Federal Insurance v. Steadfast Insurance
147 Cal. Rptr. 3d 363
Cal. Ct. App.2012Background
- The United States sued Sterling defendants under the Fair Housing Act for a pattern or practice of discrimination in housing.
- Steadfast and Liberty insured against wrongful eviction/entry and invasion of private occupancy; Federal insured discrimination claims under umbrella.
- Federal defended; Steadfast also defended at times; Liberty did not defend.
- Federal expended $316,907.02; Steadfast expended $5,285,699.54 and paid $1,000,000 settlement; Liberty spent nothing.
- Steadfast/Liberty policies did not expressly cover discrimination; Federal policies included discrimination coverage and umbrella/ excess structure.
- The trial court held Federal had a defense duty; Steadfast/Liberty had none; umbrella dropped down to provide primary coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who has a duty to defend in Sterling action? | Federal: only discrimination coverage; Steadfast/Liberty lacked potential coverage. | Steadfast/Liberty: potential coverage due to wrongful eviction/entry claims; Federal: umbrella fills gaps. | Federal had the duty to defend; Steadfast/Liberty did not. |
| Does umbrella/ excess coverage drop down to provide primary coverage? | Since only Federal covers discrimination, umbrella should drop down. | Umbrella only defends when underlying primary is exhausted or applicable; here underlying did not cover discrimination. | Umbrella coverage dropped down to provide primary coverage for discrimination claims in Sterling. |
| Do discrimination claims under the FHA fall within Steadfast/Liberty’s ‘personal injury’ coverage? | Claims may involve housing discrimination; could be framed as personal injury under underlying policies. | Steadfast/Liberty definitions exclude discrimination; US action seeks FHA remedies not common-law wrongs. | No; FHA discrimination claims were not potentially covered by Steadfast/Liberty. |
| Can the United States’ FHA action be construed as a common-law wrongful eviction/entry claim for insurance purposes? | Discrimination acts may include unlawful evictions; could be framed as wrongful eviction. | Sterling action is FHA enforcement, not a common-law eviction claim. | No; FHA action does not present potential common-law eviction/entry coverage for Steadfast/Liberty. |
Key Cases Cited
- Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643 (Cal. 2005) (duty to defend hinges on potential coverage from allegations and extrinsic facts)
- Legacy Vulcan Corp. v. Superior Court, 185 Cal.App.4th 677 (Cal. App. 2010) (umbrella may drop down and fill gaps after underlying exhaustion)
- Martin Marietta Corp. v. Insurance Co. of North America, 40 Cal.App.4th 1113 (Cal. App. 1995) (coverage depends on allegations, not plaintiff identity; distinguishes from pollution context)
- Boston Housing Authority v. Atlanta International Ins. Co., 781 F.Supp. 80 (D. Mass. 1992) (racial discrimination not constituting a trespass or eviction)
- U.S. v. Balistrieri, -- (--) (pattern or practice framework for FHA enforcement)