Michaelian v. State Comp. Ins. Fund, No. F024693

CourtCalifornia Court of Appeals
Writing for the CourtTHAXTER; ARDAIZ, P.J., and MORAN
Citation58 Cal.Rptr.2d 133,50 Cal.App.4th 1093
Parties, 69 Empl. Prac. Dec. P 44,512, 61 Cal. Comp. Cases 1268, 96 Cal. Daily Op. Serv. 8243, 96 Daily Journal D.A.R. 13,687 Armen MICHAELIAN et al., Plaintiffs and Appellants, v. STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.
Docket NumberNo. F024693
Decision Date13 November 1996

Page 133

58 Cal.Rptr.2d 133
50 Cal.App.4th 1093, 69 Empl. Prac. Dec. P 44,512,
61 Cal. Comp. Cases 1268,
96 Cal. Daily Op. Serv. 8243,
96 Daily Journal D.A.R. 13,687
Armen MICHAELIAN et al., Plaintiffs and Appellants,
v.
STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.
No. F024693.
Court of Appeal, Fifth District, California.
Nov. 13, 1996.
As Modified Dec. 11, 1996.

Page 136

[50 Cal.App.4th 1098] Dowling, Magarian, Aaron & Heyman, Richard E. Heatter, Heyman, Kerkorian & Magarian, Kent F. Heyman, Mark D. Magarian and Brady K. McGuinness, Fresno, for Plaintiffs and Appellants.

Richard A. Krimen, Charles W. Savage, Berkeley and Barbara Gallios-Lee, San Francisco, for Defendant and Respondent.

OPINION

THAXTER, Associate Justice.

In this case we decide that the employer's liability portion of a workers' compensation insurance policy does not provide coverage when the insured employer is sued for sexual harassment and related tort causes stemming from the alleged harassment. We further decide that the insurer, under no policy obligation to indemnify or defend against a pending third-party action, did not become liable for defense costs when it notified the insured it would provide a defense under a full reservation of rights and subsequently, after paying only a portion of the defense costs, withdrew. The insured did not allege facts showing either that the insurer was estopped from denying a duty to defend or that an exchange of letters, followed by partial payment, constituted an enforceable contract. We will affirm the trial court's judgment entered after sustaining the insurer's demurrer without leave to amend.

50 Cal.App.4th 1099

FACTS 1 AND PROCEDURAL BACKGROUND

THE INSURANCE POLICY

Respondent State Compensation Insurance Fund (State Fund) issued a "Workers' Compensation

Page 137

& Employer's Liability Insurance Policy" (Policy) to appellants Armen Michaelian, individually and as Armen Michaelian, D.D.S., Inc. (Michaelian). Part 1 of the Policy provided workers' compensation coverage and part 2 provided employer's liability coverage. The latter coverage applied to liability for bodily injury or death of an employee of the insured arising out of the injured employee's employment within California. The employer liability coverage is subject to several express exclusions, including:

"2. punitive or exemplary damages where insurance for such liability is prohibited by law or contrary to public policy;

"...

"5. bodily injury intentionally caused or aggravated by you; or

"6. damages arising out of the discharge of, coercion of or discrimination against any employee in violation of law."

The Policy does not provide general liability coverage.

Both parts of the Policy coverage provisions obligated State Fund "to defend at our expense any claim, proceeding or suit against [Michaelian] for benefits payable by this insurance. We have the right to investigate and settle these claims, proceedings or suits. [p] We have no duty to defend a claim, proceeding or suit that is not covered by this insurance."

THE COBB COMPLAINT

In August 1993 Toni Cobb (Cobb) sued Michaelian in Fresno County Superior Court No. 494150-6. Cobb's complaint alleged she was employed by Michaelian from February 4, 1990, to September 21, 1992. During that time Michaelian allegedly subjected her to verbal, physical and visual sexual harassment which included:

a. making vulgar comments in front of Cobb and others expressing his desire to engage in oral and anal copulation, homosexual activity, and pedophilic conduct;

[50 Cal.App.4th 1100] b. commenting that he wanted to engage in anal copulation with Cobb;

c. referring to women, in the presence of Cobb and others, as "cunts" and "bitches" and stating that after having babies women should be killed, after which he would engage in necrophilia with the corpses;

d. telling Cobb women are inferior to men and should be exterminated;

e. walking up behind Cobb, grabbing her hair and telling her he wished to ejaculate over her hair and breasts;

f. making similar vulgar comments to Cobb on September 21, 1992, when he hit her in the back;

g. pinching and/or patting Cobb on her backside almost daily.

