JON DAVLER, INC., Plaintiff and Appellant, v. ARCH INSURANCE COMPANY, Defendant and Respondent.
No. B252830
Second Dist., Div. Seven
Aug. 25, 2014
229 Cal. App. 4th 1025
Ideal Legal Group and Jie Lian for Plaintiff and Appellant.
Musick, Peeler & Garrett and Cheryl A. Orr for Defendant and Respondent.
SEGAL, J.*—
INTRODUCTION
A group of employees brought an action against their employer, Jon Davler, Inc., for various employment claims, including sexual harassment, invasion of privacy, and false imprisonment. Jon Davler tendered the action to its insurer, Arch Insurance Company, which denied coverage based on an employment-related practices exclusion. After Jon Davler filed this insurance coverage action against Arch, the trial court sustained Arch‘s demurrer to the complaint without leave to amend. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Underlying Action
Three female employees of Jon Davler, a cosmetics company, sued their employer, individually and on behalf of all similarly situated employees, for sexual harassment in violation of
The employees alleged that Yang became upset one morning “because she found a used sanitary napkin around the toilet area in the women‘s bathroom and blood around the toilet seat” at the Jon Davler facility where they worked. The employees alleged that Yang was so upset that she went to the department where they were working “and started yelling that they were ‘dirty’ and demanded to know who was on their menstrual period so that she could determine who had left the used sanitary napkin by the toilet and the toilet unclean.” Yang demanded in a loud, angry voice, “‘Are you on your period?‘” The employees denied that they were on their menstrual cycle, but Yang “was not satisfied with the responses she received.” She instructed another female employee, against her will, “to take each of [the employees] into the bathroom, one by one, and check their panties to see who was on
The employees were “shocked and in a state of disbelief” at Yang‘s instructions. When they asked about the consequences of refusing to participate in the inspection, Yang said that anyone who refused would be fired. Yang then lined up the employees outside the bathroom. While a male supervisor waited with Yang outside the bathroom door, the designated female employee went into the bathroom with each employee, “stood a foot or two away” while the employees “had to pull down their pants and their panties, exposing their vaginal area, so that [the employee] could see if they were wearing a sanitary napkin and therefore on their period.” When the employees exited the bathroom after the inspection, they “found it extremely difficult and embarrassing to face Yang” and the male supervisor, “and quickly went back to their work area while the inspections continued with the other” employees. In their cause of action for false imprisonment, the employees alleged that they “were wrongfully detained and confined by [Jon Davler and Yang] in the bathroom for the purpose of conducting a humiliating and wrongful inspection of their vaginal area to determine if they were on their menstrual period.”
B. The Policy
Arch issued Jon Davler a commercial general liability policy that, among other coverage, provided coverage for “those sums [Jon Davler] becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies.”1 The policy defined “personal and advertising injury” as “injury, including consequential ‘bodily injury,’ arising out of” seven categories of offenses, one of which was “[f]alse arrest, detention or imprisonment....”
The policy contained an “Employment-Related Practices Exclusion,” which the parties refer to as an ERP exclusion. This exclusion stated that the coverage for personal and advertising injury did not apply to an injury arising out of any refusal to employ a person, termination of a person‘s employment, or “[e]mployment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution directed at that person....”
Jon Davler tendered the underlying action to Arch. Arch declined coverage and refused to provide indemnity or a defense based on the employment-related practices exclusion.
Jon Davler filed this action against Arch for breach of contract, breach of the implied covenant of good faith and fair dealing, and conversion. Jon Davler alleged that the personal and advertising injury coverage included indemnity and defense for “false arrest, detention and imprisonment” and “[o]ral or written publication, in any manner, of material that violates a person‘s right of privacy.” Jon Davler alleged that Arch‘s refusal to provide indemnity or a defense breached the terms of the policy and “was unreasonable and in bad faith.” Jon Davler also alleged that Arch “converted [its] Policy benefits and premium payments....”
