The opinion of the court was delivered by: PATEL
Allan Samson brought this action against Allstate Insurance Company in state court alleging breach of contract, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation and breach of fiduciary duty. Samson seeks damages resulting from Allstate's alleged failure to defend and indemnify plaintiff in an underlying sexual harassment claim. Defendant removed the action to this court on January 31, 1996, pursuant to the court's diversity jurisdiction. 28 U.S.C. §§ 1332, 1441(b).
Now before this court are cross motions for partial summary judgment on the question of Allstate's duty to defend plaintiff in the underlying claim.
Having considered the parties' arguments and submissions, and for the reason set forth below, the court enters the following memorandum and order.
I. The Underlying Claim and Extrinsic Facts
Samson hired Joyce Chan to be his legal secretary in 1991. According to plaintiff, the two engaged in a consensual romantic relationship from 1991 until 1993, when Chan ended the relationship. Chan remained employed by Samson until 1995.
In a January 24, 1995 letter an attorney for Chan informed plaintiff's attorney that Chan would file formal charges of sexual harassment and retaliation with the Department of Fair Employment and Housing and bring suit in state court if Samson did not settle the claims for $ 75,000. Joint Statement of Undisputed Facts ("JSUF"), Exh. B. The letter asserts that Samson made advances to Chan within the first weeks of her employment, and that Chan ultimately acquiesced and continued in the relationship out of fear of losing her job. Id. at 2. According to Chan's attorney, Chan learned two years later that Samson's behavior constituted sexual harassment. Id. At that point, Chan ended the relationship and Samson allegedly retaliated against her by changing and threatening to change the terms of her employment. Id. at 2-3.
On February 16, 1995, after receiving the letter from Chan's attorney, Samson contacted Allstate asking them to confirm coverage and to tender the defense of the claim under his Homeowners and Personal Umbrella Policies with Allstate. JSUF, Exh. A. In that letter Samson alerted Allstate to a additional potential claim of bodily injury and property damage stemming from a fall by Chan in the stairs of Samson's office after work hours. Id. at 2-3. Allstate acknowledged receipt of the tender in a reservation of rights letter dated February 23, 1995. JSUF, Exh. E. Allstate would not confirm coverage at that time. Id. Samson settled with Chan for $ 50,000 and a favorable letter of recommendation. JSUF, Exhs. L & M.
II. The Insurance Policies
Samson was insured by Allstate under a Deluxe Plus Homeowners Policy and a Personal Umbrella Policy.
Both policies contain language relevant to Allstate's duty to defend.
The Umbrella Policy states, "Allstate will pay when an Insured becomes legally obligated to pay for personal injury or property damage caused by an occurrence."
JSUF, Exh. F at 4. The policy further provides that "Allstate will defend an Insured sued as the result of an occurrence covered by this policy even if the suit is groundless, false or fraudulent." Id. at 5. An "occurrence" is defined by the policy as "an accident or a continuous exposure to conditions." Id. at 2.
The Homeowners Policy provides:
Subject to the terms, limitations and conditions of this policy, Allstate will pay damages which an Insured person becomes legally obligated to pay because of bodily injury or property damage arising from ...