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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

W.G. HALL, LLC,

Plaintiff,

v.

ZURICH AMERICAN INSURANCE 

COMPANY,

Defendant.

Case No. 17-cv-00646 NC 

ORDER GRANTING IN PART AND

DENYING IN PART ZURICH’S 

MOTION FOR SUMMARY 

JUDGMENT; ORDER GRANTING 

IN PART AND DENYING IN PART 

WGH’S MOTION FOR SUMMARY 

JUDGMENT

Re: Dkt. Nos. 29, 32

Plaintiff W.G. Hall, LLC (WGH), a staffing services company, settled a wage and 

hour class action lawsuit. Before and after settling the class action, WGH sought coverage 

from its professional liability insurer, Zurich American Insurance Company for the amount 

it would pay out in the settlement agreement. Zurich refused to reimburse WGH for the 

settlement amount on several grounds, and WGH sued Zurich for breach of contract and 

derivative claims. 

In its motion, WGH seeks summary judgment on its claims for breach of contract 

and declaratory relief, as well as a judgment from the Court that none of five affirmative 

defenses raised by Zurich are applicable in this case. Zurich opposes WGH’s motion and 

seeks summary judgment on its behalf as to the entire case. 

For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART 

Zurich’s motion for summary judgment. WGH’s motion for partial summary judgment is 
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also GRANTED IN PART and DENIED IN PART. The effect of this order is that Zurich 

is not obligated to cover WGH’s settlement in the underlying litigation. 

I. BACKGROUND

Though the interpretation of the insurance policy in this case is hotly debated, the 

factual background of this case is largely not. On November 27, 2013, Zurich issued to 

WGH an insurance coverage package effective from December 1, 2013, through May 19, 

2015. Dkt. No. 29-1 at 12. That package contained Professional Liability coverage. Id. 

WGH is a staffing services company, which hires and trains staffing services 

workers and furnishes them to its clients. Even when its employees are working directly 

for WGH’s clients, WGH remains the employer of record for its employees and provides 

payroll services for its clients for the work its employees perform. Dkt. No. 29 at 6. In 

2014 and 2015, Danny Isquierdo and Freddy Robledo filed putative class actions against 

WGH, which were later consolidated in July 2015 (Isquierdo and Robledo litigation). Id. 

at 210. 

These lawsuits alleged California Labor Code and Industrial Welfare Commission 

Wage Order violations for failure to pay wages, and other related claims arising from the 

failure to pay, such as failure to reimburse and a claim under the California Unfair

Competition Act. Id. at 210-36. The alleged actions giving rise to these claims were that 

WGH failed to compensate its employees “for internal orientations, client orientations, 

reporting and consultations, post-assignment termination meetings, client interviews, 

related travel and other work off the clock . . . .” Id. at 216. In addition, the plaintiffs 

claimed WGH did not pay them for the time they spent traveling to deliver their timesheets 

to its office, nor were they reimbursed for their mileage. Id. at 217. WGH notified Zurich 

of the lawsuits against it, but Zurich refused to assume coverage over the claims. Id. at 

332-37, 342-46, 351-55. WGH and the class reached a settlement, and the court 

preliminarily approved the class action settlement. Id. at 277. Both parties agree that 

WGH reach a settlement without Zurich’s consent.

WGH filed this case on February 6, 2017, alleging claims for (1) breach of contract, 
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(2) breach of contract/duty to defend, (3) breach of the implied covenant of good faith and 

fair dealing, and (4) declaratory relief. Dkt. No. 1. WGH moved for summary judgment 

on May 25, 2017. Dkt. No. 29. Zurich filed a cross motion for summary judgment on 

June 23, 2017. Dkt. No. 32. Both parties consented to the jurisdiction of a magistrate 

judge under 28 U.S.C. § 636(c). Dkt. Nos. 8, 15.

II. LEGAL STANDARD

Summary judgment may be granted only when, drawing all inferences and 

resolving all doubts in favor of the nonmoving party, there is no genuine dispute as to any 

material fact. Fed. R. Civ. P. 56(a); Tolan v. Cotton, 134 S. Ct. 1861, 1863 (2014); 

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under 

governing substantive law, it could affect the outcome of the case. Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if “the 

evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. 

Bald assertions that genuine issues of material fact exist are insufficient. Galen v. Cnty. of 

L.A., 477 F.3d 652, 658 (9th Cir. 2007).

