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SAVE MART SUPERMARKETS v. UNDERWRITERS AT LLOYD'S

January 27, 1994

SAVE MART SUPERMARKETS, Plaintiff,
v.
UNDERWRITERS AT LLOYD'S LONDON, SPHERE DRAKE INSURANCE PLC, and DOES 1 through 50, inclusive, Defendants.



The opinion of the court was delivered by: STANLEY A. WEIGEL

 I. BACKGROUND.

 Save Mart Supermarkets ("Save Mart") is a California corporation which operates several retail stores in Northern California. *fn1" 1st Am. Compl., P 1. Underwriters at Lloyd's and Sphere Drake Insurance PLC (collectively "the London Defendants") *fn2" allegedly provided combined Property, Casualty, and Crime Insurance to Save Mart pursuant to Policy No. GHV 1386/190 ("the Policy"), from December 1, 1990, to December 1, 1993. *fn3" In this action, Save Mart seeks a declaration *fn4" that it is entitled to coverage under the Policy for costs incurred in connection with Herring v. Fry's Food and Drug Stores, The Kroger Company, Save Mart, C-90-3571 (BAC), 1992 U.S. Dist. LEXIS 2994 ("the Herring Action"). *fn5"

 A. The Herring Action.

 On April 8, 1988, Barbara Jean Herring, an employee of Fry's Food and Drug Stores ("Fry's"), *fn6" filed formal charges of discrimination with the Equal Employment Opportunity Commission ("EEOC") and the California Department of Fair Employment and Housing ("DFEH"). She alleged that Fry's had discriminated against her on the basis of her sex since November, 1978.

 In March, 1989, Save Mart purchased certain assets of Fry's from The Kroger Company. *fn7" On September 14, 1990, Herring received a "right to sue" letter from the EEOC. On December 14, 1990, Herring filed a sex discrimination *fn8" suit in this Court against Fry's, Save Mart, and The Kroger Company. *fn9" On March 14, 1991, Herring filed a first amended complaint, adding claims on behalf of all other similarly-situated females at the Fry's stores.

 On November 4, 1991, Herring filed a second amended complaint, naming five additional claimants as representatives of the class, *fn10" and extending the sex and race discrimination claims to include employees of other Save Mart stores in California. On October 14, 1992, Herring filed a third amended complaint, adding allegations of retaliation and constructive discharge by claimants Alberta and McLemore, and allegations of sex and age discrimination by claimant Olle.

 On August 9, 1993, Herring filed a fourth amended complaint, naming individual defendants, and adding allegations of harassment. The parties to this action dispute the propriety and legal effect of the fourth amended complaint. *fn11"

 B. The Instant Action.

 The Policy issued to Save Mart by the London Defendants provides General Liability Coverage for personal injury and property damage with limits of $ 900,000 ultimate net loss any one occurrence excess of a $ 100,000 ultimate net loss any one occurrence Self-Insured Retention. *fn12" The Policy also provides Faithful Performance Coverage with limits of $ 475,000 ultimate net loss each and every loss excess of a $ 25,000 ultimate net loss each and every loss Self-Insured Retention. *fn13"

 The London Defendants denied coverage for the class action sex and race discrimination claims, and reserved all rights as to coverage for the retaliation and age discrimination claims. On March 22, 1993, Save Mart filed the instant action in order to secure coverage under the Policy.

 The London Defendants now move for summary judgment on the grounds that: (1) the employment discrimination claims are excluded under Agreement C as personal injuries to "employees of the Assured injured in the course of their employment;" (2) the Herring Action involves solely allegations of intentional misconduct, which are precluded by the terms of the Policy and California Insurance Code § 533; (3) the alleged pattern and practice of discrimination constitutes a single occurrence predating the Policy period; (4) Save Mart is barred from collecting under the Policy because it knew of the discrimination claims prior to the inception of the Policy; and (5) the Faithful Performance Coverage is a first party crime coverage, which is inapplicable to the underlying lawsuit.

 Save Mart opposes the London Defendants' motion for summary judgment, and itself moves for a summary adjudication that the London Defendants have a duty to defend the underlying lawsuit and pay defense costs as they are incurred by Save Mart.

 II. DISCUSSION.

 Summary judgment is appropriate if there is "no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Coverage under a written insurance policy is a matter of judicial interpretation. Merced Mutual Ins. Co. v. Mendez, 213 Cal. App. 3d 41, 45, 261 Cal. Rptr. 273 (1989). California law controls the construction of the terms of an insurance policy. See St. Paul Mercury Ins. Co. v. Ralee Engineering Co., 804 F.2d 520, 522 (9th Cir. 1986).

 A. Save Mart's Counter Motion for Summary Judgment.14

 1. Duty to Defend. If an insurer has a duty to defend, it must defend any suit potentially seeking damages within the coverage of the insurance policy. Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287, 1993 Cal. LEXIS 5812, *9, 861 P.2d 1153 (citing Gray v. Zurich, 65 Cal. 2d 263, 275, 54 Cal. Rptr. 104, 419 P.2d 168 (1966)). A policy which does not contain an express duty to defend should nevertheless be interpreted to include a duty to defend unless a ...


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