action gave rise to the possibility that the action might present a covered claim; moreover, the Vavasours' understanding of the term "accident" in this context was reasonable. Allstate has a duty to defend the claim at issue.
2. "Property Damage"
The merits of Allstate's argument that the underlying action does not allege "property damage" appear more clear-cut. As previously stated, Carroll's cross-complaint specifically alleges that the Vavasours' alleged trespass damaged his property.
As support for its assertion that no "property damage" has been alleged, Allstate cites Carroll's declaration filed in opposition to the Vavasour's motion for a preliminary injunction against his staking of their driveway in the state court action:
From the photos, it can be observed that the crabgrass separating the Vavasours' driveway and the surveyor's string is not matted down and shows no indication that users of the driveway ever drive across the crabgrass. Although I obviously cannot swear that the users of the driveway have ever driven on my property, these pictures clearly indicate that it would be extremely unlikely that that has been done recently, if at all, and that there is clearly no necessity to do so.
This admission may prove to be a key piece of evidence in the Vavasours' defense against Carroll's allegations of trespass. Yet Allstate takes the position that it may comb the record in the underlying action for admissions (and, presumably, other evidence as well) sufficient to disprove the insured's liability and use such evidence as grounds for refusing to defend or to cover in the underlying action. Having determined that it will not be required to cover the claim, it then asserts that it has no duty to defend.
Though it is correct that a determination that it has no duty to cover releases an insurer from any duty to defend, Allstate's approach to the coverage question places the cart before the horse: it would allow the insurer to refuse to defend a cause of action that, as pled, could give rise to a covered claim where the evidentiary support for that cause of action is flawed. This approach leaves the insured to incur legal bills defending itself in the underlying action. California's broad duty to defend cannot properly be so circumscribed as to contemplate this result. Cf. Garcia v. Calfarm Ins. Co., 6 Cal. App. 4th 885, 891-93 (1992) ("impressive" evidence that claimant's decedent was insured's employee not relevant to duty to defend under policy containing employee exclusions once claimants amended complaint to allege that decedent was an independent contractor).
C. The Vavasours' Counterclaim for Bad Faith
Tort damages are available against an insurer for refusing to defend a claim, even though refusing to defend constitutes a breach of contract, when the defendant breaches the implied covenant of good faith and fair dealing and is guilty of oppression, fraud or malice. Tibbs v. Great American Ins. Co., 755 F.2d 1370, 1375 (9th Cir. 1985).
On the insurer's motion for summary judgment, the insured's bad faith claim stands or falls with the merits of Allstate's duty to defend. Clearly, the standard for bad faith imposes a heavy burden on the insured, and often requires additional facts outside the insurer's communications with the insured regarding the claim. In Tibbs, for example, the insured was able to place evidence before the court that the insurer's in-house counsel was unresponsive to admonitions by his employees that the claim in question was probably entitled to a defense. 755 F.2d at 1375.
Because this Court finds that Allstate has a duty to defend the trespass claim, Allstate's motion for summary judgment on the Vavasours' counterclaim for bad faith must be denied. The Vavasours are entitled to appropriate discovery on that counterclaim.
The Vavasours were entitled under the Allstate policy to a defense at the time they tendered Carroll's claim, because the Carroll trespass claim, as pled, suggests the possibility that a covered claim might be at issue in the lawsuit. The Court takes no position on whether Allstate will ultimately be required to cover the claim. Summary judgment is DENIED.
The parties shall appear for a status conference on September 18, 1992 at 8:30 a.m.
DATED: July 10, 1992
FERN M. SMITH
United States District Judge