The moving party bears the burden of identifying those portions of the pleadings, 

discovery, and affidavits that demonstrate the absence of a genuine issue of material fact. 

Celotex, 477 U.S. at 323. Once the moving party meets its initial burden, the nonmoving 

party must go beyond the pleadings, and, by its own affidavits or discovery, set forth 

specific facts showing that a genuine issue of fact exists for trial. Fed. R. Civ. P. 56(c); 

Barthelemy v. Air Lines Pilots Ass’n, 897 F.2d 999, 1004 (9th Cir. 1990) (citing Steckl v. 

Motorola, Inc., 703 F.2d 392, 393 (9th Cir. 1983)). All justifiable inferences, however, 

must be drawn in the light most favorable to the nonmoving party. Tolan, 134 S. Ct. at 

1863 (citing Liberty Lobby, 477 U.S. at 255). 

III. DISCUSSION

The issues raised in both motions are (1) was there a “wrongful act” within the 

meaning of the policy; (2) whether the insured v. insured exclusion applies; (3) whether 

Zurich waived its right to object to WGH’s settlement of the underlying litigation; (4)
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whether the contract exclusion applies; and (5) whether the settlement constitutes damages. 

In addition, Zurich argues that as to the legal issues, there is no dispute of material fact, 

necessitating a grant of summary judgment. 

A. Insurance Contract Interpretation Under California Law

Insurance policies are contracts. AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 

822 (1990). The “mutual intention” of the parties at the time of contract formation governs

the contract’s interpretation. Id. at 821. The parties’ intentions are inferred from the “clear 

and explicit” meaning of these provisions. Id. at 822. The provisions are interpreted in 

their “ordinary and popular” sense unless the terms are used in a “technical sense or a 

special meaning is given to them by usage.” Id. A policy provision is considered 

ambiguous when it is capable of more than one interpretation. Waller v. Truck Ins. Exch., 

Inc., 11 Cal. 4th 1, 18 (1995). When ambiguity in policy language or term arises, courts 

must resolve that ambiguity in favor of the insured. United Nat. Ins. Co. v. Spectrum 

Worldwide Inc., 555 F.3d 772, 777 (9th Cir. 2009). The language of a contract must be 

interpreted as a whole, which means ambiguities cannot be found in the abstract. Waller, 

11 Cal. 4th at 18. “Courts will not strain to create an ambiguity where none exists.” Id. at 

18-19.

“[T]he burden is on the insured to bring the claim within the basic scope of 

coverage, and (unlike exclusions) courts will not indulge in a forced construction of the 

policy’s insuring clause to bring a claim within the policy’s coverage.” Collin v. Am. 

Empire Ins. Co., 21 Cal. App. 4th 787, 803 (1994); see also Waller, 11 Cal. 4th at 16. As 

for policy exclusions, they are strictly construed against the insurer, and exceptions to 

exclusions are broadly construed in favor of the insured. E.M.M.I. Inc. v. Zurich Am. Ins. 

Co., 32 Cal. 4th 465, 471 (2004) (citing cases). The burden falls upon the insurer “to 

phrase exceptions and exclusions in clear and unmistakable language.” MacKinnon v. 

Truck Ins. Exch., 31 Cal. 4th 635, 648 (2003) (quotation marks omitted). An exclusion 

precludes coverage only if it is “conspicuous, plain and clear.” Id. (quoting State Farm 

Mut. Auto. Ins. Co. v. Jacober, 10 Cal. 3d 193, 201-02 (1973)).
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B. The Disputed Policy Text

The insurance policy at issue here provides the following: “We will pay those sums 

that the insured becomes legally obligated to pay as ‘damages’ because of any ‘claim’ 

arising from a ‘wrongful act’ to which this insurance applies. The ‘wrongful act’ must 

take place: a. During the policy period; and b. In the ‘coverage territory.’” Dkt. No. 29-1 

at 88. The terms in the coverage provision are defined as follows:

C. “Claim” means a: 

1. Written demand for money resulting from a “wrongful 

act”; or 

2. “Suit” resulting from a “wrongful act.”

. . . .

F. “Damages” means the monetary portion of any judgment, 

award or settlement, provided such settlement is negotiated with 

our assistance and approval. “Damages” do not include: 

. . . .

