NO COVERAGE FOR DISCRIMINATION

Commercial General Liability	Intentional Acts
Duty To Defend	Attorney Fees

Jack Combs was the manager of a San Rafael, California apartment complex. Fair Housing of Marin (Fair) sued him in federal district court for racial discrimination. His liability insurer, State Farm Fire & Casualty Company (State Farm), defended him under a reservation of rights. During the litigation, Combs asked State Farm several times to settle the claims against him. State Farm refused, citing, among other things, Section 533 of the California Insurance Code, which provides that "[a]n insurer is not liable for a loss caused by the willful act of the insured."

Combs lost his case and the district court awarded Fair $508,000 in attorney fees. After appeals that continued all the way to the United States Supreme Court, the attorney fees were increased by an additional $131,000.

After the judgment was entered against Combs, State Farm refused to pay any portion of it. Combs then filed an action against State Farm for breach of the insurance contract. The lower court held in favor of State Farm, concluding that Combs' liability for intentional race discrimination precluded insurance coverage, including the award of attorney fees. Combs appealed.

On appeal, Combs acknowledged that Section 533 of the Insurance Code barred coverage for compensatory and punitive damages for racial discrimination. However, he argued that because State Farm provided a defense, the supplementary payments provision of his policy required State Farm to reimburse him for attorney fees. According to the court, any such payment would undercut sound public policy and would allow the offender to avoid what could be significant consequences of the wrongdoing.

The lower court's judgment was affirmed.

Combs vs. State Farm Fire& Casualty Company-No. A111813-Court of Appeal, First District, Division 3, California-October 16, 2006-143 California Appellate Reporter 4th 1338