MEMORANDUM DECISION GRANTING DEFENDANT‟S MOTION FOR SUMMARY JUDGMENT (DOC. 64)
The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
This case concerns a directors and officers liability insurance policy ("the Policy") issued to Plaintiff, California Dairies, Inc. ("CDI"), by RSUI Indemnity Company ("RSUI"). RSUI denied coverage for claims asserted against CDI in a class action filed in Tulare County Superior Court, Gonzalez v. CDI , Case No. 08-226450 ("Gonzalez " or the "Underlying Action"), in which employees and former employees of CDI allege CDI violated various provisions of the California Labor Code ("CLC") concerning wages, hours, and related matters.
By letter dated March 3, 2008, RSUI initially denied coverage based upon Exclusions 1, 2 and 4 of the Policy. Upon the insured‟s request for reconsideration, RSUI narrowed its grounds for denial to Exclusion 4. Declaration of Phil Krajec, Doc. 64-4, Ex. I.
CDI then filed this action seeking declaratory relief regarding coverage under the Policy. RSUI moved to dismiss, arguing, among other things, that Exclusions 4 and 7 barred coverage. The initial complaint was dismissed with leave to amend. Doc. 24, filed Mar. 20, 2009. Plaintiffs filed a First Amended Complaint ("FAC"), adding some new allegations, particularly pertaining to the issues of waiver and the applicability of Exclusion 7. Doc. 25, filed Apr. 9, 2009. Defendants‟ renewed motion to dismiss the FAC was granted in part and denied in part. Doc. 36. RSUI then moved for judgment on the pleadings, asserting that a waiver theory cannot create coverage "where none exists." Doc. 40 at 3. That motion was denied on April 16, 2010. Doc. 59.
RSUI now moves for summary judgment on the ground that the undisputed evidence demonstrates that it did not waive its right to assert Exclusion 7. Doc. 64-1. In the alternative, RSUI argues that it does not have a duty to indemnify CDI for any of the damages sought in the Gonzalez lawsuit because those damages do not constitute covered "Loss." Id . Defendant filed a statement of undisputed fact ("DSUF") and supporting declarations. Doc. 64-2 - 64-4. CDI opposed, Doc. 66, and filed a response to Defendant‟s statement of facts, along with its own statement of undisputed fact ("PSUF"), Doc. 67, and supporting declarations, Docs. 68 & 69. RSUI replied and filed objections. Docs. 72 & 73. The motion came on for hearing in Courtroom 3 (OWW) on June 14, 2010.
A. The Underlying Gonzalez Lawsuit
On January 4, 2008, Walter Gonzalez filed a class action complaint against CDI in Tulare County Superior Court. DSUF #3. The Gonzalez Complaint alleges causes of action for: 1) failure to pay minimum wage; 2) failure to pay regular and overtime wages; 3) failure to provide mandated meal periods or pay an additional hour of wages; 4) failure to provide mandated rest periods or pay an additional hour of wages; 5) failure to reimburse employees for costs incurred to acquire and/or maintain company-required uniforms; 6) knowing and intentional failure to comply with itemized wage statement provisions; and 7) failure to timely pay wages due at termination. Id . The Gonzalez Complaint also alleges that CDI violated California‟s Unfair Competition Law, Cal. Bus. Prof. Code § 17200, et seq ., as a result of CDI‟s alleged violations of the CLC. Id . No violation of the federal Fair Labor Standards Act ("FLSA") was alleged. See id.
B. The Relevant Terms and Conditions of the Policy
CDI is the named Insured, as the "Insured Organization" under the Policy. Krajec Decl., Doc. 64-4, Ex. A ("Policy"). Under the Policy‟s Insuring Agreement set forth at Section I(C), RSUI agrees:
With the Insured Organization that if a Claim for a Wrongful Act is first made against the Insured Organization during the Policy Period and reported in accordance with SECTION V. -- CONDITIONS, C. Notice of Claim and Circumstance of this policy, the Insurer will pay on behalf of the Insured Organization all Loss the Insured Organization is legally obligated to pay.
See Policy at p. 32 of 44 (underlined text is bold in original).
The Policy does not contain a duty to defend, but instead contains a duty to reimburse defense costs. Id . at p. 11 of 44 (Advancement of Defense Expenses; Insurer Has No Duty to Defend).
"Insured" is defined at Section III(G) of the Policy as "any Insured Organization and/or any Insured Person." Id . at p. 34 of 44. "Insured Organization" is defined as "the organization named in Item 1 of the Declarations Page...." Id . (Section III(H)). "Insured Person" is "any past, present or future director, officer, trustee, Employee, volunteer, or any committee member of a duly constituted committee of the Insured Organization." Id . (Section III(I)). "Employee" is defined as "any past, present or future employee of the Insured Organization...." Id . (Section II(D)). "Employment Practices Claim" is "any Claim alleging an Employment Practices Wrongful Act." Id . at p. 33 of 44 (Section II(E)).
