Court Opinion

ID: 9009883
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:50:09.348961+00
Date Added: 2024-06-11T17:11:21.830771
License: Public Domain

REINHARDT, Circuit Judge,
dissenting:
Because I believe the majority misconstrues both the City’s claims against the Olympic Club and the second endorsement to the Club’s insurance policy, I dissent.
I
This is a simple coverage dispute between insurer and insured. The rules for adjudicating such a dispute are well-established, and the repugnancy of the acts allegedly committed by the insured cannot alter these principles. A quick review of these adjudicative guidelines exposes the full import of the majority’s conclusion that Lloyd’s is not liable for the Club’s defense costs.
First, we are constrained to favor the Club, as the insured, in interpreting the policy at issue. That we resolve uncertainties in favor of the insured is an undeniable axiom of policy interpretation. “In interpreting an insurance policy we apply the general principle that doubts as to meaning must be resolved against the insurer.” Gray v. Zurich Ins. Co., 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 107, 419 P.2d 168, 171 (1966); see also Eichler Homes, Inc. v. Underwriters at Lloyd’s, 238 Cal.App.2d 532, 538, 47 Cal.Rptr. 843, 847 (1965) (“[wjhere there is doubt as to whether the duty to defend exists, the doubt should be resolved in favor of the insured”). “Moreover, coverage clauses are to be interpreted broadly so as to afford the greatest possible protection to the insured.” Safeco Ins. Co. of America v. Andrews, 915 F.2d 500, 502 (9th Cir.1990) (citing Reserve Ins. Co. v. Pisciotta, 30 Cal.3d 800, 808, 180 Cal.Rptr. 628, 640 P.2d 764 (1982)).
Second, in order to prevail, the Club need not demonstrate actual or even probable covered losses; it need only show potential covered losses. “[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.” Gray, 65 Cal.2d at 275, 54 Cal.Rptr. at 112, 419 P.2d at 176. “[Tjhere exists a duty on the insurer to defend an action if potential liability to pay exists, even though that potential liability to pay is remote.” California Union Ins. Co. v. Club Aquarius, Inc., 113 Cal.App.3d 243, 247, 169 Cal.Rptr. 685, 686 (1980).
Finally, the duty to pay defense costs cannot rest solely upon an examination of the pleadings. “The insurer’s obligation to defend is not dependent on the facts contained in the complaint alone; the insurer must furnish a defense when it learns of facts from any source that create the potential of liability under its policy.” CNA Casualty of Calif. v. Seaboard Surety Co., 176 Cal.App.3d 598, 606, 222 Cal.Rptr. 276, 279 (1986). Moreover, while the insurer cannot hide behind the pleadings, it also cannot hide from them by appealing to facts not in the pleadings. “[T]he duty to defend is so broad that as long as the complaint contains language creating the potential of liability under an insurance policy, the insurer must defend an action against its insured even though it has independent knowledge of facts not in the pleadings that establish that the claim is not covered.” Id.
Despite these three established principles favoring insureds in coverage disputes of this nature, the majority holds that the insurer is entitled to summary judgment. In effect then, the majority determines that, considering the City’s pleadings and extrinsic facts in the light most favorable to the Club,1 and ignoring extrinsic facts *505favorable to Lloyd’s, the policy and endorsement unambiguously preclude even the remote potential of coverage for losses under the City’s complaints. I cannot join this extraordinary conclusion. I believe that a fair and logical interpretation of the City’s complaints raises a clear and evident potential for covered losses.
II
As an initial matter, it should be apparent that the Unruh Act and Article 33B of the San Francisco Municipal Code prohibit acts of discrimination. An unenforced policy of racial or gender discrimination without more, while certainly repugnant, is not actionable.2 If, for example, the Olympic Club, without repealing its stated policy of excluding women, changed its practices and openly admitted women to full membership on the same basis as men, it is highly unlikely the City Attorney could successfully pursue an action for gender discrimination against the Club. Mere policy pronouncements, without concomitant acts to enforce them, are not proscribed.
Thus, when the majority asserts that this case reduces to a determination whether the underlying lawsuits are based upon “policies” or “wrongful acts," it creates a false dichotomy. We must assume that the City’s actions are valid. Policies alone cannot support the lawsuits, acts are necessary underpinnings of the City’s claims against the Club. Here, acts serve to implement policies. Thus, it is both acts and policies that bring the City’s claims directly within the coverage of the second endorsement.
A
The vast majority, if not all, of the discriminatory acts supporting the City’s lawsuits — including denial of membership and denial of access to women and minorities— were necessarily performed by directors, officers, and employees (including committee chairmen)3 of the Club. These acts by the directors, officers, and employees “in the discharge of their duties” fall within the definition of “wrongful act” under the Club’s insurance coverage. That these wrongful acts of discrimination were committed in furtherance of a Club policy of racial and gender discrimination renders them no less an indispensable part of the City’s claims against the Club.
