Unpublished Disposition, 884 F.2d 582 (9th Cir. 1989)

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U.S. Court of Appeals for the Ninth Circuit - 884 F.2d 582 (9th Cir. 1989)

STATE FARM FIRE & CASUALTY INS. COMPANY, an Illinoiscorporation, Plaintiff-Appellee,v.DICKINSON-WARREN BUSINESS COLLEGE, INC., a Californiacorporation; Ramon Flores; Nellie Flores;Aunita J. Hollis; Karen Gory; KhayyanaE. Suggs; Claudia Phenix,Defendants-Appellants.

No. 88-2700.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 12, 1989.Aug. 25, 1989.Rehearing Denied Aug. 25, 1989.

Before NORRIS, BEEZER and BRUNETTI, Circuit Judges.


State Farm Fire & Casualty Company brought an action in the district court seeking declaratory relief. Specifically, State Farm sought a declaration that conduct alleged in a separate state court proceeding against its insured, Dickinson-Warren Business College, was not covered by its insurance policy. The district court granted State Farm's motion for summary judgment. We review the grant of summary judgment de novo. Manzanita Park, Inc. v. Insurance Co. of North America, 857 F.2d 549, 552 (9th Cir. 1988). We affirm.


Warren-Dickinson Business College is a small vocational school in California. It had a general liability insurance contract with State Farm. The policy contained the following provisions:

General Insuring Provision

The company shall pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A) bodily injury or B) property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage.

Definition of "occurrence"

"Occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

In July 1986, a group of former Dickinson-Warren students complained to the school about misrepresentations in the school catalog, inadequate instruction, and inadequate physical services. The students indicated that they would pursue legal remedies if an agreement could not be reached. Dickinson-Warren and the students could not reach an agreement, and the students took their complaint to the Association of Independent Colleges and Schools.1  While the complaint was before the Association, Dickinson-Warren notified State Farm of the possible lawsuit and tendered defense to them. State Farm replied that the students' complaints were not covered.

In February of 1987 the students filed suit against Dickinson-Warren in California state court. Dickinson-Warren again tendered the defense to State Farm. State Farm's attorney responded that certain aspects of the students' complaint--emotional distress and bodily injury--might trigger potential liability, and asked that State Farm be allowed to file a demurrer to those portions of the complaint. Lengthy discussions between counsel ensued. Dickinson-Warren filed a demurrer and those portions of the complaint were struck.

Dickinson-Warren again tendered the defense; State Farm accepted but reserved its right to deny coverage and seek declaratory relief. Thereafter, the students amended their complaint, adding negligence as a cause of action. Dickinson-Warren informed State Farm of the amended complaint, but did not yield to State Farm's request to demur to the negligence count.

At that point, State Farm filed the action for declaratory relief that is now being appealed.2  Dickinson-Warren filed a counterclaim for bad faith and breach of the California Insurance Code. Both parties moved for summary judgment; the district court granted State Farm's motion.3 


* Dickinson-Warren argues that the insurance policy, on its face, covers some of the allegations made by the aggrieved students. They also point out that the duty to defend is broader than the duty to indemnify; if, in fact, there were potential coverage of any of these areas then State Farm would have a duty to defend. CNA Casualty v. Seaboard Surety Co., 176 Cal. App. 3d 598, 605-06, 222 Cal. Rptr. 276, 278-79 (1986).

California courts4  have analyzed language identical to that in State Farm's policy. In Morris v. Atlas Assurance Co. the California Court of Appeal noted that such language should be construed to provide the broadest possible coverage. 158 Cal. App. 3d 8, 13, 204 Cal. Rptr. 95, 97-98 (1984). Nonetheless, there must be an occurrence.

We have considered Dickinson-Warren's arguments concerning coverage, and agree with the district court that those incidents did not constitute occurrences. International Insurance Co. v. West American Insurance Co., 208 Cal. App. 3d 117, 225 Cal. Rptr. 912 (1989), relied on by Dickinson-Warren, has been withdrawn by the Supreme Court of California. We affirm the district court.


Dickinson-Warren also argues that State Farm is precluded from denying its duty to defend because the insurance company breached its duty of good faith and fair dealing. This argument is based on a letter from State Farm's attorney to Dickinson-Warren's stating his belief that the "emotional distress allegation triggers coverage, including the duty of the insurer to finance the defense."

The essence of the duty of good faith and fair dealing is that no party to a contract will "do anything which will deprive the other parties thereto of the benefits of the contract," that each party will "refrain from doing anything which would render performance of the contract impossible," and that each party will "do everything that the contract presupposes that he will do to accomplish its purpose." Harm v. Frasher, 181 Cal. App. 2d 405, 417, 5 Cal. Rptr. 367, 374 (1960); see 1 B. Watkin, Summary of California Law Sec. 743 (9th ed. 1987). Violation of the duty of good faith creates liability in both tort and contract. Frazier v. Metropolitan Life Ins. Co., 169 Cal. App. 3d 90, 101, 214 Cal. Rptr. 883, 889 (1985).

There is no question, however, that the duty is "a two way street"; Dickinson-Warren is also under a duty of good faith to State Farm. California Casualty General Ins. Co. v. Superior Court, 173 Cal. App. 3d 274, 283, 218 Cal. Rptr. 817, 822 (1985).

The evidence in this case shows that Dickinson-Warren has been, at a minimum, at least as recalcitrant as State Farm. Dickinson-Warren's failure to cooperate with State Farm in dealing with the students' negligence complaints precludes the school from now arguing that the insurance company dealt in bad faith. See id. The district court was correct in granting State Farm's motion for summary judgment.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Cir.R. 36-3


The Association is an independent accrediting agency. Although State Farm refers to the students' complaint to the Association as an "administrative" remedy, it is not required by law


State Farm sought relief from Dickinson-Warren, the owners of Dickinson-Warren, and the complaining students


The underlying state court action between the students and Dickinson-Warren has been settled


The district court assumed diversity jurisdiction over State Farm's complaint. California law applies. See Strassberg v. New England Mutual Life Ins. Co., 575 F.2d 1262, 1263 (9th Cir. 1978)