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Heuges v. Travelers

filed: January 25, 1992.


On Appeal From the United States District Court for the Southern District of California. Rudi M. Brewster, District Judge, Presiding. D.C. No. CV-90-0861-B.

Before: Sneed, Beezer and Trott, Circuit Judges


Donna Heuges appeals the district court's grant of summary judgment in favor of Travelers Indemnity Company of Rhode Island. Donna Heuges contends that Travelers has an obligation to satisfy a personal injury judgment entered against its insureds. The district court found that the insurance policy excluded coverage for the underlying motor vehicle accident. It further found that Travelers' late reservation of rights could not constitute a waiver absent detrimental reliance by the insureds, and that the policy's "incidental contract" coverage does not apply here. We have jurisdiction and we affirm.


In January 1988, while driving a truck from a bar where he had been drinking and shooting pool, Ernest Guzman struck and injured Heuges as she walked down the street. Heuges brought a personal injury action in state court. Among the defendants were Jeffrey Dowler (Guzman's employer), Coast Landscape Management (CLM) (Dowler's sole proprietorship), and C.L.S. Landscape Management (CLS Landscape) (a corporation solely owed by Kevin Davis). On behalf of CLS Landscape, Davis had leased the truck to Dowler for use by CLM. CLS Landscape filed a cross-complaint for indemnity against, among others, Dowler and CLM.

In January 1989 Dowler tendered defense of the lawsuit to Travelers.*fn1 He based this coverage request on the commercial general liability insurance policy which names both Dowler and CLM as insureds. Travelers assumed Dowler's defense.

In December 1989, four months before trial on Heuges' personal injury action, Travelers notified Dowler that the policy's automobile exclusion precluded coverage. Therefore, Travelers stated, it would not indemnify him for any damages awarded in the action. It would continue to provide him a complete defense, however, because of the status of the lawsuit at the time. Ultimately, the parties settled the lawsuit.

As part of the settlement, Dowler executed a $450,000 stipulated judgment, but was insulated from it by a covenant not to execute running in his favor. The judgment also included an assignment to Heuges of any rights that Dowler might have against third parties, including Travelers.

Pursuant to this assignment, Heuges filed suit in state court, seeking a declaration that she was entitled to $450,000 from Travelers. Travelers removed the case to federal court based on diversity, and later moved for summary judgment. The district court granted the motion. Heuges timely appeals.

A grant of summary judgment is reviewed de novo. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339 (9th Cir. 1989). We must determine whether, viewing the evidence in the light most favorable to the nonmoving party, there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Id. at 1340. In this diversity action, we look to California substantive law. Erie v. Tompkins, 304 U.S. 64 (1938).


The district court determined that the automobile exclusion contained in the policy precludes coverage based directly on the accident. Heuges does not dispute this determination. The policy is explicit on this point. The policy does not apply "to bodily injury or property damage arising out of the . . . use . . . of (1) any automobile . . . owned or operated by or rented or loaned to any insured, or (2) any other automobile . . . operated by any person in the course of employment by any insured; . . . ."

Heuges maintains that Travelers waived its right to deny coverage based on the automobile exclusion because it did not notify Dowler about the exclusion until nearly eleven months after assuming his defense. The district court concluded that even if Travelers failed to reserve its rights in a timely manner, that would not constitute a waiver because Heuges did not allege any detrimental reliance by Dowler. Heuges argues that, as a matter of California law, waiver does not require detrimental reliance. Alternatively, she argues that she does not bear the burden of on the issue.

To establish that Travelers waived its right to deny coverage, Heuges must show that Travelers "either intentionally relinquished a known right, or acted in such a manner as to cause the insured reasonably to believe the insurer had relinquished such right, and that the insured relied upon such conduct to his detriment." J.C. Penney Casualty Ins. Co. v. M.K., 52 Cal. 3d 1009, 1017-18, 804 P.2d 689, 278 Cal. Rptr. 64, 67, cert. denied, 112 S. Ct. 280 (1991)(emphasis added)(citing Val's Painting & Drywall, Inc. v. Allstate Ins. Co., 53 Cal. App. 3d 576, 587, 126 Cal. Rptr. 267, 273 (1975)). In Intel Corp. v. Hartford Accident & Indem. Co., No. 89-15165 (9th Cir. Dec. 24, 1991), this court reviewed ...

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