Diamond Blue Enterprises v. Gemini Ins.
Co.















Filed 4/22/13 Diamond Blue Enterprises v. Gemini Ins. Co.
CA2/8











>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

>



California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.









IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



SECOND
APPELLATE DISTRICT



DIVISION
EIGHT




>

DIAMOND BLUE ENTERPRISES, LLC et al., Plaintiffs and Respondents, v. GEMINI INSURANCE COMPANY, Defendant and Appellant.

B244426 (Los Angeles County Super. Ct. No. BC 488022)

APPEAL from
an order of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Joanne O’Donnell, Judge. Affirmed.



Charlston,
Revich & Wollitz, Howard Wollitz and Lisa Kralik Hansen for Defendant and
Appellant.



Franceschi
Law Corporation and Ernest J. Franceschi, Jr., for Plaintiffs and
Respondents.



* * * * * *



The sole issue on appeal is whether a dispute regarding
an insurer’s failure to reimburse its insured for expenses incurred in
litigation falls within the scope of a contractual href="http://www.mcmillanlaw.com/">arbitration provision. The contractual provision requires the
insured and insurer arbitrate disputes over “whether coverage is
provided.” We conclude a dispute over
the failure to reimburse is related to coverage, but the two concepts are not
the same. We therefore affirm the trial
court’s denial of the insurer’s motion to compel arbitration.

FACTUAL AND PROCEDURAL
BACKGROUND

Respondents
Diamond Blue Enterprises, LLC, Tyrone Byrd and Don Byrd filed a complaint
against defendants Murchison & Cumming, LLP, Michael McEvoy, Continental
Insurance Company and Gemini Insurance Company (Gemini), the only
appellant. The only causes of action
asserted against Gemini were for breach of
insurance contract and breach of the implied covenant of good faith and fair
dealing.

The
gravamen of those causes of action was that Gemini refused to defend
respondents as required under the policy and refused to reimburse respondents
for their cost of defense. According to
the complaint, Gemini eventually took over the defense of a lawsuit against
respondents, but at the time Gemini began defending respondents, they had
already incurred $383,805 in expenses and attorney fees.

The
parties’ contract contains the following binding arbitration provision on a
preprinted form that was unilaterally drafted by Gemini:

“This endorsement
modifies insurance provided under the following:

“COMMERCIAL GENERAL LIABILITY COVERAGE PART

“ELECTRONIC DATA LIABILITY
COVERAGE PART

“LIQUOR
LIABILITY COVERAGE PART

“OWNERS
AND CONTRACTORS PROTECTIVE LIABILITY COVERAGE PART

“POLLUTION
LIABILITY COVERAGE PART

“PRODUCTS/COMPLETED
OPERATIONS LIABILITY COVERAGE PART

“PRODUCT
WITHDRAWAL COVERAGE PART

“RAILROAD
PROTECTIVE LIABILITY COVERAGE PART

“UNDERGROUND
STORAGE TANK POLICY

“If we and the insured do
not agree whether coverage is provided
under this Coverage Part for a claim made against the insured, then either
party may make a written demand for arbitration.

“When this demand is made,
each party will select an arbitrator.
The two arbitrators will select a third.
If they cannot agree within 30 days, either may request that selection
be made by a judge of a court having jurisdiction. Each party will:

“1. Pay the
expenses it incurs; and

“2. Bear the
expenses of the third arbitrator equally.

“Unless both parties agree
otherwise, arbitration will take place in the county or parish in which the
address shown in the Declarations is located.
Local rules of law as to procedure and evidence will apply. A decision agreed to by two of the
arbitrators will be binding.” (Italics
added.)

Based
on the foregoing arbitration provision, Gemini moved to compel arbitration. The
trial court denied the motion, finding that a dispute regarding Gemini’s duty
to defend did not fall within the contractual arbitration provision.

DISCUSSION

1. Standards of Review and Legal Principles

“‘[I]nterpretation
of an insurance policy is a question of law.
[Citation.] The rules governing
policy interpretation require us to look first to the language of the contract
in order to ascertain its plain meaning or the meaning a layperson would
ordinarily attach to it.’
[Citation.] ‘The fundamental
rules of contract interpretation are based on the premise that the
interpretation of a contract must give effect to the “mutual intention” of the
parties. “Under statutory rules of href="http://www.mcmillanlaw.com/">contract interpretation, the mutual
intention of the parties at the time the contract is formed governs
interpretation. [Citation.] Such intent is to be inferred, if possible,
solely from the written provisions of the contract. [Citation.]
The ‘clear and explicit’ meaning of these provisions, interpreted in
their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical
sense or a special meaning is given to them by usage’ [citation], controls
judicial interpretation.
[Citation.]” [Citations.]’” (In re
Ins. Installment Fee Cases (2012) 211 Cal.App.4th 1395, 1409.)

