CITY OF SOUTH EL MONTE v. SOUTHERN CALIFORNIA JOINT POWERS INSURANCE AUTHORITY (1994)

Defendant and appellant Southern California Joint Powers Insurance Authority (Authority) appeals from the summary judgment entered in favor of plaintiff and respondent City of South El Monte (City) on City's action for declaratory relief and breach of contract.   The issue on appeal is whether, as a matter of law, the Authority was obligated to defend and indemnify City for claims asserted in an action for damages brought by Jacquelyn Sherlin (Sherlin), owner of an electro-plating business, in which she alleged federal civil rights violations (42 U.S.C. §§ 1983, 1985, 1988), interference with prospective economic advantage, and intentional infliction of emotional distress.

We find the City's intentional enactment and enforcement of an anti-noise ordinance was not an “occurrence” within the purview of the applicable insurance policies.   Further, Sherlin's claims in the underlying action against City consisted only of willful misconduct involving the passage and enforcement of this municipal legislation, and coverage was precluded by Insurance Code section 533.   Under these circumstances, the City had no reasonable expectation of a defense or indemnification and there was no duty on the part of the Authority to so provide.   Accordingly, we reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Authority and the Joint Liability Insurance Program

This case involves the narrow issue of the duty to defend and indemnify a member city of a local government self-insuring liability pool by the governmental entity established to administer the pool's insurance program, for damages alleged to have resulted from the passage of a municipal ordinance.

In the early 1970's, public entities were faced with large increases in the cost of public liability insurance from corporate insurers.   Such insurance was either unaffordable or unavailable.  (Young, Peter C., “Survey Results:  Pools a Significant Risk–Financing Option,” Public Risk (May/June 1988).)   The California Contract Cities Association undertook a study to determine the feasibility of its member cities self-insuring and entering into a joint liability insurance program.   As a result, the Authority was formed in 1977 under a Joint Powers Agreement (Agreement) among approximately 35 southern California cities, pursuant to Government Code sections 6500 et seq.   The Authority was created as a separate entity “to administer a joint protection program wherein Cities will pool their losses and claims, [and] jointly purchase excess insurance and administrative and other services․”

The joint protection program (insurance program) offered by the Authority encompassed defense and indemnity against public tort liability as well as workers' compensation coverage and the health and welfare benefit programs of the member cities.   Article 15 of the Agreement establishing the Authority specifically required liability insurance to provide member cities protection for personal injury, errors and omissions, contractual liability, and comprehensive liability.   The general areas of coverage were entitled “Bodily Injury,” “Property Damage”, “Errors and Omissions,” and “Personal Injury.”

The insurance program administered by the Authority consisted of the following features:  (1) member cities bore individual responsibility for losses incurred up to the first $10,000;  (2) covered losses incurred which exceeded $10,000 but did not exceed $90,000 were paid out of the Authority's self-insurance retention pool;  (3) covered losses exceeding $90,000 but not exceeding $400,000 were covered by the same self-insurance pool, with the added feature that such losses were shared by member cities in amounts proportional to the size of their city payrolls and subject to a premium refund;  and (4) losses in excess of $400,000 were covered by excess indemnity insurance purchased by the Authority.

City was issued memorandum of “Summary of General Liability Program” for July 1, 1984 through June 30, 1985 and for July 1, 1985 through June 30, 1986.¹  The memorandum explained the insurance program would provide for pooling the self-insured retained losses of the member cities, and attached copies of the excess liability insurance policies the Authority had obtained for the members.   The memorandum further explained that “[i]n accordance with the Agreement, the Authority will administer, investigate, defend, settle and/or pay on behalf of Members, all claims and judgments which are under the retention level and within the defined coverage of the Excess Insurance.”  (Emphasis added.)   The memorandum summarized procedures for filing and reviewing claims, and specifically stated “[t]he Authority shall have no right, duty or obligation to defend claims which are not within the coverages provided and defined in the Excess Insurance Policies.”  (Emphasis added.)   Further information on coverage determinations and procedures was provided in an October 23, 1985 Memorandum “Procedures on General Liability Coverage Determination.” ²  City was also issued “Summary of Comprehensive General (and Automobile) Liability Coverage Program,” Nos. 10 and 14, for the relevant coverage period, which merely summarized details of coverage more fully explained in the “Summary of General Liability Program” memorandum and the policies.

While both parties agreed coverage of claims under the insurance program was determined by the terms and conditions of the excess insurance policies, they devoted a substantial portion of written and oral argument to determine whether there was a contractual relationship between City and the Authority, and whether principles of insurance law apply.

City argues the relationship is that of an insured and its insurer pursuant to an insurance contract.   The insurance policies, City asserts, must be evaluated under existing principles of California insurance law and the Authority's duty to defend should be broadly defined to include the potential for coverage.   In contrast, the Authority contends it is not an insurer, and cites Government Code section 990.8, subdivision (c) to support its position.³  The Authority argues City and other member cities are all self-insurers and no contract of insurance, in fact no contract at all, exists between the Authority and City.   In effect, the Authority further contends it is a separate public entity under the Agreement and is only responsible for administering the insurance program.   Therefore, the Authority argues, the rules of interpretation relating to insurance coverage disputes do not apply and obligations under a policy of insurance do not extend to a self-insuring situation.   Finally, the Authority contends member cities collectively determine the scope of covered claims and any such duty to defend is restricted and does not include consideration of a “potential” for coverage.

