In Federal Insurance Company v. Steadfast Insurance Company (No. B227301, filed 9/24/12), the insureds were sued by the United States Department of Justice (DOJ) for discriminating in apartment rentals. Specifically, the insureds were accused of exhibiting discriminatory preferences in favor of Korean tenants and against African Americans and families with children. The DOJ contended that the discriminatory acts violated various provisions of the Fair Housing Act (42 U.S.C. § 3604(a)-(d)) (FHA), and sought an injunction against the alleged discriminatory conduct, as well as monetary damages for those who suffered discrimination and civil penalties.
Steadfast and another insurer, Liberty Insurance Company, had provided primary coverage under commercial general liability policies insuring for personal and advertising injury. The covered offenses in both policies included a variation of coverage for “wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies committed by or on behalf of its owner, landlord or lessor.”
By contrast, Federal had provided excess and umbrella insurance that followed form to the underlying primary coverage, but which also had a separate definition of personal and advertising injury that included “discrimination, harassment or segregation based on a person’s age, color, national origin, race, religion or sex.”
Liberty denied coverage entirely and Steadfast expended in excess of $5 million defending the action, ultimately paying settlements in excess of $1 million. At some point Federal was also involved and incurred more that $300,000 in defense costs. Federal then sued the other insurers for contribution and indemnity, arguing that the primaries had the duty to defend because the case had involved allegations of wrongful eviction. The other insurers cross-complained claiming noncoverage, and/or seeking a reallocation among all insurers.
On cross-motions for summary judgment, the court ruled that neither Steadfast nor Liberty had a duty to defend because all of the allegations concerned discrimination but none concerned wrongful eviction, wrongful entry, or invasion of the right to private occupancy. The court reasoned that the action by the United States was specifically framed under the statutory provisions of the FHA and Federal failed to show how claims for wrongful eviction or invasion of the right of private occupancy were potentially covered claims by the United States.
First, the court ruled out an intentional act defense, pointing out that the insureds could be held vicariously liable. The court then dismissed any potential for coverage under the wrongful eviction offense, stating that the DOJ’s jurisdiction is the enforcement of the anti-discrimination provisions of the FHA, but that jurisdiction does not extend to landlord-tenant disputes for wrongful eviction. According to the court, although the discrimination alleged may have been based on acts that might involve wrongful evictions, the gravamen of the action was for housing discrimination.
According to the court, “[o]nly the tenant can claim wrongful eviction, wrongful entry, or invasion of the right of private occupancy.” While acknowledging that a housing discrimination case brought by a tenant under the FHA could allege common law wrongful eviction, the court said the difference is that an individual plaintiff must show an injury in fact. By contrast, the United States could proceed by showing that a group of persons was denied rights and the denial raises an issue of general public importance. As a consequence, the DOJ’s action could not be construed as asserting common law theories of wrongful eviction covered under the primary insurers’ policies.
Because the only coverage was found in the discrimination offense of Federal’s umbrella policy, the entire loss was allocated to Federal, which was obligated to reimburse the defense and indemnity costs incurred by Steadfast.
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