American Family Connect Property and Casualty Insurance Company v. Federal Insurance Company

1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 AMERICAN FAMILY CONNECT Case No.: 3:22-cv-01351-JO-AGS PROPERTY AND CASUALTY 13 INSURANCE COMPANY, PARTIAL ORDER ON CROSS- 14 MOTIONS FOR SUMMARY Plaintiff, JUDGMENT 15 v. 16 FEDERAL INSURANCE COMPANY, 17 Defendant. 18 19 20 Kevin Khawaja and Isha Deen (“the Deens”) had a personal injury liability policy 21 with Defendant Federal Insurance Company and an umbrella coverage policy with Plaintiff 22 American Family Connect Property and Casualty Insurance Company. After Defendant 23 declined to represent the Deens in two separate state lawsuits, Plaintiff, as their umbrella 24 coverage insurer, assumed responsibility for the Deens’ legal representation. Plaintiff then 25 brought suit alleging that Defendant, as the Deens’ primary personal injury liability insurer, 26 improperly refused coverage. Dkt. 11 (“Am. Compl.”). The parties filed cross-motions 27 for summary judgment contesting whether Defendant had a duty defend the Deens in the 28 state lawsuits as well as indemnify Plaintiff for expenses incurred in representing the 1 Deens. Dkts. 34 (“Def.’s Mot. Summ. J.”), 35 (“Pl.’s Mot. Summ. J.”). For the reasons 2 provided below, the Court denies Plaintiff’s partial motion for summary judgment and 3 grants in part and denies in part Defendant’s motion for summary judgment. 4 I. BACKGROUND 5 This coverage dispute arises from two separate state lawsuits accusing the Deens of 6 committing various intentional torts. In the first action, Deen v. Deen, 37-2016-00022636- 7 CU-OR-NC, Isha’s father, Chodry, and sisters, Sana and Sidrah, (the “In-Laws”) alleged 8 that the Deens falsely imprisoned and defamed them in an attempt to steal the In-Laws’ 9 property rights. Dkt. 35-4 (“Pl.’s Ex. 3”). In the second case, Deen v. Fitzgerald Yap 10 Kreditor, LLP, 37-2021-00015644-CU-FR-NC, the Deens’ former law firm, Fitzgerald 11 Yap Kreditor, LLP, accused the Deens of filing multiple unfounded lawsuits against the 12 firm in a bad faith campaign to avoid paying their legal fees. Dkt. 35-11 (“Pl.’s Ex. 10”). 13 The Deens requested that Defendant, their primary insurance company, cover their legal 14 defense in these two cases pursuant to its third-party liability coverage. Dkt. 34-17 (“Def.’s 15 Ex. N”). However, Defendant refused to provide representation in the two cases for 16 multiple reasons,1 Dkts. 35-5, 35-6, 35-7, 35-8, 35-9, 35-13, 35-14, including an 17 “intentional acts” exclusion in its policy that barred coverage for acts intended to cause 18 harm. Def.’s Ex. N at 43. As a result, Plaintiff, as the Deens’ umbrella insurance provider, 19 undertook the Deens’ defense. Pl.’s Mot. Summ. J. at 5. Plaintiff now seeks 20 reimbursement for past and future expenses incurred in defending the Deens, arguing that 21 Defendant had the duty to provide this representation. Id. 22 A. The Underlying Lawsuits 23 1. Deen v. Deen 24 In Deen v. Deen, the Deens and the In-Laws contest who is the rightful owner of a 25 property located at 17911 El Brazo, Rancho Santa Fe, California (the “El Brazo house”). 26 27 1 The Court addressed Defendant’s other grounds for refusing coverage during its August 21, 2024 28 1 On July 5, 2016, the Deens filed a state court action against the In-Laws alleging that the 2 In-Laws filed false deed documents to take ownership of the El Brazo house. Dkt. 35-3 3 (“Pl.’s Ex. 2”). In response, on August 19, 2016, the In-Laws filed crossclaims against the 4 Deens. Pl.’s Ex. 3. The In-Laws, in turn, alleged that the Deens tried to pressure the In- 5 Laws into transferring the deed by holding them captive, physically brutalizing and 6 threatening them, and ultimately, defaming them to their neighbors. Id. 7 In their cross-complaint, the In-Laws detailed how the Deens attempted to steal the 8 deed to the El Brazo house by abusing their trust. Id. at 6–10. According to the In-Laws’ 9 complaint, the family conflict first began when the In-Laws requested that Isha, as her 10 father’s power of attorney, register the deed to the El Brazo house in their names. Id. at 6– 11 8. In response, Isha allegedly lied to the In-Laws and claimed ownership of the El Brazo 12 house by putting the deed in her own name. Id. at 8–9. The In-Laws claimed that when 13 they discovered Isha’s lies and confronted her, she pled ignorance and promised to execute 14 a new deed that would transfer the property to Chodry. Id. at 9–10. When the In-Laws 15 later discovered that Isha had not kept this promise, Chodry announced that he would 16 record the deed himself to ensure that it was properly registered in his own name. Id. at 17 10. 18 In order to prevent Chodry and Isha’s sisters from reclaiming the deed, the Deens 19 allegedly confined the In-Laws in the El Brazo house and subjected them to threats and 20 violence. Id. at 10–11. The In-Laws asserted that during their confinement of seven days, 21 the Deens did the following: (1) physically struck them; (2) threatened that Kevin’s 22 brothers and other family members would rape Isha’s sisters; (3) threatened to kill the In- 23 Laws if they left the El Brazo house, called the authorities, or attempted to have the deed 24 recorded; (4) threatened to have them arrested by making false accusations of car theft, 25 forgery, and false impersonation; (5) threatened to publish defamatory material against 26 Sana and Sidrah if any of the In-Laws left the El Brazo house, called the authorities, or 27 attempted to have the deed recorded; (5) withheld medication from Chodry and Sidrah; (6) 28 forced Sana to transfer $150,000 of her personal funds into an account that the Deens could 1 access; (7) threatened to have Kevin’s fundamentalist relatives move in, take over the 2 house, and use the house for illegal activities; (8) patrolled the house with firearms to 3 intimidate the In-Laws; and (9) used a kitchen knife to attack them. Id. The In-Laws 4 alleged that they were only able to end this abuse by calling the police and obtaining a 5 restraining order against Kevin. Id. at 11. 