Baek v. Continental Casualty Co. (2014) 230 Cal.App.4th 356
SUMMARY OF FACTS
In Baek v. Continental Casualty Co. (2014) 230 Cal.App.4th 356, the appellate court upheld the trial court's order sustaining the defendant insurance carrier's demurrer to the plaintiff, Baek's complaint without leave to amend, finding that as a matter of law, an employee's claim for attorneys' fees and costs incurred in defending against claims of sexual assault are not covered under an employer's insurance policy because sexual assault is not within the course and scope of employment.
The plaintiff, Baek, sought defense and indemnity from Continental Casualty Company, the insurance company for Heaven Massage and Wellness Center ("HMWC"), where Baek worked as a massage therapist.
Baek and HMWC were named as defendants in the underlying Jaime W. action. The operative complaint in that action alleged that during a massage, Baek "touched, fondled, rubbed, grabbed and squeezed Plaintiff's breasts, buttocks, inner thighs and genitals, all while making and emitting moans, groans, grunts and other sounds and noises of sexual pleasure." The complaint alleged causes of action against HMWC and Baek for sexual harassment, sexual battery, assault, battery, false imprisonment, intentional infliction of emotion distress, and negligence.
The underlying Jaime W. action settled, and Baek thereafter brought a complaint against HMWC's liability insurance carrier alleging that Continental owed him a duty of defense and indemnity in the underlying action because Baek was alleged to be either a partner or employee of HMWC and, as such, was an additional insured under the policy. Continental demurred on the grounds that Baek was covered under the policy only for acts within the course and scope of employment or while performing duties related to the conduct of HMWC's business.
The specific policy language at issue defined employees as insureds under the policy. However, Continental asserted that Baek's alleged acts were outside the course and scope of employment, and he therefore did not qualify as an insured under the policy. The trial court sustained Continental's demurrer without leave to amend and Baek appealed.
On appeal, the Baek court analyzed Continental's duty to defend in the context of whether Baek was in the course and scope of employment at the time of the sexual assault. The Baek court looked to cases involving private and public employers' duties to defend and indemnify employees in deciding whether Baek was acting in the scope of employment.
While Baek disputed Jaime W.'s allegations, the court unequivocally stated that "it is Jaime W.'s allegations, not Baek's, that give rise to a potential duty to defend." The court then went on to "consider whether the allegations of Jaime W.'s complaint gave rise to a duty to defend." Because the underlying policy provided coverage to HMWC's employees for acts within the scope of their employment, the court addressed whether the sexual assault alleged in the Jaime W. action was within the scope of Baek's employment.
The Baek court held that the allegations in the Jaime W. action were analogous to the allegations in Lisa M. v. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal.4th 291, and Famers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992. In those cases, the California Supreme Court held that sexual assaults by an ultrasound technician (Lisa M.) and a deputy sheriff (Farmers Ins. Group) were not within the scope of employment.
Similarly, while Baek's employment as a massage therapist provided him the opportunity to meet Jaime W. and be alone with her, nothing in the underlying complaint suggested that the alleged assault was "engendered by" or an "outgrowth" of his employment in that its "motivating emotions were fairly attributed to work-related events or conditions."
Instead, the acts alleged against Baek were not duties related to the conduct of HMWC's business or acts of the kind Baek had been hired to perform. Thus, finding as a matter of law that the allegations of sexual assault were not within the course and scope of Baek's employment, the court affirmed the trial court's ruling sustaining Continental's demurrer, finding that Continental did not have a duty to defend as a matter of law.
The Baek court also rejected Baek's argument that even if there was no duty to defend with regard to the allegations of sexual assault, there was a duty to defend against Jaime W.'s claims for negligence and false imprisonment. The court noted that the scope of the duty to defend does not depend on the labels given to the causes of action, but instead rests on whether the facts reveal the potential for coverage. Thus, because the sole facts alleged to support those causes of action were based on Baek's intentional conduct (the sexual assault), the court found that Continental did not owe Baek a defense.
WHY THIS CASE IS IMPORTANT TO INSURERS AND EMPLOYERS
While the Baek court decided the issue in the context of an employer's insurance policy, the Baek opinion may also extend to employers. Under California Labor Code §2802, an employee is entitled to recover from the employer all losses (including attorneys' fees) incurred in defending against claims arising out of the course and scope of employment. While the California Supreme Court has consistently held that sexual assaults are outside the course and scope of employment as a matter of law, those cases have overwhelmingly been decided in the context of personal injury claims brought against the employer. The Baek case makes clear that the employee's right to defense and indemnity can be decided on the pleadings, and the employee's version of the facts are irrelevant to that decision. Because the Baek court analyzed the issue of Baek's right to a defense in the context of whether he was in the course and scope of employment, employers may benefit from the Baek opinion by arguing that the Baek analysis should be extended to claims for defense costs brought under Labor Code §2802.