Arch demurred, arguing that all of the claims in the underlying action alleged “injury to persons ‘arising out of’ ‘[e]mployment-related practices, policies, acts or omissions,‘” and that therefore the employment-related practices exclusion applied. Arch emphasized that the only relationship between the employees in the underlying action and Arch‘s insured Jon Davler was an employment relationship, that the employees alleged Yang had told the employees they would be fired if they did not comply with the inspection demand, and that all of the claims were based on allegations of harassment and hostile work environment. Arch also noted that, “[i]n obvious recognition that their claims were based upon employment practices,” the employees alleged that they had “exhausted their administrative remedies by filing a complaint with the California Department of Fair Employment and Housing....” In opposition, Jon Davler argued that the employment-related practices exclusion was ambiguous and did not apply to a claim based on false imprisonment that “occurred in an employment scenario and was for employment purposes.”
The trial court sustained Arch‘s demurrer without leave to amend. The court noted that because all of the causes of action other than false imprisonment were “clearly the types of actions” covered by the employment-related practices exclusion, it was “really the false imprisonment that we are concentrating on here, and [Jon Davler] is alleging ambiguity as applied in this situation.” The court ruled that all of the claims in the underlying action “fall within [the] exclusion, and, therefore, the demurrer is sustained without leave to amend.” The trial court entered an order of dismissal. Jon Davler appealed.
DISCUSSION
A. Standard of Review and the Duty of an Insurer
“‘Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court‘s discretion, an appellate court employs two separate
“An insurer must defend its insured against claims that create a potential for indemnity under the policy.” (Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 654.) “‘Determination of the duty to defend depends, in the first instance, on a comparison between the allegations of the complaint and the terms of the policy. [Citation.] But the duty also exists where extrinsic facts known to the insurer suggest that the claim may be covered.’ [Citation.] This includes all facts, both disputed and undisputed, that the insurer knows or ‘“becomes aware of“’ from any source [citation] ‘if not “at the inception of the third party lawsuit,” then “at the time of tender“’ [citation]. ‘Moreover, that the precise causes of action pled by the third party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.’ [Citation.] Thus, ‘[i]f any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer‘s duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.’ [Citation.] In general, doubt as to whether an insurer owes a duty to defend ‘must be resolved in favor of the insured.’ [Citation.]” (Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 287.)
“While the duty to defend is broad, it is ‘not unlimited; it is measured by the nature and kinds of risks covered by the policy.’ [Citation.] In an action seeking declaratory relief concerning a duty to defend, ‘the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.’ [Citation.] Thus, an insurer may be excused
Finally, “[i]n determining whether a claim creates the potential for coverage under an insurance policy, ‘we are guided by the principle that interpretation of an insurance policy is a question of law.’ [Citation.] ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. [Citation.]’ [Citation.] In determining this intent, ‘[t]he 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.] We consider 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.] We must also ‘interpret the language in context, with regard to its intended function in the policy.’ [Citation.]” (Hartford Casualty Ins. Co. v. Swift Distribution, Inc., supra, 59 Cal.4th at p. 288.)
B. The Employment-related Practices Exclusion Applies to the Underlying Claims
Jon Davler argues that the trial court erred in sustaining Arch‘s demurrer without leave to amend because the employment-related practices exclusion is ambiguous. Jon Davler contends there is ambiguity in the exclusion‘s use of the phrases “such as” and “arising out of,” and ambiguity created by the presence of “false imprisonment” in the coverage provision and its absence in the exclusion. We see no such ambiguities.
1. “Such as”
Jon Davler argues that the employment-related practices exclusion “is ambiguous as applied to false imprisonment claims” because the exclusion‘s use of “the term ‘such as’ limits the scope of the general exclusionary phrase ‘employment-related practices’ to sharing [or] having the same or similar characteristics or qualities as ‘coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution.‘” Jon Davler contends that “[f]alse imprisonment is markedly dissimilar to the specific examples restricting the general exclusionary phrase.”