As noted above, the potential for coverage does not depend upon specific factual allegations within the complaint. An insurer is required to provide a defense when “facts from any source” reveal potential coverage. CNA Casualty, 176 Cal.App.3d at 606, 222 Cal.Rptr. at 279. The sketchiness of the City’s complaints cannot deprive the Club of its rights as an insured. If the rule were otherwise, any litigant could, by artful construction of its pleadings, preclude its opponent’s insurance coverage and thereby obtain a tremendous litigation advantage. “[W]e should hardly designate the third party as the arbiter of the policy’s coverage.” Gray, 65 Cal.2d at 276, 54 Cal.Rptr. at 112, 419 P.2d at 176. Thus, the majority’s narrow and near-exclusive focus upon the specific factual allegations in the City’s complaints is inconsistent with California law.
Admittedly, the City’s complaints, as is the case with most modern pleadings, are somewhat sketchy. Here, it is possible *506that the City deliberately made its complaints as fact-bare as possible. Nonetheless, on their face, both complaints allege a “pattern or practice” of discrimination. Because I view the charge of consulting “any source” as including the logical and fair import of the words pleaded, I fail to see how this phrase can suggest anything but acts by the Club’s officers, directors, employees, and committee chairmen. The “practice” of discrimination necessarily includes actions. Moreover, the City’s complaints do not rely simply upon denial of membership; they allege denial of equal access to the Club’s accommodations separate and apart from exclusion from membership. The underpinnings of this allegation must consist of specific acts by the Club’s employees. Even if the City, for whatever reason, has failed to detail these specific acts in its pleadings, Lloyd’s and the court cannot deny that the claim is in respect of “wrongful acts” by Club employees.
Such a denial defies logic and common sense. Policies, particularly those like the Club’s which have been in existence for over 130 years, depend upon acts to enforce them. Even discriminatory policies so widely known as to discourage any challengers depend upon acts of dissemination to achieve their unlawful deterrence. That a 130-year old policy depends upon acts of enforcement by directors, officers, and employees is an obvious, logical inference that we cannot ignore. In determining potential coverage based upon brief and undetailed pleadings, California law neither requires nor allows us to ignore common sense.
Even if I were to conclude that more specific factual allegations are required, I would find them present here. The City’s claims raise another obvious potential for covered losses. In 1987, the Club’s Board of Directors submitted to the membership a series of proposals to eliminate discrimination. This submission was an act by the directors; it is also a factual allegation in the City’s first complaint. As the majority acknowledges, the Board had the power to change the bylaws of its own accord, subject to a demand for a full membership vote by five percent of the members. Instead of adopting amendments terminating the discriminatory policies, the directors submitted amendatory proposals directly to the membership, which defeated them. This discretionary submission to the membership prior to demand is an “act” by the directors, leading directly to the City’s claims. It is an act that presents a potential for coverage under the second endorsement.
In addition, the directors had a duty to exercise their power to change the Club’s policies and practices to bring the Club into compliance with state and municipal law. Their failure to so act, in and of itself, supports the potential for coverage under the second endorsement. The policy definition of “wrongful act” includes any “omission.” Had the directors not omitted to change the Club’s policies and practices, the City would have no claims. Thus, the directors’ omission is a “wrongful act” bringing the City’s claims against the Club potentially within the coverage of the second endorsement.
Thus, as I read the City’s complaints, keeping in mind the general principles of policy interpretation detailed above, they clearly convey that acts by directors, officers, employees, and committee chairmen underlie the claims.
B
The Club’s discriminatory policies are highly relevant to the City’s claims. As to the City’s lawsuits, the policies are highly probative of intentional discrimination. As to our inquiry here, the policies demonstrate why the discriminatory acts of the Club’s officers and employees are imputed to the Club itself. As the majority notes, the second endorsement extends coverage to losses from claims against the Club for acts done by the directors, officers, or employees that “are imputed to the organization as their principal.” To my knowledge, there is no more obvious manifestation of an agent acting on behalf of a principal than when an employee — or director or officer — commits acts in furtherance of a policy established by his employer.
*507Thus, the majority’s contention that the Club’s argument for coverage “turns on its head California’s rule that directors are the agents of their corporation” is entirely incorrect. Rather, a straightforward application of California’s rule requires us to recognize that the claims alleged in the City’s complaints fall within the second endorsement. Discriminatory acts by the directors, officers, and employees are imputed to the Club, as their principal, because it established the discriminatory policy to be followed by its agents.
The majority, refusing to recognize that discriminatory policies, including recent ratifications by the membership, support the potential for coverage under the second endorsement, appears to conclude that the existence of these policies somehow requires us to ignore the acts by directors, officers, employees, and chairmen that obviously underlie the City’s claims. This erroneous view seems to stem from two misconceptions.