An "Employment Practices Wrongful Act" is defined at Section II(F) of the Policy as any actual or alleged:
1. Wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of an implied employment contract;
2. Employment related harassment (including but not limited to sexual harassment);
3. Employment-related discrimination (including but not limited to discrimination based on age, gender, race, color, national origin, religion, sexual orientation or preference, pregnancy or disability);
4. Employment-related retaliation;
5. Employment-related misrepresentation to an Employee or applicant for employment with the Insured organization;
6. Libel, slander, humiliation, defamation or invasion of privacy (solely when employment related);
7. Wrongful failure to promote;
8. Wrongful deprivation of career opportunity, wrongful demotion or negligent Employee evaluation, including giving defamatory statements in connection with an Employee reference;
9. Employment related wrongful discipline;
10. Failure to grant tenure or practice privileges;
11. Failure to provide or enforce adequate and consistent organization policies or procedures relating to employment;
12. Violations of the following federal laws (as amended) including all regulations promulgated thereunder: a. Family and Medical leave Act of 1993; b. Americans with Disabilities Act of 1992 (ADA); c. Civil Rights Act of 1991; d. Age Discrimination in Employment Act of 1967 (ADEA), including the Older Workers Benefit Protection Act of 1990; or e. Title VII of the Civil Rights Law of 1964 (as amended) and 42 U.S.C. Section 1983, as well as the Pregnancy Discrimination Act of 1978;
13. Violation of an Insured Person's civil rights relating to any of the above; or
14. Negligent hiring, retention, training or supervision, infliction of emotional distress, failure to provide or enforce adequate or consistent organizational polices and procedures, or violation of an individual's civil rights, when alleged in conjunction with respect to any of the foregoing items 1 through 13.
C. The Relevant Exclusions of the Policy
The Policy also contains a number of specific exclusions.
The Policy provides that the Insurer shall not be liable to make any payment for "Loss" in connection with any "Claim" made against the "Insured":
4. For violation of any of the responsibilities, obligations or duties imposed by the Employees Retirement Income Security Act of 1974, the Fair Labor Standards Act (except the Equal Pay Act), the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget Reconciliation Act, the Occupational Safety & Health Act, any rules or regulations of any of the foregoing promulgated thereunder, and amendments thereto or any similar provision of federal, state or local statutory law or common law; provided this EXCLUSION shall not apply to Loss arising from a Claim for employment related retaliation.
7. Brought by or on behalf of any Insured, except:...(b) an Employment Practices Claim brought by an Insured Person..."
Id . at p. 35 of 44 (underlined words bolded in original; italic emphasis added). The Policy defines "Loss" at Section II(K) as follows:
Loss means damages (including back pay and front pay), settlement, judgments (including pre- and post-judgment interest on a covered judgment) and Defense Expenses. Loss (other than Defense Expenses) shall not include:... 5. Any amounts owed as wages to any Employee, other than front pay or back pay; 6. Civil or criminal fines or penalties.
Id . at p. 34 of 44 (underlined words bolded in original). This makes the insurance contract a "burning limits" policy.
D. Tender of Claim and Response Thereto
On January 9, 2008, CDI tendered the Gonzalez action to RSUI pursuant to the Policy. DSUF #6. Phil Krajec, Vice-President of RSUI, was assigned to act on RSUI‟s behalf with respect to CDI‟s claim. DSUF #7. On January 14, 2008, Mr. Krajec‟s assistant, Frankie Olds, sent an acknowledgment of claim letter to CDI and its insurance broker, which stated "[n]othing stated by or on behalf of RSUI Indemnity, or not stated, should be construed as a limitation or waiver on any such rights, privileges or defenses." DSUF #9.
On March 3, 2008, RSUI denied coverage, asserting Exclusions 1, 2, and 4. DSUF #12. RSUI did not assert Exclusion 7 as a basis to deny coverage at that time. Id . The March 3, 2008 letter specifically indicated that it "is not intended to be an exhaustive list of all coverage questions which could affect this claim and nothing contained in this letter nor any action taken should be construed as an admission of coverage or waiver of any right RSUI might have at law or under the policy." DSUF #13.
On May 5, 2008, CDI requested that RSUI reconsider its denial of the claim. DSUF #14. In a May 14, 2008 letter, RSUI conceded that Exclusions 1 and 2 would not apply, absent a final and specific adjudication of certain conduct as against CDI. DSUF #15. RSUI continued to reply on Exclusion 4 to deny coverage outright. Id . This second denial letter incorporated "its denial of coverage" as set forth in the March 3, 2008 letter and further indicated "[n]othing contained in this letter is intended to supersede, limit or eliminate any coverage defenses asserted in our previous coverage declination letter." DSUF #16.
On June 6, 2008, CDI filed this declaratory relief action against RSUI. DSUF #17.
E. March 20, 2009 Dismissal With Leave to Amend
On September 2, 2008, Defendant moved to dismiss the initial complaint, arguing, among other things, that Exclusion 7 barred coverage for the Gonzalez lawsuit. DSUF #19; Doc. 10.
A March 20, 2009 Decision concluded that Exclusion 4 bars any claim based upon a CLC provision similar to those of the FLSA. Doc. 24 at 11-24. RSUI‟s motion to dismiss was granted without leave to amend as to the first (failure to pay plaintiffs a minimum wage as required under CLC §§ 1197, 1194 and 1194.2), second (failure to pay regular and overtime wages in violation of CLC §§ 200, 204, 500, 510, 512, and 1194, and section 3 of Industrial Welfare Commission ("IWC") Wage Order 8), third and fourth (failure to provide meal and rest periods or pay an additional hour of wages based on CLC §§ 226.7 and 512, and Section 11 of IWC Wage Order 8) causes of action in the Gonzalez complaint. Id . at 25-35. RSUI‟s motion to dismiss was denied as to the applicability of Exclusion 4 to the fifth (failure to reimburse employees for costs incurred to acquire and/or maintain company-required uniforms in violation of CLC § 2802 and Section 9 of Wage Order 8), sixth (failure to comply with the itemized wage statement provisions contained in CLC §§ 226, 1174(d), and 1174.5, as well as Section 7 of Wage Order 8), and seventh (failure to pay wages due at termination, a claim founded upon CLC §§ 201, 202, and 203) causes of action in the Gonzalez complaint. Id . at 35-39.
As to the applicability of Exclusion 7, CDI‟s argument was rejected that RSUI should be estopped from asserting Exclusion 7 to deny coverage, because Exclusion 7 was not mentioned in the insurer‟s ...