Key Decisions

October 2012 – Housing Discrimination Claim Initiated Against A Landlord

(filed under: Key Decisions Archive | October 24, 2012)

A Housing Discrimination Claim The United States Initiated Against A Landlord Was Not A Suit For “Wrongful Eviction”

Federal Insurance Company v. Steadfast Insurance Company
(Cal. Ct. of App., 2d Dist.), filed September 24, 2012

KEY FACTS

The United States brought an action against property owners for discrimination under the Fair Housing Act. The United States alleged the owners and “their agents and/or employees [had] engaged in a pattern or practice of discrimination on the basis of race, national origin, and familial status in connection with the rental of dwellings owned by [some of the defendants] in violation of the Fair Housing Act.” It sought to enjoin the alleged discriminatory conduct and other interference with the exercise of rights under the Fair Housing Act, monetary damages for those who suffered discrimination, and civil penalties.

The property owners tendered the action to their primary insurance carriers, Steadfast Insurance Company and Liberty Surplus Insurance Corporation, and to their excess and umbrella insurance carrier, Federal Insurance Company.

Steadfast and Liberty insured against claims for “wrongful eviction,” “wrongful entry,” and “invasion of the right of private occupancy.” Federal insured against those claims and it specifically covered discrimination.

At times, Steadfast and Federal provided a defense for the property owners.

Federal sought a determination that it had no duty to defend and sought reimbursement from Steadfast and Liberty for defense fees and costs it had paid. Steadfast sought reimbursement from Federal and Liberty for the defense fees and costs it paid.

Federal filed a summary judgment motion. It asserted that the United States’ contentions, that the owners created a hostile environment for some of their tenants, amounted to a claim of constructive eviction, falling under the coverages for wrongful eviction, wrongful entry, and invasion of the right of private occupancy in the Steadfast and Liberty policies. Federal argued that as an excess insurer, it had no duty to defend.

The trial court granted summary judgment and summary adjudication against Federal.

HOLDING & REASONING

The Court of Appeal affirmed. It held that only Federal had a duty to defend because it issued the only insurance policy that covered discrimination claims. Neither Steadfast nor Liberty had a duty to defend because their policies did not cover the claims in the underlying action.

In determining whether an insurer has a duty to defend under the terms of its policy, courts look both to the allegations in the complaint and to the extrinsic facts known to the insurer that suggest that a claim might be covered. The duty to defend exists when a third-party complaint can fairly be amended to state a covered liability based on the facts alleged, reasonably inferable, or otherwise known. If, as a matter of law, however, there is no potential for coverage based on the allegations in the complaint or the extrinsic facts known to the insurer, then there is no duty to defend.

The court rejected Liberty’s argument that its policy did not apply because the owners’ liability was based on intentional acts of discrimination. It reasoned that the owners could have been vicariously liable for acts of their agents and employees and that such liability might not have been the result of intentional acts by the owners themselves.

The court rejected Federal’s argument that the complaint and discovery in the underlying action implicate personal injury coverage for wrongful eviction, wrongful entry, and invasion of the right of private occupancy under the Steadfast and Liberty policies. That argument was based on two premises. The first was that the claims in the underlying action arose in the context of a landlord-tenant relationship and that the gist of the alleged misconduct was that the defendants interfered with the tenants’ use and enjoyment of their property interests through the defendants’ discrimination. The second was that discovery showed that the vast majority of aggrieved persons in the underlying action moved out of the defendants’ properties.

The court rejected this reasoning:

The United States’ jurisdiction under 42 U.S.C. section 3614(a) is the enforcement of the anti-discrimination provisions of the Fair Housing Act. That jurisdiction does not extend to landlord-tenant disputes in the form of wrongful eviction, wrongful entry, or invasion of the right of private occupancy that are not based on housing discrimination under the Fair Housing Act. Although the discrimination alleged in the [underlying] action may have been based in part on acts that might involve wrongful evictions, wrongful entries, or invasions of the right of private occupancy, the gravamen of the action itself solely was for housing discrimination under the Fair Housing Act. The [underlying] action cannot be construed as asserting common law theories of wrongful eviction, wrongful entry, or invasion of the right of private occupancy. Only the tenant can claim wrongful eviction, wrongful entry, or invasion of the right of private occupancy.

The court noted that even if a claim by a tenant or potential tenant might potentially be covered under the Steadfast and Liberty policies, the United States had no right of occupancy and was not a victim of any violation of property rights. It stated:

That a nonparty alleged victim of housing discrimination could have brought a separate common law action against the [underlying] defendants based on the factual allegations in the [underlying] complaint that might have been covered under the Steadfast and Liberty policies does not establish potential coverage under those policies for the Fair Housing Act discrimination allegations in the [underlying] action brought by the United States to enforce a federal statute concerning “a pattern or practice” of housing discrimination.

ANALYSIS

This decision offers a careful analysis of duty to defend principles as related to “personal injury.”