Standard CGL Policy "Personal Injury" Coverage Excludes Defense for Housing Discrimination, But Broader Umbrella Policy Provides Duty to Defend

by Hinshaw & Culbertson LLP
Contact

[authors: Samuel Sorich and Larry Golub]

In Federal Insurance Company v. Steadfast Insurance Company, issued September 24, the California Court of Appeal, Second Appellate District, held that two primary liability policies that provided “personal injury” coverage for wrongful eviction, wrongful entry and invasion of the right of private occupancy did not impose a duty to defend a complaint alleging discriminatory in housing. At the same time, an umbrella policy that specifically covered discrimination did obligate that insurer to defend the insured.

Sterling managed rental properties. The U.S. Department of Justice filed a complaint against Sterling alleging discrimination based on race, national origin and familial status in violation of the Fair Housing Act. The complaint alleged, among other things, that Sterling perpetuated an environment that was hostile to non-Korean tenants, provided inferior treatment to non-Korean tenants, and refused to rent and discriminated against African Americans. The Department of Justice asserted that Sterling’s discriminatory practices included entering a tenant’s apartment without notice or knocking.

Sterling had two primary liability policies, one for two years with Steadfast Insurance Company followed by three years of coverage with Liberty Surplus Insurance Corporation, and excess-umbrella policies for several years with Federal Insurance Company. The Steadfast and Liberty policies were standard primary policies and provided coverage for “personal injury” resulting from wrongful eviction, wrongful entry or invasion of the right of private occupancy. The umbrella portion of the Federal policies’ “personal injury” coverage not only defined such coverage to include wrongful eviction, wrongful entry and invasion of the right of private occupancy but also covered discrimination based on race or national origin.

Sterling tendered its defense of the Fair Housing Act complaint to the three insurers. When Steadfast and Liberty refused to defend the action, Federal defended under a reservation of rights and then brought a coverage action against the two primary insurers. Steadfast also brought a cross-action against Federal.  

Federal contended that Steadfast and Liberty, as primary insurers, had a duty to defend; and because the insurers had a duty to defend, Federal’s duty to defend under its umbrella coverage did not attach. Federal based its position on the argument that Sterling’s creation of a hostile environment for the tenants amounted to a claim of constructive eviction, thus falling under the personal injury coverage for wrongful eviction, wrongful entry, and the invasion of the right of private occupancy in the Steadfast and Liberty policies. 

The trial court, on cross-motions for summary judgment, found that only Federal’s umbrella policy provided coverage, and not the two primary policies. An appeal followed..

The Court of Appeal affirmed the trial court’s decision, holding that even though the complaint for discrimination alleged acts that might involve wrongful evictions, wrongful entries, or invasions of the right of private occupancy, the essential nature of the complaint was a Fair Housing Act enforcement action.

"The court concluded the complaint “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 ruled that neither Steadfast nor Liberty had a duty to defend the Fair Housing Act action, but Federal did have a duty to defend Sterling. The court’s opinion explained,

"Because the Sterling action was based on discrimination and only the Federal policies, and not the Steadfast or Liberty policies, provided coverage for discrimination claims, the umbrella coverage in the Federal policies ‘dropped down’ to fill the gap in the Steadfast and Liberty policies and provide primary coverage in the Sterling action."

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hinshaw & Culbertson LLP | Attorney Advertising

Written by:

Hinshaw & Culbertson LLP
Contact
more
less

Hinshaw & Culbertson LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.