Am. Family Connect Prop. & Cas. Ins. Co. v. Fed. Ins. Co.

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AMERICAN FAMILY CONNECT PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff v. FEDERAL INSURANCE COMPANY, Defendant

No. 3:22-cv-01351-JO-AGS

United States District Court, S.D. California

September 30, 2024

PARTIAL ORDER ON CROSSMOTIONS FOR SUMMARY JUDGMENT

HONORABLE JINSOOK OHTA, UNITED STATES DISTRICT JUDGE.

Kevin Khawaja and Isha Deen (“the Deens”) had a personal injury liability policy with Defendant Federal Insurance Company and an umbrella coverage policy with Plaintiff American Family Connect Property and Casualty Insurance Company. After Defendant declined to represent the Deens in two separate state lawsuits, Plaintiff, as their umbrella coverage insurer, assumed responsibility for the Deens' legal representation. Plaintiff then brought suit alleging that Defendant, as the Deens' primary personal injury liability insurer, improperly refused coverage. Dkt 11 (“Am. Compl.”). The parties filed cross-motions for summary judgment contesting whether Defendant had a duty defend the Deens in the state lawsuits as well as indemnify Plaintiff for expenses incurred in representing the Deens. Dkts. 34 (“Def.'s Mot. Summ. J.”), 35 (“Pl.'s Mot. Summ. J.”). For the reasons provided below, the Court denies Plaintiff's partial motion for summary judgment and grants in part and denies in part Defendant's motion for summary judgment.

I. BACKGROUND

This coverage dispute arises from two separate state lawsuits accusing the Deens of committing various intentional torts. In the first action, Deen v. Deen, 37-2016-00022636-CU-OR-NC, Isha's father, Chodry, and sisters, Sana and Sidrah, (the “In-Laws”) alleged that the Deens falsely imprisoned and defamed them in an attempt to steal the In-Laws' property rights. Dkt. 35-4 (“Pl.'s Ex. 3”). In the second case, Deen v. Fitzgerald Yap Kreditor, LLP, 37-2021-00015644-CU-FR-NC, the Deens' former law firm, Fitzgerald Yap Kreditor, LLP, accused the Deens of filing multiple unfounded lawsuits against the firm in a bad faith campaign to avoid paying their legal fees. Dkt. 35-11 (“Pl.'s Ex. 10”). The Deens requested that Defendant, their primary insurance company, cover their legal defense in these two cases pursuant to its third-party liability coverage. Dkt. 34-17 (“Def.'s Ex. N”). However, Defendant refused to provide representation in the two cases for multiple reasons,^[1] Dkts. 35-5, 35-6, 35-7, 35-8, 35-9, 35-13, 35-14, including an “intentional acts” exclusion in its policy that barred coverage for acts intended to cause harm. Def.'s Ex. N at 43. As a result, Plaintiff, as the Deens' umbrella insurance provider, undertook the Deens' defense. Pl.'s Mot. Summ. J. at 5. Plaintiff now seeks reimbursement for past and future expenses incurred in defending the Deens, arguing that Defendant had the duty to provide this representation. Id.

A. The Underlying Lawsuits

1. Deen v. Deen

In Deen v. Deen, the Deens and the In-Laws contest who is the rightful owner of a property located at 17911 El Brazo, Rancho Santa Fe, California (the “El Brazo house”).

On July 5, 2016, the Deens filed a state court action against the In-Laws alleging that the In-Laws filed false deed documents to take ownership of the El Brazo house. Dkt. 35-3 (“Pl.'s Ex. 2”). In response, on August 19, 2016, the In-Laws filed crossclaims against the Deens. Pl.'s Ex. 3. The In-Laws, in turn, alleged that the Deens tried to pressure the InLaws into transferring the deed by holding them captive, physically brutalizing and threatening them, and ultimately, defaming them to their neighbors. Id.

In their cross-complaint, the In-Laws detailed how the Deens attempted to steal the deed to the El Brazo house by abusing their trust. Id. at 6-10. According to the In-Laws' complaint, the family conflict first began when the In-Laws requested that Isha, as her father's power of attorney, register the deed to the El Brazo house in their names. Id. at 68. In response, Isha allegedly lied to the In-Laws and claimed ownership of the El Brazo house by putting the deed in her own name. Id. at 8-9. The In-Laws claimed that when they discovered Isha's lies and confronted her, she pled ignorance and promised to execute a new deed that would transfer the property to Chodry. Id. at 9-10. When the In-Laws later discovered that Isha had not kept this promise, Chodry announced that he would record the deed himself to ensure that it was properly registered in his own name. Id. at 10.

