Wong v. State Compensation Ins. Fund, H009661

• Decision Date: 04 January 1993
• Docket Number: No. H009661,H009661
• Citation: 12 Cal.App.4th 686,16 Cal.Rptr.2d 1
• Court: California Court of Appeals Court of Appeals
• Parties: Warren W. WONG, et al., Plaintiffs and Appellants, v. STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.

Page 1

16 Cal.Rptr.2d 1

12 Cal.App.4th 686

Warren W. WONG, et al., Plaintiffs and Appellants, v. STATE COMPENSATION INSURANCE FUND, Defendant and Respondent.

No. H009661.

Court of Appeal, Sixth District, California.

Jan. 4, 1993.

Rehearing Denied Jan. 22, 1993.

Review Denied April 15, 1993.

Adleson, Hess, Christensen & Kelly, Randy M. Hess and Duane W. Shewaga, San Jose, for plaintiffs and appellants.

Archer, McComas & Lageson, H. Paul Breslin, Robert L. Sallander, Jr., and Eugene C. Blackard, Jr., Walnut Creek, for defendant and respondent.

ELIA, Associate Justice.

Respondent State Compensation Insurance Fund (State Fund) issued a workers' compensation and employer's liability insurance policy to appellants Warren W. Wong and George Ewers, individually, and W. Wong, Ewers & Co., a general partnership (collectively Wong). Gregory McClellan filed a suit in superior court seeking damages from Wong for an alleged constructive wrongful termination. Wong tendered the defense of the suit to State Fund, but State Fund contended it had no duty to defend the suit. The superior court agreed, and granted State Fund's motion for summary judgment in a suit brought by Wong against State Fund. Wong has appealed. We hold the court erred in granting the motion for summary judgment, and therefore reverse.

Facts and Procedural History

The undisputed facts indicate that State Fund issued Wong an insurance policy designated as a "Workers' Compensation & Employer's Liability Insurance Policy," which policy was in effect during the relevant period in question here. Part 1 of the policy is designated "Workers' compensation insurance" and indicates "This workers' compensation insurance applies to bodily injury by accident or bodily injury by disease, including resulting death, subject to the following conditions: [p] 1. Bodily injury by accident must occur during the policy period. [p] 2. Bodily injury by disease must be caused or aggravated by the conditions of your employment. Your employee's exposure to those conditions causing or aggravating such bodily injury by disease must occur during the policy period.... [p] We will pay promptly when due to those eligible under this policy the benefits required of you by the workers' compensation law.... [p] We have the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance.... [p] We have no duty to defend a claim, proceeding or suit that is not covered by this insurance."

Part 2 of the policy is designated "Employer's liability insurance" and indicates "This employer's liability insurance applies to bodily injury by accident or bodily injury by disease, including resulting death, subject to the following conditions: [p] 1. The bodily injury must arise out of and in the course of the injured employee's employment by you.... [p] We will pay all sums you legally must pay as damages because of bodily injury to your employees eligible for benefits under this policy, provided the bodily injury is covered by this employer's liability insurance. [p] The damages we will pay, where recovery is permitted by law, include damages: [p] 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.... [p] 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.... [p] This insurance does not cover: ... [p] 5. bodily injury intentionally caused or aggravated by you; or [p] 6. damages arising out of the discharge of, coercion of or discrimination against any employee in violation of law.... [p] We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance.... [p] We have no duty to defend a claim, proceeding or suit that is not covered by this insurance."

McClellan was an employee of Wong, an accounting firm. In December 1987, McClellan filed a complaint in superior court seeking damages from Wong for breach of employment contract; fraud and deceit; breach of the convenant of good faith and fair dealing; intentional infliction of emotional distress and negligent infliction of emotional distress (the underlying case). The basis for each of the causes of action in the underlying case was an alleged constructive discharge. Wong tendered the defense of the underlying case to State Fund, which denied the tender of defense.