 While our decision in this case does not depend on the precise legal relationship between City and the Authority, we address the issue.   Member cities joined the self-insuring pool basically as a risk-financing option;  the local governments best understood the nature of their risks and a “sense of ownership in the pool endeavor was an important motivation in practicing risk management.”  (Young, Peter C., “Survey Results:  Pools a Significant Risk–Financing Option,” supra, p. 28.)   Member cities jointly determined the scope and extent of their own coverage.   They are the contracting parties to a joint powers agreement.  (Gov.Code, §§ 6502, 6503.5)  The Legislature specifically defined the agencies created by the joint powers agreements as being separate public agencies.  (Gov.Code, § 6507.)   As such, any relationship between City, and the other member cities, and the Authority, arises from statute and not from contract.  (Gov.Code, §§ 990, 990.4, 990.8, 6500 et seq.)

 A related issue is what law should we follow in making our decision.   We determine principles of California insurance law should apply.   The Authority is not a commercial insurer as defined by statute or case law.   “ ‘Insurance’ is defined by Insurance Code section 22 as ‘a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.’   Insurance has also been defined as an agreement whereby one party for consideration promises to pay another party money or its equivalent or to perform acts of value on the destruction, death, or loss of, or injury to someone or something by specified perils.   Essential to insurance is the element of shifting of the risk of loss, subject to contingent or future events, by legally binding agreement.  (39 Cal.Jur.3d, Insurance Contracts and Coverage, § 1, p. 199.)”  (Richardson v. GAB Business Services, Inc. (1984) 161 Cal.App.3d 519, 523, 207 Cal.Rptr. 519.)

In our case the member cities formed a self-insuring pool among themselves.   “[S]elf-insurance, which is equivalent to no insurance, is repugnant to the concept of insurance which fundamentally involves the shifting to a third party, by contract, for a consideration, the risk of loss as a result of an accident or event.”  (Richardson v. GAB Business Services, Inc., supra, 161 Cal.App.3d at p. 523, 207 Cal.Rptr. 519.)   The self-insuring pool investigates and settles tort claims against it on its own, and its members absorb any losses.   There is no shifting of a risk of loss.  (Id. at p. 524, 207 Cal.Rptr. 519.)

 While the Authority is not an insurance company, the principles of insurance law are the most applicable in view of its activities.   The Authority operates in a dual capacity.   First, it administers an insurance program and, as part of that responsibility, obtains excess coverage policies for the member cities.   Second, and most important for our consideration, the Authority goes one step further and defines procedures for claims review and appeal and makes coverage decisions.   While the Authority and its administrative responsibilities regarding management of the insurance program may not be subject to regulation under the state's insurance codes, principles of California insurance should be used in reviewing the Authority's decisions regarding insurance coverage.⁴

2. The Third–Party Lawsuit

On or about April 14, 1986, Sherlin filed a first amended complaint for damages against City and councilman Stanley M. Quintana (Quintana) for violation of federal civil rights (42 U.S.C. section 1983, 1985, 1988), interference with prospective economic advantage, and intentional infliction of emotional distress.   The complaint alleged that City and Quintana “unlawfully agreed and conspired” to enact and enforce an anti-noise ordinance for the purpose and effect of preserving Quintana's residence and closing down Sherlin's business.⁵

According to the Sherlin action, in March 1985, Sherlin relocated her electro-plating business to an area of the City zoned for industrial and manufacturing use, and immediately adjacent to Quintana's residence.   City immediately enacted an emergency anti-noise ordinance that imposed residential noise limits in that industrial area, which adversely affected the business's night-time operations.   City then enforced the ordinance, from March 1985 through December 1985, by subjecting Sherlin's business to frequent and disruptive inspections by law enforcement officers and health and safety inspectors.   Sherlin's business sustained economic damages.   The Sherlin action further alleged City and Quintana were liable for these losses because the enactment and enforcement of the ordinance caused cessation of the business, reduction of the value of its assets and destruction of any profits that would have been generated.

City tendered the Sherlin action to the Authority for defense and indemnity.

3. The Insurance Policies

Between 1984 and 1986, the Authority obtained a “Special Excess Liability Policy for Public Entities” for the member cities.⁶  The policies named the Authority and each member city as named insureds.⁷

The policies provided coverage for damages because of bodily injury, property damage, errors and omissions, and personal injury “to which this policy applies, caused by an occurrence.”

The first policy, number SXP 3584343, defined occurrence as “an accident, or event including continuous or repeated exposure to conditions, which results during the policy term, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”  (Emphasis added.)   As to errors and omissions, “ ‘occurrence’ means any actual or alleged errors or omissions by an insured during the policy term, which results in injury or damage neither expected nor intended from the standpoint of the insured.”   An “occurrence” was additionally defined as “any injury or damages sustained during the policy term, by any person or organization and arising out of personal injury․”  (Emphasis added.)

