General Accident Ins. Co. v. West American Ins. Co., G014436

• Decision Date: 31 January 1996
• Docket Number: No. G014436,G014436
• Citation: 49 Cal.Rptr.2d 603,42 Cal.App.4th 95
• Court: California Court of Appeals Court of Appeals
• Parties: , 64 USLW 2527, 96 Cal. Daily Op. Serv. 728, 96 Daily Journal D.A.R. 1051 GENERAL ACCIDENT INSURANCE COMPANY, Plaintiff and Appellant, v. WEST AMERICAN INSURANCE COMPANY, et al., Defendants and Respondents.

Page 603

49 Cal.Rptr.2d 603

42 Cal.App.4th 95, 64 USLW 2527, 96 Cal. Daily Op. Serv. 728,

96 Daily Journal D.A.R. 1051

GENERAL ACCIDENT INSURANCE COMPANY, Plaintiff and Appellant, v. WEST AMERICAN INSURANCE COMPANY, et al., Defendants and Respondents.

No. G014436.

Court of Appeal, Fourth District, Division 3, California.

Jan. 31, 1996.

Rehearing Denied Feb. 27, 1996.

Review Denied May 22, 1996.

Schaffer & Lax and John H. Horwitz, Los Angeles, for Plaintiff and Appellant.

Ault, Deuprey, Jones and Gorman, Robert P. Coffin, R. Michael Jordan, San Diego, Sedgwick, Detert, Moran & Arnold, Mark Graf, Lane J. Ashley and Kristin E. Meredith, Los Angeles, for Defendants and Respondents.

WALLIN, Associate Justice.

General Accident Insurance Company filed a declaratory relief action against Aetna Casualty & Surety Company and West American Insurance Company, seeking a declaration of coverage and reimbursement for defense and settlement costs it incurred while defending a complaint tendered to all three insurers. Aetna and West American refused the tender of defense of the underlying complaint. General Accident not only accepted the tender from its insured, but agreed to defend the insureds of Aetna and West American under an assignment of their rights against their insurers; it also contributed to the settlement on behalf of the insureds of all three carriers. Summary judgment on the declaratory relief action was granted in favor of Aetna and West American, and General Accident appeals on the duty to defend issue only. We find a duty to defend as a matter of law and reverse.

* * *

On April 11, 1989, Donald Owens filed a complaint for damages against, among others, Sportsman Associates, Inc. (SAI), Hall & Powell Insurance Services, Inc. (H & P), and Sportsman, Hall and Powell, Inc. (SHP). ¹ Owens alleged that in 1983, he was president and part owner of an insurance agency known as the Escondido agency. In November of that year, he sold the agency to Glenfed Insurance Services and stayed on as its manager. In April 1988, Owens was approached by certain of the underlying defendants with a proposal that he join with H & P and SAI in an insurance business venture. Owens and the defendants agreed: (1) Owens would repurchase the Escondido agency from Glenfed; (2) a new corporation, SHP, would be formed to acquire and operate the agency, and the owners of SHP would be Owens, SAI and H & P; and (3) Owens would serve SHP as its president and be employed by it as the manager of the Escondido agency.

In June 1988, Owens purchased the Escondido agency with a down payment of $44,000 provided by defendant Murray Sportsman and signed a promissory note for the balance of the purchase price, $220,000. Among the assets Owens received in the purchase was Glenfed's lease of the premises occupied by the agency. Thereafter, Owens operated the agency as its manager.

In November 1988, SHP had its first formal meeting at which Owens was elected president, and shares of common stock were issued in the amounts of 325 shares to SAI, 325 to H & P, and 70 to Owens. Contrary to their previous representations, however, SAI and H & P failed to cause SHP to acquire the assets of the agency or to assume the lease from Owens.

On January 20, 1989, Owens was summarily terminated as manager of the agency and as president of SHP. After that date, the underlying defendants "privately, for their own benefit and refusing to allow the participation of Owens, operated the Escondido agency in the following manner: [p] (a) Occupying the premises leased to Owens; [p] (b) Employing the files and records of the Escondido agency purchased from Glenfed and owned by Owens; [p] (c) Contacting the agency's clients and advising the insureds that [SHP was] the owner[ ] of the agency and that Owens was no longer associated with the business; and [p] (d) Receiving the income from the agency and disbursing the same as funds owned by said defendants."