According to Cobb's complaint, Michaelian did not respond to her numerous requests to stop his conduct and comments.

On December 1, 1992, Cobb filed a complaint of discrimination with the California Department of Fair Employment and Housing (DFEH) based on Michaelian's alleged sexual harassment of her. She stated the harassment created a hostile and intimidating work environment that became so intolerable she was forced to quit her job. In March 1993, the DFEH authorized Cobb to file suit against Michaelian.

Based on the alleged facts, Cobb sought compensatory and punitive damages for sexual harassment in violation of Government Code section 12940, subdivisions (h) and (i), constructive discharge resulting from harassment, assault and battery, and intentional and negligent infliction of emotional distress.

DEMANDS FOR DEFENSE OF THE COBB ACTION

On September 30, 1993, Michaelian's counsel mailed a letter to State Fund requesting indemnity and a defense of the Cobb action under the Policy. State Fund did not respond. A second and third request were sent January 12, 1994, and February 16, 1994, respectively. Again, no response was received. Following a similar letter in April

Page 138

1994, Michaelian's counsel received a call from an attorney for State Fund advising Michaelian to contact Donald Bartunek, a State Fund agent in San Francisco. Michaelian's counsel contacted Bartunek, discussed the pending Cobb action, and asked the agent to attend an interview of Michaelian being conducted by other insurers on May 6, 1994, in Fresno. Bartunek and a State Fund attorney [50 Cal.App.4th 1101] attended the interview. When leaving, Bartunek promised a decision would be forthcoming concerning defense and indemnity of the Cobb action under the Policy.

On May 23, 1994, Michaelian's counsel telephoned Bartunek, as no word had been received. Bartunek said a defense and indemnity determination letter had been prepared and would be sent within a day or two. No such letter was received. A subsequent phone message from Michaelian's counsel to Bartunek went unanswered.

On June 14, 1994, Michaelian's counsel mailed a letter to Bartunek requesting a defense and indemnity under the Policy, and stating that if no response was received by June 22, 1994, Michaelian would file a legal action against State Fund.

On July 19, 1994, Michaelian filed Fresno County Superior Court case No. 514702-0 against State Fund, seeking damages and declaratory relief. 2 On July 21, 1994, State Fund's counsel contacted Michaelian's counsel stating State Fund had received the summons and complaint, and the promised defense and indemnity determination letter " 'fell between the cracks because they have so many claims.' " State Fund's attorney said his client had agreed to defend Michaelian under a reservation of rights and would reimburse appellants for expenses incurred from September 30, 1993, forward. That same day Bartunek transmitted a facsimile of the letter to Michaelian and his counsel.

THE RESERVATION OF RIGHTS LETTER AND RESPONSE

In State Fund's letter dated July 21, 1994, signed by Bartunek, State Fund informed Michaelian and his counsel that it "will accept the tender of defense [of the Cobb action] under a complete reservation of rights." The letter continued:

"We are currently investigating the facts at this time. However, if the allegations were found to be true, as alleged in some or all of the allegations in this complaint, and if a judgment were rendered against the policyholder for those allegations, we wish to inform you that the State Fund may not be responsible to indemnify the policyholder for that judgment.

"In reviewing this lawsuit, it appears that the allegations by [Cobb] are for Violations of Public Policy. You should be aware, Violations of Public Policy are not insurable acts. I make reference to the case of Coit Drapery [50 Cal.App.4th 1102] Cleaners, Inc. et al. v. Sequoia Insurance Company [ (1993) 14 Cal.App.4th 1595, 18 Cal.Rptr.2d 692] 93 C.D.O.S. 2805. I also refer you to the case of B & E Convalescent Center v. State Compensation Insurance Fund (1992) 8 Cal.App.4th 78, 9 Cal.Rptr.2d 894 which affirmed the trial judge's ruling that our policy did not afford coverage for wrongful termination/discrimination cases. The ruling held that Insurance Code Section 533 bars indemnity and defense for inherently harmful acts that are wrongful as a matter of law, and that the insured could not reasonably expect such coverage.

"We will pay the 'reasonable cost' of your defense until we have paid out in settlement or judgements [sic ] the limits of your insurance coverage or satisfied ourselves through our own investigations that your policy does not cover [Cobb]'s allegations against you, the named insured in the Declarations.

