Producers Dairy Delivery Co. v. Sentry Ins. Co.

• Citation: 718 P.2d 920,41 Cal.3d 903,226 Cal.Rptr. 558
• Decision Date: 09 June 1986
• Docket Number: S.F. 24835
• Court: United States State Supreme Court (California)
• Parties: , 718 P.2d 920 PRODUCERS DAIRY DELIVERY COMPANY, INC., et al., Plaintiffs and Appellants, v. SENTRY INSURANCE COMPANY, Defendant and Respondent.

Page 558

226 Cal.Rptr. 558

41 Cal.3d 903, 718 P.2d 920

PRODUCERS DAIRY DELIVERY COMPANY, INC., et al., Plaintiffs and Appellants, v. SENTRY INSURANCE COMPANY, Defendant and Respondent.

S.F. 24835.

Supreme Court of California.

June 9, 1986.

[718 P.2d 921] James P. Wagoner, David H. Bent and McCormick, Barstow, Sheppard, Wayte & Carruth, Fresno, for plaintiffs and appellants

Chinello, Chinello, Shelton & Auchard, John D. Chinello, Jr., and Andrew B. Jones, Fresno, for defendant and respondent.

Samuel E. Meredith, Karls J. Knieps and Goshkin, Pollatsek, Meredith & Lee, San Francisco, as amici curiae on behalf of defendant and respondent.

LUCAS, Justice.

We granted a hearing in this case to decide whether a "Standard Workers' Compensation and Employers' Liability Insurance Policy" may be construed to extend coverage to an employer for tort liability incurred due to injuries to a nonemployee. We conclude that the policy provides no such coverage.

I. FACTS

Plaintiffs Producers Dairy Delivery Company, Inc. (Producers) and Federal Insurance Company (Federal) appeal from a summary judgment entered in favor of defendant Sentry Insurance Company (Sentry), in a declaratory relief action seeking to establish that a workers' compensation and employers' liability policy issued by Sentry covered liability incurred by Producers to a nonemployee resulting from an industrial accident.

Producers is a dairy supplying milk in the California central valley area. LAS Corporation (LAS) is a separate entity created by Producers to operate a milk distributing business. LAS independently contracted with Producers to furnish teamster truckers to deliver Producers' dairy products, using Producers' delivery trucks. Producers was LAS' primary customer, although LAS did have a common carrier permit from the Public Utilities Commission, and hauled some products for other companies. Producers and LAS were insured by two carriers: Sentry had issued to Producers and LAS jointly a "Standard Workers' Compensation and Employers' Liability Policy," ¹ and Federal provided both companies with a general public liability coverage.

Henry Noyes, one of LAS' teamster truckers, was seriously injured when he fell while unloading milk from one of Producers' trucks. Noyes, as an employee of LAS, sought and collected workers' compensation benefits under the Sentry policy. Noyes and his wife also sued Producers for personal injuries and loss of consortium, respectively, on the theory that Producers failed to maintain the delivery truck in a safe condition.

Federal defended Producers in the Noyes action contending that Noyes, who was hired by LAS, was actually an employee of Producers, and thus was limited to his exclusive remedy under the workers' compensation laws. Thereafter, Sentry filed a lien complaint in intervention to recover the workers' compensation benefits it had paid to Noyes as an employee of LAS. Seven weeks after the Noyes trial had commenced, Producers demanded a defense from Sentry, which Sentry refused. Following a 10-week jury trial, a special verdict was rendered finding Noyes was not an employee of Producers. Producers was found liable to the Noyes as follows: $400,000 to Henry Noyes, and $22,000 to his wife. The judgment was affirmed on appeal, but prior to asking this court for a hearing, Producers settled with the Noyes for $548,000 (an amount less than the aggregate amount of the judgment plus costs and accrued interest). The court entered judgment in favor of Producers on Sentry's complaint in intervention.

Following settlement of the Noyes action, Producers and Federal brought the present declaratory relief action seeking to establish that the "employers' liability" portion of the Sentry policy extended coverage to Producers for the tort damages awarded to Noyes. They further sought punitive damages for Sentry's alleged bad faith in refusing to defend in the Noyes action.

Sentry moved for summary judgment on the grounds that (1) Producers' policy with Sentry provided only workers' compensation or equivalent coverage with respect to the Noyes action; (2) relitigation of Noyes' status as an employee of Producers was barred under collateral estoppel principles; and (3) no basis for recovery of punitive damages existed because Sentry acted reasonably in denying coverage, Producers was not injured by Sentry's refusal to defend and Producers' request to defend was untimely.

