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LINDSEY v. ADMIRAL INS. CO.

September 18, 1992

JERRY L. LINDSEY and JOHN J. RILEY, Plaintiffs,
v.
ADMIRAL INSURANCE COMPANY, et al., Defendants.



The opinion of the court was delivered by: D. LOWELL JENSEN

 On October 23, 1991, the Court heard defendant Admiral Insurance Company's ("Admiral") motion to dismiss; defendant Great American Surplus Lines Insurance Company's ("Great American") motion for judgment on the pleadings; defendants Worldwide Insurance Agency, Inc. ("Worldwide") and Security Services Insurance Company, Ltd.'s ("SSIC") motion to extend time to respond to the Second Amended Complaint and to stay discovery; and Worldwide and SSIC counsel's motion to withdraw. John J. Riley appeared on behalf of plaintiffs. Robert A. Ballard of Boornazian, Jensen & Garthe appeared for defendant Admiral. Michael A. Barnes of Sonnenschein, Nath & Rosenthal appeared for defendant Great American. Robert K. Lawrence of Bjork, Lawrence, Poeschl & Kohn appeared for defendant Worldwide. Having considered the papers submitted, the arguments of counsel, the applicable law, and the entire record herein, the Court GRANTS defendant Admiral's motion to dismiss; GRANTS defendant Great American's motion for judgment on the pleadings; GRANTS defendants Worldwide and SSIC's motion to extend time to respond to the Second Amended Complaint and to stay discovery; and GRANTS Worldwide and SSIC counsel's motion to withdraw, for the following reasons.

 I. BACKGROUND

 This is a diversity action brought against several former insurers of Richardson Security Company, Inc. ("RSCI") alleging breach of contract in failing to honor obligations owed to RSCI as the insured. Plaintiffs bring their claims pursuant to the California direct action statute, see Cal. Ins. Code § 11580, which permits an injured claimant to proceed directly against the policy proceeds to the extent that coverage exists, and as assignees of RSCI's rights against defendants.

 The Court has already heard two motions to dismiss and two motions for reconsideration in this action. Thus the procedural and factual background are adequately set forth in the Court's prior Orders. See Jerry L. Lindsey et al. v. Admiral Ins. Co., et al., Civ. No. 91-0412-DLJ, Orders (N.D. Cal. June 11, 1991 and February 12, 1992). The relevant background for the instant motions is as follows.

 Defendants Admiral and Great American are former insurers of RSCI. Admiral was a primary insurer and Great American was a "following form" excess insurer. Thus Great American's policy generally incorporated Admiral's policy language by reference. Both policies were "claims made" policies. For convenience, the Court refers to the two policies collectively as "policy."

 On March 7, 1988 Berry and Bursey filed a complaint ("Berry Complaint") against RSCI and Lindsey in Alameda County Superior Court. The complaint was brought pursuant to California's Fair Employment and Housing Act. Berry Complaint, P 11. Berry and Bursey alleged that RSCI and Lindsey subjected them to verbal and physical sexual harassment. Id. P 4. The complaint contains several examples of graphic sexual comments allegedly made by Lindsey. Id. PP 5-7. The complaint alleges that RSCI and Lindsey's conduct "constituted sex discrimination/sexual harassment" and caused Berry and Bursey injuries including embarrassment, distress, aggravation, and humiliation. Id. PP 11-13.

 Admiral and Great American both rejected RSCI's tender of defense of the Berry Complaint. The complaint by Berry and Bursey was eventually dropped, but RSCI incurred legal fees defending the action. RSCI assigned to its attorney, plaintiff John Riley, any rights it may have against Admiral and Great American for their refusal to defend the Berry Complaint.

 Plaintiffs filed the instant action to recover on the assignment. The Court has granted defendants' various motions to dismiss, and has denied plaintiffs' motion for summary judgment as well as their two motions for reconsideration. The Court dismissed the original Complaint and the First Amended Complaint, with leave to amend. In the Second Amended Complaint, plaintiffs allege claims for breach of contract and bad faith against Admiral and Great American.

 Plaintiffs contend that the Berry Complaint imposed upon Admiral and Great American the duty to defend and indemnify pursuant to coverage for personal injury liability. The personal injury liability coverage under the policy provided:

 The [Insurer] will pay on behalf of the Insured those sums which the Insured shall become legally obligated to pay as damages because of injury (herein called "personal injury") sustained by any person or organization and arising out of one or more of the following offenses committed in the conduct of the Named Insured's business:

 * * *

 Group B the publication or utterance of a libel or slander or of other defamatory or disparaging material, or a publication or utterance in violation ...


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