229 Cal. App. 4th 1025
Cal. Ct. App.2014Background
- Three female employees sued Jon Davler, Inc. and a supervisor/owner (Christina Yang) for sexual harassment, invasion of privacy, intentional infliction of emotional distress, and false imprisonment based on an alleged coerced inspection in the workplace restroom (employees forced to pull down underwear to check for menstrual pads).
- Jon Davler tendered defense/indemnity to its insurer Arch Insurance under a CGL policy that covered "personal and advertising injury," including "false arrest, detention or imprisonment."
- The policy contained an Employment-Related Practices (ERP) exclusion barring coverage for injuries "arising out of" employment-related practices, policies, acts or omissions "such as" coercion, harassment, humiliation, etc.
- Arch denied coverage relying on the ERP exclusion; Jon Davler sued Arch for breach of contract, bad faith (breach of implied covenant of good faith and fair dealing), and conversion for denying defense/indemnity.
- The trial court sustained Arch's demurrer without leave to amend; the Court of Appeal affirmed, holding the ERP exclusion unambiguous and applicable to the employees' claims (including false imprisonment) because the harms arose out of employment-related acts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the ERP exclusion bars coverage for the underlying claims, including false imprisonment | Jon Davler: exclusion ambiguous — phrases "such as" and "arising out of" limit scope; false imprisonment is different and not listed, so coverage for false imprisonment stands | Arch: exclusion is broad and non‑exhaustive; all claims arose out of employment and fall within the ERP exclusion | Held: ERP exclusion is clear and bars coverage; false imprisonment arose from employment acts and therefore excluded |
| Whether "such as" creates a limiting ambiguity | Jon Davler: "such as" limits examples and excludes dissimilar torts like false imprisonment | Arch: "such as" is illustrative, non‑exhaustive; false imprisonment is similar to listed examples (coercion, harassment) | Held: "such as" is illustrative; false imprisonment sufficiently similar and covered by exclusion |
| Whether "arising out of" is ambiguous because it appears in both coverage and exclusion | Jon Davler: phrase creates confusion whether coverage or exclusion governs | Arch: "arising out of" is broadly interpreted and links injuries to employment context; here connection is direct | Held: "arising out of" given broad commonsense meaning; the false imprisonment claims arose out of employment |
| Whether leave to amend was required | Jon Davler: trial court should have given leave to amend because alternative reasonable interpretations exist | Arch: facts as pleaded and known show claims were employment-related; no plausible amendment alleged | Held: No leave to amend — appellant did not identify factual amendments that could show non‑employment-related claims |
Key Cases Cited
- Hartford Casualty Ins. Co. v. Swift Distribution, Inc., 59 Cal.4th 277 (broad duty to defend; insurer must disprove any potential for coverage)
- Fermino v. Fedco, Inc., 7 Cal.4th 701 (definition and elements of false imprisonment; can be effectuated by coercion)
- Frank & Freedus v. Allstate Ins. Co., 45 Cal.App.4th 461 (ERP exclusion unambiguous; policy may exclude particular manifestations of a peril)
- Low v. Golden Eagle Ins. Co., 104 Cal.App.4th 306 (relevant factors: nexus to employment and existence of non‑employment relationship)
- Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747 (insurer may limit coverage for some, but not all, manifestations of a peril)
- St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mut. Ins. Co., 210 Cal.App.4th 645 ("arising out of" construed broadly to link factual situation to event creating liability)