Baek v. Continental Casualty Group

(Massage therapist did not qualify as an insured in connection with the sexual assault of a customer as his conduct did not occur in the course and scope of his employment by the named insured)

In Baek v. Continental Cas. Co., ___ Cal.App.4th ___ (October 6, 2014), the California Second District Court of Appeal affirmed the trial court’s entry of summary judgment in favor Continental Casualty Company (“Continental”) in connection with a declaratory relief and bad faith action filed by Luiz Baek. The parties’ coverage dispute arose out of an underlying lawsuit filed by a customer of a wellness center against Baek for sexual assault. The underlying complaint alleged that during a massage, Baek touched, fondled, rubbed, grabbed and squeezed plaintiff’s breasts, buttocks, inner thighs and genitals, all while making and emitting moans, groans, grunts and other sounds and noises of sexual pleasure. The underlying complaint alleged causes of action for sexual harassment, sexual battery, assault, battery, false imprisonment, intentional infliction of emotional distress and negligence. Initially, the named insured, Heaven Massage and Wellness Center (“HMWC”), tendered the defense of such lawsuit to Continental Casualty. In response, Continental Casualty denied coverage of HMWC. Ultimately, in a separate decision, the Court of Appeal held that HMWC was entitled to coverage under the Continental policy. Subsequently, Baek tendered the defense of the underlying lawsuit to Continental arguing that he, too, was entitled to defense and indemnity under the policy. In response, Continental declined coverage of Baek, arguing that he did not qualify as an insured as he was not acting within the course and scope of his employment at the time of the sexual assault. In response, Baek filed a complaint for declaratory relief and bad faith against Continental. In response, Continental filed a demurrer requesting the trial court to dismiss Baek’s complaint and to enter judgment in its favor. Thereafter, the trial court sustained Continental’s demurrer without leave to amend and entered judgment in favor of Continental.

In affirming the trial court’s decision, the Court of Appeal held that Beak was not acting in the course and scope of his employment at the time he sexually assaulted the plaintiff in the underlying lawsuit. Hence, he did not qualify as an insured under the Continental policy and, therefore, was not entitled to defense and indemnity for the underlying sexual assault lawsuit. In reaching its decision, the Court of Appeal reasoned as follows:

The sole named insured under the Continental policy was “Heaven Massage & Wellness Center,” identified in the insurance declarations as a “[p]artnership.” As we have said, the policy also provided coverage to HMWC's employees “for acts within the scope of their employment.” (Italics added.) We thus address whether the sexual assault alleged in the Jaime W. action was within the scope of Baek's employment.

. . .

Baek's employment as a massage therapist provided him the opportunity to meet Jaime W. and to be alone with her, but nothing alleged in the underlying complaint suggested that the alleged assault was “engendered by” or an “outgrowth” of his employment in that its “motivating emotions were fairly attributed to work-related events or conditions.” (Lisa M., supra, 12 Cal.4th at p. 301.) Instead, as in Lisa M., the opposite was true: as alleged in the complaint, Baek “simply took advantage of solitude with a naive employment” within the meaning of the Continental policy.

The Court of Appeal also held that Baek’s sexual assault did not occur while performing duties related to the conduct of HNWC’s business or with respect to the conduct of such business. Therefore, Baek did not qualify as an insured on this basis. The Court of Appeal reasoned as follows:

Although the alleged sexual assault of Jaime W. occurred during a massage, the particular acts on which liability is premised—i.e., “touchbusiness.”

For the same reasons, we conclude that the alleged sexual assault was not “with respect to the conduct of business.” Although HMWC's business created the opportunity for the alleged assault, the assault was not done at HMWC's request or for its benefit. To paraphrase Lisa M., a deliberate sexual assault “is fairly attributed not to any peculiar aspect of [a massage enterprise], but only to ‘propinquity and lust.’” (Lisa M., supra, 12 Cal.4th at p. 302.) It therefore cannot be characterized as having occurred “with respect to” the conduct of HMWC's business.”

The Court of Appeal also rejected Baek’s arguments that the underlying lawsuit’s causes of action for negligence and false imprisonment triggered potential coverage under the Continental policy. In particular, with respect to the claim for false imprisonment, the Court of Appeal held that because it was “inseparably intertwined” with the allegations of intentional sexual misconduct, such allegations did not support a determination that Baek was potentially acting within the course and scope of his employment on behalf of HMWC.