6 After leaving the El Brazo house, the Deens allegedly continued to harass and 7 defame the In-Laws. Id. at 11–14. The In-Laws contended that after they were released, 8 they were ultimately able to record the grant deed and claim ownership of the El Brazo 9 house. Id. at 12. Purportedly, the Deens, in turn, threatened, intimidated, and pressured 10 the In-Laws to transfer the grant deed back to them and to drop the charges against Kevin. 11 Id. To achieve these goals, the Deens allegedly threatened to make false criminal 12 accusations against the In-Laws, surveilled their house, and interfered with their internet, 13 security, and telephone and mail service. Id. The In-Laws also claimed that as a means to 14 pressure them to surrender the deed to the El Brazo house, the Deens knowingly made false 15 and offensive comments to the In-Laws’ neighbors, family friends, and community 16 members about their education, income, relationships, health histories, and ownership 17 rights of the El Brazo house and other properties. Id. at 12, 28–29. Moreover, Kevin also 18 purportedly broke into the El Brazo house and attacked Isha’s father, causing him injury 19 and leading to Kevin’s second arrest and a second restraining order. Id. at 12. Finally, the 20 In-Laws alleged that the Deens threatened them in an attempt to prevent them from 21 pursuing their crossclaims and attending state court hearings. Id. at 13. 22 Based on these allegations, the In-Laws brought claims of assault, battery, false 23 imprisonment, physical elder abuse, defamation, and intentional infliction of emotional 24 distress in addition to claims of quiet title, slander of title, breach of contract, fraud, breach 25 of fiduciary duty, and conversion. See generally Pl.’s Ex. 3. 26 2. Deen v. Fitzgerald Yap Kreditor, LLP 27 The Deen v. Deen litigation also gave rise to the second lawsuit at issue in this case, 28 Deen v. Fitzgerald Yap Kreditor, LLP. In this secondary lawsuit, the Deens and a law firm 1 that represented them in Deen v. Deen, Fitzgerald Yap Kreditor, LLP (“FYK”), contested 2 the quality of the law firm’s services and whether outstanding legal fees were owed. On 3 April 7, 2021, Isha filed suit against FYK, alleging that the firm failed to adequately defend 4 them, incurred unnecessary litigation costs, and falsified expenses. Dkt. 34-7 (“Def.’s Ex. 5 F”) at 5–8. On July 12, 2021, FYK filed a cross-complaint against Isha and Kevin, alleging 6 that the Deens failed to pay their bill and engaged in bad-faith litigation proceedings against 7 the firm in an attempt to evade paying such costs.2 Pl.’s Ex. 10. 8 In her original complaint against FYK, Isha alleged that she and Kevin were forced 9 to bring multiple legal actions against FYK in order to get back the money they were owed. 10 Def.’s Ex. F at 7–10. Specifically, she contended that she filed an application for a 11 Mandatory Fee Arbitration in order to obtain a refund from FYK. Id. at 7–8. However, 12 she asserted that because FYK botched the arbitration process, that she and Kevin had no 13 choice but to a file a form complaint in state court against the firm. Id. Because of FYK’s 14 purported dilatory conduct in Deen v. Deen, she and Kevin also filed a complaint to the 15 state bar. Id. Moreover, she alleged that due to FYK’s alleged malfeasance and exorbitant 16 legal costs, she and Kevin were forced to file for Chapter 13 reorganization in bankruptcy 17 court, listing FYK as a creditor. Id. at 8. In sum, Isha alleged that the Deens had taken 18 these measures to (1) prevent FYK from abusing the legal process, (2) confront the firm’s 19 lies and malpractice, and (3) collect the money they were owed. Id. at 4–8. On these 20 grounds, Isha sued FYK for breach of fiduciary duty, violation of the Fair Debt Collection 21 Act, fraud, breach of contract, abuse of process, injunctive relief, professional negligence, 22 discrimination, breach of the implied covenant of good faith and faith dealing, and 23 conversion. See generally Def.’s Ex. F. 24 25 26 27 2 FYK filed a first amended cross-complaint against the Deens on April 7, 2021. Dkt. 35-12. However, as the factual allegations are practically identical between the complaints, the Court refers to 28 1 In turn, FYK’s cross-complaint alleged that the Deens not only failed to meet their 2 payment obligations under the contract but also cost the law firm significant expenses in 3 responding to their ill-founded legal actions. Pl.’s Ex. 10. Contrary to the Deens’ 4 accusations, FYK claimed that the firm provided excellent representation and that all fees 5 and costs incurred were reasonable and necessary in light of the complex nature of the case. 6 Id. at 4–12. FYK contended that despite their well-deserved fees, the Deens refused to pay 7 their legal bills and resorted to initiating bad-faith litigation to evade paying. See generally 8 Pl.’s Ex. 10. For these reasons, FYK filed suit against the Deens for breach of contract, 9 breach of the implied covenant of good faith and fair dealing, and common counts for 10 services rendered, seeking damages both for the legal costs owed by the Deens and for the 11 expenses incurred in attempting to compel the Deens to pay their debts. See id. 12 In support of its claims, FYK provided a detailed account of the Deens’ purported 13 bad-faith legal actions. Id. at 12–16. Specifically, FYK alleged that the Deens engaged in 14 a campaign of bad-faith litigation by willfully misusing the arbitration process and judicial 15 system and further accused the Deens of acting “with a willful and knowing disregard of 16 the rights of FYK [with] clear[] inten[t] to cause harm to FYK and its attorneys.” Id. at 17 12–13, 17. Accordingly, FYK cited the following legal actions as evidence of the Deens’ 18 bad behavior: the Deens purportedly (1) applied for Mandatory Fee Arbitration before the 19 San Diego County Bar Association despite knowing that FYK’s attorneys were not 