Frank and Freedus v. Allstate Ins. Co.

• Citation: 45 Cal.App.4th 461,52 Cal.Rptr.2d 678
• Decision Date: 25 April 1996
• Docket Number: No. D023289,D023289
• Court: California Court of Appeals
• Parties: , 61 Cal. Comp. Cases 447, 96 Cal. Daily Op. Serv. 3404, 96 Daily Journal D.A.R. 5519 FRANK AND FREEDUS et al., Plaintiffs and Appellants, v. ALLSTATE INSURANCE COMPANY et al., Defendants and Respondents.

Page 678

52 Cal.Rptr.2d 678

45 Cal.App.4th 461, 61 Cal. Comp. Cases 447,

96 Cal. Daily Op. Serv. 3404,

96 Daily Journal D.A.R. 5519

FRANK AND FREEDUS et al., Plaintiffs and Appellants, v. ALLSTATE INSURANCE COMPANY et al., Defendants and Respondents.

No. D023289.

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

April 25, 1996.

Frank and Freedus, Eric B. Freedus and Robert M. Feinson, San Diego, for Plaintiffs and Appellants.

Richard A. Krimen, Charles W. Savage, Barbara Gallios-Lee, Ropers, Majeski, Kohn & Bentley, Mark G. Bonino and Allison L. Dobbrow, Redwood City, for Defendants and Respondents.

KREMER, Presiding Justice.

The law firm of Frank and Freedus, James Lieberman and Eric Freedus (hereafter Frank and Freedus), appeal summary judgments in favor of Allstate Insurance Company (Allstate) and State Compensation Insurance Fund (State Fund). Frank and Freedus contend the court erred in finding, as a matter of law, that neither Allstate or State Fund owed a duty to provide a defense to Frank and Freedus for a complaint by a former employee seeking damages for wrongful termination and defamation. We affirm.

FACTS

In April 1993, a former attorney with Frank and Freedus, Martin Caprow, filed a complaint against Frank and Freedus alleging Frank and Freedus improperly terminated his employment on the basis he was gay and had tested positive for HIV. Caprow alleged causes of action for discrimination based on a physical handicap, violation of San Diego's AIDS discrimination ordinance, violation of Labor Code provisions, violation of San Diego's Human Dignity Ordinance, wrongful termination in violation of public policy, breach of contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress and defamation. As to the defamation cause of action, Caprow alleged:

"When [the office administrator] later discussed with Defendant Freedus that staff morale was low because of the decision to terminate Caprow when others remained who had shorter tenure and/or performance problems, Defendant Freedus dismissed Caprow's importance with the comments that he is 'likely gay and probably has AIDS' and then instructed [the office administrator] to inform staff that the 'real reason' for his termination was 'failure to perform and develop as an associate.' " (Italics added.)

Caprow alleged the italicized language defamed him.

Frank and Freedus tendered the defense of this suit to its business liability insurer Allstate, and to its workers' compensation insurer, State Fund.

Allstate refused to defend.

State Fund initially refused to defend but in October 1993 agreed to defend Frank and Freedus after this court issued an opinion indicating a duty to defend in such circumstances. ¹ State Fund's defense was subject to a reservation of rights to contest coverage. In a November 1993 letter, Frank and Freedus acknowledged the defense was subject to a reservation of rights. In January 1994, State Fund in a letter memorializing the agreement to defend, stated it was accepting the defense due to our recent decision but added if that decision were "accepted for review, or ordered decertified or unpublished, State Fund reserves its right to withdraw from the defense of this action to and/or seek reimbursement of defense costs expanded [sic] on behalf of Frank & Freedus." State Fund reiterated this position later in the letter, stating: "State Fund reserves the right to withdraw from the defense and/or seek reimbursement from you should it be determined that there is no potential for coverage under the State Fund policy either as a result of a legal decision of [sic] voluntary action by the plaintiff."

State Fund sent an auditor to Frank and Freedus's attorneys in January 1994 to review defense costs.

On February 24, 1994, Frank and Freedus filed a cross-complaint against State Fund for declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing. ² Frank and Freedus sought a declaration State Fund had a duty to defend pursuant to policy language stating:

"This workers' compensation insurance applies to bodily injury by accident or bodily injury by disease, including resulting death, subject to the following conditions:

"...