The phrase “such as” is “not intended to be exhaustive” (Harper & Row v. Nation Enterprises (1985) 471 U.S. 539, 561
False imprisonment shares general similitude with several of the matters specifically enumerated in the employment-related practices exclusion, such as coercion, discipline, and harassment. False imprisonment is the “‘unlawful violation of the personal liberty of another,‘” where the restraint required “may be effectuated by means of physical force [citation], threat of force... [citation], confinement by physical barriers [citation], or by means of any other form of unreasonable duress.” (Fermino v. Fedco, Inc. (1994) 7 Cal.4th 701, 715; see Lyons v. Fire Ins. Exchange (2008) 161 Cal.App.4th 880, 888 [“‘[t]he elements of a tortious claim of false imprisonment are: (1) the nonconsensual, intentional confinement of a person, (2) without lawful privilege, and (3) for an appreciable period of time, however brief‘“].) False imprisonment involves coercion, by force, threat, or otherwise. An employer can commit false imprisonment by assault and battery or by engaging in “some other coercive stratagem.” (Fermino, supra, at p. 722.) Similarly, workplace harassment can include false imprisonment, and employment actions often involve both claims. (See, e.g., Myers v. Trendwest Resorts, Inc. (2007) 148 Cal.App.4th 1403, 1410 [supervisor made numerous sexual advances and tried to have sex with employee in garage with the door closed]; Murillo v. Rite Stuff Foods, Inc. (1998) 65 Cal.App.4th 833, 839 [supervisor sexually harassed employee and “isolated her from other employees to facilitate his predations“]; Krause v. Turnberry Country Club (N.D.Ill. 2008) 571 F.Supp.2d 851, 855 [supervisor sexually harassed employee and, when she announced her departure, “pulled [her] into his office against her will, shut the door, and told her she was committing ‘career suicide‘“].)2 Thus, false imprisonment is similar to the examples of employment-related
2. “Arising out of”
Jon Davler argues that use of the “the broad term ‘arising out of‘” creates an ambiguity because it appears both in the coverage clause and in the employment-related practices exclusion. As Jon Davler recognizes, however, courts generally have “interpreted the phrase ‘arising out of’ very broadly,” even where the phrase appears in an exclusion.
“... California courts have consistently given a broad interpretation to the terms ‘arising out of’ or ‘arising from’ in various kinds of insurance provisions. It is settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship.” (St. Paul Mercury Ins. Co. v. Mountain West Farm Bureau Mutual Ins. Co. (2012) 210 Cal.App.4th 645, 658; see Southgate Recreation & Park Dist. v. California Assn. for Park & Recreation Ins. (2003) 106 Cal.App.4th 293, 301 [“the ‘arising out of’ connective ‘broadly links’ the exclusionary operative events with the exclusion” and is “generally equated” with “‘origination, growth or flow from the event‘“]; Aloha Pacific, Inc. v. California Ins. Guarantee Assn. (2000) 79 Cal.App.4th 297, 318-319 [broad interpretation given to terms “‘arising out of‘” in trademark exclusion in general liability insurance policy]; Fibreboard Corp. v. Hartford Accident & Indemnity Co. (1993) 16 Cal.App.4th 492, 503 [“... California courts generally have given the terms ‘arising out of’ or ‘arising from’ their commonsense meaning, concluding that they connote more than mere causation“].)
The Jon Davler employees’ injuries caused by the alleged false imprisonment arose out of the employees’ employment. In Low v. Golden Eagle Ins. Co. (2002) 104 Cal.App.4th 306, the court held that “factors relevant to the... determination” of whether the events in the underlying action were within the scope of the employment-related practices exclusion “include (1) the nexus between the allegedly defamatory statement (or other tort) at issue and the third party plaintiff‘s employment by the insured, and (2) the existence (or nonexistence) of a relationship between the employer and the third party plaintiff outside the employment relationship.” (Id. at p. 314.) Here, the nexus between the “other tort” (i.e., false imprisonment) and the employees’ employment with Jon Davler was as close as a nexus can be: the only reason the employees were forced into the bathroom for inspection was that they were employed by Jon Davler, were
3. “False imprisonment”
Jon Davler also argues that there is ambiguity in “the structure of the policy as a whole” because the insuring provision “specifically provides coverage for injury ‘arising out of . . . [f]alse arrest, detention or imprisonment,‘” and the employment-related practices exclusion “does not specifically exclude false imprisonment.” Jon Davler‘s description of the language of the policy is correct, but its assertion that this language creates an ambiguity is not.