In a special endorsement to the first policy for law enforcement activities, “occurrence” was defined as “an event, including continuous or repeated exposure to conditions, which results in bodily injury, property damage or personal injury neither expected nor intended from the standpoint of the insured, as respects occurrences arising from law enforcement activities․”  (Emphasis added.)   The endorsement further stated “[w]here there is a conflict between the insuring agreements, definitions ․ of this endorsement and those of the policy, the insuring agreements, definitions ․ of this endorsement shall apply.”  “It is a well established rule of construction of insurance policies that if the provisions of an effective indorsement conflict with those of the body of the policy, the indorsement controls.  [Citations.]”   (Estate of Murphy (1978) 82 Cal.App.3d 304, 309–310, 147 Cal.Rptr. 258.)

The second policy, number SXP 3584427, defined occurrence as “an accident, or event, including injurious exposure to conditions, which results, during the policy period, in personal injury, property damage, or public officials errors and omissions neither expected nor intended from the standpoint of the insured.”  (Emphasis added.)

We conclude that the insuring language in the relevant policies, read in conjunction with the special endorsement, limits the definition of “occurrence” to damage for bodily injury, property damage, errors and omissions, and personal injury which is neither expected nor intended from the standpoint of the insured.⁸

4. The Rejection of Tender of Defense

The Authority rejected City's tender of defense.⁹  Based on the complaint, the Authority denied coverage and declined to defend on grounds the charging allegations did not give rise to a covered “occurrence” as defined by the terms of the policies, and liability for the City's actions was not within the terms of the pooling program adopted by the member cities.

After a period of litigation, City settled the Sherlin action by agreeing to pay $75,000.

On July 26, 1990 City filed a first amended complaint against the Authority for declaratory relief and breach of contract seeking a determination of the Authority's duty to provide a defense against the Sherlin action and indemnify City for costs of settlement and retained counsel.   On September 17, 1990, the Authority answered and denied City's allegations, and asserted a number of affirmative defenses, including lack of any contractual agreement and failure of the Sherlin action to allege any covered occurrences.

5. Summary Judgment Motion

On April 7, 1992, City moved for summary judgment on grounds of the Authority's obligation to defend and indemnify.¹⁰  City argued it was entitled to have the Authority defend the underlying Sherlin action because the allegations of damage for errors and omissions and personal injury gave rise to covered occurrences under the terms of the Agreement and excess insurance policies.   City further argued the terms of the Agreement, insurance program, and coverage memorandum, created a contract of indemnity between the two entities, under which the Authority was obligated, pursuant to a “benefit of any doubt” standard of review, to reimburse City for defense and settlement costs.¹¹

In opposition, the Authority argued it was not a commercial insurer and had never issued an indemnity contract to City, and the Sherlin action alleged intentional enactment and enforcement of a municipal ordinance with the intended result of shutting down a business, acts that did not constitute occurrences for the purpose of triggering coverage under the terms of the insurance program and pursuant to Insurance Code section 533.   The Authority further argued City failed to establish it was entitled to summary judgment because the evidence established triable issues of fact regarding liability, City's intent in enacting the ordinance, and the reasonableness of indemnification costs.

The trial court granted City's motion and found, (1) indemnity of defense fees was governed by a broad “benefit of any doubt” standard, (2) the Agreement and coverage memorandum constituted a contract of indemnity between the Authority and City, (3) the allegations of the Sherlin action constituted covered occurrences, and Authority provided no evidence to the contrary, (4) Insurance Code section 533 was inapplicable, and (5) defense charges were reasonable and related to the defense and settlement of the Sherlin action, and the Authority failed to provide any factual basis to challenge the reasonableness of the fees or underlying settlement.   Central to the trial court's decision was its finding the Authority breached its contractual obligation to indemnify City against attorneys fees and settlement costs.

On June 10, 1992, motion for summary judgment was entered in favor of City.   On June 11, 1992, judgment for $281,322.28, and costs, was entered in favor of City.

On July 8, 1992, the Authority filed a timely notice of appeal.

CONTENTIONS

The Authority primarily contends the trial court erred in granting City's motion for summary judgment and in finding (1) a contract of indemnity existed between City and the Authority, (2) insurance law was applicable to resolve coverage disputes, and (3) allegations in the Sherlin action were covered occurrences under the insurance program and the policies triggering a duty to defend and indemnify.

DISCUSSION

1. Standard of Review

“Summary judgment is properly granted when the evidence in support of the moving party establishes that there is no material issue of fact to be tried.  (Code Civ.Proc., § 437c;  ․)   The trial court must decide if a triable issue of fact exists.   If none does, and the sole remaining issue is one of law, it is the duty of the trial court to determine the issue of law.   (State Farm Fire & Casualty Co. v. Eddy (1990) 218 Cal.App.3d 958, 964 [267 Cal.Rptr. 379].)

