Giddings v. Industrial Indemnity Co.

• Decision Date: 17 November 1980
• Citation: 169 Cal.Rptr. 278,112 Cal.App.3d 213
• Court: California Court of Appeals Court of Appeals
• Parties: Douglas R. GIDDINGS et al., Plaintiffs and Appellants, v. INDUSTRIAL INDEMNITY COMPANY et al., Defendants and Respondents. Civ. 22179.

Page 278

169 Cal.Rptr. 278

112 Cal.App.3d 213

Douglas R. GIDDINGS et al., Plaintiffs and Appellants, v. INDUSTRIAL INDEMNITY COMPANY et al., Defendants and Respondents.

Civ. 22179.

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

Nov. 17, 1980.

Hearing Denied January 14, 1981.

Hillyer & Irwin and Norman R. Allenby and Mitchel J. Olson, San Diego, for plaintiffs and appellants.

Wingert, Grebing, Anello & Chapin and Michael M. Anello, San Diego and Thelen, Marrin, Johnson & Bridges and Edward J. Ruff, Philip R. Placier and James T. Hendrick, San Francisco, for defendants and respondents.

GERALD BROWN, Presiding Justice.

Douglas Giddings and Edwin Giddings appeal the judgment dismissing their suit against Industrial Indemnity Company and Mission Insurance Company, after the trial court granted the companies' motions for summary judgment. The issue involves "property damage" under liability insurance policies.

The Giddings were business associates of C. Arnholt Smith. Douglas Giddings was an officer, director and employee of Westgate California Corporation (Westgate) and a director of United States National Bank (USNB). Edwin Giddings was a director of USNB. After the collapse of Smith's financial empire, the Giddings were named as defendants in three federal actions. In Harmsen, et al., v. Smith, et al., 9th Cir., 542 F.2d 496, a class action, the minority shareholders of USNB sought to recover for the total loss of the value of their holdings, alleging violations of federal banking law and federal and California securities laws, breach of fiduciary duty by USNB's directors and controlling shareholders, fraud, and conspiracy. In Franklin National Bank v. United States National Bank, et al., Franklin National Bank sought recovery of $5,000,000 it had paid for capital notes of USNB, alleging violations of federal securities laws, fraud, and conspiracy. In Trone, et al., v. Smith, et al., 9th Cir., 553 F.2d 1207, the trustees for Westgate and related entities in reorganization under the Federal Bankruptcy Act sued on behalf of Westgate and its subsidiaries. The trustees alleged the numerous defendants had engaged in a systematic looting of Westgate, defrauded the corporation and its shareholders and creditors, and appropriated the assets, credit, and corporate opportunities of Westgate for their own gain. The complaint alleged ten wrongful "courses of conduct" including: causing Westgate to buy assets for substantially more than their fair market value and sell assets for substantially less than their fair market value; taking and misappropriating Westgate's assets; causing Westgate to lend its assets to certain defendants without consideration; causing Westgate to lease its assets for less than their fair rental value; and causing Westgate to transfer assets and security interests without consideration and "other waste and misappropriation." By engaging in these courses of conduct, the Trone plaintiffs alleged, the defendants "wasted, misappropriated and converted the corporate assets and credit of Westgate and its subsidiaries." The complaint also alleged these courses of conduct constituted violations of federal banking and securities laws, violations of California securities laws, breaches of the defendants' duties of loyalty and due care, and fraud.

Industrial insured Westgate and USNB and their officers and directors at various times under three public liability policies. The policies included coverage for liability for "property damage." Two of the Industrial policies define "property damage" as "injury to or destruction of tangible property." The remaining Industrial policy defines "property damage" as "(1) physical injury to or destruction of tangible property ..., including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period." An "occurrence" is "an accident ... which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." In the event of a claim or lawsuit against the insured, the policies require the insured to forward all relevant documents to Industrial "immediately."

Mission provided Westgate and its officers and directors with excess public liability coverage. The Mission policy covered liability for "property damage," defined as "loss of or direct damage to or destruction of tangible property." The policy requires the insured to give notice of a covered occurrence "as soon as practicable."

The Giddings appeared in the Harmsen action in January 1974 and were served in the Trone action in April 1975. In late 1976 or early 1977 they made demands on Industrial to defend or indemnify them in these two lawsuits. The Franklin action was filed in November 1973. The Giddings acknowledge they waited until late 1976 or early 1977 to demand a defense from Industrial in this action, and Industrial contends they made no tender at all. Douglas Giddings, the only plaintiff who now claims coverage under the Mission policy, did not tender the defense of the three actions to Mission until March 1977.

After Industrial and Mission declined their tenders, the Giddings brought the present action, alleging the insurers had wrongfully refused to defend them. The trial court found the federal actions did not potentially seek to recover for "property damage" covered by the Industrial and Mission policies and granted the insurers' motion for summary judgment.

An insurer's duty to defend litigation brought against its insured is broader than its duty to indemnify (Gray v. Zurich Insurance Co., 65 Cal.2d 263, 276-277, 54 Cal.Rptr. 104, 419 P.2d 168; Fresno Economy Import Used Cars, Inc. v. United States Fid. & Guar. Co., 76 Cal.App.3d 272, 278, 142 Cal.Rptr. 681; Eichler Homes, Inc. v. Underwriters at Lloyd's, London, 238 Cal.App.2d 532, 538, 47 Cal.Rptr. 843). The insurer must furnish a defense when it learns facts creating the potential of liability under the policy (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 275, 277, 54 Cal.Rptr. 104, 419 P.2d 168; State Farm Mut. Auto. Ins. Co. v. Flynt, 17 Cal.App.3d 538, 548, 95 Cal.Rptr. 296). But the insurer's obligation is not unlimited; the duty to defend is measured by the nature and kind of risks covered by the policy (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 275, 54 Cal.Rptr. 104, 419 P.2d 168; Dillon v. Hartford Acc. & Indem. Co., 38 Cal.App.3d 335, 339, 113 Cal.Rptr. 396; State Farm Mut. Auto. Ins. Co. v. Flynt, supra, 17 Cal.App.3d 538, 548, 95 Cal.Rptr. 296).

The present case is readily distinguishable from Gray and many of the cases following it, which have broadly interpreted the insurer's duty to defend. (See, e. g., Wint v. Fidelity & Casualty Co., 9 Cal.3d 257, 107 Cal.Rptr. 175, 507 P.2d 1383; Mullen v. Glens Falls Ins. Co., 73 Cal.App.3d 163, 140 Cal.Rptr. 605; Val's Painting & Drywall, Inc. v. Allstate Ins. Co., 53 Cal.App.3d 576, 126 Cal.Rptr. 267.) In each of these cases, damage of the type covered by the policy had undisputably occurred, and the insurer relied on an unclear exclusionary clause in asserting it was not obligated to defend its insured. Here, on the other hand,...