20 members; (2) petitioned for a new Mandatory Fee Arbitration hearing by challenging the 21 judge’s neutrality and FYK’s ethics; (3) petitioned for the removal of the Mandatory Fee 22 Arbitration from the San Diego County Bar Association to the State Bar of California; (4) 23 filed a civil action in Orange County Superior Court but failed to serve FYK’s attorneys or 24 notify the San Diego County Bar Association; (5) filed for bankruptcy under Chapter 13, 25 listing FYK as a creditor; (6) objected to FYK’s request for arbitration before JAMS and 26 later delayed such arbitration by producing a false retainer agreement; (7) filed a petition 27 in San Diego Superior Court to stay the JAMS arbitration on account of the judge’s 28 neutrality and thereafter, moved ex parte to enforce the stay without informing FYK; (8) 1 applied ex parte for a temporary restraining order against Eoin Kreditor, an attorney with 2 FYK; and (9) filed a complaint in San Diego Superior Court raising the same claims as 3 those at issue here. Id. at 12–16. FYK also noted that many of the above actions were 4 either dismissed or withdrawn, demonstrating their frivolous and meritless nature. Id. 5 B. Defendant’s Insurance Policy & Coverage 6 The Deens requested coverage for these lawsuits invoking Defendant’s liability for 7 third-party lawsuits. The Deens’ insurance policy with Defendant specifically stated that 8 it would “cover damages a covered person is legally obligated to pay for personal injury or 9 property damage, which takes place anytime during the policy period and are caused by an 10 occurrence, unless stated otherwise or an exclusion applies.” Def.’s Ex. N. at 29. It defined 11 an “[o]ccurrence” as “an accident” or “an offense first committed within the policy period 12 resulting in: false arrest, false imprisonment, or wrongful detention; wrongful entry or 13 eviction; malicious prosecution or humiliation; or libel, slander, defamation of character, 14 or invasion of privacy, to which this insurance applies.” Id. Critically, the policy stated, 15 “[w]e will defend a covered person against any claim or suit seeking covered damages for 16 personal injury or property damage.” Id. at 34. 17 This policy also included an “[i]ntentional acts” exclusion barring coverage for 18 allegations involving willfulness, maliciousness, fraudulence, dishonesty, or intent to 19 injure. Id. at 43. The exclusion explicitly stated: 20 We do not cover any damages arising out of a willful, malicious, fraudulent or dishonest act or any act intended by any covered 21 person to cause personal injury or property damage, even if the 22 injury or damage is of a different degree or type than actually intended or expected. But we do cover such damages if the act 23 was intended to protect people or property unless another 24 exclusion applies. An intentional act is one whose consequences could have been foreseen by a reasonable person. 25 26 Id. 27 Invoking this policy, the Deens requested that Defendant represent them in the two 28 above state lawsuits, but the insurance company declined to provide coverage. With 1 respect to Deen v. Deen, Defendant (after some initial back and forth) eventually took the 2 position that coverage was barred due to its intentional acts exclusion. Dkts. 35-5, 35-6, 3 35-7, 35-8, 35-9. After initially offering coverage for Deen v. Fitzgerald Yap Kreditor, 4 LLP, Defendant later notified the Deens that it would not be defending them in the case on 5 the grounds that this action only involved contractual claims that were not covered as 6 opposed to personal injury claims which were. Dkts. 35-13, 35-14. 7 As a result of Defendant’s refusal to defend the Deens, Plaintiff, their umbrella 8 insurance provider, ended up providing third-party liability coverage in its place. Pl.’s 9 Mot. Summ. J. at 5. Accordingly, Plaintiff assumed the duty to defend the Deens in these 10 two actions, providing representation on their behalf and covering all of the Deens’ legal 11 expenses. Id. 12 C. Procedural History 13 Plaintiff sued Defendant for failing to defend the Deens’ lawsuits and leaving them 14 to undertake this responsibility in its stead. Dkt. 1. Specifically, in its amended complaint, 15 Plaintiff raised four causes of actions seeking: (1) declaratory relief that Defendant had a 16 duty to defend the Deens in Deen v. Fitzgerald Yap Kreditor, LLP because FYK’s cross- 17 complaint raised a potential defamation claim and thus, should be covered under 18 Defendant’s policy3 (2) equitable indemnity for the fees and costs of defending the Deens 19 in Deen v. Fitzgerald Yap Kreditor, LLP; (3) declaratory relief that Defendant had a duty 20 to defend the Deens in Deen v. Deen because the In-Laws’ cross-complaint alleged that the 21 Deens committed false imprisonment and defamation, which are covered under 22 Defendant’s policy; and (4) equitable indemnity for the fees and costs of defending the 23 Deens in Deen v. Deen. Am. Compl. 24 25 26 27 3 While the Court rejected this contention in its earlier ruling, it found that FYK’s cross-complaint raised a potential malicious prosecution claim as argued by the Deens in their separate action against 28 1 On February 7, 2024, both Plaintiff and Defendant filed cross-motions for summary 2 judgment. See Pl.’s Mot. Summ. J.; Def.’s Mot. Summ. J. Plaintiff moved for partial 3 summary judgment on its first and third claims seeking declaratory relief. Pl.’s Mot. 4 Summ. J. Defendant, on the other hand, moved for summary judgment against all of 5 Plaintiff’s causes of action. Def.’s Mot. Summ. J. On August 21, 2024, the Court issued 6 its partial ruling on the parties’ cross-motions for summary judgment on the record and 7 released a subsequent written order resolving all issues except for whether the intentional 8 acts exclusion in Defendant’s policy bars coverage for the defamation and false 9 imprisonment claims in Deen v. Deen and the possible malicious prosecution claim4 in 10 Deen v. Fitzgerald Yap Kreditor, LLP. See Dkts. 47, 48, 49. After this order, Defendant 11 filed supplemental briefing on this matter. Dkt. 560. The following order addresses the 12 remaining issue of the intentional acts exclusion in both the above cases. 