devins owned a home on Cavan Circle in Huntington Beach, which they sold to McNairs in 1984. Escrow closed September 5, 1984, and McNairs took possession four days later. Devins later bought a home on Basalto Street in Carlsbad.

In 1986, McNairs sued numerous parties. The complaint pleaded claims against Devins for intentional and negligent misrepresentation. The complaint alleged the house was sliding, slipping, settling, sinking, fracturing and buckling. McNairs further alleged Devins "... knew or should have known, that the property had experienced extensive subsidence damage and that said subsidence problems were continuing, and would continue to cause severe structural damage to the house and the property." According to McNairs' complaint, Devins failed to disclose these defects to them. McNairs sought damages for the decreased value of the home which these defects had caused and would continue to cause in the future, as well as damages for emotional and physical distress. The factual basis for these allegations is unclear, and McNairs' complaint sets forth no dates establishing when the subsidence damages supposedly occurred.

Devins timely tendered defense of McNairs' action to USAA under their homeowners' policies.

2. The Insurance Policies

The Devins were insured under two homeowners' policies issued by USAA. The first policy covered the Cavan Circle home through September 6, 1984, i.e., through the close of escrow on the sale to McNairs, and the second policy insured the Basalto Street home starting on October 18, 1984.

The relevant policy language regarding indemnity and defense was identical in both policies. The policies provided: "Coverage E--Personal Liability. If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will: ... 2. Provide a defense...." (Emphasis added.)

The policies defined "occurrence" to mean "an accident, including exposure to conditions, which results, during the policy The policies also contained various exclusions. Personal liability coverage was excluded for bodily injury or property damage "arising out of a premises (1) owned by an insured ... that is not an insured location, ..." and personal liability coverage was excluded for property damage "to property owned by insured."

period, in: a. bodily injury; or b. property damage." "Property damage" was defined as "physical injury to, destruction of, or loss of use of tangible property." ¹ (Emphasis added.)

3. Investigation and Rejection of the Tender of Defense

USAA retained Mr. Lukas to investigate the claim shortly after receiving the tender from Devins. When he was unsuccessful in contacting Devins' attorney by phone, Lukas corresponded in mid-March requesting a meeting to gather information about the claim. He eventually was able to contact McNairs' attorney to arrange a site inspection, although McNairs' counsel postponed the inspection until May 4, 1987. Lukas also had difficulty obtaining interviews with Devins, their counsel refusing to allow such a meeting until May when counsel could be present. The May 12 meeting was again postponed by Devins' counsel and reset for May 21. Lukas also sought documentation concerning the claim, which documentation was finally completed in mid-June.

Within three weeks after obtaining the documents, USAA rejected Devins' tender of defense. Based on the complaint and the facts learned by USAA, the tender was rejected because there was (1) no occurrence which resulted in property damage or bodily injury under the terms of the policy; (2) no property damage or bodily injury as defined by the policy; (3) no coverage for injuries intended or expected by the insured; ² (4) no coverage for liabilities under contracts; and (5) no coverage for property damage to property owned by the insured. Although Devins' response letter asserted claims for property damage and bodily injury, it merely reiterated the contents of McNairs' complaint and contained no additional facts suggesting how McNairs' claims might fall within a covered occurrence. When USAA continued to deny a defense, Devins filed this bad faith action.

At trial of the bad faith action, ³ the examiner for USAA stated he did not know when the property damage began, but it conceivably began after the property had been sold. He was also aware that McNairs sought emotional distress damages from Devins, and believed these were the only bodily injuries sought.

4. The Nonsuit Motion

The case was tried before a jury. After the Devins rested their case, USAA moved for a nonsuit, arguing (1) as a matter of law, there was no duty to defend or indemnify in this case; (2) the legal issues had already been adjudicated by a pretrial ruling that McNairs' complaint did not allege either property damage or bodily injury Devins filed a timely appeal from the judgment as well as from the rulings granting summary adjudication of issues.

                damages; 4  (3) there was adequate investigation as a matter of law;  and (4) there is no private action for violation of statutory duties as a matter of law.  After argument, the court granted USAA's motion
                

II STANDARD OF REVIEW

In Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291, 253 Cal.Rptr. 97, 763 P.2d 948, our Supreme Court summarized the law on nonsuits as follows:

"A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit a jury to find in his favor." [Citation.] "In determining whether plaintiff's evidence is sufficient, the court may not weigh the evidence or consider the credibility of witnesses. Instead, the evidence most favorable to plaintiff must be accepted as true and conflicting evidence must be disregarded. The court must give 'to the plaintiff('s) evidence all the value to which it is legally entitled, ... indulging every legitimate inference which may be drawn from the evidence in plaintiff('s) favor.' " [Citation.] "A mere 'scintilla of evidence' does not create a conflict for the jury's resolution; 'there must be substantial evidence to create the necessary conflict.' [Citation, emphasis in original.] [p] In reviewing a grant of nonsuit, [the appellate court is] 'guided by the same rule....' [Citation.]"

Our review is also governed by the familiar admonition that " '... a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.' [Citation.]" (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19, 112 Cal.Rptr. 786, 520 P.2d 10.) Thus, where a nonsuit has been granted for the wrong reason but the order itself is correct based on other grounds, we must affirm the order. (Walker v. Northern San Diego County Hospital Dist. (1982) 135 Cal.App.3d 896, 899-900, 185 Cal.Rptr. 617; Mikialian v. City of Los Angeles (1978) 79 Cal.App.3d 150, 158-159, 144 Cal.Rptr. 794.)

We therefore must determine whether the facts, viewed in the light most favorable to Devins, show USAA had no duty to defend.

III ANALYSIS

A. The Duty to Defend Exists Only When There Is Potential for the Third Party to Assert a Claim Covered by the Policy

USAA argued below, and now urges on appeal, the nonsuit was proper because there is no evidence of any possibility McNairs' lawsuit could have encompassed a covered claim.

It is axiomatic that an insurer's duty to defend is separate from and broader than its duty to indemnify. (State Farm Fire & Casualty Co. v. Eddy (1990) Additionally, the duty to defend is measured at the outset of the litigation because, unlike the duty to indemnify, which is determinable only after the basis for the insured's liability is finally established, the duty to defend is based on the potential for the establishment of a covered claim, not the actual establishment of a covered claim. (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 605, 222 Cal.Rptr. 276.) The duty to defend arises as long as the facts (either as expressed or implied in the third party's complaint, or as learned from other sources) give rise to a potentially covered claim (Fresno Economy Import Used Cars, Inc. v. United States Fid. & Guar. Co. (1977) 76 Cal.App.3d 272, 279, 142 Cal.Rptr. 681), even though the insurer's investigation produces facts showing the claim is baseless. It is the insurer's duty to prove the allegations false. (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 606, 222 Cal.Rptr. 276.) Finally, if an...