Allstate Insurance v. Salahutdin

Citations: 815 F. Supp. 1309; 1992 U.S. Dist. LEXIS 8571Docket: No. C-91 4492 EFL

Court: District Court, N.D. California; May 15, 1992; Federal District Court

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The court grants summary judgment for Alstate Insurance Company in a declaratory relief action against defendants Shaucat Salahutdin and Jennie S. Salahutdin, who had filed a cross-complaint alleging bad faith. The dispute involves ownership of a strip of land between the Salahutdins and their neighbors, the Acantaras. In December 1989, the Acantaras began constructing a fence on the disputed land, prompting Mrs. Salahutdin to remove a string used for alignment, leading to the Salahutdins suing for a prescriptive easement. The Acantaras countered with claims of intentional infliction of emotional distress and trespass, based on Mrs. Salahutdin’s actions.

The Salahutdins held an Alstate Deluxe Plus Homeowners Policy, which provided coverage for damages arising from accidents and included a duty to defend. They tendered the defense of the Acantaras' cross-complaint to Alstate, which later determined that the policy did not cover the claims, arguing Mrs. Salahutdin’s actions were intentional and thus not accidents. The Salahutdins contended that the term "accident" should refer to the consequences of the act rather than the act itself, claiming that there was no intent to harm.

The court discusses the duty to defend, noting that the insured must initially show that the claim falls within policy coverage, after which the burden shifts to the insurer to demonstrate any applicable exclusion. Since the basic coverage is at issue, the Salahutdins must prove that the underlying action stems from an "accident." The court ultimately grants summary judgment in favor of Alstate, indicating that there is no coverage for the claims made by the Acantaras.

The core issue is whether an insurance policy provision limiting coverage to "damages arising from an accident" excludes coverage when the insured intends their actions but not the resulting damage. California law presents inconsistencies on this matter. Notably, cases like *Commercial Union Ins. Co. v. Superior Court* suggest that "accident" pertains to the insured's general intent to act, while *Mullen v. Glens Falls Ins. Co.* emphasizes the insured's subjective intent to cause harm. Recent rulings, however, concentrate on the nature of the act rather than the intent behind it. Courts have ruled that even when intentional acts lead to negligence or emotional distress claims, these are not considered "accidental." Thus, if the insured intended all actions leading to injury, the incident cannot be classified as an "accident," even if there was no intention to cause harm. The term "accident" is defined as resulting from external, unexpected causes or carelessness. Furthermore, in *Royal Globe Ins. Co. v. Whitaker*, the court stated that intentional acts cannot be deemed accidents, reinforcing that the insured's intent to cause damage is irrelevant to coverage. The Ninth Circuit reaffirmed this in *Chamberlain v. Allstate Ins. Co.*, ruling that a policy does not cover damages from intentional acts, regardless of the insured's intent regarding the harm caused. The act of ending a relationship in *Chamberlain* and the act of removing a string in the current case both represent critical actions that determine coverage eligibility.

Mrs. Salahutdin's actions, despite her belief that she was on her own land, were intentional and resulted in damage, which disqualifies her from claiming it was an accident. Her rationale is irrelevant; the court emphasizes that her deliberate act of removing the string from the address pole, knowing it aligned a disputed fence, constitutes intentional conduct. The court distinguishes this case from others cited by the Salahutdins, stating that those involved policies specifically covering the activities leading to the damages, unlike the Salahutdins’ homeowners policy. Consequently, coverage for damages arising from intentional acts is not applicable, leading the court to grant Allstate’s motion for summary judgment on the declaratory relief claim.

Regarding the Salahutdins' bad faith claim against Allstate, which alleges breach of the duty to defend and unreasonable denial of coverage, the court finds these claims meritless due to the absence of coverage under the policy. Additionally, claims of inadequate investigation fail since the correct conclusion was reached despite any alleged shortcomings. The Salahutdins’ assertion of unreasonable delay in determining coverage is also unpersuasive, with the court noting a lack of precedent for a valid bad faith claim in such circumstances when no coverage exists.

The Court conducted independent research into California insurance law and found no precedential case supporting the insured’s claims of bad faith when coverage has been denied. It determined that the delay in this case, from the Salahutdins’ defense tender on May 21, 1991, to Allstate's conclusion on October 24, 1991, was not unusually long and reflected standard procedures in claims processing. The Court noted that seeking independent legal advice before denying coverage is reasonable, particularly given the unsettled nature of the legal issue in California. The Salahutdins did not demonstrate any harm resulting from the delay, leading to the Court granting Allstate’s motion for summary judgment on the bad faith claim. The Court also granted summary judgment on the declaratory relief claim, indicating that issues regarding the classification of damages as 'bodily injury' or 'property damage' under the policy would not be addressed, as the Court found no coverage existed due to the absence of an 'accident.' The Court will reconsider its ruling on bad faith if the defendants can provide authority supporting that a six-month delay constitutes bad faith.