"This employer's liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury means a physical or mental injury, including resulting death. Bodily injury does not include emotional distress, anxiety, discomfort, inconvenience, depression, dissatisfaction or shock to the nervous system, unless caused by either a manifest physical injury or a disease with a physical dysfunction or condition resulting in treatment by a licensed physician or surgeon."

Frank and Freedus alleged State Fund had "breached its contract by failing to investigate, to defend and to agree to indemnify [Frank and Freedus] in the underlying action" and, as a result, Frank and Freedus had "been compelled to engage counsel to defend it in the underlying action and to incur" attorneys' fees and other costs. As to the third cause of action for breach of the implied covenant of good faith and fair dealing, Frank and Freedus made similar allegations that State Fund had refused to investigate, defend or indemnify, resulting in Frank and Freedus incurring attorneys fees and other costs. Frank and Freedus also alleged State Fund's "acts ... were done intentionally, maliciously, oppressively and with the intent of depriving and defrauding [Frank and Freedus]."

As of March 7, 1994, State Fund had paid $20,000 in defense costs. At that time, State Fund's auditor recommended an additional payment of $60,000 but noted there would be additional billings for February and March 1994 which would "probably be in the $50,000 range." State Fund apparently paid the recommended additional $60,000. State Fund paid a total of $80,000 to the attorneys representing Frank and Freedus in the Caprow action.

On April 12, 1994, Frank and Freedus obtained a judgment in their favor in the Caprow action.

On April 18, 1994, Frank and Freedus filed a first amended complaint against Allstate and State Fund for declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing. In the complaint, Frank and Freedus, inter alia, alleged: "The [Caprow] complaint filed and discovery subsequently conducted reveal that plaintiff therein alleges manifest bodily, physical, mental, emotional and personal injuries and damages arising out of various acts, omissions, events and occurrences for which coverage is provided under the aforementioned polices." Frank and Freedus repeated the allegations as to State Fund, including the same policy language as supporting coverage and a duty to defend. Frank and Freedus alleged Allstate's obligation to defend was based on policy language stating:

"Liabilities Covered

"We will pay on behalf of persons insured all sums which they become legally obligated to pay as damages arising out of an accidental event, personal injury or advertising injury that occurs while this policy is in effect."

The amended complaint also contained causes of action for declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing against Insurance Company of North America.

Both Allstate and State Fund filed motions for summary judgment. Allstate contended it had no duty to defend because its policy excluded coverage for personal injuries due to termination of employment or employment-related practices, including defamation. State Fund contended its policy excluded coverage for the intentional conduct involved in the Caprow case and, further, did not cover post-termination emotional distress because it was not compensable within the workers' compensation system. In its memorandum in reply to Frank and Freedus's opposition to summary judgment, State Fund specifically pointed out that its defense had been conditional and subject to a reservation of rights.

On September 12, 1994, Frank and Freedus moved for summary adjudication on the basis Allstate and State Fund owed a duty to defend the Caprow action as a matter of law.

The court found there were no triable issues of material fact and, based on the policies and applicable law, neither Allstate nor State Fund had a duty to defend Frank and Freedus in the Caprow action. The court issued summary judgments in favor of Allstate and State Fund.

DISCUSSION

I Summary Judgment Procedure

The determination whether an insurance company had a duty to defend is a proper subject for summary judgment. (Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425, 29 Cal.Rptr.2d 413; Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 298-301, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)

The summary judgment procedure aims to discover whether there is evidence requiring the fact-weighing procedures of a trial. (Decker v. City of Imperial Beach (1989) 209 Cal.App.3d 349, 353, 257 Cal.Rptr. 356.) "[T]he trial court in ruling on a motion for summary judgment is merely to determine whether such issues of fact exist, and not to decide the merits of the issues themselves. [Citation.]" (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107, 252 Cal.Rptr. 122, 762 P.2d 46.)

" 'A defendant moving for summary judgment must conclusively negate a necessary element of the plaintiff's case or establish a complete defense, and thereby demonstrate that under no hypothesis is there a material factual issue which requires the process of a trial. [Citation.]' " (Snoke v. Bolen (1991) 235 Cal.App.3d 1427, 1431, 1 Cal.Rptr.2d 492; Evan F. v. Hughson United Methodist Church (1992) 8 Cal.App.4th 828, 841, 10 Cal.Rptr.2d 748.) "A party may not avoid summary judgment based on mere speculation and conjecture [citation], but instead must produce admissible evidence raising a triable issue of fact. [Citation.]" (...