Wong filed a first amended complaint in superior court seeking damages against State Fund for breach of contract, breach of the covenant of good faith and fair dealing, fraud, breach of fiduciary duty, and declaratory relief. The basis for this suit was State Fund's alleged wrongful denial of Wong's tender of defense in the underlying case. State Fund filed an answer to the first amended complaint generally denying its allegations and specifically alleging the workers' compensation policy at issue did not afford coverage for the claims asserted in that complaint.

State Fund subsequently filed a motion for summary adjudication of issues, seeking an order declaring the following issues to be without substantial controversy: 1) the liability policy does not afford coverage for the breach of contract cause of action in the underlying case; 2) breach of contract damages are not recoverable under the liability policy. Wong filed a counter motion, seeking summary adjudication of the following issues: 1) State Fund owes a duty to defend in the underlying case; and 2) State Fund owes a duty to indemnify Wong for all damages for physical and emotional distress alleged in the underlying case. On February 14, 1991, a hearing was held on the opposing motions. The court found the complaint in the underlying case alleges both damages inside and outside the insurance policy. The court denied State Fund's motion finding that, if McClellan could prove he suffered emotional distress during the course of his employment, it was covered under the workers' compensation provisions of the insurance policy. The court denied Wong's motion also finding that the language Wong quoted in its motion was from part 2 of the policy, which the court found not applicable. The court ordered each party to prepare the order upon which it prevailed, and separate orders denying the parties' motions were filed.

McClellan's deposition was taken in June 1991. McClellan testified that the stress and intolerable working conditions at Wong caused an increase in the number and severity of his headaches, upset stomachs, and sleepless nights about nine months after he began to work for Wong. He also suffered anxiety and lack of motivation. He further testified that the stress and intolerable working conditions, along with his unacceptable pay rate, were the sole reasons for his decision to leave his employment with Wong. McClellan gave Wong two weeks' notice after he received employment with another firm. McClellan also stated he never considered making a workers' compensation claim.

State Fund brought a motion for summary judgment, or in the alternative summary adjudication of issues, arguing it had no duty to defend the underlying case as the action was not a claim for workers' compensation benefits, but was one for wrongful termination, so it was not covered by the insurance policy. Wong brought a cross-motion for summary adjudication, arguing there was no triable issue of fact as to whether State Fund owed a duty to defend and indemnify Wong in the underlying case. A hearing on the two motions was held on February 13, 1992. The court stated that although McClellan testified in his deposition to suffering various ailments as a result of his working conditions, that testimony was not within the ambit of his pleading in the underlying case. The court found that, as the complaint in the underlying case seeks damages for breach of an employment contract, fraud in the inducement of the contract, and emotional distress arising from his termination, and McClellan testified he had not considered filing a claim under workers' compensation, the complaint did not seek to recover under workers' compensation laws. Thus, the court granted State Fund's motion for summary judgment, stating "it does not appear to me that the underlying plaintiff [McClellan] is at all seeking to recover any benefits under the workers' compensation laws. His lawsuit is expressly and explicitly a wrongful termination and connected causes of action. [p] To the extent that he does seek other damages--and it certainly does not appear at this time that he does under the terms and provision of this complaint--he is seeking those other damages for something that is within the ambit of the workers' compensation law but his lawsuit does not seek benefits under the workers' compensation law, he seeks damages under the common law and those are excluded. [p] The plaintiff's motion is denied." Wong timely appealed from the resulting judgment of dismissal.

Wong argues here that State Fund owes a duty to defend the underlying action as it alleges physical and mental injury as a result of McClellan's working conditions at Wong. Wong further argues that it is entitled to a defense under the workers' compensation policy even though McClellan filed the underlying action in superior court rather than with the Workers' Compensation Appeals Board. Finally, Wong argues that the court erred in finding no duty to defend by narrowly interpreting McClellan's pleading to allege only a claim for breach of contract. State Fund argues the wrongful termination exclusion clause in the policy precludes coverage for the underlying claim. State Fund also argues that as the underlying action is not a claim for workers' compensation benefits, it has no duty to defend it.

Discussion

A motion for...