13 II. LEGAL STANDARD 14 A. Motion for Summary Judgment Standard 15 Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil 16 Procedure if the moving party demonstrates the absence of a genuine issue of material fact 17 and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 18 322 (1986). A fact is material when, under the governing substantive law, it could affect 19 the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); 20 Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute as to a material fact is 21 genuine if there is sufficient evidence for a reasonable jury to return a verdict for the 22 nonmoving party. Anderson, 477 U.S. at 248–50. 23 24 25 26 4 The Court ruled that while FYK’s claims were styled as contractual claims, the factual allegations could also support malicious prosecution claims. Dkt. 47. Because a court must look to the facts of the 27 claim, rather than how the party styles their causes of actions, Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654 (2005), the Court found in its previous ruling that the FYK complaint raised the possibility 28 1 A party seeking summary judgment always bears the initial burden of establishing 2 the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. The moving 3 party can satisfy this burden in two ways: (1) by presenting evidence that negates an 4 essential element of the nonmoving party’s case; or (2) by demonstrating that the 5 nonmoving party failed to establish an essential element of the nonmoving party’s case on 6 which the nonmoving party bears the burden of proof at trial. Id. at 322–23. The moving 7 party may also satisfy its initial burden by demonstrating that the opposing party lacks 8 sufficient evidence from which a jury could find an essential element of the opposing 9 party’s claim. Id. at 325; Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F. 3d. 10 1099, 1102 (9th Cir. 2000). 11 Once the moving party establishes the absence of genuine issues of material fact, the 12 burden shifts to the nonmoving party to set forth facts showing that a genuine issue of 13 disputed fact remains. Celotex, 477 U.S. at 324. The nonmoving party cannot merely rest 14 on his pleadings, but must direct the court to specific, triable facts by “citing to particular 15 parts of materials in the record.” Fed. R. Civ. P. 56(c)(1)(A); see Anderson, 477 U.S. at 16 250. The court must view all inferences drawn from the underlying facts in the light most 17 favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 18 U.S. 574, 587 (1986). “Credibility determinations, the weighing of evidence, and the 19 drawing of legitimate inferences from the facts are jury functions, not those of a judge, 20 [when] he [or she] is ruling on a motion for summary judgment.” Anderson, 477 U.S. at 21 255. 22 B. Insurance Coverage Cases 23 In insurance coverage cases, the summary judgment standard operates in a distinct 24 fashion given how it intersects with the substantive law on insurance defense. 25 Liability insurers generally owe a broad duty to defend their policy holders. See 26 Gonzalez v. Fire Ins. Exch., 234 Cal. App. 4th 1220, 1229 (2015). Accordingly, a carrier 27 must defend a suit if the allegations allow for the possibility of coverage. See id. (internal 28 citation omitted). “The determination [of] whether the insurer owes a duty to defend 1 usually is made in the first instance by comparing the allegations of the complaint with the 2 terms of the policy.” Id. (internal citation omitted). “Facts extrinsic to the complaint also 3 give rise to a duty to defend when they reveal the possibility that the claim may be covered 4 by the policy.” Id. (internal citation omitted). Critically, the duty to defend does not turn 5 on the truth of the allegations or the merits of the claimant’s case, but rather on whether 6 the allegations, when coupled with extrinsic evidence, potentially allow for coverage. 7 Allstate Ins. Co. v. Barnett, No. C-10-0077 EMC, 2010 WL 3619778, at *6 (N.D. Cal. 8 Sept. 9, 2010). 9 “This legal framework shapes a party’s burden when seeking summary judgment.” 10 Gonzalez, 234 Cal. App. 4th at 1229. To warrant summary judgment, an insured need only 11 prove the existence of a potential for coverage to demonstrate that the insurer had a duty 12 to defend. Montrose Chem. Corp. v. Superior Ct., 6 Cal. 4th 287, 300 (1993) (emphasis in 13 original). If the insured can show that the “underlying complaint alleges the insured’s 14 liability for damages potentially covered under the policy, or if the complaint might be 15 amended to give rise to a liability that would be covered under the policy,” the insured has 16 met its burden. Id. at 299. Accordingly, if an insured can establish a genuine issue of 17 material fact as to whether coverage is feasible given the allegations and any extrinsic facts 18 known to the insurer, it will prevail. Id. 19 On the other hand, for an insurer to obtain summary judgment, an insurer must show 20 that no reasonable juror could find coverage possible in order to eliminate the duty to 21 defend. Id. at 301. To prevail at the summary judgment stage, the insurer must eliminate 22 the possibility of coverage either by showing that the allegations raised preclude the 23 possibility of coverage or by demonstrating that undisputed facts and conclusive evidence 24 bar any coverage. All Green Elec., Inc. v. Sec. Nat’l Ins. Co., 22 Cal. App. 5th 407, 412– 25 14 (2018). If an insurer can prove that it did not owe a duty to defend as a matter of law, 26 it likewise meets its burden to prove that it does not owe a co-insurer equitable 27 indemnification. Travelers Indem. Co. of Conn. v. Hudson Ins. Co., 442 F. Supp. 3d 1259, 28 1268–69 (E.D. Cal. 2020). 