California Dairies Inc. v. Rsui Indemnity Co.

• Decision Date: 20 March 2009
• Docket Number: No. 1:08-CV-00790 OWW GSA.,1:08-CV-00790 OWW GSA.
• Citation: 617 F.Supp.2d 1023
• Court: U.S. District Court — Eastern District of California
• Parties: CALIFORNIA DAIRIES INC., Plaintiff, v. RSUI INDEMNITY CO., Defendant.

617 F.Supp.2d 1023

CALIFORNIA DAIRIES INC., Plaintiff, v. RSUI INDEMNITY CO., Defendant.

No. 1:08-CV-00790 OWW GSA.

United States District Court, E.D. California.

March 20, 2009.

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James H. Wilkins, Wilkins Drolshagen and Czeshinski, Fresno, CA, for Plaintiff.

Nicholas Wayne Sarris, Kaufman, Borgeest & Ryan, L.L.P., Calabasas, CA, for Defendant.

ORDER RE DEFENDANT'S MOTION TO DISMISS (DOC. 10)

OLIVER W. WANGER, District Judge.

I. INTRODUCTION

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.

RSUI initially denied coverage based on three different exclusionary provisions. Upon the insured's request for reconsideration, RSUI based the denial solely on Exclusion 4 of the Policy, which excludes coverage for "violation of any of the responsibilities, obligations or duties imposed by ... the Fair Labor Standards Act ... or any similar provision of federal, state or local statutory law or common law...." CDI then filed this action seeking declaratory relief regarding coverage under the Policy.

II. BACKGROUND

A. The Underlying Gonzalez Lawsuit.

On January 4, 2008, Walter Gonzalez filed a class action complaint against CDI in Tulare County Superior Court. Complaint ¶ 7; see Defendant's Request for Judicial Notice, Doc. 12, Ex. B ("Gonzalez Compl.").¹ 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. Compl. at ¶ 7; Gonzalez Compl. (alleging violations of CLC §§ 200, 201, 202, 203, 204, 218, 218.6, 221, 223, 226.7, 500, 510, 512, 1194, 1194.2, & 2802.) 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 FLSA was alleged. Id.

B. The Relevant Terms and Conditions of the Policy.

California Dairies is the named Insured, as the "Insured Organization" under the Policy. Compl. ¶ 5. 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 Defendant's Request to Submit Evidence, Doc. 11, at p. 32 of 44 (underlined text is bold in original).²

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.

Id.

C. The Relevant Exclusions of the Policy.

The Policy also contains a number of specific exclusions, two of which are at issue in this case. 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).

D. Tender of Claim and Response Thereto.

On February 15, 2008, CDI tendered the Gonzalez action to RSUI pursuant to the Policy. Compl. at ¶ 10. On March 3, 2008, RSUI denied coverage, asserting three specific exclusionary provisions. Id. at ¶ 11. RSUI did not assert Exclusion 7 as a basis to deny coverage. Id. On May 5, 2008, CDI requested that RSUI reconsider its denial of the claim. Id. at ¶ 12. On May 14, 2008, RSUI conceded that two of the previously asserted exclusionary provisions (grounds) would not apply, absent a final and specific adjudication of certain conduct as against CDI. Id. at ¶ 14. The only exclusionary provision RSUI relied on to deny coverage outright for the claim was Exclusion 4. Id.

III. STANDARD OF DECISION

Federal Rule of Civil Procedure 12(b)(6) provides that a motion to dismiss may be made if the plaintiff fails "to state a claim upon which relief can be granted." In deciding whether to grant a motion to dismiss, the court "accept[s] all factual allegations of the complaint as true and draw[s] all reasonable inferences" in the light most favorable to the nonmoving party. TwoRivers v. Lewis, 174 F.3d 987, 991 (9th Cir.1999); see also Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir.2002). "To avoid a Rule(b)(6) dismissal, a complaint need not contain detailed factual allegations; rather, it must plead `enough facts to state a claim to relief that is plausible on its face.'" Weber v. Dept. of Veterans Affairs, 521 F.3d 1061 (9th Cir. 2008) (citing Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007)) (rejecting interpretation of Rule 8 that permits dismissal only when plaintiff can prove "no set of facts" in support of his claim). A court is not "required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001...