Jon Davler, Inc. v. Arch Insurance Company

Filed 8/25/14 Modified and Certified for Pub. 9/15/14 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
JON DAVLER, INC., B252830
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC517442 )
v.
ARCH INSURANCE COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County, Michelle
Rosenblatt, Judge. Affirmed.
Ideal Legal Group, Inc. and Jie Lian for Plaintiff and Appellant.
Musick, Peeler & Garrett LLP and Cheryl A. Orr for Defendant and Respondent.
____________________
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 Government Code section 12940, subdivision (j), failure to
prevent sexual harassment in violation of Government Code section 12940,
subdivisions (j) and (k), invasion of privacy in violation of article I, section 1 of the
California Constitution, intentional infliction of emotional distress, and false
imprisonment. The employees also named as a defendant Christina Yang, an owner,
manager, or supervisor of Jon Davler.
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
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will, “to take each of [the employees] into the bathroom, one by one, and check their
panties to see who was on their menstrual period, by requiring each to pull down their
pants and underwear for an inspection.”
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. . . .”
1 The policy provided similar coverage for “‘bodily injury’ or ‘property damage,’”
but this coverage is not at issue in this case.
3
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.
C. This Action
Jon Davler filed this action against Arch for breach of contract, breach of the
covenant of good faith and fair dealing, and conversion. Jon Davler alleged that the
personal and advertising injuring 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
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“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 standards of
review on appeal. [Citation.] . . . Appellate courts first review the complaint de novo to
determine whether . . . the . . . complaint alleges facts sufficient to state a cause of action
under any legal theory, [citation], or in other words, to determine whether . . . the trial
court erroneously sustained the demurrer as a matter of law. [Citation.]’ [Citation.]
‘Second, if a trial court sustains a demurrer without leave to amend, appellate courts
determine whether . . . the plaintiff could amend the complaint to state a cause of action.
[Citation.]’ [Citation.]” (Das v. Bank of America, N.A. (2010) 186 Cal. App. 4th 727,
734.) Where an insured has asserted a claim against an insurer for breach of the duty to
defend, and the policy and the underlying third party complaint has been incorporated
into the insured’s complaint against the insurer, “we may properly rely on these
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documents in assessing whether [the insured’s] claims are legally tenable.” (Total Call
Intern., Inc. v. Peerless Ins. Co. (2010) 181 Cal. App. 4th 161, 166.)
“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 from a duty to defend only when ‘“the third party complaint can by no
conceivable theory raise a single issue which could bring it within the policy coverage.”’”
(Hartford Casualty Ins. Co. v. Swift Distribution, Inc., supra, 59 Cal.4th at p. 288.)
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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.”
7
The phrase “such as” is “not intended to be exhaustive” (Harper & Row,
Publishers, Inc. v. Nation Enterprises (1985) 471 U.S. 539, 561 [105 S. Ct. 2218, 85
L. Ed. 2d 588]) and is “‘illustrative and not limitative’” (Campbell v. Acuff-Rose Music,
Inc. (1994) 510 U.S. 569, 577 [114 S. Ct. 1164, 127 L. Ed. 2d 500]). The use of the phrase
“such as” in an exclusion is “nonexclusive” and “‘“is not a phrase of strict limitation, but
is a phrase of general similitude indicating that there are includable other matters of the
same kind which are not specifically enumerated.”’” (Aroa Marketing, Inc. v. Hartford
Ins. Co. of Midwest (2011) 198 Cal. App. 4th 781, 788-789, quoting Shaddox v. Bertani
(2003) 110 Cal. App. 4th 1406, 1414; see U.S. v. Aisenberg (M.D.Fla. 2003) 247
F. Supp. 2d 1272, 1308 [“[i]f nothing else, the phrase ‘such as’ reveals that other examples
exist”], rev’d in part on other grounds in U.S. v. Aisenberg (11th Cir. 2004) 358 F.3d
1327.)
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
8
“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 acts listed in the
exclusion. Even under Jon Davler’s theory, the exclusion applies to false imprisonment
claims.
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
2 Arch does not argue that Insurance Code section 533 precludes coverage for the
employees’ false imprisonment claims against Jon Davler. (See State Farm General Ins.
Co. v. Mintarsih (2009) 175 Cal. App. 4th 274, 288 [Insurance Code section 533
“preclude[d] indemnity for the damages awarded for false imprisonment, despite the fact
that the . . . policy expressly promised indemnity for false imprisonment”].)