1 III. DISCUSSION 2 As the Court has already ruled that the terms of Defendant’s policy otherwise allow 3 for the possibility of coverage in both Deen v. Deen and Deen v. Fitzgerald Yap Kreditor, 4 LLP, its analysis below will exclusively focus on whether the intentional acts exclusion 5 specifically bars coverage. After evaluating whether Defendant had a duty to defend the 6 Deens in these two actions, the Court will then examine whether Defendant had a duty to 7 indemnify Plaintiff for the costs it incurred in defending the Deens in its stead. 8 A. Whether the Intentional Acts Exclusion Bars the Duty to Defend 9 The Court must examine whether the intentional acts exclusion bars coverage for the 10 defamation and false imprisonment claims in Deen v Deen and the potential malicious 11 prosecution allegations in Deen v. Fitzgerald Yap Kreditor, LLP.5 12 Under insurance law, exclusions against coverage are construed narrowly and the 13 insurer bears the burden of proving their application. Waller v. Truck Ins. Exch., Inc., 11 14 Cal. 4th 1, 16 (1995), as modified on denial of reh’g (Oct. 26, 1995). In assessing whether 15 the facts and claims alleged against the insured are precluded by the exclusion, the insurer 16 must show that the exclusion applies in “all possible worlds,” bearing in mind the 17 possibility that complainants can amend their pleadings. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 18 100 Cal. App. 4th 1017, 1039 (2002). 19 However, an insurer will not have a duty to defend where coverage is effectively 20 infeasible given the allegations in the complaint. This is because “an insurance company 21 has the right to limit the coverage of a policy [it issues] and when it has done so, the plain 22 language of the [policy] must be respected.” Cont’l Cas. Co. v. Phoenix Constr. Co., 46 23 Cal. 2d 423, 432 (1956). Thus, if the “third party complaint can by no conceivable theory 24 25 26 5 Neither the Deens in their separate action before the Court, Khwaja et al v. Federal Insurance Company et al, No. 23-cv-00717, nor Plaintiff contend that Defendant had a duty to defend on any of the 27 other causes of action raised in Deen v Deen. While Plaintiff argued that Defendant had a duty to defend the Deens in Deen v. Fitzgerald Yap Kreditor, LLP on the basis that the cross-complaint raised a 28 1 bring it within the policy coverage,” an insurer will be relieved of its duty to defend. All 2 Green, 22 Cal. App. 5th at 414. In assessing whether there is such a “conceivable theory,” 3 an insured is not free “to manufacture hypothetical scenarios beyond those encompassed 4 by the pleadings or the facts known to the insurer.” Id. at 414, 417. Rather, coverage must 5 be feasible given the facts alleged by the plaintiff in the complaint and any other extrinsic 6 facts known to the insurer at the inception of the lawsuit. Id.; see Gray v. Zurich Ins. Co., 7 65 Cal. 2d 263 (1966) (finding that an intentional torts exclusion did not bar coverage 8 because the allegations allowed for the possibility that the insured acted negligently or in 9 self-defense); Vann v. Travelers Companies, 39 Cal. App. 4th 1610, 1612–16 (1995) 10 (same). Critically, “[w]here a policy clearly excludes coverage, [courts] will not indulge 11 in tortured constructions to divine some theoretical ambiguity in order to find coverage.” 12 Titan Corp. v. Aetna Cas. & Sur. Co., 22 Cal. App. 4th 457, 469 (1994). If the insurer can 13 prove that the insured would have to plead entirely new, different facts to evade the 14 exclusion, it has effectively established that there is no conceivable theory of coverage. All 15 Green, 22 Cal. App. 5th at 418. 16 If the allegations in the complaint permit coverage even with the exclusion, an 17 insurer can only be freed of the duty to defend if conclusive evidence proves that there is 18 absolutely no potential for coverage. Id. 412–13. In such circumstances, the insured must 19 point to undisputed facts extrinsic to the allegations. Vann, 39 Cal. App. 4th at 1614–15. 20 However, if this evidence does not “eliminate the possibility of potential coverage, but 21 instead merely places in dispute whether one or more of the exclusions contained in the 22 policies apply,” the insurer has not met its burden. Id. at 1615 (internal citation and 23 quotation marks omitted). This principle recognizes that insurers have a burden to 24 investigate claims and thus have the responsibility to provide conclusive evidence 25 demonstrating the absence of coverage if they wish to be relieved of their duties. Dua v. 26 Stillwater Ins. Co., 91 Cal. App. 5th 127, 137 (2023), review denied (July 12, 2023). 27 Here, in determining whether Defendant has a duty to defend, the Court must first 28 review the language of its intentional acts exclusion and then assess whether it bars 1 coverage in either Deen v. Deen or Deen v. Fitzgerald Yap Kreditor LLP. Defendant’s 2 insurance policy explicitly states: 3 We do not cover any damages arising out of a willful, malicious, fraudulent or dishonest act or any act intended by any covered 4 person to cause personal injury or property damage, even if the 5 injury or damage is of a different degree or type than actually intended or expected. But we do cover such damages if the act 6 was intended to protect people or property unless another 7 exclusion applies. An intentional act is one whose consequences could have been foreseen by a reasonable person. 8 9 Def.’s Ex. N. at 43. 