Based on these allegations, Owens stated the following causes of action against the defendants: wrongful termination, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, interference with contractual relations and interference with prospective economic advantage. Regarding the continued operation of the Escondido agency by the defendants, Owens sought the remedies of constructive trust, accounting, appointment of a receiver and injunctive relief. He also sought the involuntary dissolution of SHP and the cancellation of its stock issuance.

Under the cause of action for interference with contractual relations, Owens alleged the defendants disrupted his relationship with Glenfed by "causing [his] performance in respect of the contract with Glenfed to be impossible or, at least, impracticable for the reason that [he] has been ousted from the Escondido agency by said defendants, denied all the benefits of the insurance business purchased from Glenfed and manipulated by defendants into a position which prevents [him] from paying the purchase price owed to Glenfed." The allegation of ouster was repeated under the cause of action for interference with prospective economic advantage. Under the cause of action for intentional infliction of emotional distress, Owens alleged he had been "callously ejected from the Escondido agency...."

SHP was insured by West American during the relevant time period under a business owners policy. The coverage clause of the comprehensive business liability part states: "The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, property damage or personal injury caused by an occurrence to which this insurance applies." (Emphasis omitted.) The term "occurrence" is defined as "with respect to personal injury, the commission of an offense, or a series of similar or related offenses...." "Personal injury" is defined as "injury which arises out of one or more of the following offenses committed in the conduct of the named insured's business: [p] ... c) wrongful entry or eviction, or other invasion of the right of private occupancy...." ²

H & P was insured by Aetna under its office insurance program. The coverage clause of the personal and advertising injury liability section of its commercial general liability coverage states: "We will pay those sums that the 'insured' becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury' to which this insurance applies.... [p] (2) This insurance applies to 'personal injury' only if caused by an offense: ... [p] Arising out of the conduct of your business...." The Aetna policy defined "personal injury" as "injury, other than 'bodily injury', arising out of one or more of the following offenses: [p] (c) Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies...."

General Accident accepted SAI's tender for defense of the Owens complaint. When West American and Aetna declined the tenders from SHP and H & P, General Accident funded the defense for them after receiving an assignment of their rights against their insurers. The action was settled and Owens received $160,000, of which General Accident contributed $25,000. General Accident expended over $118,000 in the defense of all defendants.

General Accident filed its complaint for declaratory relief, seeking a judicial determination of the obligations of West American and Aetna for the defense and indemnification of the defendants in the Owens action. Both West American and Aetna filed motions for summary judgment on the grounds that their respective policies did not provide coverage for the underlying loss and there was no duty to defend. General Accident filed a motion for summary judgment, heard on the same day, seeking an adjudication that each insurer had a duty to defend its insured. The trial court found, as a matter of law, that there was no potential for liability under either policy and granted summary judgment for West American and Aetna. General Accident's motion for summary judgment was denied.

On appeal, General Accident contends the allegations that Owens had been "ousted" and "ejected" from the premises leased to him created the potential for coverage under both policy definitions of personal injury: "wrongful entry or eviction, or other invasion of the right of private occupancy," and "wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies...." As discussed below, we conclude this contention is correct.

1. General Principles Applicable to the Duty to Defend

The Supreme Court has recently reaffirmed the long standing principles applicable to an insurer's duty to defend. "It is by now a familiar principle that a liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity.... [p] [T]he duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.... Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured's favor". (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.) "The insured's desire to secure the right to call on the insurer's superior resources for the defense of third party claims is, in all likelihood, typically as significant a motive for the purchase of insurance as is the wish to obtain indemnity for possible liability. As a consequence, California courts have been consistently solicitous of insureds' expectations on this score. [Citation.]" (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295-296, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (Montrose I ).) ³

In Montrose I, the Supreme Court reiterated that the insured need only show the bare possibility of coverage to trigger a defense duty. (...