In order to prevent Chodry and Isha's sisters from reclaiming the deed, the Deens allegedly confined the In-Laws in the El Brazo house and subjected them to threats and violence. Id. at 10-11. The In-Laws asserted that during their confinement of seven days, the Deens did the following: (1) physically struck them; (2) threatened that Kevin's brothers and other family members would rape Isha's sisters; (3) threatened to kill the InLaws if they left the El Brazo house, called the authorities, or attempted to have the deed recorded; (4) threatened to have them arrested by making false accusations of car theft, forgery, and false impersonation; (5) threatened to publish defamatory material against Sana and Sidrah if any of the In-Laws left the El Brazo house, called the authorities, or attempted to have the deed recorded; (5) withheld medication from Chodry and Sidrah; (6) forced Sana to transfer $150,000 of her personal funds into an account that the Deens could access; (7) threatened to have Kevin's fundamentalist relatives move in, take over the house, and use the house for illegal activities; (8) patrolled the house with firearms to intimidate the In-Laws; and (9) used a kitchen knife to attack them. Id. The In-Laws alleged that they were only able to end this abuse by calling the police and obtaining a restraining order against Kevin. Id. at 11.

After leaving the El Brazo house, the Deens allegedly continued to harass and defame the In-Laws. Id. at 11-14. The In-Laws contended that after they were released, they were ultimately able to record the grant deed and claim ownership of the El Brazo house. Id. at 12. Purportedly, the Deens, in turn, threatened, intimidated, and pressured the In-Laws to transfer the grant deed back to them and to drop the charges against Kevin. Id. To achieve these goals, the Deens allegedly threatened to make false criminal accusations against the In-Laws, surveilled their house, and interfered with their internet, security, and telephone and mail service. Id. The In-Laws also claimed that as a means to pressure them to surrender the deed to the El Brazo house, the Deens knowingly made false and offensive comments to the In-Laws' neighbors, family friends, and community members about their education, income, relationships, health histories, and ownership rights of the El Brazo house and other properties. Id. at 12, 28-29. Moreover, Kevin also purportedly broke into the El Brazo house and attacked Isha's father, causing him injury and leading to Kevin's second arrest and a second restraining order. Id. at 12. Finally, the In-Laws alleged that the Deens threatened them in an attempt to prevent them from pursuing their crossclaims and attending state court hearings. Id. at 13.

Based on these allegations, the In-Laws brought claims of assault, battery, false imprisonment, physical elder abuse, defamation, and intentional infliction of emotional distress in addition to claims of quiet title, slander of title, breach of contract, fraud, breach of fiduciary duty, and conversion. See generally Pl.'s Ex. 3.

2. Deen v. Fitzgerald Yap Kreditor, LLP

The Deen v. Deen litigation also gave rise to the second lawsuit at issue in this case, Deen v. Fitzgerald Yap Kreditor, LLP. In this secondary lawsuit, the Deens and a law firm that represented them in Deen v. Deen, Fitzgerald Yap Kreditor, LLP (“FYK”), contested the quality of the law firm's services and whether outstanding legal fees were owed. On April 7, 2021, Isha filed suit against FYK, alleging that the firm failed to adequately defend them, incurred unnecessary litigation costs, and falsified expenses. Dkt. 34-7 (“Def.'s Ex. F”) at 5-8. On July 12, 2021, FYK filed a cross-complaint against Isha and Kevin, alleging that the Deens failed to pay their bill and engaged in bad-faith litigation proceedings against the firm in an attempt to evade paying such costs.^[2] Pl.'s Ex. 10.

In her original complaint against FYK, Isha alleged that she and Kevin were forced to bring multiple legal actions against FYK in order to get back the money they were owed. Def.'s Ex. F at 7-10. Specifically, she contended that she filed an application for a Mandatory Fee Arbitration in order to obtain a refund from FYK. Id. at 7-8. However, she asserted that because FYK botched the arbitration process, that she and Kevin had no choice but to a file a form complaint in state court against the firm. Id. Because of FYK's purported dilatory conduct in Deen v. Deen, she and Kevin also filed a complaint to the state bar. Id. Moreover, she alleged that due to FYK's alleged malfeasance and exorbitant legal costs, she and Kevin were forced to file for Chapter 13 reorganization in bankruptcy court, listing FYK as a creditor. Id. at 8. In sum, Isha alleged that the Deens had taken these measures to (1) prevent FYK from abusing the legal process, (2) confront the firm's lies and malpractice, and (3) collect the money they were owed. Id. at 4-8. On these grounds, Isha sued FYK for breach of fiduciary duty, violation of the Fair Debt Collection Act, fraud, breach of contract, abuse of process, injunctive relief, professional negligence, discrimination, breach of the implied covenant of good faith and faith dealing, and conversion. See generally Def.'s Ex. F.

In turn, FYK's cross-complaint alleged that the Deens not only failed to...