Ernest Hanes v. Armed Forces Ins. Exchange

MEMORANDUM ** Ernest and Okhoo Hanes appeal the district court’s orders granting partial summary judgment to Armed Forces Insurance Exchange (AFI), which had issued the Haneses a homeowners’ insurance policy. The district court held that AFI was not liable for a judgment against the Haneses in a third-party lawsuit filed by the Haneses’ neighbors, the Bishops. The district court also held that AFI was entitled to reimbursement of some costs it incurred while defending the Haneses under a reservation of rights. We affirm in part and reverse in part. 1; The Duty to Indemnify AFI is entitled to summary judgment on the Haneses’ claim for indemnification of the state-court judgment that required the Haneses to pay the Bishops’ attorneys’ fees and other litigation expenses. The state trial court found that the Haneses were motivated by personal animus and had attempted to frustrate all efforts to resolve the dispute with the Bishops. Under both California statutory law and the insurance policy’s exclusions, AFI has no liability for the consequences of such willful conduct. See Cal. Ins. Code § 533; see also Combs v. State Farm Fire & Cas. Co., 143 Cal.App.4th 1338, 49 Cal.Rptr.3d 917, 922-23 (2006) (applying California Insurance Code section 533 to a supplemental coverages provision and an attorneys’ fee award). Nor can AFI be liable for the Haneses’ costs in complying with the state court’s injunction. See Cutler-Orosi Unified Sch. Dist. v. Tulare Cty. Sch. etc. Auth., 31 Cal.App.4th 617, 37 Cal.Rptr.2d 106, 111-14 (1994). AFI is also entitled to summary judgment to the extent the Haneses argue that it must indemnify them for the results of the mediation with the Bishops before the trial in state court. The Haneses have not identified a claim they were made to pay as a result of that mediation. *919 The district court’s orders are affirmed in these respects. See Curley v. City of N. Las Vegas, 772 F.3d 629, 631 (9th Cir. 2014) (“We may affirm a grant of summary judgment on any ground supported by the record, even one not relied upon by the district court.”). 2. The Duty to Defend Although AFI has no duty to indemnify the Haneses, it had a duty to defend them throughout the trial in state court and until the deadline for their opponents’ appeal had passed. See Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 44 Cal.Rptr.2d 370, 900 P.2d 619, 627 (1995) (“[A]n insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement.”). The Haneses’ willfulness cannot have absolved AFI of its duty to defend them because their intent was disputed throughout the litigation. See, e.g., State Farm Gen. Ins. Co. v. Mintarsih, 175 Cal.App.4th 274, 95 Cal.Rptr.3d 845, 854 n.6 (2009) (noting that factual disputes material to coverage do not relieve an insurer of its duty to defend). Nor did the Bishops’ interrogatory responses demonstrate that their lawsuit raised no potentially covered claims. Under California law, interrogatory responses are not judicial admissions, but evidentiary admissions, and may be contradicted. See, e.g. Phillips v. Cooper Labs., 215 Cal.App.3d 1648, 264 Cal.Rptr. 311, 318-19 (1989). Moreover, the state court understood the Bishops to assert claims for damages throughout the case, including at trial; only after the trial were these claims dismissed. Thus AFI could not have known whether the Bishops advanced a potentially covered claim until the appeal deadline had passed without the Bishops appealing the dismissal of their claims for damages. The district court’s order is reversed in this respect. The district court’s order is affirmed, however, inasmuch as it held that AFI had no duty to defend the Haneses in the pre-suit mediation. The Bishops’ mediation demand raised no potentially covered claims. They demanded action, not damages. Likewise AFI had no duty to fund the Haneses’ state-court appeal. Before that appeal was litigated, the state trial court had dismissed the Bishops’ potentially covered claims, and the Bishops did not challenge that decision. [[Image here]] The district court’s orders are AFFIRMED to the extent AFI was granted summary judgment on the Haneses’ claims for indemnification. The district court’s orders are REVERSED IN PART to the extent AFI was awarded a reimbursement of defense costs. The matter is accordingly REMANDED for the entry of judgment consistent with the discussion above. The parties shall bear their own costs on appeal. Footnotes [**] This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.