Samson v. Allstate Ins. Co.

• Decision Date: 12 November 1996
• Docket Number: No. C-96-0414 MHP.,C-96-0414 MHP.
• Citation: Samson v. Allstate Ins. Co., 949 F.Supp. 748 (N.D. Cal. 1996)
• Court: U.S. District Court — Northern District of California
• Parties: Allan SAMSON, Plaintiff, v. ALLSTATE INSURANCE COMPANY, and Does 1 through 100, inclusive, Defendant.

949 F.Supp. 748

Allan SAMSON, Plaintiff, v. ALLSTATE INSURANCE COMPANY, and Does 1 through 100, inclusive, Defendant.

No. C-96-0414 MHP.

United States District Court, N.D. California.

November 12, 1996.

Randy M. Hess and Duane W. Shewaga, Adleson Hess Christensen & Kelly, Campbell, CA, for Plaintiff.

Michael A. Barnes and Anuja G. Purohit, Sonnenschein Nath & Rosenthal, San Francisco, CA, for Defendant.

MEMORANDUM AND ORDER

PATEL, District Judge.

Allan Samson brought this action against Allstate Insurance Company in state court alleging breach of contract, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation and breach of fiduciary duty. Samson seeks damages resulting from Allstate's alleged failure to defend and indemnify plaintiff in an underlying sexual harassment claim. Defendant removed the action to this court on January 31, 1996, pursuant to the court's diversity jurisdiction. 28 U.S.C. §§ 1332, 1441(b).

Now before this court are cross motions for partial summary judgment on the question of Allstate's duty to defend plaintiff in the underlying claim.

Having considered the parties' arguments and submissions, and for the reason set forth below, the court enters the following memorandum and order.

BACKGROUND¹

I. The Underlying Claim and Extrinsic Facts

Samson hired Joyce Chan to be his legal secretary in 1991. According to plaintiff, the two engaged in a consensual romantic relationship from 1991 until 1993, when Chan ended the relationship. Chan remained employed by Samson until 1995.

In a January 24, 1995 letter an attorney for Chan informed plaintiff's attorney that Chan would file formal charges of sexual harassment and retaliation with the Department of Fair Employment and Housing and bring suit in state court if Samson did not settle the claims for $75,000. Joint Statement of Undisputed Facts ("JSUF"), Exh. B. The letter asserts that Samson made advances to Chan within the first weeks of her employment, and that Chan ultimately acquiesced and continued in the relationship out of fear of losing her job. Id. at 2. According to Chan's attorney, Chan learned two years later that Samson's behavior constituted sexual harassment. Id. At that point, Chan ended the relationship and Samson allegedly retaliated against her by changing and threatening to change the terms of her employment. Id. at 2-3.

On February 16, 1995, after receiving the letter from Chan's attorney, Samson contacted Allstate asking them to confirm coverage and to tender the defense of the claim under his Homeowners and Personal Umbrella Policies with Allstate. JSUF, Exh. A. In that letter Samson alerted Allstate to a additional potential claim of bodily injury and property damage stemming from a fall by Chan in the stairs of Samson's office after work hours. Id. at 2-3. Allstate acknowledged receipt of the tender in a reservation of rights letter dated February 23, 1995. JSUF, Exh. E. Allstate would not confirm coverage at that time. Id. Samson settled with Chan for $50,000 and a favorable letter of recommendation. JSUF, Exhs. L & M.

II. The Insurance Policies

Samson was insured by Allstate under a Deluxe Plus Homeowners Policy and a Personal Umbrella Policy.² Both policies contain language relevant to Allstate's duty to defend.

The Umbrella Policy states, "Allstate will pay when an Insured becomes legally obligated to pay for personal injury or property damage caused by an occurrence."³ JSUF, Exh. F at 4. The policy further provides that "Allstate will defend an Insured sued as the result of an occurrence covered by this policy even if the suit is groundless, false or fraudulent." Id. at 5. An "occurrence" is defined by the policy as "an accident or a continuous exposure to conditions." Id. at 2.

The Homeowners Policy provides:

Subject to the terms, limitations and conditions of this policy, Allstate will pay damages which an Insured person becomes legally obligated to pay because of bodily injury or property damage arising from an accident and covered by this part of the policy.