10 California courts have interpreted intentional acts exclusions, like the one above, as 11 barring coverage of acts that the insured subjectively intended to or likely knew would 12 cause harm. Mullen v. Glens Falls Ins. Co., 73 Cal. App. 3d 163, 171 (1977) (holding that 13 intentional acts exclusions only “exclude from coverage injuries and damages resulting 14 from acts involving an element of wrongfulness or misconduct” even if the “acts otherwise 15 are performed intentionally”). Provisions that exclude coverage for “willful, malicious, 16 fraudulent or dishonest act[s]” or acts intended to cause harm are treated identically to 17 Insurance Code Section 533, which establishes “that an insurance company is not liable for 18 a loss caused by a wilful act of the insured.” Delgado v. Interinsurance Exch. of Auto. 19 Club of S. California, 47 Cal. 4th 302, 313–14 (2009). Under this standard, an insured 20 only acts intentionally if he or she “knew or believed [his] conduct was substantially certain 21 or highly likely to result in that kind of damage” or “with preconceived design to inflict 22 injury.” Gonzalez, 234 Cal. App. 4th at 1239 (“[I]t is the insured’s subjective belief as to 23 whether his or her conduct would cause the type of damage claimed that excludes 24 coverage.”). Courts usually find a possibility of coverage despite intentional acts 25 exclusions given the possibility that the insured may have committed these alleged 26 intentional acts by being “reckless or negligent.” KM Strategic Mgmt., LLC v. Am. Cas. 27 Co. of Reading PA, 156 F. Supp. 3d 1154, 1170–71 (C.D. Cal. 2015) (citing J. Croskey, et 28 al., Cal. Prac. Guide: Ins. Lit. at ¶ 7:1066.2 (Rutter 2014)). Thus, allegations of false 1 imprisonment or slander, which necessarily involve intentional conduct do not necessarily 2 involve an intent to cause harm. Id. at 1239–40. 3 Critically, in assessing whether these exclusions apply, courts must examine the 4 general factual situation alleged in the complaint, looking beyond the allegations directly 5 tied to the covered injury, to assess whether there is a possibility that the insured acted 6 without the intent to cause harm. Century Transit Sys., Inc. v. Am. Empire Surplus Lines 7 Ins. Co., 42 Cal. App. 4th 121, 128 (1996). If the allegations are “inseparably intertwined” 8 with the intent to cause harm, an insurer does not have a duty to defend. Jane D. v. 9 Ordinary Mutual, 32 Cal. App. 4th 643, 652–53 (1995). 10 1. Deen v. Deen 11 Applying the above standard, the Court must examine whether the factual allegations 12 in the In-Laws’ cross-complaint allow for the possibility that the Deens committed false 13 imprisonment or defamation recklessly, negligently, or out of self-defense or whether they 14 necessarily involved the intent to cause harm. 15 Here, Defendant did not have a duty to defend the Deens because the In-Laws’ 16 defamation and false imprisonment allegations are premised on and intertwined with the 17 Deens’ intent to cheat and injure their relatives. See generally Pl.’s Ex. 3. In their 18 crossclaims, the In-Laws asserted that all of the Deens’ actions were driven by their desire 19 to steal the In-Laws’ property rights to the El Brazo house. Id. The In-Laws contended 20 that the Deens decided to confine them in the house for seven days because they did not 21 want Chodry to record the deed in his name. Id. at 6–11, 25–26. According to the In- 22 Laws’ allegations, the Deens only subjected the In-Laws to false imprisonment in order to 23 pressure them into relinquishing their rights to the property. See id. Moreover, after Kevin 24 was arrested for imprisoning and threatening the In-Laws, the Deens then purportedly 25 continued to harass and defame them in a campaign to get them to drop the charges against 26 Kevin and surrender their rights to the El Brazo house. Id. at 12. The In-Laws’ false 27 imprisonment and defamation claims are therefore “inseparably intertwined” with their 28 allegations of the Deens’ dishonest and wrongful intent to cheat them out of their house 1 and evade criminal charges. See Jane D., 32 Cal. App. 4th at 652–53. Given that the In- 2 Laws explicitly asserted that the Deens’ actions were designed to cause these specific 3 harms, the cross-complaint precludes the possibility that the Deens acted negligently, 4 recklessly, or in self-defense. See KM, 156 F. Supp. 3d at 1170. As significant portions of 5 the In-Laws’ cross-complaint would have to be removed to evade Defendant’s intentional 6 acts exclusion, the Court finds that there is no conceivable theory of coverage here. All 7 Green, 22 Cal. App. 5th at 418. 8 In addition to alleging that the Deens acted in furtherance of their malicious scheme, 9 the In-Laws pled facts that, by their very nature, exclude the possibility that the Deens 10 acted with benign intentions. The In-Laws explicitly alleged that the Deens carried out 11 their false imprisonment scheme by physically attacking them, withholding their 12 medication, robbing them, patrolling the house with firearms, and threatening to rape and 13 kill them. Pl.’s Ex. 3 at 10–11, 25–26. These are not actions that can be taken without the 14 intent to cause harm. While one can make physical contact with another person either 15 negligently or recklessly without the intent to injure, it defies reason that one could coerce 16 and imprison through a campaign of physical violence, intimidation, withholding 17 medication, and threats of sexual violation without intending to cause harm. See All Green, 18 22 Cal. App. 5th at 414. 19 The same reasoning applies to the In-Laws’ defamation allegations. The In-Laws 20 did not merely assert that the Deens lied about their ownership of the El Brazo home— 21 actions that could be ascribed to the Deens’ genuine belief that the home belonged to them. 22 Pl.’s Ex. 3 at 12, 28–29. Instead, they specifically contended that the Deens falsely 23 denigrated the In-Laws with respect to private and personal matters entirely unrelated to 24 their home ownership dispute, such as their education levels, income, relationships, and 25 health histories. Id. In other words, not only did the In-Laws explicitly assert that the 26 Deens spread false information in order to blackmail them into doing their bidding, but 27 they also alleged actions—humiliating them with rumors about their education, heath, and 28 relationships—that could not possibly have a benign purpose. See id. Short of rewriting 1 the In-Laws’ complaint, these allegations leave no room for the possibility that the Deens 2 were acting for any reason but to cause harm. See All Green, 22 Cal. App. 5th at 418. 