9
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 that they were employed by Jon Davler, were
following a directive from a supervisor at their place of employment, and would lose
their jobs if they did not comply with the inspection demand. And there was nothing in
the allegations of the complaint in the underlying action suggesting that there was any
relationship between Jon Davler and the employees subject to the inspection other than
the employer-employee relationship. Indeed, cases involving strip searches of employees
have held that the employment-related practices exclusion applies to bar coverage. (See,
e.g., Cornett Management Co., LLC v. Fireman’s Fund Ins. Co. (4th Cir. 2009) 332
Fed.Appx. 146, 147, 149 [a supervisor’s strip search of two female Hooters employees
based on a false report that customers had reported a stolen change purse, “which
intentionally humiliates, coerces, or harasses an employee, will clearly have an effect on
the employment relationship” and “therefore, is employment-related”]; LDF Food
Group, Inc. v. Liberty Mutual Fire Ins. Co. (2006) 36 Kan. App. 2d 853, 855, 862-863
10
[146 P.3d 1088, 1090, 1095] [managers’ strip search of female restaurant employee based
on fake law enforcement call that employee might be in possession of contraband was
employment-related];3 see also Erie Ins. Property & Casualty Co., Inc. (N.D.W.Va.
2011) 785 F. Supp. 2d 561, 564, 568, 573 [owner of preschool who sexually harassed
employees and used “his physical strength, to overpower, illegally detain, and restrain”
them committed offenses that “undoubtedly arose out of employment-related acts that
affected the employment relationship, and therefore [fell] within the broad scope of the
[employment-related practices] exclusion”].)4
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.
In Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal. App. 4th 461, the court
interpreted a similar employment-related practices exclusion and held that the exclusion
applied to a defamation claim by a former employee. (Id. at pp. 470-472.) The court
3 But see Acuity v. North Cent. Video, LLLP (D.N.D. 2007) 2007 WL 1356919,
p. 16 [strip search of video store employee by manager after manager’s accomplice had
called the store pretending to be a police officer and accusing the employee of theft did
not arise out of an employment-related practice, policy, act or omission].
4 Jon Davler does not argue that the employees’ alleged false imprisonment does not
arise out of employment-related practices, policies, acts or omissions because false
imprisonment is not part of the employment bargain. (See Fermino v. Fedco, Inc., supra,
7 Cal.4th at p. 723 [for purposes of determining whether false imprisonment claim is
barred by workers’ compensation exclusivity, “[o]nce it is determined . . . that a false
imprisonment has indeed taken place, then such action cannot be said to be a normal
aspect of the employment relationship, however legitimate its initial justification”].)
11
held that the employment-related practices exclusion was not ambiguous, even though it
was not defined in the policy. “The term [employment-related] is not technical in nature.
It is used in its ordinary sense, i.e., related to employment. As a term, it modifies the
specified acts (including defamation) as well as the terms ‘practices, policies, acts or
omissions.’ The clear meaning of . . . the exclusion is coverage for practices, policies,
acts or omissions which are related to employment, including employment-related
defamation.” (Id. at p. 471; accord, Low v. Golden Eagle Ins. Co., supra, 104
Cal.App.4th at p. 310, fn. 3; see Loyola Marymount University v. Hartford Accident &
Indemnity Co. (1990) 219 Cal. App. 3d 1217, 1222-1223 [exclusion for injury “sustained
by any person as a result of an offense directly or indirectly related to the employment or
prospective employment” “plainly” and “clearly” applied to former employees’ claims
for defamation and invasion of privacy].) The Frank and Freedus court also held that the
exclusionary language was not ambiguous because the provision granting coverage for
“personal injury” included defamation. “The fact the policy’s general definition of the
term ‘personal injury’ encompasses defamation does not set up a fatal inconsistency or
ambiguity because in another section of the policy coverage is excluded for certain
personal injuries, including defamation, in a particular context. An insurance policy may
exclude coverage for particular injuries or damages in certain specified circumstances
while providing coverage in other circumstances.” (Frank and Freedus, supra, at p. 471;
see Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal. 4th 747, 759 [“an insurer is
not absolutely prohibited from drafting and enforcing policy provisions that provide or
leave intact coverage for some, but not all, manifestations of a particular peril”].)
