Unpublished Disposition, 917 F.2d 566 (9th Cir. 1990)

MEMORANDUM^* 

Appellee State Farm filed this diversity suit for declaratory relief, alleging it had no duty to defend appellants Eva and Brainard Harper under either of the two insurance policies issued to them. The district court granted summary judgment in favor of State Farm. In a separate ruling, the district court also granted summary judgment in favor of State Farm on the Harpers' counterclaim. The Harpers appeal both rulings. We affirm.

The Main Action

Under California law, " [a]n insurer's duty to defend ... its insured is broader than its duty to indemnify." Giddings v. Industrial Indem. Co., 112 Cal. App. 3d 213, 217 (1980). See generally, Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 54 Cal. Rptr. 104 (1966) (establishing a very broad duty to indemnify). The insurer must provide a defense whenever there is a "potential of liability under the policy." Giddings, 112 Cal. App. 3d at 217; Gray, 54 Cal. Rptr. at 112.

However, while the duty to defend is broad, it is not without limits. " [T]he nature and kind of risk covered by the policy [i]s a limitation on the duty to defend." Gray, 54 Cal. Rptr. at 111. Where there is no possible liability under the policy because the claim is not of the "nature and kind" covered by the policy, there is no duty to defend. See, e.g., Jaffe v. Cranford Ins. Co., 168 Cal. App. 3d 930, 934 (1985); Dillon v. Hartford Acc. & Indem. Co., 38 Cal. App. 3d 335, 339-340 (1974); Hartford Fire Ins. Co. v. Karavan Enter., Inc., 659 F. Supp. 1075, 1076 (N.D. Cal. 1986). The burden is on the insured to establish his or her claim meets this threshold requirement. Royal Globe Ins. Co. v. Whitaker, 181 Cal. App. 3d 532, 537 (1986).

A review of the complaint and other materials in the record reveals no possibility of coverage under either of the Harpers' two policies. The Harpers' Homeowners' Insurance Policy is precisely what its name indicates: insurance designed to protect the Harpers' home. The policy also provides coverage for loss of personal property. The claims brought by the Harmans, in contrast, alleged securities fraud and breach of fiduciary duty. These claims were so far removed from the coverage of the Homeowners' Policy that State Farm could fairly conclude there was no potential liability under the policy. It is as if the Harpers filed a claim arising out of a defective stairway with their auto insurer. Such a claim does not give rise to a duty to defend. Gray, 54 Cal. Rptr. at 111. See also Jaffe, 168 Cal. App. 3d 930 (medical malpractice insurer had no duty to defend psychiatrist in criminal case); Giddings, 112 Cal. App. 3d 213 (policy providing coverage for property damage does not give rise to a duty to defend the insured against allegations of securities fraud). Moreover, the Harmans' claims against the Harpers clearly fall within the following express exclusions in the Homeowners' Policy:

We do not cover loss arising out of business disputes or dishonesty of any insured.

[Coverage does not apply to] bodily injury or property damage arising out of business pursuits of any insured.

(Emphasis added).

The Harmans' claims were also clearly outside the coverage of the Personal Liability Success Protector Policy. That policy excludes coverage for "personal injury or property damage arising out of business pursuits of the Insured or business property (other than farms) of the Insured." (Emphasis added).

In short, the Harpers' claims fall within that narrow class of cases discussed in Gray, Giddings, and Jaffe, where the assertion of coverage is so facially invalid that the insurer is under no obligation to do anything for the insured.

The Harpers also allege that because State Farm breached its duty to defend them, State Farm is estopped from denying coverage. Because we hold State Farm had no duty to defend the Harpers, this claim is necessarily without merit.

The Harpers' Counterclaim

The Harpers' counterclaim was properly dismissed.

The Harpers alleged breach of the duty of good faith and fair dealing, but this duty can be breached only if the insurer "injure [s] the right of the [insured] to receive the benefits of the agreement." Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 818 (1979). Since the Harpers were entitled to no benefits under either policy, State Farm could not have breached this duty.

The Harpers alleged a breach of fiduciary duty, but State Farm owed no duty at all to the Harpers under the policies.

The Harpers alleged violations of California Insurance Code Sec. 790.03(h). All but one of the duties imposed upon insurers by this subsection presume the filing of a claim which arguably falls within the coverage of a policy; none of the Harpers' claims did so. The one remaining duty, imposed by Sec. 790.03(h) (4), requires the insurer to "affirm or deny" coverage promptly. Id. We agree with the Harpers that State Farm did not act promptly in this case. However, the duty imposed by Sec. 790.03(h) is actionable only if the violation occurs "with such frequency as to indicate a general business practice," id., and there is neither allegation nor proof of such a practice in this case.

The Harpers' allegation of negligent misrepresentation is also without merit. In the district court, the Harpers alleged that in March of 1985 a representative of State Farm (Mr. Latimer) informed them State Farm would provide them with a defense. Harpers' Counterclaim, Excerpts of Record, Exh. 21, p. 12. The only reference in the Harpers' appellate brief to Mr. Latimer's alleged representation is the statement that Mr. Latimer "recommended [to his superiors] that coverage be extended for the Harpers." Appellants' Brief, p. 6. This is a far cry from assuring the Harpers that coverage would be extended. On the basis of this admission, we affirm the grant of summary judgment to State Farm on the Harpers' claim for negligent misrepresentation.

Finally, in a claim "for injunctive relief" only, the Harpers alleged State Farm's delay in deciding the issue of coverage was causing them irreparable harm. Whatever harm State Farm's failure to resolve the issue of coverage promptly may have caused the Harpers has already occurred. No form of equitable relief can prevent it from occurring. Issuing an injunction at this stage would be meaningless.

Affirmed.