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San Diego Housing Commission v. Industrial Indemnity Company12/10/1998
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In light of all this authority, although the issues presented here are not clearly defined by the parties, we may restate them as follows. First, we are not dealing directly with a duty to defend issue, such as was presented in Foster-Gardner, since Housing is not claiming a defense from IIC. Rather, Housing is seeking to defend on appeal the verdict for breach of contract damages for IIC's failure to indemnify it for the JBR default judgment, on the theory that the tenants' complaints to Housing constituted either claims against the policy, or led to damages that Housing incurred, because Housing had a statutory and contractual duty to repair the property. (See fn. 3, ante.) Housing claims its duties to repair the property were owed not only to the tenants, but also to HUD, and by the Commission to the Authority, so that if these duties were breached, it would be liable, and hence it had to proceed against the IIC policy to protect itself. This, it argues, constitutes a sufficient "claim" against it, producing "damages," such that liability coverage was proper, under the test stated in AIU, supra, 51 Cal.3d 807: Housing, as the insured, (1) became legally obligated to pay such repair costs, due to potential adverse orders which could have been issued in any suits filed by the tenants, HUD, or the Authority against the Commission, (2) the repair costs would constitute "damages," and (3) such costs would be incurred because of "property damage" within the policy definitions. (Id. at p. 814.)
Further, Housing sought and obtained damages for bad faith conduct by IIC in the investigation and processing of claims against the policy: Housing's claim for indemnification for the property damage at the site or the JBR default judgment amount. According to Housing, this is only a simple question on appeal of whether there is substantial evidence to support the judgment. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874.) We disagree. "When the interpretation of an insurance policy does not involve the credibility of extrinsic evidence--and that is the case here--an appellate court can independently determine the policy's meaning. [Citation.]" (National Union Fire Ins. Co. v. Lynette C. (1994) 27 Cal.App.4th 1434, 1457.) Our task is to analyze the standard coverage provision at issue here to determine if there is a sound basis for the damages awards made on these theories.
C.
Breach of Contract Damages
To determine if Housing, as the insured, can claim liability coverage under the IIC policy for repair costs for problems at the site, we must apply the three-part test stated in AIU, supra, 51 Cal.3d 807. Since Housing sought coverage in 1992 based on the tenant complaints of alleged property damage at the site, and again in 1994 based on the default judgment obtained against JBR, we should consider both possibilities of coverage.
First, did Housing become legally obligated to pay these repair costs, due to potential adverse orders which could have been issued in any suits filed by the tenants, HUD, or the Authority against the Commission? (AIU, supra, 51 Cal.3d at p. 814.) The answer is clearly no, because neither the tenants nor HUD sued Housing, nor did the Authority sue its sister agency the Commission for failure to make needed repairs. The Supreme Court in AIU and Foster-Gardner has interpreted the phrase "legally obligated" to refer to "relief ordered by a court of law." (Foster-Gardner, supra, 18 Cal.4th at p. 886, italics omitted.) If the insured is not "legally obligated" to pay the relevant costs, the insurer has no duty to provide coverage under the policies. (Ibid.)
Here, while Housing incurred expenses to repair the property, the
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