First, the majority repeatedly notes the absence of causes of action or alleged liability against the officers or directors. The district court also based its decision in part upon the absence of a claim against an officer or director. The existence of a legal claim — or the viability of a possible claim — against an officer or director is not germane to coverage under the policy’s second endorsement. The policy definition of “wrongful act” does not require a legal claim or even a potential claim against the person who engages in the act. Rather, the second endorsement specifically reaches claims against the Club for acts done by the officers and directors; nothing suggests that those acts need support independent liability on the part of the directors or officers. Thus, the majority’s discussion of impediments to personal liability of the directors, officers, and employees is ultimately irrelevant.
Moreover, even if potential liability of the individual actors were requisite to application of the second endorsement, the majority’s assumption that the existence of the Club’s policies obviates such personal liability is simply wrong. Following policy set by another, even if the policymaker is one’s employer, does not endow a wrongdoer with personal immunity from liability. Such policies may allow the wrongdoer to seek indemnity from the policymaker, but “I was simply carrying out policy” is no defense to a claim of discrimination brought by an injured party.4 Thus, the 1987 membership ratification of continued policies of discrimination does not shield the wrongful acts of directors, officers, and employees; we cannot ignore the potential for coverage created by these acts simply because of member ratification or policy-making.
The City’s claims depend upon both acts and policies. The existence of one does not cancel the other. Acts and policies together raise the evident potential for losses covered under the second endorsement.
C
By this simple logical calculus, we should reverse the district court’s judgment. As discussed previously, under traditional interpretive principles, in order to affirm the district court, we must conclude that the second endorsement unambiguously precludes any potential for coverage of the City’s claims. Nonetheless, in the face of such longstanding doctrine requiring us to favor the insured, the majority reaches just such a strained conclusion to hold in favor of the insurer. I, for one, fail to see the clear and unambiguous meaning of the second endorsement that the majority attaches to it.
Perhaps the majority’s decision is related to the Club’s unsympathetic stance in the City’s litigation as a defender of discrimination. Lloyd’s argues that we should affirm *508because “[i]t would be contrary to public policy to have insurance coverage that encourages the insured to continue to discriminate.” However, despite a surface appeal, the majority’s strained construction of the second endorsement provides limited service to the cause of eliminating policies of discrimination at clubs like the Olympic Club.
Insurers are sophisticated business entities. Were we to reach the correct result— dictated both by precedent and a fair reading of the second endorsement — insurers could, if they wish, move swiftly to exclude, explicitly, acts of discrimination from liability coverage issued to clubs like the Olympic Club. This result, I am confident, would lead such clubs to abandon policies of discrimination far more quickly than piecemeal imposition of defense costs on individual discriminatory clubs by courts intent on imposing strained readings on unambiguous insurance policy language. In any event, the cost of such an approach to the laudable goal of eliminating discrimination at such clubs is the perversion of insurance law as it affects all insureds. That is a price we, as interpreters of California law, have no right to pay.
I would reverse the district court’s judgment.

. For purposes of the action before us, the light most favorable to the Club is the light which in the underlying actions is most favorable to the City. In other words, we look at the facts and *505inferences in the manner which subjects the Club to the widest exposure.

. Of course, a formal or informal policy of discrimination could so discourage members of the groups discriminated against that they never seek the benefit to which the discriminatory policy applies. In such circumstances, it is possible that the policy alone could support an actionable claim under the Unruh Act. However, at least with regard to African Americans, that is not the case here; as the' majority notes, some African Americans have applied for or expressed interest in obtaining full membership in the Club. Moreover, even where a policy is so effectively discouraging as to obviate the need for direct acts of discrimination, someone must disseminate the policy in order for it to have its intended effect. If directors, officers or employees accomplish such dissemination, they engage in wrongful acts supporting the policymaker’s Unruh Act liability.

. Under the third endorsement to the policy, the term "employee” includes committee chairmen.

. This explains why the majority’s discussion of the Doe defendants is unconvincing. While my dissent focuses upon the second endorsement, there remains the potential for coverage under the original policy for the claims against the Doe defendants, if some of them happen to be directors, officers, employees, or committee chairmen. The discussion of "acts" above should make clear that most, if not all, of the Does are likely to be such officers, directors, or employees.