United Farm Workers of Am. v. Hudson Ins. Co.

• Decision Date: 05 April 2019
• Docket Number: Case No.: 1:18-cv-0134 - JLT
• Court: U.S. District Court — Eastern District of California
• Parties: UNITED FARM WORKERS OF AMERICA, Plaintiff, v. HUDSON INSURANCE COMPANY, Defendant.

UNITED FARM WORKERS OF AMERICA, Plaintiff, v. HUDSON INSURANCE COMPANY, Defendant.

Case No.: 1:18-cv-0134 - JLT

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

April 5, 2019

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY ADJUDICATION (DOC. 33)

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (DOC. 26)

United Farm Workers of America asserts that Hudson Insurance Company failed to honor its insurance coverage obligations by failing to defend UFW in a class action filed by Francisco Cerritos, a former employee. UFW contends Hudson is liable for breach of contract and breach of the implied covenant of good faith and fair dealing. (See generally Doc. 2-2) UFW seeks summary adjudication under Rule 56 of the Federal Rules of Civil Procedure only on the issue that Hudson had a contractual duty to defend in the Cerritos action. (Doc. 33) Hudson contends UFW is unable to succeed on its claims and seeks summary judgment. (Doc. 26)

The Court heard the oral arguments of the parties on April 4, 2019. For the reasons set forth below, UFW's motion for summary adjudication is DENIED and Hudson's motion for summary judgment is GRANTED.

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I. Background and Undisputed Facts¹

Hudson issued Labor Professional Liability Insurance Policy No. SUL31210038-01 ("the Policy") to named United Farm Workers of America, with a policy period of September 7, 2013 to September 7, 2014.² (JSF 1; Doc. 31-1) In return, UFW paid Hudson an annual premium of $14,379. (PSF 2) Under the Policy³, UFW and Hudson agreed:

The Insurer shall pay on behalf of the Insured all Loss for which the Insured becomes legally obligated to pay resulting from any Claim first made against the Insured during the Policy Period, ... which results from a Wrongful Act, Wrongful Offense or Wrongful Employment Practice and which is subsequently reported to Hudson within the earlier of: a) ninety (90) days or b) by the end of the Policy Period, the Automatic Reporting Period or the Extended Reporting Period (whichever is applicable).

(PSF 37; Doc. 31-1 at 4) (emphasis added) The Policy included definitions for "Wrongful Act," which described acts related to duties owed by the union to its members, "Wrongful Employment Practice," which listed ten acts related to duties owed by union management to its own employees, and "Wrongful Offense," which related to personal injuries caused by union employees and management. The policy language was:

Wrongful Act means any error or omission or beach of duty committed or alleged to have been committed by the Union or any Insured Person in the discharge of his or her duties solely in his or her capacity as an Insured Person for the Union. Wrongful Act includes, but is not limited to:

1. The fair representation of all Union members,

2. Any Union election,

3. The denial of Union membership to anyone,

4. The recruitment of new Union members,

5. The disciplining or expulsion of any Union members,

6. The processing of any Union member's grievance,

7. The financial management of the Union, or

8. Discrimination and denial of fair access to Member benefits.

Wrongful Employment Practice means any:

1. Wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of any implied contract;

2. Harassment (including sexual harassment whether "quid pro quo", hostile work environment or otherwise);

3. Discrimination, (including but not limited to discrimination based upon age, gender, race, color, national origin, religion, sexual orientation or preference, pregnancy or disability);

4. Retaliation (including lockouts);

5. Employment-related misrepresentation(s) to an Employee or application for employment with the Union;

6. Employment-related libel, slander, humiliation, defamation, or invasion of privacy;

7. Wrongful failure to employ or promote;

8. Wrongful deprivation of career opportunity, wrongful demotion or negligent Employee evaluation, including the giving of negative or defamatory statement in connection with an Employee reference;

9. Wrongful discipline; or

10. Failure to provide or enforce adequate or consistent policies and procedure relating to any Wrongful Employment Practice.

Wrongful Offense means any Personal Injury committed or alleged to have been committed by the Union or any Insured Person in the discharge of his or her duties solely in his or her capacity as an Insured Person.

(Doc. 31-1 at 16-17, 19 [Third Party EPL Coverage Endorsement]) (emphasis omitted)

Under Section III of the Policy, which governs "Defense and Settlement," Hudson and UFW agreed to the following:

The Insured, and not the Insurer, shall have the duty to defend Claims against him. The Insurer will advance, excess of any applicable Deductible Amount, Claims Expenses for Claims to which this policy provides coverage, subject to the Insured's agreement to repay the Claims Expenses in the event and to the extent that there is no coverage for such Claims or Claims Expenses under the policy.

