Emp'rs Assurance Co. v. Ford Store Morgan Hill, Inc.

• Decision Date: 23 June 2022
• Docket Number: Case No. 21-cv-06800-BLF
• Parties: EMPLOYERS ASSURANCE COMPANY, Plaintiff, v. The FORD STORE MORGAN HILL, INC., Defendant. The Ford Store Morgan Hill, Inc., Counterclaimant, v. Employers Assurance Company, Counterdefendant.
• Court: U.S. District Court — Northern District of California

608 F.Supp.3d 930

EMPLOYERS ASSURANCE COMPANY, Plaintiff,

v.The FORD STORE MORGAN HILL, INC., Defendant.

The Ford Store Morgan Hill, Inc., Counterclaimant,

v.Employers Assurance Company, Counterdefendant.

Case No. 21-cv-06800-BLF

United States District Court, N.D. California, San Jose Division.

Signed June 23, 2022

A. Eric Aguilera, Aaron Michael Daniels, Kimberly Rene Arnal, The Aguilera Law Group, APLC, Laguna Hills, CA, for Plaintiff/Counterdefendant.

Miles C. Holden, Kamran Khakbaz, Hanson Bridgett LLP, San Francisco, CA, for Defendant/Counterclaimant.

ORDER GRANTING IN PART AND DENYING IN PART EMPLOYERS’ MOTION TO DISMISS COUNTERCLAIM, WITHOUT LEAVE TO AMEND

[Re: ECF 20]

BETH LABSON FREEMAN, United States District Judge

This action arises out of an insurance coverage dispute between Plaintiff-Counterdefendant Employers Assurance Company ("Employers") and Defendant-Counterclaimant The Ford Store Morgan Hill, Inc. ("Ford"). The action was filed by Employers, which seeks a declaration that a workers’ compensation and employment liability policy it issued to Ford did not give rise to a duty to defend or indemnify Ford in a state court action arising from the shooting death of one of Ford's employees, Xavier Anthony Souto ("Souto"). Ford filed an answer and counterclaim, asserting that Employers breached its policy obligations with respect to the state court action and also with respect to a workers’ compensation action arising out of Souto's death.

Before the Court is Employers’ motion to dismiss Ford's counterclaim under Federal Rule of Civil Procedure 12(b)(6). For the reasons discussed below, the motion is GRANTED IN PART AND DENIED IN PART, WITHOUT LEAVE TO AMEND.

I. BACKGROUND¹

A. Policy

Employers issued a workers’ compensation and employers liability insurance policy to Ford, effective March 1, 2019 to March 1, 2020. Counterclaim ("CC") ¶ 25, ECF 12. The Policy contains six parts, three of which are relevant here: Part One, Workers Compensation Insurance; Part Two, Employers Liability Insurance; and Part Four, Your Duties if Injury Occurs. See Policy, Exh. E to CC.

Part One, Workers Compensation Insurance

Part One of the Policy provides coverage for Ford employees’ bodily injuries that are covered by workers’ compensation law, and it obligates Employers to defend Ford against claims brought before the California Workers’ Compensation Appeals Board ("WCAB"). The relevant provisions of Part One are set forth below.

A. How This Insurance Applies

This workers compensation insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death.

1. Bodily injury by accident must occur during the policy period.

2. Bodily injury by disease must be caused or aggravated by the conditions of your employment. The employee's last day of last exposure to the conditions causing or aggravating such bodily injury by disease must occur during the policy period.

Policy at 18.²

B. We Will Pay

We will pay promptly when due the benefits required of you by the workers compensation law.

Id.

C. We Will Defend

We have the right and duty to defend at our expense any claim or proceeding against you before the California Workers’ Compensation Appeals Board or its equivalent in any other state (and any appeal of a decision therefrom) for the benefits payable by this workers’ compensation insurance. We have the right to investigate and settle these claims or proceedings.

We have no duty to defend a claim, proceeding, or suit that is not covered by this insurance.

Nothing contained in this Section shall amend, modify, restrict, or otherwise alter any obligations or conditions under Part Two – Employer's Liability Insurance of the policy.

Policy at 18, 32.

Part Two, Employers Liability Insurance

Part Two of the Policy provides coverage for Ford employees’ bodily injuries that meet certain policy requirements. The relevant provisions of Part Two are set forth below.

A. How This Insurance Applies

This employers liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death.

1. The bodily injury must arise out of and in the course of the injured employee's employment by you.

2. The employment must be necessary or incidental to your work in a state or territory listed in Item 3.A. of the Information Page.

