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                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                 DIVISION EIGHT


DIAMOND BLUE ENTERPRISES, LLC                                        B244426
et al.,
                                                                     (Los Angeles County
         Plaintiffs and Respondents,                                 Super. Ct. No. BC 488022)

         v.

GEMINI INSURANCE COMPANY,

         Defendant and Appellant.




         APPEAL from an order of the Superior Court of 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.


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       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 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




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       “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 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.)




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       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




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damages for a risk “to which this insurance does not apply.”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


1       With respect to bodily injury and property damage liability, the policy states,
Gemini “will have the right and duty to defend the insured against any „claim‟ or „suit‟
seeking those damages. However, we will have no duty to defend the insured against any
„suit‟ seeking damages for „bodily injury‟ or „property damage‟ to which this insurance
does not apply.”


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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.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 costs on appeal.


                                                   FLIER, J.
WE CONCUR:


              BIGELOW, P. J.




              GRIMES, J.




2        For example, a leading treatise suggests that the following arbitration clause may
encompass bad faith claims: “Disputes of any kind which relate to or arise out of the
handling or payment of claims, or the conduct of the company or any of its agents or
employees in connection with such; including claims to all damages of any nature
whatsoever, whether compensatory, statutory, or punitive, and whether based on contract,
tort, statutory violation or other theory of recovery.” (Croskey et al., Cal. Practice Guide:
Insurance Litigation (The Rutter Group 2012) ¶ 12:1276, p. 12D-31.)


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