2. Personal profit or advantage to which the insured is 

not legally entitled; 

3. Criminal or civil fines, penalties (statutory or 

otherwise), fees or sanctions . . . . 

. . . . 

I. “Employee” includes but is not limited to a ‘leased worker’ 

and a “staffing services worker”.

. . . . 

Q. “Staffing services” means services provided by a staffing 

company to their clients including but not limited to: 

. . . .

7. Services performed for a client company to supply that 

client with a “staffing services worker.” 

R. “Staffing services worker” means a person who is furnished 

by you to your client to perform the duties to which you have 

agreed.

. . . . 

V. “Wrongful act” means any actual or alleged act, error, or 

omission, misstatement, or misleading statement in the course 

of providing “staffing services” to your clients by you or by any 

person for whose acts you are legally responsible. 

Id. at 95-98. In relevant part, the policy provides the following exclusions: 

This insurance shall not apply to any “claim”, based upon or 

arising out of, in whole or in part: 

A. Any action made by or on behalf of another insured, 

in any capacity. 

. . . .

I. Any liability assumed by an insured under any contract 

or agreement, unless such liability would have attached 

to the insured by law in the absence of such contract or 

agreement. 
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Id. at 90, 91.1 

C. Construction of “Wrongful Act”

In both motions, the parties dispute whether the allegations in the underlying class 

action litigation fall under the policy’s coverage of “wrongful acts.” The meaning of 

“wrongful act” is key in this case because if there is no “wrongful act” within the meaning 

of the policy, Zurich is not required to provide coverage. 

1. No “Wrongful Act” As Defined in the Policy Was Committed.

WGH argues that the plain meaning of “wrongful act” requires that the Court find 

that coverage is due. Under the policy, “wrongful act” means “any actual or alleged act, 

error, or omission, misstatement, or misleading statement in the course of providing 

‘staffing services’ to your clients by you or by any person for whose acts you are legally 

responsible.” Dkt. No. 29-1 at 98. WGH asserts that the claims in the underlying 

litigation relating to unpaid wages constitute “wrongful acts.” Dkt. No. 29 at 13.

Zurich counters that neither the claims in the underlying litigation nor the settlement 

is covered “because the obligation to pay the claimants’ wages preexisted and is 

independent of any ‘wrongful act’ by WGH.” Dkt. No. 32 at 8. At first blush, it appears 

that WGH’s argument is the more meritorious. After all, failure to pay wages would be 

considered by any layperson an error or omission. Nonetheless, the law on this point

favors Zurich.

“[A]n insured’s alleged or actual refusal to make a payment under a contract does 

not give rise to a loss caused by a wrongful act.” August Entertainment, Inc. v. 

Philadelphia Indemnity Ins. Co., 146 Cal. App. 4th 565, 578 (2007); accord Health Net, 

Inc. v. RLI Ins. Co., 206 Cal. App. 4th 232, 253 (2012). In Health Net, for example, the 

insurer Health Net was required to pay benefits under the insureds’ plans. The court found 

that because Health Net was “contractually obligated to pay its participants and 

 

1 The policy contains an “Additional Insured Endorsement With Insured Versus Insured 

Exception,” which is not relevant here because the endorsement merely makes two 

exceptions to the exclusions which are not at issue here. Dkt. No. 29-1 at 99.
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beneficiaries the full benefits to which they were entitled under their health plans,” Health 

Net’s costs in paying these benefits could not be passed on to its insurer “simply because 

[it] may have committed a wrongful act in its failure to pay them.” Health Net, 206 Cal. 

App. 4th at 253.

So too here. WGH was required to pay employees’ wages. WGH has never 

claimed that no employment contract existed between itself and the plaintiffs in the 

underlying litigation, and indeed concedes that at least oral contracts existed with the 

plaintiffs. Dkt. No. 29 at 19 (“There are no allegations that WGH assumed liability for 

these specific obligations in its general oral employment contracts with class members.” 

(emphasis added)). The claims under the Labor Code and Industrial Welfare Commission 

Orders would not exist but for an employment contract. The plaintiffs in the underlying 

litigation alleged that WGH failed to pay wages. This alleged failure is not insurable

through the Zurich policy.

2

 WGH has not met its burden to show it was entitled to 

coverage. Collin, 21 Cal. App. 4th at 803. Thus, the Court GRANTS Zurich’s motion for 

summary judgment on the first (breach of contract, second (breach of contract/duty to 

defend), and fourth (declaratory relief) claims for relief. 

