A lawsuit by the federal government against an insured for violation of the Fair Housing Act was not potentially covered under commercial general liability policies insuring against “wrongful eviction, wrongful entry and invasion of right of private occupancy,” but was potentially covered under commercial umbrella policies insuring against “discrimination.” ( Federal Ins. Co. v. Steadfast Ins. Co. (2012) 209 Cal.App.4th 668)
Facts
In 2006, the United States government filed suit against Donald T. Sterling and related parties (collectively Sterling) for violation of the federal Fair Housing Act. The government alleged that Sterling 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,” including refusing to rent to non-Koreans and families with children; misrepresenting the availability of units to non-Koreans and families with children; and creating an environment that was hostile to non-Koreans and families with children. In discovery responses in the lawsuit, the government asserted that Sterling’s discriminatory practices included entering a tenant’s apartment without notice or knocking, and evicting tenants with children.
Sterling tendered the defense of the government’s lawsuit to Steadfast Insurance Company, which had issued commercial general liability policies covering the personal and advertising injury offenses of “wrongful eviction, wrongful entry and invasion of right of private occupancy.” Sterling also tendered the defense of the lawsuit to Federal Insurance Company, which had issued commercial umbrella policies covering the personal and advertising injury offense of “discrimination.” Federal, the umbrella insurer, initially undertook Sterling’s defense under a reservation of rights and paid approximately $317,000 in defense costs before withdrawing from the defense. Steadfast, the general liability insurer, then undertook Sterling’s defense under reservation of rights and ultimately paid approximately $6.3 million in defense and settlement costs on behalf of Sterling.
Federal later sued Steadfast, seeking a ruling that the government’s lawsuit against Sterling had triggered a defense obligation under the Steadfast general liability policies covering “wrongful eviction, wrongful entry and invasion of right of private occupancy,” and that Steadfast was thus obligated to pay the $317,000 in defense costs that Federal had paid on behalf of Sterling. Steadfast cross-complained against Federal, seeking a ruling that the government’s lawsuit against Sterling had triggered a defense obligation under the Federal umbrella policies covering “discrimination,” and that Federal was thus responsible for the $6.3 million in defense and settlement costs that Steadfast had paid on behalf of Sterling.
The trial court ruled in favor of Steadfast and against Federal. The trial court reasoned that in the underlying lawsuit, the government had not sought damages from Sterling for “wrongful eviction, wrongful entry, or invasion of the right to private occupancy” covered by the Steadfast general liability policies, but rather had only sought damages from Sterling for “discrimination” covered by the Federal umbrella policies. The trial court thus ruled that Federal owed Steadfast the $6.3 million that Steadfast had paid in defending and indemnifying Sterling in the underlying lawsuit. Federal appealed.
Holding
The California Court of Appeal affirmed, holding that the government’s lawsuit against Sterling for violation of the Fair Housing Act only triggered a defense obligation under the “discrimination” provisions of the Federal commercial umbrella policies.
The appellate court rejected Federal’s argument that the government’s claims against Sterling for housing discrimination constituted claims for “wrongful eviction, wrongful entry, and invasion of the right of private occupancy” and thus gave rise to a potential for coverage under the Steadfast general liability policies. The appellate court reasoned that while the Fair Housing Act gives the federal government the right to sue for enforcement of the anti-discrimination provisions of the statute, only a tenant can sue for wrongful eviction, wrongful entry, or invasion of the right of private occupancy. Further, while 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.” As such, Sterling was only entitled to a defense under the Federal umbrella policies, and was not entitled to a defense under the Steadfast general liability policies. Federal thus owed Steadfast the $6.3 million in defense and settlement costs that Steadfast had paid on behalf of Sterling in the underlying action.
Comment
Here, the government’s lawsuit against Sterling was based on discrimination. Since only the Federal policies, not the Steadfast policies, provided coverage for discrimination, the umbrella coverage in the Federal policies “dropped down” to fill the gap in the Steadfast policies and provide primary coverage to Sterling.