The employment-related practices exclusion in Jon Davler‘s policy is similarly unambiguous, even though it does not list false imprisonment as one of the examples of an employment-related practice, policy, act or omission. As noted, the employment-related practices exclusion provides a nonexhaustive list of examples of employment-related practices, policies, acts or omissions, so that other practices, policies, acts or omissions may qualify as employment related. (See Aroa Marketing, Inc. v. Hartford Ins. Co. of Midwest, supra, 198 Cal.App.4th at p. 788 [exclusion for claims arising out of violation of intellectual property rights “‘such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity‘” applied to right of publicity claim even though “the right of publicity is not specifically listed in the exclusion“].) Thus, the fact
Moreover, the policy in Frank and Freedus excluded bodily or personal injury “‘arising out of any’ ... ‘[c]oercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or other employment-related practices, policies, acts or omissions....‘” (Frank and Freedus v. Allstate Ins. Co., supra, 45 Cal.App.4th at p. 470.) The exclusion in Jon Davler‘s policy with Arch has “[e]mployment-related practices, policies, acts or omissions” at the beginning of the exclusion and then lists the examples after “such as,” rather than, as the exclusion in Frank and Freedus, listing the examples first and concluding with the disjunctive “or other employment-related practices, policies, acts or omissions.” The language in the exclusion in Jon Davler‘s policy makes it even clearer that injuries arising out of all kinds of employment-related practices, including those listed as examples, are subject to the exclusion.
Jon Davler argues that we should follow the federal court‘s decision in Zurich Ins. Co. v. Smart & Final, Inc. (C.D.Cal. 1998) 996 F.Supp. 979, rather than the California court decisions in Frank and Freedus and Low. In Zurich two Smart & Final loss prevention representatives confronted a store employee, drove him without his consent to the Vagabond Motel in Oxnard, California, for questioning, locked the door, closed the curtains, deprived him of food and water, questioned him about inventory shortages, and forced him to sign a confession. (Zurich Ins. Co., supra, at pp. 981, 983.) The employee filed an action for false imprisonment, fraud, wrongful termination, and intentional infliction of emotional distress. (Id. at pp. 982-983.) Smart & Final tendered the complaint to its insurer, which denied the claim based on an employment-related practices exclusion identical to the exclusion in Frank and Freedus. (Compare Zurich Ins. Co., supra, at pp. 983-984 with Frank and Freedus v. Allstate Ins. Co., supra, 45 Cal.App.4th at p. 470.) The Zurich court held that “the ‘catch-all’ phrase ‘or other employment-related practices, policies, acts or omissions‘” in the employment-related practices exclusion was ambiguous because it did “not plainly and clearly show that the exclusion applies to a false arrest or imprisonment claim.” (Zurich Ins. Co., supra, at p. 988.) The court noted that the policy, like the policy in this case, specifically provided coverage for false imprisonment but the exclusion did not specifically exclude false imprisonment. (Ibid.)
The conduct giving rise to the false imprisonment claims by the Jon Davler employees was employment related, and the employees’ injuries arose out of their employment. (See Regional Steel Corp. v. Liberty Surplus Ins. Corp. (2014) 226 Cal.App.4th 1377, 1394 [even though courts must construe exclusions strictly, courts will give an exclusion “‘its literal effect‘” where it “‘is clear and unambiguous‘“]; Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, 426 [“‘[w]here there is no doubt in the meaning of the policy language, courts will not strain to find ambiguities, nor will the courts construe exclusions strictly against the insurer absent some ambiguity‘“]; Westoil Terminals Co., Inc. v. Industrial Indemnity Co. (2003) 110 Cal.App.4th 139, 146 [“[a]lthough insuring clauses normally are interpreted broadly... and exclusions are strictly construed..., ‘where an exclusion is clear and unambiguous, it is given its literal effect‘” (citations omitted)].) To be sure, the exclusion could have been drafted to expressly cover an injury arising out of an employment-related act giving rise to false imprisonment by adding false imprisonment to the list of examples, but the fact that the exclusion “could have been written differently does not necessarily mean ... it is ambiguous....” (Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2010) 184 Cal.App.4th 196, 207.) The employment-related practices exclusion barred coverage for the false imprisonment claims.
C. The Employment-related Practices Exclusion Is Plain and Clear
Jon Davler argues that even if the employment-related exclusion is not ambiguous, the exclusion is not plain and clear and “understandable to a
“In general, provisions relating to exclusions from coverage must be ‘conspicuous‘—‘placed and printed so that [they] will attract the reader‘s attention‘—and ‘plain and clear‘—‘stated precisely and understandably, in words that are part of the working vocabulary of the average layperson.’ [Citations.]” (TIG Ins. Co. of Michigan v. Homestore, Inc. (2006) 137 Cal.App.4th 749, 759-760, fn. omitted.)6 “This means more than the traditional requirement that contract terms be “unambiguous.” Precision is not enough. Understandability is also required. To be effective in this context, the exclusion must be couched in words which are part of the working vocabulary of average lay persons.’ [Citation.]” (Universal City Studios Credit Union v. CUMIS Ins. Society, Inc. (2012) 208 Cal.App.4th 730, 741.)