Taking judicial notice of the entire file and proceedings in the Noyes action, the trial court granted summary judgment in favor of Sentry. The court interpreted the employers' liability provisions of Sentry's policy (set forth below) as providing coverage only in those situations where an employee of the insured was working in a jurisdiction (unlike California) where workers' compensation laws were not in effect, or where an employee has a common law right of relief against the employer in addition to his workers' compensation remedy. Finding no facts or allegations fitting either situation, the trial court held that, whether or not Noyes was deemed an employee of Producers, no employers' liability coverage was provided. The court reasoned that if Noyes were an employee of Producers, he would be limited to his workers' compensation remedy, whereas if he were not an employee, the Sentry policy provided no coverage whatsoever.

Finding that no coverage could possibly exist under the employers' liability provisions, the court also ruled that Sentry had no duty to defend Producers because there were no facts within Sentry's knowledge giving rise to potential coverage under the policy. Producers and Federal appeal from the judgment, but have not briefed the duty to defend issue. Consequently, we do not consider it on appeal. (Cal.Rules of Court, rule 29(b)(1).)

We conclude the trial court was correct in its interpretation of the employers' liability provisions of Sentry's policy, and affirm the summary judgment in favor of Sentry.

II. THE POLICY

The Sentry policy provided two types of coverage, identified as "Coverage A" and "Coverage B." Coverage A provided workers' compensation coverage to the insured as required by law. The policy provisions at issue here are those in Coverage B (the employers' liability provisions), whereunder Sentry agreed:

"Coverage B--Employers' Liability.

"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom

"(a) sustained in the United States of America, ... by any employee of the insured arising out of and in the course of his employment by the insured either in operations in a state designated in Item 3 of the declarations [i.e., California] or in operations necessary or incidental thereto, ...

"...

"II Defense, Settlement, Supplementary Payments

"As respects the insurance afforded by the other terms of this policy the company shall:

"(a) defend any proceeding against the insured seeking such benefits and any suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient; ...

"EXCLUSIONS

"This policy does not apply:

"...

"(f) under coverage B, to any obligation for which the insured or any carrier as his insurer may be held liable under the workmen's compensation or occupational disease law of [California] ..., any other workmen's compensation or occupational disease law, any unemployment compensation or disability benefits law, or under any similar law." (Italics added.)

III. DISCUSSION

A. Collateral Estoppel Issue

Appellants Producers and Federal first contend that the declarations and other materials provided to the trial court raised a triable question of fact whether Noyes was an employee of Producers, thus requiring denial of the summary judgment motion. (Code Civ.Proc., § 437c, subd. (c).) They further argue that the special verdict in the separate Noyes action, finding Noyes was not an employee of Producers, does not preclude relitigation, under the doctrine of collateral estoppel, of whether Noyes was an employee of Producers for insurance coverage purposes.

The doctrine of collateral estoppel precludes relitigation of an issue previously adjudicated if: (1) the issue necessarily decided in the previous suit is identical to the issue sought to be relitigated; (2) there was a final judgment on the merits of the previous suit; and (3) the party against whom the plea is asserted was a party, or in privity with a party, to the previous suit. (People v. Sims (1982) 32 Cal.3d 468, 484, 186 Cal.Rptr. 77, 651 P.2d 321.) Appellants contend relitigation of Noyes' employment status should not be precluded because the first two requirements of the test are unmet.

Appellants first assert that whether Noyes was an employee of Producers for purposes of coverage under the Sentry policy is a different issue than whether such an employment relationship existed to preclude a tort action against Producers. Appellants rely primarily on Exchange Casualty & Surety Co. v. Scott (1961) 56 Cal.2d 613, 15 Cal.Rptr. 897, 364 P.2d 833.

In Exchange Casualty, the jury in a prior action found the driver of an automobile was not a "permissive user," thereby exonerating the owner from imputed liability under Vehicle Code section 402 (now § 17150). Subsequently, the injured party brought an action against the insurer, contending that the question of whether the driver was a permissive user under the insurance policy was different from the question of such use under the Vehicle Code. We agreed, holding that the scope of the term "permissive user" in an insurance policy may be broader than the narrow construction given that term under the Vehicle Code, imputing liability on an...