 “Appellate review of summary judgment is limited to the facts contained in the documents presented to the trial court.   This court exercises its independent judgment as to the legal effect of the undisputed facts disclosed by the parties' papers.  (State Farm Fire & Casualty Co. v. Eddy, supra, 218 Cal.App.3d at p. 965 [267 Cal.Rptr. 379];  Downey Savings & Loan Assn. v. Ohio Casualty Ins. Co. (1987) 189 Cal.App.3d 1072, 1086–1087 [234 Cal.Rptr. 835].)”  (B & E Convalescent Center v. State Compensation Ins. Fund (1992) 8 Cal.App.4th 78, 88–89, 9 Cal.Rptr.2d 894.)

2. The Authority Had No Duty to Indemnify or Defend Where the Claims Did Not Constitute Occurrences, Coverage was Precluded by Insurance Code section 533, and There was No Reasonable Expectation of a Defense.

The Authority and City dispute whether Sherlin's claims included covered “occurrences” that triggered a duty to defend and indemnify.   They also dispute whether City's intentional conduct in enacting and enforcing the emergency anti-noise ordinance formed the basis of a covered claim.

a. Duty to Defend

 “It is axiomatic that an insurer's duty to defend is separate from and broader than its duty to indemnify.  [Citation.]   The duty to defend is not measured solely by how the third party denominates its complaint or frames its theories, but is also measured by whether there is any potential for the third party's complaint to assert a covered claim.  [Citation.]   Thus, if the insurer learns facts—whether from the complaint, the insured or another source—which create a potential for the third party to assert a covered claim, the insurer owes a duty to defend.  [Citation.]

 “Additionally, the duty to defend is measured at the outset of the litigation because, unlike the duty to indemnify, which is determinable only after the basis for the insured's liability is finally established, the duty to defend is based on the potential for the establishment of a covered claim, not the actual establishment of a covered claim.  [Citation.]   The duty to defend arises as long as the facts (either as expressed or implied in the third party's complaint or as learned from other sources) give rise to a potentially covered claim [citation], even though the insurer's investigation produces facts showing the claim is baseless.   It is the insurer's duty to prove the allegations false.  [Citation.]   Finally, if an insurer is bound to defend an action based on the assertion of one covered claim, it must defend the entire action even though some portions of it involve noncovered claims.  [Citation.]

 “The forgoing authorities show the duty to defend is indeed a wide-ranging obligation.   However, such duty, while broad, is not unlimited.”   (Devin v. United Services Auto. Assn. (1992) 6 Cal.App.4th 1149, 1157, 8 Cal.Rptr.2d 263.)  “[It] is measured by the nature and kind of risks covered by the policy [citations].”  (Giddings v. Industrial Indemnity Co. (1980) 112 Cal.App.3d 213, 218, 169 Cal.Rptr. 278.)  “Where there is no potential for the third party to recover on a covered claim, there is no duty to defend.  [Citations.]”  (Devin v. United Services Auto. Assn., supra, 6 Cal.App.4th at p. 1157, 8 Cal.Rptr.2d 263;  see also Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)

The Authority's duty to defend City turns on whether (1) there was any potential Sherlin could recover damages based on the intentional conduct committed by City (and Quintana) (Dykstra v. Foremost Ins. Co. (1993) 14 Cal.App.4th 361, 368, 17 Cal.Rptr.2d 543), and (2) the Sherlin claims presented the potential for damages of the nature and kind covered by the policies.   As we will explain, on the record before this court, we find there was never any potential for recovery.

b. City's Intentional Conduct in Enacting and Enforcing a Restrictive Anti–Noise Ordinance Did Not Constitute an Occurrence That Would Trigger Insurance Coverage.

“A potential for coverage would exist if, based on the allegations of [Sherlin's] complaint, together with any other information available to [the Authority], there was a possibility of coverage under the policy's insuring language which was not excluded by any express provision within the policy or precluded by the statutory restraint of [Insurance Code] section 533.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 92, 9 Cal.Rptr.2d 894, fn. omitted.)

(1) Definition of “Occurrence”

 The Sherlin action fails to allege losses were caused by an “occurrence” as defined by the policies.   As previously discussed, the insurance policies contained language which restricted coverage to bodily injury, property damage, errors and omissions, and personal injury caused by an “occurrence” which is defined as “an accident, or event including continuous or repeated exposure to conditions, which results during the policy term, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”  (Emphasis added.)   City would conceivably be covered under the policy for the intentional act of enacting the ordinance (without consideration of Insurance Code section 533) as long as the results of the legislative enactment—closing down Sherlin's business—were not also intended by City.  (United Pacific Ins. Co. v. McGuire Co. (1991) 229 Cal.App.3d 1560, 1566, 281 Cal.Rptr. 375.)   However, that is exactly what the Sherlin action alleged.

