U.S. Fid. & Guar. Co. v. American Employerps Ins. Co.

• Decision Date: 17 August 1984
• Citation: 205 Cal.Rptr. 460,159 Cal.App.3d 277
• Court: California Court of Appeals Court of Appeals
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff and Respondent, v. AMERICAN EMPLOYERS' INSURANCE COMPANY, and First State Insurance Company, Defendants and Appellants, Michael Smith, Defendant. 3 Civ. 22696.

Page 460

205 Cal.Rptr. 460

159 Cal.App.3d 277

UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff and Respondent, v. AMERICAN EMPLOYERS' INSURANCE COMPANY, and First State Insurance Company, Defendants and Appellants Michael Smith, Defendant.

3 Civ. 22696.

Court of Appeal, Third District, California.

Aug. 17, 1984.

Hearing Denied Oct. 25, 1984.

Cole, Cross, Turner & Culbreth and Stephen N. Cole, Sacramento, for defendants and appellants.

Bolling, Walter & Gawthrop, Charlotte E. Hemker-Smith and George E. Murphy, Sacramento, for plaintiff and respondent.

CARR, Associate Justice.

We are here presented with a familiar script. In American Employer's Insurance Co. v. Smith (1980) 105 Cal.App.3d 94, 163 Cal.Rptr. 649, we determined the trial court prejudicially erred in granting a nonsuit on a negligence cause of action on the basis the evidence showed the tortious conduct of Michael Smith, the only defendant not dismissed from that action, in setting a certain fire which caused damage was intentional. Upon reversal and remand, the trial court entered judgment against Michael Smith in the sum of $233,620.73 which represented the sums paid for fire damage to buildings and contents insured by appellants herein, American Employer's Insurance Company (American) and First State Insurance Company (First State).

Respondent herein, United States Fidelity & Guaranty Company (USF & G), the insurer of a homeowner's policy under which Michael Smith was an admitted insured, then filed the present action seeking a declaration it was not obligated to indemnify Michael Smith for the fire damages or to defend him in the prior suit. This case was submitted to the trial court on the reporter's transcript and exhibits of the former action. On the basis of this evidence, the trial court found Smith's conduct was not negligent, "but was a malicious, intentional act done with a conscious disregard of the rights and safety of others and with a preconceived design to inflict injury," and "as a proximate result of willfully, wrongfully, and maliciously igniting said fire, Smith caused the ... property insured by defendants ... to be burned and damaged." The court declared that pursuant to the provisions of Insurance Code section 533 and Civil Code section 1668, USF & G had no obligation to afford coverage to, or defend Smith.

On appeal American and First State pursue a number of contentions concerning the sufficiency of the evidence and the one "Intentional Tort" exclusion. On the latter issue, the exclusionary provisions of Insurance Code section 533, of Civil Code section 1668, an express exclusion clause of USF & G's policy and the public policy which negates indemnification to an insured who intentionally causes damage are equated as being indistinguishable. This sweeping assertion, like most generalizations, is faulty, and we perceive that even facially there are distinctions between the provisions of Insurance Code section 533 and the express exclusion of the insurance policy of USF & G. ¹

Moreover, USF & G did not urge in the trial court that noncoverage under its policy was predicated on the express exclusion in the policy. It urged and the trial court so found that Michael Smith's arsonous conduct was willful within the meaning of Insurance Code section 533 and his insurer, USF & G, was not liable. We address this as the essential issue on this appeal.

I

There is no purpose in serving up a new set of facts, as they have remained constant. Accordingly, we adopt the statement of facts from our opinion in American Employers Insurance Co. v. Smith, supra, at pages 96 through 98, 163 Cal.Rptr. 649, with appropriate changes in references to the parties to reflect their status in the present appeal.

"[Michael Smith] set a series of fires in the City of Woodland during the evening hours of October 7, 1974. First, at 7:45 p.m. he ignited a fire in the trash bin at a Value Giant, then 25 minutes later he set fire to the papers on a bulletin board at the post office. A few minutes thereafter papers and wood behind a shed near the Four Seasons were set aflame by [Smith]. Finally, at 9:17, [Smith] set his last fire for the evening, the burning of a storage shed at Aunt Lila's Antique Shop.

