Ohio Casualty Ins. Co. v. Hubbard

• Decision Date: 18 December 1984
• Citation: 162 Cal.App.3d 939,208 Cal.Rptr. 806
• Court: California Court of Appeals Court of Appeals
• Parties: The OHIO CASUALTY INSURANCE COMPANY, Plaintiff and Respondent, v. Barbara HUBBARD, Defendant and Appellant. B006659.

Page 806

208 Cal.Rptr. 806

162 Cal.App.3d 939

The OHIO CASUALTY INSURANCE COMPANY, Plaintiff and Respondent, v. Barbara HUBBARD, Defendant and Appellant.

B006659.

Court of Appeal, Second District, Division 4, California.

Dec. 18, 1984.

Hearing Denied Feb. 21, 1985.

[162 Cal.App.3d 941] Paul L. Tepper, Van Nuys, for defendant and appellant.

Stockdale, Peckham & Werner and Paul F. Sowa, Los Angeles, for plaintiff and respondent.

McCLOSKY, Associate Justice.

Plaintiff The Ohio Casualty Insurance Company (Ohio) is the insurer of defendant Barbara Hubbard. In this action Ohio seeks a declaration that it no longer has a duty to indemnify or defend Ms. Hubbard with respect to the remaining claims in the action entitled "Angeline Johnson and Estella Smith, on behalf of themselves and the general public under section 17204 of the Business and Professions Code v. Barbara Hubbard and Does 1 through 100. (Sup.Ct. No. C412430) After a trial by court sitting without a jury, the court rendered a judgment which in pertinent part provided:

"Plaintiff, OHIO CASUALTY INSURANCE COMPANY, owes no further duty to defendant BARBARA HUBBARD, to indemnify her with respect to the claims that are asserted, or may be asserted, against her, in case number C 412430;

"Plaintiff, OHIO CASUALTY INSURANCE COMPANY, owes no further duty to defendant BARBARA HUBBARD, to defend her with respect to the claims that are asserted, or may be asserted, against her, in case number C 412430[.]" From this judgment Ms. Hubbard appeals.

CONTENTIONS

Ms. Hubbard contends that the present appeal is not subject to the final judgment rule ¹ and Ohio has a duty to defend appellant against punitive damage allegations contained in the second, third, and fourth causes of action in the underlying lawsuit.

FACTS

The facts are not in dispute. In the underlying action Ms. Johnson and Ms. Smith filed a complaint for injunctive relief; restitution and damages due to Ms. Hubbard's alleged wrongful conduct in her ownership and operation of residential real properties in which they were tenants.

In the second cause of action of that complaint, Ms. Smith alleged that Ms. Hubbard fraudulently charged her an excessive rate of rent. Ms. Smith prayed for the recovery of that rent which was excessively charged and sought to recover damages for her emotional distress as well as punitive damages.

In the third cause of action Ms. Smith alleged that Ms. Hubbard had attempted to evict her upon fraudulent grounds. Ms. Smith alleged that this caused her lost income and emotional distress for which she sought recovery. She also requested that Ms. Hubbard be held liable for punitive damages.

In the fourth cause of action, Ms. Johnson alleged Ms. Hubbard engaged in essentially the same conduct as that alleged in the third cause of action and prayed for the recovery of identical damages.

At all relevant times, Ohio insured Ms. Hubbard under a liability policy covering property damage and bodily injury caused by an occurrence arising out of the ownership, maintenance or use of the premises which was the subject of the Smith and Johnson action.

Ohio defended Ms. Hubbard in the underlying action under a reservation of rights. Thereafter, Ohio entered into a settlement agreement with Ms. Smith and Ms. Johnson which in pertinent part provides:

"The undersigned, ANGELINE JOHNSON and ESTELLA SMITH (hereinafter 'Releasors'), ... do hereby ... release ... BARBARA HUBBARD and the OHIO CASUALTY INSURANCE COMPANY, ... (hereinafter collectively 'Releasees') of and from any and all claims for emotional distress; mental anguish; damages to Releasors' health, strength and activity; physical and nervous pain and suffering; bodily injury; and the consequences of each of the foregoing; which Releasees now have or which may hereafter accrue, known and unknown, foreseen and unforeseen; which result or arise from the incidents alleged in that certain Los Angeles Superior Court case entitled Angeline Johnson and Estella Smith v. Barbara Hubbard, et al. case number C412430.

"Releasors also specifically release, acquit and discharge Releasees from any such claims as hereinabove described with respect to future damage or loss arising from said incidents.