"It should be further noted that this agreement to provide a defense under a reservation of rights, does not serve to waive any of the provisions or conditions contained in our policy. We reserve our rights to reimbursement of all sums paid by State Fund in the defense of this lawsuit and to withdraw from the defense should our investigation, or legal decision determine there is no obligation under this policy."

Page 139

The letter also set forth the rates at which State Fund would pay Michaelian's attorneys, specified information to be included in billings, and recited a number of other conditions to its payment of fees and costs. State Fund also reserved the right to appoint other attorneys to represent Michaelian in the Cobb action. The letter concluded by stating that after certain requested information and billing statements had been received, "State Fund will be able to reimburse any past fees and costs related to the defense of our named insured from the...

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77 practice notes
  • Gonzalez v. Fire Ins. Exch., H039368
    • United States
    • California Court of Appeals
    • February 5, 2015
    ...the facts alleged ‘fairly apprise’ the insurer that the suit is upon a covered claim.” ( Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133.) “[W]hen an insurer seeks summary judgment on the ground the claim is excluded, the burden is on the insurer to ......
  • Rizzo v. Ins. Co. of Pa., Case No. CV 12–04347 DMG (FMOx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 30, 2013
    ...Fund Ins. Co., 90 Cal.App.4th 500, 510, 108 Cal.Rptr.2d 657 (2001); see also [969 F.Supp.2d 1190]Michaelian v. St. Comp. Ins. Fund, 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133 (1996) (“Since pleadings are easily amended, the proper focus is on the facts alleged, rather than the theories f......
  • Gonzalez v. Fire Ins. Exch., H039368
    • United States
    • California Court of Appeals
    • February 5, 2015
    ...the facts alleged ‘fairly apprise’ the insurer that the suit is upon a covered claim." ( Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133.)"[W]hen an insurer seeks summary judgment on the ground the claim is excluded, the burden is on the insurer to p......
  • Cal. Equity Mgmt. Grp., Inc. v. Sinclair (In re Sinclair), Case No. 14-91565-E-7
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California
    • November 29, 2017
    ...has title." Jaffee v. Carryl, 2016 U.S. Dist. LEXIS 83224, *9 (C.D. Cal. June 27, 2016), citing Michaelian v. State Comp. Ins. Fund, 50 Cal. App. 4th 1093, 1114 (Cal. App. 5th Dist. 1996). "A plaintiff seeking imposition of a constructive trust must show: (1) the existence of a res (propert......
  • Request a trial to view additional results
77 cases
  • Gonzalez v. Fire Ins. Exch., H039368
    • United States
    • California Court of Appeals
    • February 5, 2015
    ...the facts alleged ‘fairly apprise’ the insurer that the suit is upon a covered claim.” ( Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133.) “[W]hen an insurer seeks summary judgment on the ground the claim is excluded, the burden is on the insurer to ......
  • Rizzo v. Ins. Co. of Pa., Case No. CV 12–04347 DMG (FMOx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 30, 2013
    ...Fund Ins. Co., 90 Cal.App.4th 500, 510, 108 Cal.Rptr.2d 657 (2001); see also [969 F.Supp.2d 1190]Michaelian v. St. Comp. Ins. Fund, 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133 (1996) (“Since pleadings are easily amended, the proper focus is on the facts alleged, rather than the theories f......
  • Gonzalez v. Fire Ins. Exch., H039368
    • United States
    • California Court of Appeals
    • February 5, 2015
    ...the facts alleged ‘fairly apprise’ the insurer that the suit is upon a covered claim." ( Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1106, 58 Cal.Rptr.2d 133.)"[W]hen an insurer seeks summary judgment on the ground the claim is excluded, the burden is on the insurer to p......
  • Cal. Equity Mgmt. Grp., Inc. v. Sinclair (In re Sinclair), Case No. 14-91565-E-7
    • United States
    • United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California
    • November 29, 2017
    ...has title." Jaffee v. Carryl, 2016 U.S. Dist. LEXIS 83224, *9 (C.D. Cal. June 27, 2016), citing Michaelian v. State Comp. Ins. Fund, 50 Cal. App. 4th 1093, 1114 (Cal. App. 5th Dist. 1996). "A plaintiff seeking imposition of a constructive trust must show: (1) the existence of a res (propert......
  • Request a trial to view additional results

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