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STATE FARM FIRE & CAS. CO. v. THOMAS

January 25, 1991

STATE FARM FIRE & CASUALTY COMPANY, an Illinois Corporation, Plaintiff,
v.
STANLEY RAY THOMAS, JANE ANN THOMAS, ANDREW R. CHAN, CAROL R. FULLER, DARLENE YOPP, CENTURY 21/GREAT WESTERN REAL ESTATE, Defendants



The opinion of the court was delivered by: WEIGEL

 STANLEY A. WEIGEL, UNITED STATES DISTRICT JUDGE

 This declaratory relief action brought by State Farm Fire & Casualty Co. ("State Farm") arises out of the sale of a single family residence, in Hayward, California. The sale was made by defendants Stanley R. and Jane A. Thomas. The Thomases, insured by State Farm under two separate homeowners policies, sold the residence to Andrew R. Chan and Carol R. Fuller Chan. The sales contract was executed on February 17, 1986; escrow closed in April; and in May the Chans moved in.

 Shortly thereafter, the Chans allegedly discovered numerous defects in the property, requiring extensive repairs. On February 10, 1987, the Chans filed suit in Alameda County Superior Court against the Thomases and their real estate broker. The gist of their complaint is that the Thomases fraudulently or negligently misrepresented and concealed the condition of the property. Their alleged misconduct caused the Chans to suffer severe economic losses and emotional distress. *fn1"

 State Farm issued a homeowners policy to the Thomases for their Hayward residence in 1980 ("the Hayward policy"). The policy was renewed annually until its cancellation after the sale of the property, effective April 4, 1986. After the Thomases sold their Hayward home, the family moved to Freestone, California. Effective November 29, 1986, State Farm issued a new homeowners policy to the Thomases for their residence in Freestone ("the Freestone policy"). On December 4, 1987, the insureds tendered their defense in the state court action to State Farm. State Farm accepted the tender, subject to a Non-Waiver of Rights. It later issued a reservation of rights letter regarding the Thomases' defense.

 On July 19, 1990, State Farm filed this action for declaratory relief, seeking a determination of its obligation to continue to defend, and ultimately indemnify, the Thomases for their conduct in connection with the sale of their home. In its motion for summary judgment, plaintiff contends that neither the Hayward nor the Freestone policy provides coverage for the claims against the insureds in the state court action. Thus plaintiff contends that it has no duty either to defend or indemnify. If the Court agrees that there is no coverage, plaintiff requests a declaration that it is entitled to recover attorney's fees expended in defending the insureds in state court. The Thomases seek a stay of this action pending the resolution of the state court suit.

 I. Defendants' Request for a Stay

 Defendants' request for a stay is not well-taken. Relying on Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976), and its progeny, the Thomases assert that abstention is appropriate because the state court suit and the present action are "substantially similar." Further, defendants declare that judicial economy would be served by a stay.

 The Supreme Court of the United States has made it quite clear that abstention is permissible only in "exceptional circumstances." Colorado River, 424 U.S. at 813. In elaborating upon the factors constituting such circumstances, the Ninth Circuit has required parallelism between the state and federal court proceedings. Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989). Although exact parallelism is not required, the two proceedings must at a minimum be "substantially similar." Id.

 The instant action brought by State Farm bears only a remote resemblance to the Chans' action against the insureds in state court. In the latter action, the issues revolve around the representations made and information concealed regarding the sale of the Hayward residence. State Farm is not even a party to that suit. By contrast, the question here is whether State Farm owes a duty to defend or indemnify the Thomases. The overlap of these two actions is minimal. The state court action turns primarily upon questions of fact. The suit here turns primarily upon legal questions of contract interpretation. Finally, under California law, insurance companies have the right to determine their obligations to their insureds prior to a judgment against their insureds. See, e.g., Allstate Ins. Co. v. Miller, 743 F. Supp. 723, 725, 726 n. 5 (N.D. Cal. 1990); Atlas Assurance Co. v. McCombs Corp., 146 Cal. App. 3d 135, 194 Cal. Rptr. 66, 74 (1983); Cal. Civ. Code ยง 1060. There is nothing "exceptional" about the present circumstances that would warrant a stay under the Colorado River doctrine.

 State Farm moves for summary judgment on its claim that it has no duty either to defend or indemnify the Thomases in the state court suit. The Court tentatively ruled at the hearing held on January 17, 1991, that State Farm had a duty to defend the Thomases under the Freestone policy, but no duty under the Hayward policy. After a careful consideration of the arguments advanced by counsel at the hearing and further review of the Freestone policy, the Court concludes that there is no coverage under either policy.

 Summary judgment is proper only when there is no genuine issue of material fact and the moving party is clearly entitled to prevail as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Fed. R. Civ. P. 56(c). State Farm's liability under its insurance policies is a question particularly well-suited for adjudication at summary judgment. If the interpretation of a written instrument lies at the heart of a dispute, as here, the question is invariably one of law, not fact. The only question before ...


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