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 non-exhaustive 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
12
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 that the underlying claim in Frank and Freedus (defamation)
was listed in the exclusion as an example of “employment-related practices, policies, acts
or omissions,” and the underlying claim in this case (false imprisonment) is not, does not
make the exclusion ambiguous.5
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 In. Co., supra,
45 Cal.App.4th at p. 470.) The exclusion in Jon Davler’s policy with Arch has
“employment-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
5 In North American Building Maintenance, Inc. v. Fireman’s Fund Ins. Co. (2006)
137 Cal. App. 4th 627 the court declined to address the issue of whether the same version
of the employment-related practices exclusion applied to false imprisonment claims made
by employees in the underlying action against their employer. (See id. at pp. 634, 643,
fn. 10.)
13
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.)
To the extent the court in Zurich, a diversity case, attempted to decide issues of
California law “as it believe[d] the state’s highest court would decide them” (Zurich Ins.
Co. v. Smart & Final, Inc., supra, 996 F.Supp. at p. 985), we conclude the court’s
decision in Zurich missed the mark. As the Court of Appeal’s decisions in Frank and
Freedus and Low reflect, the language of the employment-related practices exclusion is
not ambiguous. Moreover, Zurich is factually distinguishable because the court in that
case found that the false imprisonment claim “arose solely in the context of loss
prevention” and “was not clearly employment-related . . . .” (Zurich Ins. Co., supra, at
p. 988 & fn. 14.) Here, there is and can be no dispute that the false imprisonment of the
Jon Davler employees occurred at work in the company restroom, was at the direction of
a supervisor, and was employment-related. Finally, as noted, the difference between the
language of the exclusion in this case and the language of the exclusion in Zurich makes
it even clearer that the exclusion applies to all employment-related acts, not just the
examples in the exclusion.
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The conduct giving rise to the false imprisonment claims by the Jon Davler
employees are 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’”].) 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 layperson.” According to
Jon Davler, the policy “is phrased in an illogical manner” and “[a]n average layperson
cannot understand the Policy as excluding coverage for false imprisonment claim
unambiguously” because the “extremely broad phrase ‘arising out of’” appears “in both
the coverage and exclusionary clauses.”
“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
15
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 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. 2013) 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 [“‘[a]n objective reader would
interpret the phrase “such as” to mean “for example”’”]; Lemelson Medical, Educ. &
Research Foundation, Ltd. Partnership v. Intel Corp. (D.Ariz. 2002) 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”].)7 Unlike technical legal or
medical terms, “employment-related” and “arising out of employment” are not terms or
phrases that average persons cannot understand. (See Brown v. Mid-Century Ins. Co.
(2013) 215 Cal. App. 4th 841, 857.)
6 Jon Davler does not argue that the exclusion is not conspicuous.
7 Contrary to Jon Davler’s assertion, the policy does not exclude coverage for all
false imprisonment claims, only those false imprisonment claims arising out of
employment-related acts and practices. For example, the policy would cover false
imprisonment claims by customers, invitees, or other third parties against Jon Davler.
16
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 Mut. 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.)
17
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, it is hard to
conceive how the false imprisonment claim of the employees at work in the company
bathroom could be unrelated to their employment, and Jon Davler has not suggested how
the claim could be.
DISPOSITION
The judgment is affirmed. Arch is to recover its costs on appeal.
SEGAL, J.*
We concur:
PERLUSS, P. J.
WOODS, J.
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
18
Filed 9/15/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
JON DAVLER, INC., B252830
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC517442 )
v.
ORDER MODIFYING OPINION
ARCH INSURANCE COMPANY, AND CERTIFYING FOR
PUBLICATION
Defendant and Respondent. [NO CHANGE IN JUDGMENT]
THE COURT:
It is ordered that the opinion filed herein on August 25, 2014, be modified as
follows:
1. On page 4, the first sentence under Section C, the word “implied” is added
between the words “the” and “covenant” so that the sentence reads as follows:
John Davler filed this action against Arch for breach of
contract, breach of the implied covenant of good faith and fair
dealing, and conversion.
2. On page 15, (1) at line 2, the second word “are” is changed to “was” and (2) at
line 4 of the first full paragraph under Section C, the last word “claim” is changed to
“claims.”
There is no change in the judgment.
The opinion in the above-entitled matter filed on August 25, 2014, was not
certified for publication in the Official Reports. For good cause it now appears that the
opinion should be published in the Official Reports and it is so ordered.
__________________ ___________________ ___________________
PERLUSS, P. J. WOODS, J. SEGAL, J.*
*
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
2