United Pacific Ins. Co. was a case in which an insurer filed a declaratory relief action for judicial determination of its obligation to defend and indemnify defendants in a wrongful termination action.   For the first time, the court was faced with an endorsement to a standard general liability policy that contained an extended definition of “occurrence.”  (Id. at p. 1563, 281 Cal.Rptr. 375.)   Instead of defining the word only in terms of an “accident,” the extended definition added the term “event,” making it similar to the definition in our case.   In previous decisions, courts have denied coverage by relying on, “more or less explicitly, ․ an interpretation of the word ‘accident’ in the definition of occurrence or the term ‘accidental event’ appearing in certain similar policies.   They have interpreted these terms as excluding coverage for ‘intentional’ conduct․   In no case has the analysis relied on the phrase ‘neither expected nor intended from the standpoint of the insured’ appearing at the end of the standard definition of occurrence.”   (United Pacific Ins. Co. v. McGuire Co., supra, 229 Cal.App.3d at p. 1564, 281 Cal.Rptr. 375.)

The court determined “[s]ince the word ‘event’ is not limited to fortuitous happenings, the phrase ‘not expected or intended’ cannot be read as language confirming the meaning of the term;  in the context of the extended definition, the phrase must be regarded as language of limitation, narrowing the coverage otherwise provided by the word ‘event.’   As a provision limiting coverage, the phrase performs precisely the same function as the common exclusion for intentional conduct.   It does not matter that the phrase appears in the ‘definitions' section of the policy rather than the ‘exclusions' section;  in either case it performs the function of an exclusion.   Consequently, as it appears in the extended definition of occurrence ․, the phrase is subject to the ‘well settled principle that such exclusionary clauses should be interpreted as narrowly as possible.’  [Citation.]”  (United Pacific Ins. Co. v. McGuire Co., supra, 229 Cal.App.3d at pp. 1565–1566, 281 Cal.Rptr. 375.)

The United Pacific court further determined the phrase “ ‘neither expected nor intended’ ” from the standpoint of the insured modified “the word ‘damage,’ excluding from coverage those elements of damage that are expected or intended by the insured.”  (Id. at p. 1566, 281 Cal.Rptr. 375.)   Therefore, defendants would be covered for the intentional act of terminating the employee, as long as the results of the termination—emotional distress, were not also intended by defendants.  (Id.;  see also Dykstra v. Foremost Ins. Co., supra, 14 Cal.App.4th at p. 367, 17 Cal.Rptr.2d 543.)

City argues United Pacific Ins. Co. v. McGuire Co., supra, 229 Cal.App.3d 1560, 281 Cal.Rptr. 375 supports coverage for its intentional enactment of municipal legislation.   However, City, and the trial court, confuse coverage for intentional acts with coverage for intentionally caused damage.  United Pacific Ins. Co. emphasizes that despite coverage for intentional acts (subject to statutory limitations of Ins.Code § 533), coverage is excluded for damage expected or intended by the insured.  (Id. at pp. 1565–1566, 281 Cal.Rptr. 375.)   In our case, the alleged damage to Sherlin was the cessation of her electro-plating business, located next door to councilman Quintana's residence.   No matter how we read the complaint, there is no way around the conclusion this loss of business and economic damage was exactly what City intended to be the result of the ordinance.   Therefore, United Pacific Ins. Co. does not support City's position.   It is clear that City's activities fall outside the policy definition of occurrence and, therefore, the scope of coverage.

(2) Insurance Code section 533

(a) “Wilful” Act

Aside from Sherlin's failure to allege a covered occurrence, City's actions were “willful” and, therefore, insurance coverage was precluded by Insurance Code section 533.

Insurance Code section 533 provides that “[a]n insurer is not liable for a loss caused by a wilful act of the insured;  but he is not exonerated by the negligence of the insured, or of the insured's agents or others.”

 “Section 533 is ‘ “an implied exclusionary clause which by statute is to be read into all insurance policies.” ’  [Citation.]   However, section 533 is not subject to the rules governing the interpretation of contracts, which require strict construction against the insurer.   Rather, as a statute, it is subject to the rules of statutory construction.  [Citations.]   In particular, and most significantly, it is subject to the rule that a statute must be construed to effect its purpose.  [Citations.]

“The purpose of section 533 is to discourage willful torts.  [Citation.]   Indeed, section 533 ‘reflects a fundamental public policy denying coverage for willful wrongs.’  [Citation.]”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at pp. 93–94, 9 Cal.Rptr.2d 894.)

City first contends section 533 has no application to this case because Authority continues to argue it is not an “insurer.”   However, we determine the public policy considerations in Insurance Code section 533 are also applicable to insurance programs provided by the self-insuring pools and administered by the Authority.

 City further argues Insurance Code section 533 does not bar coverage under the respondeat superior theory advanced and relied on in Fireman's Fund Ins. Co. v. City of Turlock (1985) 170 Cal.App.3d 988, 216 Cal.Rptr. 796.   In Fireman's Fund, a police officer appealed his termination to the Turlock City Counsel and began settlement discussions with Watson, the city attorney.  (Id. at p. 992, 216 Cal.Rptr. 796.)   Watson negotiated on behalf of the city, and reached a settlement with the officer.   (Ibid.)  Watson later disclosed an alleged confidential aspect of the settlement to the news media.  (Ibid.)  The officer sued the City of Turlock and Watson for breach of contract and for fraud.  (Ibid.)  A jury awarded the officer damages against the city for breach of contract and for fraud and against Watson for fraud.  (Ibid.)  The city's insurer requested a judicial determination of its rights and obligations.  (Id. at p. 993, 216 Cal.Rptr. 796.)