In addition, in its motion for summary judgment, Zurich argues that WGH’s third 

claim for bad faith/breach of the implied covenant of good faith and fair dealing claim fails 

because no coverage is due under the policy. Dkt. No. 32 at 18. The Court agrees. Zurich 

cannot, as a matter of law, be held liable for bad faith if it was not obligated to cover the 

 

2 The parties dispute whether the acts at issue in the underlying litigation relate to staffing 

services performed for WGH’s clients. The Court agrees with WGH that the acts relate to 

staffing services performed for clients. The definition of “wrongful act” states that the 

wrongful acts must be committed “in the course of providing ‘staffing services’ to your 

clients . . . .” Dkt. No. 29-1 at 98. “Staffing services” are, among other things, “[s]ervices 

performed on behalf of your client by a ‘staffing services worker’ . . . .” Id. at 97. A 

“staffing services worker” is a person furnished by WGH to the client to “perform the 

duties to which” WGH agreed. Id. When read together, the policy language is broad in 

coverage, and the phrase suggesting the acts in the underlying litigation should be covered 

is “in the course of.” Broadly construed, the plaintiffs’ unpaid training sessions and drives 

to deliver timesheets for time worked for WGH’s clients should be considered work they 

performed “in the course of” providing “staffing services” to WGH’s clients. This finding 

is secondary, however, because absent a “wrongful act,” there can be no coverage. 
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underlying litigation in the first place. Waller, 11 Cal. 4th at 36. The Court also 

GRANTS Zurich’s motion for summary judgment as to the third claim.

Though the Court GRANTS Zurich’s motion for summary judgment on all of the 

claims, the Court also address the parties’ other arguments in their cross motions.

D. The Insured v. Insured Exclusion Does Not Preclude Coverage.

The parties dispute whether the following exclusion bars coverage: “This insurance 

shall not apply to any ‘claim’, based upon or arising out of, in whole or in part: A. Any 

action made by or on behalf of another insured, in any capacity.” Dkt. No. 29-1 at 90. 

One of the definitions of an insured is “your ‘employees.’” Id. There are other types of 

individuals that are considered “insureds,” but this is the only one that matters here. 

Importantly, at no time does the policy state that “former employees” are insureds. It is 

Zurich’s failure to include “former employees” as insureds that WGH cites to in arguing 

that the exclusion does not apply here, as both Robledo and Isquierdo are former WGH 

employees. Dkt. No. 29 at 15.

WGH strengthens its argument that former employees are not covered by the 

exclusion by citing to the definition of “Wrongful Employment Act,” in which the policy 

explicitly distinguished between former and current employees: “W. ‘Wrongful 

employment act’ means: Your ‘employee’s’, former ‘employee’s’, or an employment 

applicant’s allegation of: a. ‘Discrimination’ by an insured . . . .” Dkt. No. 29-1 at 98. Per 

WGH, this requires that the Court find that former employees were not excluded from 

coverage, because to do otherwise would render the word “former” surplusage in the 

policy. Dkt. No. 29 at 15-16.

Among other things, Zurich argues that the exclusion does apply because the policy 

was written on an occurrence basis, meaning that “the policy only covers those wrongful 

acts that occur during the policy period, regardless of when the claim was made.” Dkt. No. 

32 at 14. WGH agrees that the policy is an occurrence-based policy, but asserts that this 

fact does nothing to change the definition of an insured because the definition of insured is 

unambiguous and Zurich cannot now escape what its own policy says. The Court 
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considers the policy language ambiguous because the policy is occurrence-based, but the 

text of the policy suggests the exclusion only applies to claims made by “employees,” not 

former “employees.” WGH’s argument as to the text of the policy makes sense, but so 

does Zurich’s argument regarding the context of the policy. This ambiguity must by law 

be resolved in the insured’s favor where the insurer did not make exclusions clear. 

MacKinnon, 31 Cal. 4th at 648. This exclusion is inapplicable here.

E. The Facts Presented Do Not Show That Zurich “Waived” Its Right to Object 

to the Settlement.

The parties dispute whether Zurich waived its right to object to the settlement. The 

Court is persuaded that if Zurich refused to assume WGH’s defense in the underlying 

litigation, Zurich “waived” its right to object to the settlement in the underlying litigation. 

