An “employment-related practices” exclusion relieved a commercial general liability insurer of any duty to defend an insured employer against a suit arising from an alleged “strip search” of its employees. ( Jon Davler, Inc. v. Arch Insurance Co. (2014) 2014 WL 4185860)
Facts
Jon Davler, Inc. is a cosmetics company. One of Jon Davler’s managers, Christina Yang, became very upset when she found a used sanitary napkin by the toilet in the women’s bathroom. Yang thus confronted several of the company’s female employees and demanded to know who was on their menstrual period so that Yang could determine who had left the used sanitary napkin by the toilet. When the female employees denied being on their menstrual cycle, Yang required the employees to go into the restroom and pull down their pants and underwear so that Yang could determine who was menstruating. Yang told the female employees that if they did not comply, they would be fired. The female employees complied.
Three of the female employees later sued Jon Davler and Yang for sexual harassment, failure to prevent sexual harassment, invasion of privacy, intentional infliction of emotional distress and false imprisonment. 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.”
Jon Davler and Yang sought coverage under Jon Davler’s commercial general liability policy issued by Arch Insurance Company. The Arch policy covered damages because of various “personal and advertising injury” offenses, including “false arrest, detention or imprisonment….” However, the policy also contained an “employment-related practices exclusion,” which stated that there was no coverage for personal injury “arising out of” any refusal to employ a person, termination of a person’s employment, or “employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution directed at that person….” Citing the policy’s employment-related practices exclusion, Arch refused to defend or indemnify Jon Davler and Yang against the employees’ lawsuit.
Jon Davler subsequently sued Arch for breach of contract and bad faith. However, the trial court ruled that all of the claims asserted against Jon Davler in the underlying action fell within the employment-related practices exclusion in the Arch policy, and that Arch thus had no duty to defend Jon Davler in the underlying action. Jon Davler appealed.
Holding
The Court of Appeal affirmed, holding that the policy’s employment-related practices exclusion relieved Arch of any duty to defend Jon Davler against the employees’ lawsuit.
The appellate court rejected Jon Davler’s argument that the exclusion’s use of the term “such as” required that any excluded acts be similar to “coercion, demotion, evaluation,” etc., and that “false imprisonment” was not similar to such acts. According to the appellate court, “such as” is not a term of limitation but rather contemplates additional matters not specifically enumerated. Further, “false imprisonment” was sufficiently similar to several of the listed acts, including “coercion,” “discipline” and “harassment.”
The appellate court also rejected Jon Davler’s argument that the exclusion’s “arising out of” language rendered the exclusion ambiguous. According to the court, the term “arising out of” only requires a “minimal causal connection” between the injury and the excluded activity. Here, the “arising out of” requirement was easily met. Indeed, the only reason the employees were forced into the bathroom for inspection was 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.
Last, the appellate court rejected Jon Davler’s argument that an ambiguity was created by the presence of “false imprisonment” in the coverage provision and its absence in the exclusion. According to the appellate court, 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 (e.g., false imprisonment) may qualify as employment-related. In reaching that conclusion, the appellate court disagreed with the federal district court’s contrary decision in Zurich Ins. Co. v. Smart & Final, Inc. (C.D. Cal. 1998) 996 F. Supp. 979, and stated that the federal district court had “missed the mark.”
Comment
A general liability policy’s employment-related practices exclusion will generally bar coverage for claims arising in the employment setting. Thus, courts have generally held that the exclusion will bar coverage for an insured’s alleged liability arising from unlawful strip search of an employee at the workplace. (See, e.g., LDF Food Group, Inc. v. Liberty Mutual Fire Ins. Co. (Kan. 2006) 146 P.3d 1088, 1095 and Cornett Management Co., LLC v. Fireman’s Fund Ins. Co. (4th Cir. 2009) 332 Fed.Appx. 146, 147.)