While neither the City of Turlock nor Watson disputed the fraud verdict was based on a willful act by Watson, so as to preclude the attorney's coverage under Insurance Code section 533, the issue in dispute was whether Insurance Code section 533 precluded coverage for the city under the insurance policies.  (Fireman's Fund Ins. Co. v. City of Turlock, supra, 170 Cal.App.3d at p. 1000, 216 Cal.Rptr. 796.)   The court in Fireman's Fund found that “the jury's verdict against City on the fraud cause of action was necessarily predicated upon vicarious liability under the doctrine of respondeat superior and not upon City's own intentional acts.”  (Id. at p. 1001, 216 Cal.Rptr. 796.)   Therefore, the court found that “indemnification for City's liability for the verdict and judgment on the fraud cause of action [was] not precluded by Insurance Code section 533.”   (Ibid.)

Under the facts of our case, City's reliance on the respondeat superior theory of Fireman's Fund is misplaced.   City's attempt to characterize itself as an “innocent co-insured” is not supported by the allegations in the Sherlin action, which specifically charge City as a co-conspirator with Quintana.   Unlike attorney Watson in Fireman's Fund, Quintana did not perform any acts on City's behalf.   As a result of its own actions, City intentionally caused harm to Sherlin.

 “Not all ‘intentional’ or ‘willful’ acts within the meaning of traditional tort principles fall within the purview of the statute, however.   In particular, a ‘wilful act’ within the meaning of section 533 means ‘ “something more than the mere intentional doing of an act constituting [ordinary] negligence,” ’ and appears to be something more than the intentional violation of a statute.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 94, 9 Cal.Rptr.2d 894.)   Some acts are inherently harmful as a matter of law.

“In Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865 [151 Cal.Rptr. 285, 587 P.2d 1098], the Supreme Court seemed to endorse a rule which limited the nature of a ‘wilful act’ that would come under the prohibition of section 533 to one committed with a ‘preconceived design to inflict injury.’  (22 Cal.3d at p. 887 [151 Cal.Rptr. 285, 587 P.2d 1098].)”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 94, 9 Cal.Rptr.2d 894.)   In Republic Indemnity Co. v. Superior Court (1990) 224 Cal.App.3d 492, 501–503, 273 Cal.Rptr. 331, “[o]n the specific issue of whether section 533 prohibits insurance coverage for an employer's allegedly wrongful termination of an employee, the court ․ concluded that indemnification would not be precluded, and the duty to defend would thus not be excused, unless the employee, in order to prevail on his cause of action, would be required to show both an intentional act by the employer and a specific intent to injure the employee.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 94, 9 Cal.Rptr.2d 894.)

In J.C. Penney Casualty Ins. Co. v. M.K., (1991) 52 Cal.3d 1009, 278 Cal.Rptr. 64, 804 P.2d 689, our Supreme Court “clarified its decision in Clemmer ․ [and] held that section 533 precluded coverage for injuries resulting from acts of child molestation, despite the testimony ․, that [the molester] meant the child victim no harm.   The court concluded that the very essence of child molestation is a harmful act, that is, it is always intentional, always wrongful, and always harmful.  (52 Cal.3d at p. 1025 [278 Cal.Rptr. 64, 804 P.2d 689].)”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 96, 9 Cal.Rptr.2d 894.)

“As child molestation is wrongful as a matter of law, the intent or motive of an insured in committing an act of sexual molestation was found to be irrelevant.   The [J.C. Penney] court held intent and motive to be relevant only on the issue of whether the act was wrongful in the first instance, that is, where the act might be either justified or unjustified and wrongful, depending on the motive with which it was committed․   Asserting that ‘[t]here is no motive that can justify child molestation,’ the court concluded that motive is therefore irrelevant where indemnification is sought for such an act.  [Citation.]  ‘Properly understood, Clemmer ․ does not require a showing by the insurer of its insured's “preconceived design to inflict harm” when the insured seeks coverage for an intentional and wrongful act if the harm is inherent in the act itself.’  [Citation.]”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at pp. 96–97, 9 Cal.Rptr.2d 894.)

While the J.C. Penney holding appears to be limited to acts of sexual molestation, the court in Fire Insurance Exchange v. Altieri (1991) 235 Cal.App.3d 1352, 1 Cal.Rptr.2d 360 applied J.C. Penney in a different factual context.  (Ibid.)  Altieri “involved an insurer which contended that section 533 precluded indemnification of its insured, Altieri, for injuries inflicted by Altieri's son on a high school classmate when, without provocation, the insured's son struck the other boy in the mouth.  [The court] reasoned that it was irrelevant to the issue of coverage that young Altieri did not intend to hurt his victim.   The determinative circumstance was that he did intend, without any legal justification, to hit him.   That act, the court concluded, was wrongful and inherently harmful and was thus an uninsurable willful act under section 533 despite the actor's lack of a ‘preconceived design to harm.’  [Citation.]  ‘The “preconceived design to inflict harm” requirement, the court explained, is relevant only to the issue of whether the insured intended to commit a wrongful act.   Thus, it does not apply “when the insured seeks coverage for an intentional and wrongful act if the harm is inherent in the act itself.”  [Citation.]   The emphasis is on the wrongfulness of the act committed by the insured, not on the insured's subjective expectation of injury.’  [Citation.]”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 97, 9 Cal.Rptr.2d 894.)