We may investigate or settle any claim or suit for covered damages against an Insured person. If an Insured person is sued for these damages, we will provide a defense with counsel of our choice, even if the allegations are groundless, false or fraudulent.

JSUF, Exh. H at 23. Both policies contain exclusions for occurrences arising out of a business or business activity. JSUF, Exh. F at 6; Exh. H at 25.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial ... since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); see also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (the nonmoving party may not rely on the pleadings but must present significant probative evidence supporting the claim); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.").

The court's function, however, is not to make credibility determinations, Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11, and the inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631.

DISCUSSION

Both parties seek a declaratory judgment as to Allstate's duty to defend Samson with respect to the claims made by Chan. Allstate argues that it has no such duty and Samson urges that it does.

A threshold question to which both parties make only passing reference in their briefs is whether the letters from Chan's attorney, JSUF, Exhs. B & C, constitute a "suit" triggering a potential duty to defend under the coverage afforded by the insurance policies. At oral argument on the motion, the court requested that the parties submit further briefing on the issue and those submissions have been duly considered.

Both the Umbrella Policy and the Homeowners Policy provide for differing obligations on the part of the insurer depending on whether the insured faces a "suit" or a "claim or suit". Both policies state that Allstate "will" provide a defense when an insured is "sued." JSUF, Exh. F at 5; Exh. H at 23. Both policies also make the investigation and settlement of a "claim" discretionary. "We may investigate or settle any claim or suit for covered damages against an Insured person." JSUF, Exh. H at 23 (emphasis added); Exh. F at 6 ("We may settle any claim or suit as we consider appropriate."). When the broad phrase of "claim or suit" is used in either policy it is always in the context of discretionary language. The policy clearly juxtaposes the obligations Allstate assumes in the case of settlement of a claim and defense of a suit. "We may investigate or settle any claim or suit for covered damages against an Insured person. If an Insured person is sued for these damages, we will provide a defense...." JSUF, Exh. H at 23. Both policies also agree to pay when the insured becomes "legally obligated" to pay for injuries or damage covered by the policies. JSUF, Exh. F at 4; Exh. H at 23.

Both parties offer competing dictionary definitions of "suit" to support their positions. While both lay and legal definitions of the word support the conclusion that "suit" indicates a proceeding in a court of law, see also TNT Marketing, Inc. v. Agresti, 796 F.2d 276, 278 (9th Cir.1986), that is less relevant than the policy language itself, which clearly distinguishes between suits and claims. Based on the policy language, the court concludes that Allstate has only obligated itself to defend the insured in the context of suits and has left its investigation and settlement of claims discretionary. Whether the demand letters in this action are a suit is the question before the court.

Almost all cases to address the question of whether a demand letter or anything short of a formal complaint constitutes a "suit" for the purpose of triggering a duty to defend have done so in the context of agency action prompting environmental cleanup. In the leading case in the Ninth Circuit, Aetna Cas. & Sur. Co., Inc. v. Pintlar Corp., 948 F.2d 1507 (9th Cir.1991), the Environmental Protection Agency ("EPA") notified the insured that it was a "potentially responsible party" ("PRP") in connection with a contamination site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). The question before the court was whether the PRP notice issued by the EPA, under a policy providing a defense of "any suit" and in the absence of a formal lawsuit, triggered insurer's duty to defend. The Ninth Circuit held that EPA's PRP notice came within the meaning of "suit" and triggered a duty to defend. Id. at 1517.⁴

Particularly instructive is the court's reasoning in Pintlar:

Unlike the garden variety demand letter, which only exposes one to a potential threat of future litigation, a PRP notice carries with it immediate and severe implications. Generally, a party asserting a claim can do nothing between the occurrence of the tort and the filing of the complaint that can adversely affect the insureds' rights. However, in a CERCLA case, the PRP's substantive rights and ultimate liability are affected from the start of the administrative process.

Id. at 1516 (citing Avondale Indus., Inc. v. Travelers Indem. Co., 697 F.Supp. 1314, 1321 (S.D.N.Y.1988), aff'd, 887 F.2d 1200 (2d Cir. 1989), cert. denied, 496 U.S. 906, 110 S.Ct. 2588, 110 L.Ed.2d 269 (1990)).

While the...