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W.G. Hall, LLC v. Zurich American Insurance Co.

United States District Court, N.D. California

August 31, 2017

W.G. HALL, LLC, Plaintiff,



         Plaintiff W.G. Hall, LLC (WGH), a staffing services company, settled a wage and hour class action lawsuit. Before and after settling the class action, WGH sought coverage from its professional liability insurer, Zurich American Insurance Company for the amount it would pay out in the settlement agreement. Zurich refused to reimburse WGH for the settlement amount on several grounds, and WGH sued Zurich for breach of contract and derivative claims.

         In its motion, WGH seeks summary judgment on its claims for breach of contract and declaratory relief, as well as a judgment from the Court that none of five affirmative defenses raised by Zurich are applicable in this case. Zurich opposes WGH's motion and seeks summary judgment on its behalf as to the entire case.

         For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART Zurich's motion for summary judgment. WGH's motion for partial summary judgment is also GRANTED IN PART and DENIED IN PART. The effect of this order is that Zurich is not obligated to cover WGH's settlement in the underlying litigation.

         I. BACKGROUND

         Though the interpretation of the insurance policy in this case is hotly debated, the factual background of this case is largely not. On November 27, 2013, Zurich issued to WGH an insurance coverage package effective from December 1, 2013, through May 19, 2015. Dkt. No. 29-1 at 12. That package contained Professional Liability coverage. Id.

         WGH is a staffing services company, which hires and trains staffing services workers and furnishes them to its clients. Even when its employees are working directly for WGH's clients, WGH remains the employer of record for its employees and provides payroll services for its clients for the work its employees perform. Dkt. No. 29 at 6. In 2014 and 2015, Danny Isquierdo and Freddy Robledo filed putative class actions against WGH, which were later consolidated in July 2015 (Isquierdo and Robledo litigation). Id. at 210.

         These lawsuits alleged California Labor Code and Industrial Welfare Commission Wage Order violations for failure to pay wages, and other related claims arising from the failure to pay, such as failure to reimburse and a claim under the California Unfair Competition Act. Id. at 210-36. The alleged actions giving rise to these claims were that WGH failed to compensate its employees “for internal orientations, client orientations, reporting and consultations, post-assignment termination meetings, client interviews, related travel and other work off the clock . . . .” Id. at 216. In addition, the plaintiffs claimed WGH did not pay them for the time they spent traveling to deliver their timesheets to its office, nor were they reimbursed for their mileage. Id. at 217. WGH notified Zurich of the lawsuits against it, but Zurich refused to assume coverage over the claims. Id. at 332-37, 342-46, 351-55. WGH and the class reached a settlement, and the court preliminarily approved the class action settlement. Id. at 277. Both parties agree that WGH reach a settlement without Zurich's consent.

         WGH filed this case on February 6, 2017, alleging claims for (1) breach of contract, (2) breach of contract/duty to defend, (3) breach of the implied covenant of good faith and fair dealing, and (4) declaratory relief. Dkt. No. 1. WGH moved for summary judgment on May 25, 2017. Dkt. No. 29. Zurich filed a cross motion for summary judgment on June 23, 2017. Dkt. No. 32. Both parties consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). Dkt. Nos. 8, 15.


         Summary judgment may be granted only when, drawing all inferences and resolving all doubts in favor of the nonmoving party, there is no genuine dispute as to any material fact. Fed.R.Civ.P. 56(a); Tolan v. Cotton, 134 S.Ct. 1861, 1863 (2014); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. Bald assertions that genuine issues of material fact exist are insufficient. Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007).

         The moving party bears the burden of identifying those portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings, and, by its own affidavits or discovery, set forth specific facts showing that a genuine issue of fact exists for trial. Fed.R.Civ.P. 56(c); Barthelemy v. Air Lines Pilots Ass'n, 897 F.2d 999, 1004 (9th Cir. 1990) (citing Steckl v. Motorola, Inc., 703 F.2d 392, 393 (9th Cir. 1983)). All justifiable inferences, however, must be drawn in the light most favorable to the nonmoving party. Tolan, 134 S.Ct. at 1863 (citing Liberty Lobby, 477 U.S. at 255).


         The issues raised in both motions are (1) was there a “wrongful act” within the meaning of the policy; (2) whether the insured v. insured exclusion applies; (3) whether Zurich waived its right to object to WGH's settlement of the underlying litigation; (4) whether the contract exclusion applies; and (5) whether the settlement constitutes damages. In addition, Zurich argues that as to the legal issues, there is no dispute of material fact, necessitating a grant of summary judgment.

         A. Insurance Contract Interpretation Under California Law

         Insurance policies are contracts. AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 822 (1990). The “mutual intention” of the parties at the time of contract formation governs the contract's interpretation. Id. at 821. The parties' intentions are inferred from the “clear and explicit” meaning of these provisions. Id. at 822. The provisions are interpreted in their “ordinary and popular” sense unless the terms are used in a “technical sense or a special meaning is given to them by usage.” Id. A policy provision is considered ambiguous when it is capable of more than one interpretation. Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 18 (1995). When ambiguity in policy language or term arises, courts must resolve that ambiguity in favor of the insured. United Nat. Ins. Co. v. Spectrum Worldwide Inc., 555 F.3d 772, 777 (9th Cir. 2009). The language of a contract must be interpreted as a whole, which means ambiguities cannot be found in the abstract. Waller, 11 Cal.4th at 18. “Courts will not strain to create an ambiguity where none exists.” Id. at 18-19.

         “[T]he burden is on the insured to bring the claim within the basic scope of coverage, and (unlike exclusions) courts will not indulge in a forced construction of the policy's insuring clause to bring a claim within the policy's coverage.” Collin v. Am. Empire Ins. Co., 21 Cal.App.4th 787, 803 (1994); see also Waller, 11 Cal.4th at 16. As for policy exclusions, they are strictly construed against the insurer, and exceptions to exclusions are broadly construed in favor of the insured. E.M.M.I. Inc. v. Zurich Am. Ins. Co., 32 Cal.4th 465, 471 (2004) (citing cases). The burden falls upon the insurer “to phrase exceptions and exclusions in clear and unmistakable language.” MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635, 648 (2003) (quotation marks omitted). An exclusion precludes coverage only if it is “conspicuous, plain and clear.” Id. (quoting State Farm Mut. Auto. Ins. Co. v. Jacober, 10 Cal.3d 193, 201-02 (1973)).

         B. The Disputed Policy Text

         The insurance policy at issue here provides the following: “We will pay those sums that the insured becomes legally obligated to pay as ‘damages' because of any ‘claim' arising from a ‘wrongful act' to which this insurance applies. The ‘wrongful act' must take place: a. During the policy period; and b. In the ‘coverage territory.'” Dkt. No. 29-1 at 88. The terms in the coverage provision are defined as follows:

C. “Claim” means a:
1. Written demand for money resulting from a “wrongful act”; or 2. “Suit” resulting from a “wrongful act.” . . . .
F. “Damages” means the monetary portion of any judgment, award or settlement, provided such settlement is negotiated with our assistance and approval. ...

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