In B & E Convalescent Center, supra, we held the reasoning of J.C. Penney and Altieri supported a finding Insurance Code section 533 barred any insurance recovery for an employer's willful act in wrongfully discharging an employee.  “Under J.C. Penney and Altieri, section 533 precludes indemnification by insurance for any ‘intentional and wrongful act if the harm is inherent in the act itself.’   A termination of employment for which a tort action will lie under Tameny [v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330] and its progeny is such an act.”  (8 Cal.App.4th at p. 98, 9 Cal.Rptr.2d 894.)

In Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co. (1993) 14 Cal.App.4th 1595, 18 Cal.Rptr.2d 692, the court found the principles in J.C. Penney, Altieri, and B & E Convalescent Center applicable in a case in which the insurer determined it had no duty to indemnify or defend an action against its insured for sexual harassment.  (14 Cal.App.4th, supra, at pp. 1599, 1602, 18 Cal.Rptr.2d 692.)   The court found “it is clear that section 533, and the public policy it represents, bar the attempt to shift liability for intentional sexual harassment and associated employment-related torts (claims of wrongful discharge, infliction of emotional distress, battery, and sexual assault) to an insurer.”  (Id. at p. 1603, 18 Cal.Rptr.2d 692.)

 Applying the above principles to the facts in our case, we find City's intentional passage of a restrictive anti-noise ordinance a willful act within the meaning of Insurance Code section 533.   Sherlin alleged after her business relocated next to Quintana's residence, City and Quintana “agreed and conspired” to permit the harassment and destruction of her business.   City and Quintana intentionally drafted, enacted, and enforced emergency legislation that imposed residential noise limits within the City's industrial and manufacturing zone on Sherlin's night-time business operations.   The purpose of the legislation was to preserve Quintana's residence and cause Sherlin's electro-plating business to permanently cease its operations.   To insure compliance with this new ordinance, City specifically ordered continual police and safety inspections at Sherlin's business.

 A city council and its elected officials hold a position of public trust with the citizens of the municipality.   Persons are elected to the council for the purpose of promoting the public good and ensuring the public safety of the community.   To this end, the council passes municipal ordinances for the good of the general community to create the most workable and livable environment for the citizens.   However, when a city council passes legislation for the singular purpose of promoting the self-interest of any one of its members by specifically tailoring an ordinance to promote that self-interest or remove any impediments to that self-interest, that has the intended purpose of causing damage or harm to specified persons or businesses, the passage of such legislation is wrongful as a matter of law.   The enactment and subsequent enforcement of any kind of purposeful and punitive legislation is inherently harmful.   It injures the citizens and destroys the public trust.   That is our case.

Aside from the plain meaning of Insurance Code section 533, and its application to allegations of intentional wrongdoing at issue in our case, the purpose and public policy represented by that section, which also pertains to legislative bodies promoting their own agenda to the detriment and injury of their citizens, would not well be served by a ruling that would exonerate such a violator of public trust from payment of damages for its own willful acts of punitive legislation, by shifting the liability to the Authority.  (Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co., supra, 14 Cal.App.4th at p. 1064, 18 Cal.Rptr.2d 692.)

(b) Expectation of a Defense

 “ ‘[S]ection 533 precludes only indemnification of wilful conduct and not the defense of an action in which such conduct is alleged.  [Citation.] ․ [¶]  [E]ven though public policy or section 533 precludes an insurer from indemnifying an insured in an underlying action the duty to defend still exists so long as the “insured reasonably expect[s] the policy to cover the types of acts involved in the underlying suit[.]”  [Citation.]’   (Republic Indemnity Co. v. Superior Court (1990) 224 Cal.App.3d 492, 497 [273 Cal.Rptr. 331]․)”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 93, 9 Cal.Rptr.2d 894.)   We determine, under the facts of this case, City could not reasonably expect a defense or indemnification.

 “If the coverage provisions in any policy of insurance are unclear or the exclusions are ambiguous, so that a reasonable purchaser of the policy would not realize that the risk is excluded and thus would reasonably expect the insurer to furnish a defense, a defense is required.  [Citations.] ․   But an insured cannot ‘reasonably’ expect a defense on claims based on conduct or risks clearly not covered or conspicuously excluded from coverage under the policy:  ‘[T]he duty to defend a suit which raises a possibility of liability, but is eventually shown to be groundless, does not equate with a duty to defend a suit which raises no potential liability.’  [Citations.]”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at pp. 99–100, 9 Cal.Rptr.2d 894.)