"Releasors expressly agree, represent and covenant that the only claims that they have remaining against Releasees Barbara Hubbard, et al., arising out of the incidents alleged in the hereinabove described Los Angeles Superior Court case, are claims which are solely for monetary or economic loss, and claims for punitive damages. Releasors further represent, ... that they will pursue only their claims for such monetary or economic loss, and for punitive damages, in said Superior Court action; and, further, that they will at no time amend their complaint to allege any other kinds of damages or claims." (Emphasis in original.)

Thereafter, Ohio filed this action to determine whether it continued to have either a duty to indemnify or to defend the claims for economic loss and punitive damages in the underlying action. ²

DISCUSSION

Ms. Hubbard contends that Ohio has a duty to defend the remaining claims for punitive damages.

An insurer's duty to defend is separate from its duty to indemnify. (Aetna Cas. & Surety Co. v. Certain Underwriters (1976) 56 Cal.App.3d 791, 804, 129 Cal.Rptr. 47.) The fact that an insurer may ultimately not be liable as the indemnifier of the insured does not establish that it has no duty to defend. The duty to defend is broader than the duty to indemnify and is measured by the reasonable expectations of the insured. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 272-275, 54 Cal.Rptr. 104, 419 P.2d 168; Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 753, 161 Cal.Rptr. 322; Val's Painting & Drywall, Inc. v. Allstate Ins. Co. (1975) 53 Cal.App.3d 576, 584, 126 Cal.Rptr. 267.) Accordingly, "[a]n insurer is not absolved from its duty to defend the lawsuit merely because it is forbidden by law or contract to indemnify the liability-causing action." (Previews, Inc. v. California Union Ins. Co. (9th Cir.1981) 640 F.2d 1026, 1028; emphasis in original.)

"An insurer, bound to defend an action against its insured, must defend against all of the claims involved in that action, even though some ... of them ultimately result in recovery for damages not covered by the policy." (California Union Ins. Co. v. Club Aquarius, Inc. (1980) 113 Cal.App.3d 243, 248, 169 Cal.Rptr. 685.) The only recognized exception to this rule is if the "insurer produces undeniable evidence of the allocability of specific expenses; ..." (Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 564, 91 Cal.Rptr. 153, 476 P.2d 825.)

Ms. Hubbard does not dispute that Ohio has no duty to indemnify against the recovery of punitive damages but urges that this absence does not negate Ohio's duty to continue to defend the underlying action. Ohio urges that "[s]ince there is no potential of coverage under the subject policy for the claims still asserted against [Ms. Hubbard], [it] has no duty to defend her."

The leading case in this state on an insurer's duty to defend is Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168. In that case, Gray bought from Zurich an insurance policy which provided that it was " '[T]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the company shall defend any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable under the terms of this endorsement, even if any of the allegations are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.' The policy contains a provision that '[T]his endorsement does not apply' to a series of specified exclusions set forth under separate headings, including a paragraph (c) which reads, 'under coverages L and M, to bodily injury or property damages caused intentionally by or at the direction of the insured.' " (Id., at p. 267, 54 Cal.Rptr. 104, 419 P.2d 168.)

One Jones filed a suit against Gray alleging that he "willfully, maliciously, brutally and intentionally assaulted him." Gray tendered the defense of that suit to Zurich, which defense Zurich declined because the suit alleged an intentional tort which fell outside of the coverage of the policy. Thereafter, Gray sued Zurich alleging that it had breached its duty to defend.

The Supreme Court initially examined the Zurich policy applying the principles that doubt as to the meaning of a policy must be resolved against the insurer and that any exception to a basic underlying obligation of the insurer must be clear and conspicuous. The court concluded that viewed in such a light the broadly stated promise to defend was not clearly conditioned on the underlying action involving a nonintentionally inflicted injury. Accordingly, in its primary holding, the court ruled that the injury involved was of such a nature and kind that the insured could reasonably expect to be covered by the policy. Therefore, the insurer bore an obligation to defend that suit regardless of the fact that it was premised upon an intentional tort for which the insurer could not indemnify. (See also Lowell v. Maryland Casualty Co. (1966) 65 Cal.2d 298, 300-301, 54 Cal.Rptr. 116, 419 P.2d 180.)

The court reasoned further that an insurer's defense of an action for an intentional tort was not violative of the proscription against the indemnification of a wilful act because the defense of the suit would not encourage willful tortious conduct. (Ins.Code, § 533; Civ.Code, § 1668.) ³

The Gray court concluded alternatively that the insurer had a duty to defend because the facts the insurer learned from the underlying complaint, as well as other sources, gave rise to a potential for coverage under the policy.

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