The California Court of Appeal has held that a homeowners and personal umbrella insurer had no duty to indemnify its insureds for compensatory damages and statutory attorney’s fees awarded against the insureds after the insureds falsely imprisoned and exploited a domestic servant. ( State Farm General Ins. Co. v. Mintarsih (2009) 175 Cal.App.4th 274)
Facts
Mimin Mintarsih sued Dennis and Dina Lam, alleging that she had been falsely imprisoned in the Lams’ home for seven years and forced to work as a domestic servant. Mintarsih alleged that she had been required to work for the Lams seven days a week, 14 hours a day, without proper breaks and compensation. Mintarsih also claimed that the Lams negligently failed to provide her with proper medical care, which resulted in physical injury to her.
The Lams sought defense and indemnity under homeowners and personal umbrella policies issued by State Farm General Insurance Company. State Farm agreed to defend the Lams subject to a reservation of rights.
Mintarsih’s case against the Lams was submitted to the jury on counts for false imprisonment, negligence, negligence per se, fraud, and wage and hour violations under the Labor Code. The jury found in favor of Mintarsih on all counts. It awarded her $87,000 in damages on the first four counts, $745,671 in damages and statutory penalties on the wage and hour count, and $5,000 in punitive damages. Thereafter, the trial court awarded Mintarsih $733,323 in statutory attorney’s fees on the wage and hour claim, plus $161,591 in “other costs.”
State Farm filed a declaratory relief action against the Lams and Mintarsih. The trial court ruled that State Farm was obligated to indemnify the Lams for some, but not all, of the amounts which had been awarded to Mintarsih in the underlying action. Mintarsih and State Farm both appealed.
Holding
On appeal, the parties agreed that State Farm did not have a duty to indemnify the Lams for the $745,671 in damages and penalties which had been awarded to Mintarsih on the wage and hour count, and did not have a duty to indemnify Lams for the $5,000 in punitive damages which had been awarded to Mintarsih. The parties also agreed that State Farm did have a duty to indemnify the Lams for the $161,591 in “other costs” which had been awarded to Mintarsih.
However, the parties disputed whether State Farm had a duty to indemnify the Lams for the $87,000 in compensatory damages which had been awarded to Mintarsih on the false imprisonment and negligence claims. On that issue, the appellate court ruled in favor of State Farm. The appellate court reasoned that even though the State Farm personal umbrella policy covered the “personal injury” offense of “false imprisonment,” the evidence in the underlying case established that the Lams had intentionally deprived Mintarsih of her freedom, and that constituted a “willful act” under Insurance Code section 533. According to the court, “[s]ection 533 precludes indemnity for the damages awarded for false imprisonment, despite the fact that the umbrella policy expressly promised indemnity for false imprisonment.” Further, section 533 precluded indemnity for the damages which had been awarded as a result of the Lams’ negligence in failing to provide medical care to Mintarsih. According to the appellate court, the Lams’ negligent failure to provide medical care to Mintarsih was “intimately connected with” and “inseparable from” their intentional false imprisonment of her. Thus, section 533 also relieved State Farm of any duty to indemnify the Lams’ for damages awarded on the “negligence” theory.
In addition, the parties disputed whether State Farm had a duty to indemnify the Lams for the $733,323 in statutory attorney’s fees which had been awarded to Mintarsih on the wage and hour claim. On that issue, the appellate court also ruled in favor of State Farm. The court acknowledged that the State Farm policies’ “supplemental payment” clauses covered “ costs taxed against an insured in suits we defend ,” and that under California law “costs” includes statutory attorney fees awarded to the prevailing party. However, the statutory attorney fees which were awarded as costs in this case arose from the wage and hour claim – a claim that was not even potentially covered under the State Farm policies. According to the court, “the reference in the supplemental payments provision to ‘suits we defend’ encompasses only those claims that the insurer agreed to defend under the terms of the policy,” and “an insured could not reasonably expect an insurer to pay costs that can be allocated solely to claims that were not even potentially covered.” Thus, since the supplemental payment clauses did not require State Farm to pay costs arising from claims that were not even potentially covered, State Farm was not obligated to pay the statutory attorney’s fees which had been awarded to Mintarsih on the wage and hour claim.
Comment
In an earlier case, Prichard v. Liberty Mutual Insurance Company(2000) 84 Cal. App. 4th 890, an Orange County-based appellate panel had concluded that in a mixed action involving both covered and uncovered claims, a standard “supplemental payment” clause requiresan insurer to pay costs (including statutory attorney’s fees) arising from claims that were notpotentially covered. However, in the State Farm v. Mintarsihcase, a different appellate panel, based in Los Angeles County, reached the opposite conclusion. Thus, there is now a “split” in the state appellate courts on this issue. One can expect that, at some point, the California Supreme Court will be asked to review the issue.