CGL Policy’s “Employment-Related Practices Exclusion” Held to Preclude Coverage for Lawsuit Involving Claims of Sexual Harassment and False Imprisonment
John Davler, Inc. v. Arch Ins. Co., 229 Cal. App. 4th 1025 (2014)
In John Davler, the California Court of Appeal held that a CGL Policy’s exclusion for employment-related practices barred coverage for a sexual harassment lawsuit that also included a cause of action for false imprisonment, because the false imprisonment claim was based on actions relating to the employment relationship.
John Davler arose from an underlying action in which three employees of the insured sued the insured and their supervisor. The employees alleged that, one morning, the supervisor alleged that she had found a used sanitary napkin in the bathroom and forced the employees to undergo a bodily inspection so that she could determine to whom the sanitary napkin belonged, based on a determination of which employee was on her menstrual cycle. Based on these actions, the employees sued the insured and their supervisor for sexual harassment. They also sued for false imprisonment based on the fact that the supervisor forced them to stay in the bathroom during the inspection. The insured tendered its defense to its CGL carrier, which issued a policy that provided coverage for false imprisonment claims. However, the policy also included an exclusion for liability arising out of “[e]mployment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution . . . .” (the “ERP Exclusion”). The carrier denied coverage based on the ERP Exclusion, and the insured filed a coverage action. The insurer demurred to the insured’s complaint, the trial court granted that demurrer and the insured appealed.
The John Davler court affirmed the ruling of the trial court. In arguing for coverage, the insured contended that the ERP Exclusion’s use of the terms “such as” and “arising out of” rendered the exclusion ambiguous. The court rejected this position and cited to several cases holding that those terms are clear and unambiguous. The insured further argued that if the ERP Exclusion was not ambiguous as to false imprisonment claims, then the basic structure of the policy was ambiguous because the policy listed “false arrest, detention or imprisonment” in its insuring agreement. The court rejected this position as well. In so holding, the court noted that exclusions are intended to eliminate coverage for claims that otherwise fall within the policy’s insuring agreement and further noted that there is nothing improper about an insurer eliminating coverage through an exclusion for some claims that fall within a general category that is covered by the policy’s insuring agreement.
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