In Jon Davler, Inc. v. Arch Insurance Company (No. B252830, filed 8/25/14), a California appeals court ruled that an employment-related practices exclusion unambiguously barred coverage for employees’ false imprisonment claims despite the listing of false imprisonment as a covered personal and advertising injury offense.
In Jon Davler, a female supervisor angry over conditions in an employee restroom allegedly forced several female employees to disrobe under threat of termination while trying to determine whether any of the employees were menstruating.
The Arch 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….” However, the policy was subject to an employment-related practices exclusion barring coverage for 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….”
When coverage was denied for the ensuing Fair Employment and Housing Act lawsuit alleging sexual harassment and invasion of privacy, Jon Davler sued Arch for breach of contract and bad faith. However, the trial court sustained the insurer’s demurrer without leave to amend, finding that all claims fell within the exclusion.
On appeal, Jon Davler argued that the policy was ambiguous for several reasons. First, it argued that the words “such as” in the exclusion required that any excluded activities be similar in nature to “coercion, demotion, evaluation, etc.,” but that false imprisonment was “markedly dissimilar.” However, the court pointed out that “such as” is not a term of limitation but contemplates additional matters not specifically enumerated. Further, the court found that false imprisonment was, in fact, sufficiently similar to “coercion, discipline, and harassment.”
The employer next argued that “arising out of” was likewise ambiguous, but the court rejected that argument as well, citing cases holding that the term merely requires a minimal causal connection and saying that: “[T]he nexus between the [false imprisonment] and the employees’ employment … 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.”
Jon Davler then argued that the policy was ambiguous because false imprisonment was expressly listed among the personal injury offenses, but not in the employment-related practices endorsement. However, the court again noted that the listing in the exclusion was not all-inclusive, citing Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal.App.4th 461, for the proposition that “[A]n insurance policy may exclude coverage for particular injuries or damages in certain specified circumstances while providing coverage in other circumstances.”
The Jon Davler court also rejected an argument that the federal district court decision in Zurich Ins. Co. v. Smart & Final, Inc. (C.D.Cal. 1998) 996 F.Supp. 979, mandated a different result, since that court found ambiguity for a false imprisonment claim in relation to an employment-related acts exclusion. But the Jon Davler court disagreed, stating: “To the extent the court in Zurich, a diversity case, attempted to decide issues of California law ‘as it believed the state’s highest court would decide them’ … we conclude the court’s decision in Zurich missed the mark.” The Jon Davler court distinguished the wording of the Zurich policy and pointed to Frank and Freedus v. Allstate Ins. Co. and other cases as controlling state court precedent.
In the end, the Jon Davler court affirmed the dismissal of the insurer, ruling that the exclusion unambiguously barred coverage and stating that: “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…. Unlike technical legal or medical terms, ’employment-related’ and ‘arising out of employment’ are not terms or phrases that average persons cannot understand.”
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