The opinion of the court was delivered by: D. LOWELL JENSEN
On April 19, 1995, the Court heard arguments on plaintiff's and defendant's motions for summary adjudication of two issues: (1) whether defendant Atlantic Mutual Ins. Co. ("Atlantic Mutual") had a duty to defend plaintiff First Pacific Networks, Inc. ("FPN") in Phase I of the underlying lawsuit, Arthur Bass v. First Pacific Networks (the "Bass lawsuit"); and (2) whether Atlantic Mutual breached that duty. Darryl M. Woo of Sheppard, Mull in, Richter & Hampton appeared on behalf of FPN. Gary R. Selvin of Larson & Burnham appeared on behalf of Atlantic Mutual. Having considered the arguments of counsel and the papers submitted, the Court hereby GRANTS plaintiff's motion for partial summary judgment.
This case is about whether an insurance company, Atlantic Mutual, breached its duty to defend. Atlantic Mutual issued a policy covering various torts, including defamation, by FPN. FPN was sued in the Bass lawsuit by a past chairman, Arthur Bass, for conversion of stock and defamation. FPN counterclaimed that Bass acquired the stock by "extortion" or "duress." Judge Ware, presiding over the Bass lawsuit bifurcated the action into two Phases. The First Phase was to determine who owned the stock. The Second Phase was to determine the amount of damages, if any, due to Bass. Atlantic Mutual refused to defend FPN in the First Phase on the grounds that its policy only covered suits for damages. FPN sued Atlantic Mutual for breach of the duty to defend. Both parties move for summary judgment on the issue of whether Atlantic Mutual breached its duty to defend.
In October 1992, Bass amended the complaint to allege defamation against Gibby. Though FPN was not named as a defendant to the defamation cause of action, one of the allegations in the complaint alleged that some of the defamatory statements were made "at a meeting of the Board of Directors of FPN held at FPN's offices."
On November 12, 1992, FPN tendered the defense and indemnity of the Bass lawsuit, including the defamation claim, to Atlantic Mutual under the insurance policy. Atlantic Mutual did not respond until February 18, 1993.
On January 20, 1993, FPN filed a counterclaim in the Bass lawsuit against Bass for cancellation of the shares of Bass's FPN stock. FPN alleged that Bass had procured such stock from the company by duress and extortion, and for no consideration or legally inadequate consideration, and thus that the issuance of the shares was void. FPN's answer to Bass's First Amended Complaint included these same allegations as affirmative defenses.
On February 18, 1993, Atlantic Mutual accepted the defense of the Bass lawsuit by hiring the law firm, Ericksen, Arbuthnot to "protect [the] rights and interests [of FPN] with respect to [the Bass] lawsuit." FPN responded in a letter that it would not be happy with substituting Ericksen for its present firm.
On March 11, 1993, Judge James Ware, presiding over Arthur C. Bass v. First Pacific Networks, Inc., filed an order bifurcating the action as follows:
This action is hereby ORDERED to be bifurcated into two phases. The 'First Phase' shall consist exclusively of the adjudication of the controversy regarding the right to ownership of the stock represented by [the] stock certificates. . .
The 'Second Phase' shall consist of the claims for damages brought by the Plaintiff Bass against each of the Defendants in this action. Apart from the motions currently pending and submitted as of February 26, 1993, discovery, motion practice and all other pretrial activity relating to the Second Phase is hereby STAYED, pending further order of this court after completion of trial or settlement of the First Phase.
On April 9, 1993, Atlantic Mutual denied that the Bass suit fell within the policy and refused to undertake the defense.
On May 4, 1993, Atlantic Mutual asked FPN for information as to the alleged defamation.
On May 10, 1993, FPN responded to Atlantic Mutual's request for information as to the defamation by stating that since the alleged defamation never occurred, they could not give any information about it.
Commencing on April 27, 1993, Phase I of the Bass lawsuit was tried before Judge Ware. On June 30, 1993, Judge Ware filed an Interlocutory Judgment in favor of Bass and against FPN. On September 24, 1993, at a case management conference, Judge Ware set the Second ...