3. Bodily injury by accident must occur during the policy period.

4. Bodily injury by disease must be caused or aggravated by the conditions of your employment. The employee's last day of last exposure to the conditions causing or aggravating such bodily injury by disease must occur during the policy period.

5. If you are sued, the original suit and any related legal actions for damages for bodily injury by accident or by disease must be brought in the United States of America, its territories or possessions, or Canada.

Policy at 19.

B. We Will Pay

We will pay all sums that you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance.

The damages we will pay, where recovery is permitted by law, include damages:

1. For which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee;

2. For care and loss of services; and

3. For consequential bodily injury to a spouse, child, parent, brother or sister of the injured employee; provided that these damages are the direct consequence of bodily injury that arises out of and in the course of the injured employee's employment by you; and

4. Because of bodily injury to your employee that arises out of and in the course of employment, claimed against you in a capacity other than as employer.

Id.

C. Exclusions

This insurance does not cover:

....

4. Any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law;

....

7. Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts or omissions....

Policy at 20.

D. We Will Defend

We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. We have the right to investigate and settle these claims, proceedings and suits.

We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. We have no duty to defend or continue defending after we have paid our applicable limit of liability under this insurance.

Id.

Part Four, Your Duties if Injury Occurs

Part Four of the Policy imposes certain duties on Ford, including:

Tell us at once if injury occurs that may be covered by this policy. Your other duties are listed here.

....

4. Cooperate with us and assist us, as we may request, in the investigation, settlement or defense of any claim, proceeding or suit.

....

6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost.

Policy at 21-22.

B. The Underlying Incident

On June 25, 2019, Souto fired a Ford employee named Steven Leet ("Leet"). Ans. ¶ 10, ECF 12.³ Leet went to his car in the Ford parking lot and returned with a firearm, which he used to kill Souto and another employee, and then himself. Id.

C. The Workers’ Compensation Proceeding

On August 27, 2019, Maria de Lourdes Castillo Perez ("Perez") filed a case against Ford and Employers with the WCAB in Santa Ana, California ("WC Case"), seeking workers’ compensation benefits relating to Souto's death. CC ¶ 9. Perez identified herself and her son, Anthony Souto, as Souto's dependents. Id. Employers retained Darlene Q. de Guzman, Esq. and the law firm of Mullen & Filippi, LLP (collectively, "M&F") to represent both Employers and Ford in the WC Case. Id. ¶ 10. Ford did not consent to M&F representing both Ford and Employers, and M&F never communicated directly with Ford. Id. ¶¶ 11, 28. M&F did not attempt to identify all potential dependents of Souto. Id. ¶ 28.

On April 21, 2020, the WCAB issued an order approving a compromise and release of the WC Case, which resulted in payment of $228,800 to Perez and her son, and a payment of $31,200 in attorneys’ fees to their counsel. Id. ¶ 15. Employers paid those awards. Ans. ¶ 12.

As it turns out, there were other potential dependents who were not identified in the WC Case. CC ¶ 16. Those individuals filed a civil suit ("the Underlying Action") against Ford after conclusion of the WC Case. Id. Ford claims that if all potential dependents had been identified and brought into the WC Case, the Underlying Action would not have been filed. Id. ¶ 29. As discussed below, Ford spent a substantial amount of money to resolve the Underlying Action.

D. The Underlying Action

On June 22, 2021, the Underlying Action was filed against Ford in the Santa Clara County Superior Court by Souto's parents, Maria and Joseph Souto; Souto's son, Xavier Anthony Souto, Jr.; and the personal representative of Souto's estate, Ida Maria Maciel. CC ¶ 16. Leet's estate also was named as a defendant. See Underlying Action Compl. ("UA Compl."), Exh. D to CC.

Only one claim, for Negligence/Gross Negligence, was asserted against Ford. UA Compl. ¶¶ 37-54. The complaint alleged that Ford owed a duty to its employees to provide a safe work environment and to protect its employees from known risks and dangers. Id. ¶ 38. Prior to the shooting, multiple Ford employees allegedly expressed concern that Leet was dangerous, unstable, and violent. Id. ¶ 42. According to the complaint, Ford nonetheless instructed Souto to fire Leet, even though Souto expressed fear for his safety and firing employees was not a part of Souto's regular job duties. Id. ¶¶ 45-46. Ford allegedly failed to follow established protocols for termination of an employee and carelessly allowed Leet...