Daily Blast September 15, 2014

The California Court of Appeal, Second Appellate District, Division Seven (Los Angeles), issued an opinion in Davler, Inc. v. Arch Insurance Company (Sept. 15, 2014, B252830) ___ Cal.App.4th ___, analyzing whether an insurer breached its duty to defend when it applied the policy’s employment-related practices exclusion (“EPR exclusion”) to deny coverage for an action claiming harassment, hostile work environment and false imprisonment occurring at plaintiff’s place of work.(Slip opn., p. 4.) The Court of Appeal held the insurance company did not breach its duty in denying the claim because the EPR exclusion applied to all the causes of action, including false imprisonment. (Id. at p. 18.)

In the underlying action, the employees sued their employer, Jon Davler, Inc. (“Davler”) for various causes of action including sexual harassment and false imprisonment based on the acts of the company, its owner and its manager. (Slip opn., pp. 2-3.) Arch Insurance Company (“Arch”) issued a commercial liability insurance policy to Davler, but denied coverage of the underlying action based on the policy’s ERP exclusion. (Ibid.) Davler sued Arch for breach of contract, breach of covenant of good faith and fair dealing and conversion. (Id. at p. 4.) The trial court sustained Arch’s demurrer without leave to amend on the ground that the ERP exclusion applied to all of the causes of action. (Id. at pp. 4-5.)

The Court of Appeal affirmed holding that the false imprisonment claim was covered under the ERP exclusion because the injuries claimed by the alleged false imprisonment arose out of the employees’ employment. The ERP exclusion stated that coverage does not apply to “[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 …” (Slip opn., p. 4.) The Court of Appeal concluded that this language is plain and clear because an average person knows what employment is and would understand that the exclusion applies a category of claims: those arising in the employment setting. (Id. at p. 16.) Further, false imprisonment shares general similitude with several other matters specifically enumerated in the exclusion, such as coercion, discipline and harassment. (Id. at pp. 8, 10.) Likewise, “workplace harassment can include false imprisonment, and employment actions often involve both claims.” (Id. at p. 8.)

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