“[W]here the policy language clearly provides no basis for coverage, there is no duty to defend.   In such circumstances, there can be no reasonable expectation of a defense.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 100, 9 Cal.Rptr.2d 894.)

 In our case, rejection of the coverage obligation depends on statutory coverage preclusion “imported into the policy as a matter of law.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 100, 9 Cal.Rptr.2d 894.)   Does City have “a reasonable defense expectation in spite of an insurance coverage preclusion based on section 533?”  (Ibid.)  No.   Given the intentional and wrongful actions required to enact and enforce the “wrongful legislation” and intentional harassment alleged in the Sherlin action, “can we conclude, based solely on [the scope of the policies' insuring language], that [City], engaging in such behavior, has any reasonable expectation that [the Authority] will nonetheless defend [it]?”  (Id. at p. 101, 9 Cal.Rptr.2d 894.)   No.  We cannot conceive of any reasonable construction of the insurance program and its policies that would allow us to conclude that such legislative misconduct “could reasonably be included among those claims for which a defense would be provided,” and that the member cities to the Agreement would have self-insured for such a purpose.  (Id. at pp. 101–102, 9 Cal.Rptr.2d 894.)

We determine that indemnity is precluded by Insurance Code section 533, and “we find no duty to defend ․ as the result of a statutory preclusion.”  (B & E Convalescent Center v. State Compensation Ins. Fund, supra, 8 Cal.App.4th at p. 102, 9 Cal.Rptr.2d 894.)

We need not reach the issue of whether City's insurance included coverage for Sherlin's 42 United States Code section 1983 claims for violation of civil rights because these allegations do not override the public policy considerations in Insurance Code section 533, and City has not provided any authority to show otherwise.

DISPOSITION

The judgment is reversed.   Each party to bear its own costs on appeal.

FOOTNOTES

1.   While City may have received additional memoranda for prior years, the period July 1, 1984 through June 30, 1986 represents the relevant and undisputed coverage term in this case.   From July 1, 1984 through June 30, 1985, the stated policy limits for the program were $35,000,000 per occurrence, and from July 1, 1985 through June 30, 1986, the stated policy limits were $10,000,000 per occurrence, exclusive of the member cities' $400,000 self-insured retention.

2.   According to procedure, member cities were to submit claims to Carl Warren & Company (Warren), a separate company procured by the Authority to investigate and handle the member cities' liability claims.

3.   Under Government Code section 990.8, subdivision (c), “[t]he pooling of self-insured claims or losses among entities as authorized in subdivision (a) of Section 990.4 shall not be considered insurance nor be subject to regulation under the Insurance Code.”

4.   The Authority's October 23, 1985, Memorandum, “Procedures On General Liability Coverage Determination” stated, in relevant part:  “[The Authority] has, from its early beginnings, taken the policy position that it wishes the application of its General Liability Program Coverage for member cities to be as broad as possible, giving members the benefit of any doubt.   In view of that policy, Claims against a member city are seldom rejected by [the Authority] until they have been fully investigated by Carl Warren.   Carl Warren is not authorized to make any judgment on whether a Claim is within the scope and terms of the General Liability Program.   Any questionable coverage situations are referred to and decided upon by [the Authority] Staff under the direction of the [Insurance Program] Manager.”  (Emphasis added.)In light of our decision to use principles of California insurance law to review the Authority's coverage decisions, we reject City's argument the Authority should be held to a broader administrative “benefit of any doubt” standard for coverage review.

5.   We subsequently refer to this pleading as the Sherlin action.

6.   Excess insurance policy number SXP 3584343 (with an endorsement amendment) covers the period from April 1, 1983 to July 1, 1985 and policy number SXP 3584427 covers the period from June 30, 1985 to June 30, 1986.

7.   During oral argument, we invited City to file a letter brief citing language in the excess insurance policies demonstrating coverage for claims alleged in the underlying Sherlin action.   City advised this Court coverage could be found, in part, pursuant to the “occurrence” definitions in the two excess liability policies and the special endorsement for law enforcement activities.  (June 17, 1994 letter from City's counsel to the Court.)

8.   The meaning of the phrase “neither expected nor intended” is currently pending before the California Supreme Court in Stonewall Ins. Co. v. City of Palos Verdes Estates (1992) 18 Cal.App.4th 1234, 9 Cal.Rptr.2d 663, review granted August 27, 1992 (S027319), issues on review limited October 1, 1992 (third party property damage claims).

9.   After receiving the claim, the Authority initially requested Warren assign an attorney to the Sherlin matter only to prevent a default from being taken against City.   After the Authority declined to provide a defense, City retained a private law firm to litigate the action on its behalf.

10.   The record reflects only City filed a motion for summary judgment and Quintana did not join in the motion.   The Authority appealed from the trial court's granting of summary judgment in favor of City, and only City filed a respondent's brief.

11.   City requested indemnification in the total amount of $281,322.28, which included settlement costs and attorney fees, less the program deductible ($10,000).

KITCHING, Associate Justice.

KLEIN, P.J., and CROSKEY, J., concur.