3 The facts of this case stand in stark contrast to those where courts have found that 4 coverage was possible despite an intentional acts exclusion. In Gray v. Zurich Ins. Co., the 5 Supreme Court of California concluded that an intentional acts exclusion did not relieve 6 the insurance provider of its duty to defend. 65 Cal. 2d at 276. Even though the complaint 7 at issue in Gray alleged that the insured “wilfully, maliciously, brutally and intentionally 8 assaulted” the claimant, the court reasoned that the combination of the complaint’s likely 9 overstatement of the facts and the insured’s insistence that he acted in self-defense allowed 10 for the possibility that the insured acted without the intent to cause harm. Id. at 267, 276– 11 77; see also Vann, 39 Cal. App. 4th at 1612–16 (finding that allegations that the insured 12 “improperly handled and disposed of” various hazardous substances did not preclude the 13 possibility that the substances were released accidentally in light of the complaint’s vague 14 allegations concerning the nature of the acts causing the contamination and the insured’s 15 state of mind). Likewise, in Gonzalez v. Fire Ins. Exch., a California court of appeals found 16 that coverage for allegations of false imprisonment and slander was not barred on account 17 of an intentional acts exclusion. 234 Cal. App. 4th at 1239–40. There, while the claimant 18 alleged that she was trapped in a room with the insured, who assaulted her, and that the 19 insured slandered her in telling others she had consented to the sexual interaction, she also 20 brought a claim of negligence against the insured. Id. at 1225. The court recognized that 21 slander “does not require proof” of intent to cause harm and reasoned that the complaint 22 left open the possibility that the insured caused injury negligently “in creating the 23 conditions that led to [the claimant’s] false imprisonment.” Id. at 1239–40. 24 Here, the In-Laws’ complaint is neither ambiguous about the intent involved nor 25 alludes to potential negligence. Critically, the In-Laws’ allegations are neither “broad” nor 26 leave open the “how,” “when,” or “why” the personal injuries at issue occurred. Vann, 39 27 Cal. App. 4th at 1615–17 (reasoning that coverage was possible because the complaint was 28 vague and left many questions unanswered). Rather, as explained above, it painted a 1 pointed and detailed picture of the Deens engaging in actions for the exclusive purpose of 2 hurting their relatives in order to swindle them out of their house. See generally Pl.’s Ex. 3 3. Unlike in Gonzalez, there are no negligence claims raised here—nor could there be 4 when the In-Laws alleged actions that by their very nature are inextricably intertwined with 5 a specific and elaborate campaign designed to inflict injury. Cf. 234 Cal. App. 4th at 1225. 6 Thus, the alleged facts of the complaint eliminate the possibility that the Deens falsely 7 imprisoned or defamed the In-Laws negligently or recklessly. Cf. id. at 1239–40. In order 8 for the Deens to be eligible for coverage, the In-Laws would have to completely alter the 9 factual foundation of the complaint.6 All Green, 22 Cal. App. 5th at 418. Thus, the Court 10 finds that Defendant has met its burden as it has shown that its intentional acts exclusion 11 bars coverage for the In-Laws’ cross-complaint against the Deens. See id. at 414. 12 For the above reasons, the Court finds that Defendant has met its burden to prove 13 that it did not have a duty to defend. Accordingly, the Court grants in part Defendant’s 14 motion for summary judgment and denies in part Plaintiff’s motion for summary judgment 15 as to Defendant’s duty to defend them in Deen v. Deen. 16 2. Deen v. Fitzgerald Yap Kreditor, LLP 17 Next, the Court must assess whether the facts alleged in FYK’s cross-complaint 18 allow for the possibility that the Deens could have acted negligently or out of self-defense 19 against their attorneys or whether these allegations inherently involved malintent. 20 The Court concludes that Defendant has not met its burden to prove that FYK’s 21 allegations preclude the possibility that the Deens pursued their various litigation actions 22 against FYK without the intent to cause harm. See generally Pl.’s Ex. 10. Although FYK 23 alleged that the Deens “intend[ed] to cause harm to FYK and its attorneys” and “willfully” 24 25 6 Critically, in coming to this determination, the Court passes no judgement on the merits or 26 credibility of these allegations. Rather, as the duty to defend does not turn on the truth of the allegations, but whether the allegations when coupled with extrinsic evidence potentially allow for coverage, the Court 27 finds that coverage is barred given that the In-Laws’ false imprisonment and defamation allegations against the Deens are inseparable from the Deens’ purported intent to cause harm. See Allstate Ins. Co., 28 1 misused the judicial system by bringing their actions in “bad faith,” it fails to allege facts 2 that make it inconceivable that the Deens had other motives. Id. at 12, 17; see Gray, 65 3 Cal. 2d at 276. As seen in the below examples, FYK simply recited the procedural history 4 of these actions without expanding on how or why these actions were in “bad faith”: 5 explaining that the Deens (1) filed for a Mandatory Fee Arbitration before the San Diego 6 County Bar Association despite knowing that FYK’s attorneys were not members; (2) filed 7 for new a hearing by challenging the judge’s neutrality and FYK’s ethics; (3) filed a civil 8 action without serving FYK’s attorneys or notifying the state bar; and (4) filed for 9 bankruptcy under Chapter 13, listing FYK as a creditor. See Pl.’s Ex. 10 at 12–13. While 10 FYK’s complaint alludes to bad intentions, the facts pled by no means preclude the 11 possibility of other motivations. See All Green, 22 Cal. App. 5th at 414. For example, the 12 Deens conceivably could have acted out of incompetence and a genuine belief in the bias 13 of the court and the merits of their case. As FYK’s allegations concerning the “nature” of 14 the Deens’ lawsuits and their state of mind are not narrowly defined, they allow for the 15 possibility that the Deens acted recklessly or at least without the intent to injure. Vann, 39 16 Cal. App. 4th at 1612–16; see also KM, 156 F. Supp. 3d at 1170. 