The employment-related exclusion is sufficiently plain and clear. An average layperson would understand that the exclusion applies to a category of claims: those arising in the employment setting. An average person knows what employment is. (See Horace Mann Ins. Co. v. Analisa N. (1989) 214 Cal.App.3d 850, 855 [layman reading insurance policy would understand “‘in the course of employment’ means the same as ‘within the scope of employment‘“]; Ruksznis v. Argonaut Ins. Co. (D.Me., Nov. 18, 2013, No. 1:12-cv-263-DBH) 2013 WL 6063379, p. *6 [“[a]n ordinary person would understand the language of the employment-related exclusion to exclude coverage for defamation claims arising out of employment“].) An average person also knows that “such as” means that examples follow. (See Perez v. Loren Cook Co. (8th Cir. 2014) 750 F.3d 1006, 1010 [“‘an objective reader would interpret the phrase “such as” to mean “for example“‘“]; Lemelson Medical, Educ. & Research Foundation, Ltd. Partnership v. Intel Corp. (D.Ariz., Feb. 26, 2002, No. Civ.98-01413PHX(HRH)) 2002 WL 453212, p. *4 [“[t]he phrase ‘such as’ commonly indicates that what is to follow is an example or further explanation of what has previously been stated“].) Unlike technical legal or medical terms, “employment-related” and “arising out of employment” are
D. Jon Davler Is Not Entitled to Leave to Amend
Although Jon Davler did not ask for leave to amend in the trial court, Jon Davler argues on appeal that “the trial court erred in sustaining the demurrer without leave to amend” because Jon Davler pleaded “a reasonable interpretation” of the employment-related practices exclusion and that “the Policy, as a whole, does not exclude coverage for false imprisonment claims.” Other than restating its proposed interpretation of the policy and the exclusion, however, Jon Davler does not say how it would amend its complaint if given leave to do so. For example, an insurer‘s duty to defend may arise “‘where extrinsic facts known to the insurer suggest that the claim may be covered.‘” (Hartford Casualty Ins. Co. v. Swift Distribution, Inc., supra, 59 Cal.4th at p. 287; see Legacy Vulcan Corp. v. Superior Court (2010) 185 Cal.App.4th 677, 692 [“duty to defend arises if facts alleged in the complaint, or other facts known to the insurer, potentially could give rise to coverage under the policy,” and the “facts need only ‘raise the possibility’ that the insured will be held liable for covered damages“].) Jon Davler does not argue that it could amend its complaint to allege any such facts.
Similarly, if there were allegations in the complaint in the underlying action or facts known to Arch that raised a possibility that the acts giving rise to the Jon Davler employees’ false imprisonment claim were not employment related, Arch might have a duty to defend. For example, in Golden Eagle Ins. Corp. v. Rocky Cola Café, Inc. (2001) 94 Cal.App.4th 120 the court found that a supervisor‘s defamatory statement that an employee with whom the supervisor had had a sexual relationship “was a ‘sexually promiscuous and calculating bitch’ was not made in the context of [the employee‘s] employment.” (Id. at pp. 123, 128-129.) As the court in Low v. Golden Eagle Ins. Co., supra, 104 Cal.App.4th 306 explained, the claim in Rocky Cola “arose not out of the plaintiff‘s employment, but out of a sexual affair with her shift supervisor that had gone sour.” (Id. at p. 314.) In HS Services, Inc. v. Nationwide Mutual Ins. Co. (9th Cir. 1997) 109 F.3d 642 the manager of a company made defamatory statements about a former president of the company, who had formed a competing business and was telling third party vendors that the company was experiencing financial difficulties. (Id. at p. 644.) The court held that the manager‘s statements were not employment related because “the purpose of the remarks was to protect [the company] in the marketplace” and to protect the company against comments made by the former president as “a present competitor.” (Id. at p. 646.) Jon Davler does not state that or how it could amend its complaint to allege facts that the underlying claims were not employment related. Indeed,
DISPOSITION
The judgment is affirmed. Arch is to recover its costs on appeal.
Perluss, P. J., and Woods, J., concurred.
On September 15, 2014, the opinion was modified to read as printed above.