Metropolitan News-Enterprise


Wednesday, September 26, 2012


Page 1


C.A. Allocates Coverage Responsibility in Sterling Housing Bias Suit

Insurer Need Not Defend Discrimination Claims Absent Specific Policy Provision, Panel Says




Two of Donald Sterling’s insurers were not required to defend him and his real estate company in the federal government’s action accusing them of violating the Fair Housing Act by discriminating against tenants and prospective tenants on the basis of race, this district’s Court of Appeal has ruled.

Div. Five held Monday that the “intentional and willful” acts exclusions in the policies, and the Insurance Code ban on coverage for willful misconduct, do not apply because Sterling was sued on theories of both direct liability and vicarious liability for the acts of his employees.

But of the three insurers to whom Sterling tendered his defense, only one—whose policy specifically covered discrimination claims—was liable, the panel said. The other two insurers, whose policies provided coverage for more typical landlord-tenant claims—such as wrongful eviction—were not obligated to provide coverage or a defense, Justice Richard Mosk wrote for the court.

  The Department of Justice sued Sterling—a prominent attorney, developer, philanthropist, and sports team owner—along with his wife and the Sterling Family Trust, claiming bias against African Americans and families with minor children in the rental of apartments at various locations around Los Angeles County. The department also claimed that Sterling’s employees used various means to discourage persons not of Korean ethnicity from seeking to rent at Sterling properties in Koreatown.

At the time of the settlement, Sterling owned more than 5,000 apartments at 119 locations in the county, according to a DOJ press release.

Compliance Sought

The action was filed in 2006 and settled in 2009. The settlement required Sterling to pay $2.725 million, of which $100,000 went to the government as a penalty and the rest into a restitution fund for victims of the alleged violations.

It also required that Sterling hire court-approved independent monitors to oversee compliance with the Fair Housing Act at all of its Los Angeles County apartments.

At the outset of the litigation, Sterling tendered its defense to Federal Insurance Company, Steadfast Insurance Company, and Liberty Surplus Insurance Corporation.

Liberty and Steadfast provided primary coverage against certain claims, including those for “wrongful eviction,” “wrongful entry,” and “invasion of the right of private occupancy.” Federal offered excess and umbrella coverage against those same claims, and specifically insured against claims for discrimination.

Liberty insisted it had no duty to defend, while Federal and Steadfast agreed to defend while reserving their rights to deny coverage. Federal incurred nearly $317,000 in costs before withdrawing its defense, while Steadfast spent more than $5.285 million on Sterling’s defense and contributing $1 million to the settlement.

Federal sued Liberty and Steadfast for subrogation, indemnity, and declaratory relief. Steadfast cross-complained against the others for subrogation, indemnity, contribution and declaratory relief.

Sole Insurer Liable

Los Angeles Superior Court Judge Alan Rosenfield ruled that Federal was the sole insurer liable for defense costs and coverage, because its policy specifically included discrimination claims and the others did not.

Mosk agreed, drawing a distinction between actions by the government to enforce the Fair Housing Act and private actions by tenants.

“Although the discrimination alleged in the Sterling action may have been based in part on acts that might involve wrongful evictions, wrongful entries, or invasions of the right of private occupancy, the gravamen of the action itself solely was for housing discrimination under the Fair Housing Act, “ he said. “The Sterling action cannot be construed as asserting common law theories of wrongful eviction, wrongful entry, or invasion of the right of private occupancy.  Only the tenant can claim wrongful eviction, wrongful entry, or invasion of the right of private occupancy.”

Attorneys on appeal were Edmund G. Farrell III of Murchison & Cumming for Federal Insurance Company, Neil Selman and Meka Moore of Selman Breitman for Steadfast Insurance Company, and Patrick Fredette, Jay A. Christofferson, and Scott M. Reddie of McCormick, Barstow, Sheppard, Wayte & Carruth for Liberty Surplus Insurance Corporation.

The case is Federal Insurance Company v. Steadfast Insurance Company, 12 S.O.S. 4857.


Copyright 2012, Metropolitan News Company