The present
case involves the interpretation of an arbitration provision, which has special
rules governing its construction. “California
courts have uniformly acknowledged that there is a strong public policy in
favor of arbitration. [Citations.] Thus,
‘doubts concerning the scope of arbitrable issues are to be resolved in favor
of arbitration. [Citations.]’ [Citation.]”
(Suh v. Superior Court (2010)
181 Cal.App.4th 1504, 1512.) Nevertheless,
the scope of an arbitration provision depends on the parties’ agreement. (Moncharsh
v. Heily & Blase (1992) 3 Cal.4th 1, 8.) “[P]arties can only be compelled to arbitrate
only when they have agreed to do so.” (>Mission Viejo> Emergency Medical Associates v. Beta
Healthcare Group (2011) 197 Cal.App.4th 1146, 1153.)

>2. The Ordinary Meaning of the Arbitration
Provision Does Not Include a Dispute Regarding Gemini’s Duty to Defend

Gemini
contends that “‘whether coverage is provided’ necessarily encompasses whether a
duty to defend is owed.” According to
Gemini, the “duty to defend is not something different from coverage.” We are not persuaded.

Coverage
in the insurance context denotes risks covered by an insurance plan. The term “coverage” is commonly defined as
“protection by insurance policy” or “inclusion within the scope of a protective
beneficial plan . . . against liability claims.” (Webster’s 3d New Internat. Dict. (2005)
p. 525.) This commonly understood
meaning of coverage delimits types of risks covered under the insurance.

The
parties’ policy uses “coverage” in its commonly understood manner, i.e., to
establish the parameters of the kinds of risk covered by the insurer. For example, the general liability coverage
form identifies three types of coverage.
There is coverage for (1) bodily injury and property damage; (2)
personal and advertising injury liability; and (3) medical payments. These are types of risk for which Gemini
agreed to insure its insured. In
addition to defining and limiting coverage, the policy separately defines and
limits Gemini’s duty to defend. The duty
to defend is triggered if a third party sues the insured seeking damages for a
covered risk, but is not triggered if the lawsuit seeks damages for a risk “to
which this insurance does not apply.”href="#_ftn1" name="_ftnref1" title="">^[1] Under the terms of the policy, coverage
defines the risks and the duty to defend is triggered by the scope of
coverage. Thus, the duty to defend and
coverage are related but not synonymous.

In addition
to the policy, legal obligations owed by an insurer to its insured distinguish
a duty to defend from coverage. “‘[A]n
insurer has a duty to defend an insured if it becomes aware of, or if the third
party lawsuit pleads, facts giving rise to the potential for coverage under the
insuring agreement. [Citations.]’ [Citation.]”
(Palp, Inc. v. Williamsburg
National Ins. Co. (2011) 200 Cal.App.4th 282, 288-289.) “The insurer must defend any claim that would
be covered if it were true, even if it is ‘groundless, false or fraudulent.’ [Citation.]”
(Id. at p. 289.) Thus, there may ultimately be no coverage for
a claim even though the insurer has an obligation to defend the claim. (Ibid.) The duty to defend and the duty to indemnify
(provide coverage) are “not ‘coterminous’”; the Supreme Court has explained
they differ in their “triggering,” in their “substance,” and in their
“scope.” (Certain Underwriters at Lloyd’s of London v. Superior Court (2001)
24 Cal.4th 945, 958.)

The duty to defend may be broader
than the duty to indemnify (Certain
Underwriters at Lloyd’s of London v. Superior Court, supra, 24 Cal.4th at p. 958) and, therefore, it may be logical to
presume the arbitration clause was meant to include disputes over the broader
duty to defend as it expressly includes the more limited duty to cover a
loss. But our inquiry here is to
determine what the parties intended by their contract, and we are in no
position to make assumptions about whether the parties intended the arbitration
clause to apply to a dispute over the duty to defend. The arbitration clause is ambiguous as to
whether it was meant to apply to a dispute over the duty to defend, and
ambiguities in an arbitration agreement, like any other contract, are resolved
against the party that drafted the agreement.
(Victoria v. Superior Court (1985)
40 Cal.3d 734, 747.)

Although
hypothetically a broad arbitration provision may cover an insurer’s duty to
defend, the narrow arbitration provision in the parties’ contract did not
include respondents’ claims against Gemini.href="#_ftn2" name="_ftnref2" title="">^[2] Because the dispute concerning Gemini’s duty
to defend its insured did not fall within the scope of the arbitration
provision, the trial court properly denied Gemini’s motion to compel
arbitration.

>DISPOSITION

The
order denying Gemini’s motion to compel arbitration is affirmed. Respondents are entitled to href="http://www.fearnotlaw.com/">costs on appeal.



FLIER,
J.

WE CONCUR:



BIGELOW, P.
J.





GRIMES, J.