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LUNSFORD v. AMERICAN GUAR. & LIAB. INS. CO.

August 30, 1991

JAMES B. LUNSFORD; REGINA T. CHARBONEAU; and BAY VISTA ENTERPRISES, INC., Plaintiffs,
v.
AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY, and DOES 1-10, Defendants



The opinion of the court was delivered by: JENSEN

 D. LOWELL JENSEN, UNITED STATES DISTRICT JUDGE

 On August 28, 1991, this Court heard defendant's motion for summary judgment and plaintiffs' motion for partial summary judgment. Paul E. B. Glad of Sonnenschein, Nath & Rosenthal appeared for defendant American Guarantee & Liability Insurance Company. Raymond C. Oleson appeared for plaintiffs James B. Lunsford, Regina T. Charboneau, and Bay Vista Enterprises, Inc. Having considered the papers submitted, the arguments of counsel, the applicable law, and the entire record herein, the Court GRANTS defendant's motion and DENIES plaintiffs' motion for the following reasons.

 I. BACKGROUND

 This is an action alleging bad faith breach of an insurance contract for failure to defend the plaintiffs in a separate action. Defendant American Guarantee & Liability Insurance Company ("American") issued a liability insurance policy (the "Policy") to Bay Vista Enterprises, Inc. ("Bay Vista") providing coverage for "personal injury," which is defined in the policy as including "malicious prosecution." The present action focuses on this provision.

 Bay Vista is a California corporation which, at all times relevant to the present action, operated a restaurant in San Francisco known as "Regina's Restaurant" or "Regina's at the Regis." Plaintiff James B. Lunsford is the President of Bay Vista and one of its directors and shareholders, and plaintiff Regina T. Charboneau is employed as the chef of Regina's Restaurant.

 On or about November 3, 1989, Bay Vista filed a Complaint for Declaratory Relief and Malicious Prosecution ("Complaint") against the Maryland Hotel, Ltd. ("Maryland Hotel") in San Francisco Superior Court. Maryland Hotel operates The Regis Hotel in San Francisco, California, at which Regina's Restaurant is located. That action was subsequently removed to the United States Bankruptcy Court for the Northern District of California on or about December 4, 1989. At that time, Maryland Hotel also filed a Counterclaim in Adversary Proceeding No. 3-89-0597 TC against James Lunsford, Regina Charboneau, and Bay Vista Enterprises, Inc. The Counterclaim alleges various causes of action in contract, fraud, and tort stemming from Bay Vista's failure to perform its obligations under its lease with Maryland Hotel.

 The Counterclaim also includes three causes of action for abuse of process based on Bay Vista's original Complaint and a Notice of Pending Action. Specifically, claims Ten and Eleven allege that the state court Complaint alleging claims of malicious prosecution against the Hotel was filed for an improper purpose, i.e., to intimidate the Hotel from pursuing its breach of lease claims, to exact concessions from the Hotel, and to disrupt the Hotel's business for the advantage of the insureds. See Counterclaim paras. 67-78. Claim Twelve alleges that the insured served Maryland Hotel with a Notice of Pending Action ("Notice") on November 3, 1989, against Maryland Hotel's property, and that such Notice was served for the improper purpose of intimidating Maryland Hotel and disrupting its business, but that the Notice was not in fact recorded with the County Recorder. Id. paras. 79-83. The Counterclaim does not allege that any of these proceedings were pursued to a legal termination in the Hotel's favor, and there is nothing in the record before this Court establishing that those proceedings have been resolved against plaintiffs as of this date.

 The Policy issued to Bay Vista effective during this period contained a Commercial General Liability Coverage section. The general "Insuring Agreement" of the Policy covering liability for bodily injury and property damage provided as follows:

 
We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS-COVERAGES A AND B. . . . We will have the right and duty to defend any 'suit' seeking those damages.

 See Policy I.A.1.a (emphasis added) (attached as Exhibit 1 to the Declaration of LLoyd Johnson (filed May 1, 1991)). Similarly, the "Insuring Agreement" of the Policy covering liability for personal and advertising injury provided as follows:

 
We will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal injury' or 'advertising injury' to which this insurance applies. No other obligation or liability to pay sums or Perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS -- COVERAGES A AND B. We will have the right and duty to defend and 'suit' seeking those damages.

 Id. I.B.1.a (emphasis added). Finally, the term "personal injury" is defined in the Policy as follows:

 
'Personal injury' means injury, other than 'bodily injury,' arising out of one or more of the following offenses:
 
a. False arrest, detention or imprisonment;
 
b. Malicious prosecution;
 
c. Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies;
 
d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or ...

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