The Insured shall have the right to select counsel to defend any covered Claim, subject to the consent of the Insurer, which shall not be unreasonably withheld, and subject to the selected counsel's agreement to comply with the litigation guidelines set forth by the Insurer for the defense of covered Claims. The Insurer shall have the right and shall be given the opportunity, at any time, to effectively associate with the Insured in the investigation, defense and[] settlement of any Claim covered by this policy, by giving notice to the Insured of such election. The Insurer's obligation to pay any Loss shall cease upon exhaustion of the applicable Limit(s) of Liability as stated in ITEM 5 of the Policy Certificate.

The Insurer may, with the written consent of the Insured, make any settlement or compromise of a Claim we deem appropriate. Such consent shall not be unreasonably withheld. If the Insured withholds such consent to any settlement for any reason, our liability for all Loss with respect to that Claim shall not exceed the amount for which we could have settled such Claim plus Claims Expenses accrued as of the date the Insured refused to consent to settlement as recommended by the Insurer, subject to the applicable Limit(s) of Liability as stated in ITEM 5 of the Policy Certificate.

The Insured shall not settle any Claim, make any settlement offer, incur any Claims Expenses or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Insurer's written consent, which shall not be unreasonably withheld. The Insurer shall not be liable for any settlement, Claims Expenses, assumed obligations or admissions to which it has not consented.

If both Loss covered by this policy and loss not covered by this policy are incurred, either because a Claim against an Insured includes both covered and uncovered matters or because a Claim is made against both an Insured and others, the Insureds and the Insurer shall allocate such amount between covered Loss and uncovered loss based upon the relative exposures of such parties to such manners.

(Doc. 31-1 at 5)

On May 16, 2013—about four months before Hudson issued the Policy—UFW terminated Francisco Cerritos from its employment. (JSF 2) "His termination resulted in protests and picketing at the UFW offices by others demanding his reinstatement." (DSF 15) On May 22, 2013, "UFW filed a lawsuit for breach of contract against Cerritos and others in the Monterey County Superior Court, United Farm Workers of America v. La Union Es Para Todos Staff Union, Monterey County Superior Court Case No. M123292."⁴ (DSF 16) In the complaint, UFW asserted the picketing "violated a 'No Strike Clause' of the collective bargaining agreement between plaintiff and La Union and sought an injunction to enforce that clause." (DSF 17) The parties agreed to use the grievance procedure under the collective bargaining agreement for the substantive issues presented in the action. (Martinez Decl. ¶ 35-1 at 2, ¶¶ 5-6) Despite this, the matter remained pending in the California Court of Appeals until February 2015 when it decided an issue related to the disqualification of the staff union's counsel.⁵ (See DSF 18; Martinez Decl. ¶ 35-1 at 2, ¶¶ 5-6)

On February 19, 2014, Cerritos served UFW with a letter pursuant to Labor Code section 2999.3 claiming that the UFW misclassified Cerritos and other employees as exempt employees." (JSF 3; see also Doc. 31-2 at 3-4) The following week, "UFW tendered the Cerritos letter to Hudson for 'coverage/defense.'" (JSF 4; Doc. 31-2 at 2) Hudson denied coverage related to the letter on March 27, 2014. (JSF 5) UFW was informed that Hudson did not have a duty to defend or indemnify "because the Cerritos Letter [did] not allege a Wrongful Act, Wrongful Offense, or Wrongful Employment Practice as defined in the Policy." (Doc. 31-3 at 2)

On May 2, 2014, Cerritos filed a complaint in the Monterey County Superior Court, alleging UFW was liable for: "(1) failure to pay overtime wages; (2) Violation of California Labor Code for failing to provide and/or pay for meal periods; (3) Knowing and Intentional Failure to Comply with Itemized Employee Wage Statement Provisions; (4) Failure to Pay All Wages Upon Termination; (5) Wrongful Discharge; (6) Violation of the Labor Code Section 2698; and (7) Unfair Business Practices." (JSF 6) In Paragraph 16, as part of his "General Allegations," Cerritos alleged:

On or about September 2012, Plaintiff was a founding member of the La Union Es Para Todos Union ("LUEPTSU"). LUEPTSU was founded by UFW employees and continues representing UFW employees today. As a result of Plaintiff's participation in LUEPTSU, Defendant retaliated against Plaintiff by initiating unwarranted disciplinary action as a pretext for terminating Plaintiff's employment on May 2, 2013.

(Doc. 31-4 at 6, ¶ 16) Paragraph 39 contained within the Wrongful Discharge cause of action reads, "As a result of Plaintiff's participation in LUEPTSU beginning in mid-2012, Defendant...