"This litigation arises from the fire at the Four Seasons. [Smith] was 16 years, 10 months of age at that time. He testified that he took some boards and leaned them over trash near a shed and then set fire to the trash. He got into a car and went around the block to a vantage point and observed that the roof of the shed was on fire. [Smith] was surprised and scared when he saw that the roof of the shed was on fire, and he called the fire department so that the building would not burn down. ² [Smith] proceeded to Aunt Lila's and set a storage shed on fire. [Smith] subsequently pleaded guilty to arson. The corrugated steel material of which the shed at the Four Seasons was composed heated. The fire spread from the shed to the adjacent buildings. As the result of the spreading of the fire Emil and Edward Schmauderer (doing business as Emil's Quality Shoes) were damaged in the amount of $10,110. Theodore C. Muegge was damaged in the amount of $31,423.59. Jack Carter, Harold Sedgwick and Mary Burton (doing business as Burton's Shoes) were damaged in the amount of $131,036.

"At the time of the fire ... American Employers Insurance Company [American] was the insurer of Emil's Quality Shoes and Theodore C. Muegge.... First State Insurance Company [First State] was the insurer of Burton's Shoes. Pursuant to the contracts of insurance [they] paid to their respective insureds the total sums by which they were damaged due to the fire.

"At the time of the fire, [Smith's] parents, Clyde R. and Margaret Smith, maintained a policy of homeowner's insurance with the [plaintiff] United States Fidelity & Guaranty Company [USF & G]. [Smith], as a resident relative of the named insureds, was also insured by the policy. Under the policy [USF & G] is obligated to pay to the insureds all sums they are required to pay to others by reason of liability imposed upon them as the result of damage to property, up to the policy limit of $25,000.

"[USF & G] believed that it was not obligated to indemnify or defend [Smith] since his acts were intentional. Accordingly, it filed a complaint for declaratory relief. The action for declaratory relief and the action by [defendants] against Michael Smith were subsequently consolidated for trial.

"All defendants who had been sued initially, other than Michael Smith, were dismissed from the action during pretrial proceeding. When the matter was set for trial [defendants] dismissed all causes of action against Michael Smith except the negligence cause of action. The matter then proceeded to trial.

"After plaintiffs [American and First State] rested [Smith] moved for a nonsuit on the ground that the evidence clearly showed that his tort was intentional and that evidence showing an intentional tort cannot support a verdict on a negligence cause of action. The trial court agreed and granted the motion. [USF & G] then moved for dismissal of the declaratory relief action without prejudice, stating that in view of the nonsuit the declaratory relief action became moot. The dismissal was granted.

"[American and First State] filed a notice of appeal ... from both the judgment of nonsuit and the dismissal of the declaratory relief action. [USF & G] moved for an order dismissing the appeal as to it.... [T]his court granted the motion and dismissed the appeal as moot, with the provision that the dismissal as to [USF & G] would not affect the appeal as to Michael Smith."

We concluded that under the circumstances of that case it is not a defense to a negligence cause of action that the evidence showed the tortious conduct of Smith was intentional or willful. (At p. 102, 163 Cal.Rptr. 649.) We stated that the only issue then before us was Smith's liability for the damages caused by the fire; we expressly refrained from considering the issue of whether or not the occurrence was covered by the insurance policy issued by plaintiff. (At pp. 101-102, 163 Cal.Rptr. 649.) That issue is now before us. ³

II

Insurance Code section 533 provides: "An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured's agents or others."

As this court held in Evans v. Pacific Indemnity Co. (1975) 49 Cal.App.3d 537, 540, 122 Cal.Rptr. 680, "[t]he rule relating to statutory exclusions from insurance policies, and in particular with respect to section 533 of the Insurance Code, is well settled. Section 533 of the Insurance Code, is a part of every insurance contract and is equivalent to an exclusionary clause in the contract itself." (Nuffer v. Insurance Co. of North America (1965) 236 Cal.App.2d 349, 356, 45 Cal.Rptr. 918; Maxon v. Security Ins. Co. (1963) 214 Cal.App.2d 603, 615, 29 Cal.Rptr. 586.)

"Section 533 ... reflects the very sound and long standing public policy (also contained in Civ.Code, § 1668) which disapproves of contracts which directly or indirectly exempt anyone from personal responsibility for his own wilful injury to another. The essence of this policy, ... is found in the following statement of our Supreme Court: 'Section 1668 of the Civil Code ⁴ and section 533 of the Insurance Code establish a public policy to prevent insurance coverage from encouragement of wilful tort.' (Tomerlin v. Canadian Indemnity Co. [1964], supra, 61 Cal.2d at p. 648 [39 Cal.Rptr. 731, 394 P.2d 571].)" (Evans v. Pacific Indemnity Co., supra, 49 Cal.App.3d at pp. 541-542, 122 Cal.Rptr. 680.)

The basic premise of American and First State that section 533 and the express exclusion in USF & G's policy are identical appears to be based on a misperception of the holding of Evans, supra, that section 533 is equivalent to an exclusionary clause in the policy itself. This...