17 Moreover, Isha’s own complaint demonstrates that there is a conceivable theory in 18 which the Deens acted out of self-defense. Def.’s Ex. F. In her complaint, Isha alleged 19 that FYK breached its fiduciary duty to the Deens by committing malpractice, incurring 20 unnecessary litigation costs, and falsifying expenses. See id. at 5–8. Accordingly, she 21 asserted that she and Kevin had no other option but to bring multiple lawsuits to redress 22 their injuries, report FYK’s malfeasance to the bar, avoid bankruptcy, and to put an end to 23 FYK’s abuse of the legal system. See id. at 7–10. Therefore, the Deens’ claims that they 24 were acting in defense of their rights create a dispute of fact regarding their intentions. See 25 id.; Vann, 39 Cal. App. 4th at 1615. Accordingly, as FYK’s cross-complaint allows for the 26 possibility that the Deens acted without the intent to cause injury, the intentional acts 27 exclusion does not relieve Defendant of its duty to defend. See All Green, 22 Cal. App. 28 5th at 412–13. 1 This same reasoning applies to Defendant’s argument that Insurance Code Section 2 533 bars coverage here. As explained above, California courts treat intentional acts 3 exclusions in the same way they treat Insurance Code Section 533 as both exclude coverage 4 for “willful act[s] of the insured.” Delgado, 47 Cal. 4th at 313. For the reasons discussed 5 above, Defendant has failed to conclusively prove that the Deens’ conduct here was 6 intended to cause damage. Thus, it is not relieved of its duty to defend on account of 7 Section 533. 8 Given that FYK’s crossclaims do not eliminate the possibility of coverage, 9 Defendant can only escape the duty to defend if it can point to undisputed extrinsic 10 evidence that the Deens subjectively intended to cause FYK harm. See Vann, 39 Cal. App. 11 4th at 1615. Because Defendant has not provided any extrinsic conclusive evidence 12 proving the Deens’ intent in bringing these legal actions, the Court finds that it has not met 13 its burden to eliminate the possibility of coverage. 14 In conclusion, as Defendant has failed to prove that its intentional acts exclusion 15 would bar coverage for Deen v. Fitzgerald Yap Kreditor, LLP in “all possible worlds,” the 16 Court finds that Defendant had a duty to defend the Deens.7 Atl. Mut., 100 Cal. App. 4th 17 at 1039. Accordingly, the Court denies Defendant’s motion for summary judgment as to 18 Defendant’s duty to defend the Deens in Deen v. Fitzgerald Yap Kreditor, LLP. 19 B. Equitable Indemnification 20 Lastly, the Court must examine whether Defendant has proven that Plaintiff’s claims 21 for equitable indemnification fail as a matter of law in both state cases. 22 Equitable indemnification allows an insurance company that has incurred costs for 23 defending an insured to seek repayment from a co-insurer who was entirely responsible 24 (i.e., indemnification) for the defense but refused to do so. Travelers Indem., 442 F. Supp. 25 3d at 1268–69. To prevail, a plaintiff must prove that the coinsurer had the duty to defend 26 27 7 Because Plaintiff only moved for summary judgment on the grounds of a feasible defamation 28 1 the insured. Id. Accordingly, where there is no to duty to defend the insured, there is no 2 basis for equitable indemnification. Id. 3 With respect to Deen v. Deen, Defendant has proven as a matter of law that it did 4 not have a duty to defend the Deens against the In-Laws’ cross-complaint. See supra, 5 Section III.A.1. Defendant has therefore proven by extension that there it has no duty to 6 equitably indemnify Plaintiff. See Travelers Indem., 442 F. Supp. 3d at 1268–69. 7 Regarding Deen v. Fitzgerald Yap Kreditor, Defendant could not establish that the 8 intentional acts exclusion barred coverage for the Deens. See supra, Section III.A.2. 9 Therefore, by the same token, Defendant has not met its burden to establish that it is not 10 obligated to equitably indemnify Plaintiff for this litigation. See Travelers Indem., 442 F. 11 Supp. 3d at 1268–69. 12 As such, the Court grants in part Defendant’s motion for summary judgment and 13 finds that Defendant has no obligation to equitably indemnify Plaintiff, the umbrella carrier 14 of the Deens, for its expenses in Deen v. Deen. However, the Court denies in part 15 Defendant’s motion for summary judgment as to its obligations to equitably indemnify 16 Plaintiff for its expenses in Deen v. Fitzgerald Yap Kreditor, LLP. 17 IV. CONCLUSION 18 First, as the Court found that Defendant did not have a duty to defend the Deens in 19 Deen v. Deen, the Court GRANTS IN PART Defendant’s motion for summary judgment 20 and DENIES IN PART Plaintiff’s motion for summary judgment. Second, because the 21 Court determined that Defendant did have a duty to defend the Deens in Deen v. Fitzgerald 22 Yap Kreditor, LLP the Court DENIES IN PART Defendant’s motion for summary 23 judgment. Third, as the Court found that Defendant was not obliged to indemnify Plaintiff 24 for its representation of the Deens in Deen v. Deen, the Court GRANTS IN PART 25 Defendant’s motion for summary judgment. Lastly, because the Court concluded that 26 Defendant did not demonstrate as a matter of law that it had no obligation to indemnify 27 Plaintiff for its representation of the Deens in Deen v. Fitzgerald Yap Kreditor, LLP the 28 Court DENIES IN PART Defendant’s motion for summary judgment. 1 Coupled with the Court’s earlier August 21, 2024 rulings, Dkt. 47, the Court 2 || DENIES Plaintiff’s motion for summary judgment, Dkt. 35, and GRANTS IN PART AND 3 || DENIES IN PART Defendant’s motion for summary judgment, Dkt. 34. 4 IT IS SO ORDERED. 5 || Dated: September 30, 2024 Qe 6 7 Honorable Jinsook Ohta 9 United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28