Diamond Heights Homeowners Assn. v. Nat’l Am. Ins. Co., 227 Cal. App. 3d 563, 581 

(1991); Risely v. Interinsurance Exch. of Auto. Club, 183 Cal. App. 4th 196, 210 (2010). 

Though the Court recognizes that many California courts have not agreed with Diamond 

Heights, the Court notes that many courts have agreed with it, and that the Ninth Circuit 

earlier this year found no evidence that the California Supreme Court would not follow 

Diamond Heights’ reasoning. Teleflex Med. Inc. v. Nat’l Union Fire Ins. Co. of 

Pittsburgh, PA, 851 F.3d 976, 982-86 (9th Cir. 2017).3 

However, the applicability of the Diamond Heights rule is questionable here. There 

is a dispute between the parties regarding whether Zurich can be said to have “waived” its 

right to object to the settlement because it provided a defense in the underlying litigation. 

Dkt. No. 32 at 19. Similarly, Zurich argues that there is no evidence WGH ever even 

sought its approval of the settlement. Id. WGH concedes that Zurich provided “limited 

defense fees,” but that the defense was under a different coverage part. Dkt. No. 34 at 19. 

 

3 The Court notes that the Diamond Heights decision dealt with an excess insurer. Yet the 

reasoning in Diamond Heights, as recognized by Teleflex, relies strongly on the fact that 

the insurer had breached its duties under the policy by failing to fulfill its obligations to the 

insured. 851 F.3d at 985 (“notwithstanding the court’s use of the word “waiver” in 

Diamond Heights, the rule is not so much about the waiver of an insurer’s contractual right 

than it is about an insurer’s breach of a contractual obligation.”).
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On the other hand, Zurich argues that no discovery has been completed regarding the 

defense provided by Zurich in the underlying litigation. Dkt. No. 35-1 at 2 (Bertschi 

Decl.). These factual disputes necessitate a finding that summary judgment is not 

appropriate on the issue of whether Zurich waived its right to consent. Given that the 

Court is finding that no coverage was due in the first place due to a lack of a “wrongful 

act,” this finding is, in any event, secondary.

F. The Contract Exclusion Bars Coverage.

The policy states that Zurich need not cover “any ‘claim’, based upon or arising out

of, in whole or in part: I. Any liability assumed by an insured under any contract or 

agreement, unless such liability would have attached to the insured by law in the absence 

of such contract or agreement.” Dkt. No. 29-1 at 91. WGH argues that this exclusion does 

not apply because the Labor Code and IWC Wage Order claims attached to WGH by law, 

regardless of any contract. Dkt. No. 29 at 19. Zurich counters that none of the claims

against WGH would exist absent an employment contract, so the exclusion applies.

Zurich offers Medill v. Westport Ins. Corp. to support its argument. 143 Cal. App. 

4th 819 (2006). In Medill, the relevant dispute revolved not around an exclusion, but 

whether the claims fell within the policy’s coverage provision. Id. at 829. The court found 

the claims did not because the underlying litigation in that case arose out of a breach of 

contract (failure to perform contractual obligation to repay bonds), even if none of the 

causes of action were for “breach of contract.” Id. The relevant policy language in Medill

defined the word “loss,” and stated that “loss” would not include “Damages ‘arising out 

of’ breach of any contract . . . .” Id. In examining what was excluded from “loss,” the 

court there found:

California courts have consistently given a broad interpretation 

to the terms ‘arising out of’ or ‘arising from’ in various kinds of 

insurance provisions. It is settled that this language does not 

import any particular standard of causation or theory of liability 

into an insurance policy. Rather, it broadly links a factual 

situation with the event creating liability, and connotes only a 

minimal causal connection or incidental relationship. Such 

language requires the court to examine the conduct underlying 
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the . . . lawsuit, instead of the legal theories attached to the 

conduct.

Id. at 830 (quoting Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal. App. 4th 321, 328 

(1999) and Century Transit Systems, Inc. v. American Empire Surplus Lines Ins. Co., 42 

Cal. App. 4th 121, 127 n.4 (1996)) (emphasis added) (internal quotation marks and 

brackets omitted). As a result, the Medill court concluded that the liability of the 

defendants in the underlying litigation “would not exist without the contracts,” and that 

‘[a]ll of the allegations against the [defendants] arise out of duties and obligations [the 

defendants] assumed under the bond contracts.” Id.

WGH relies on an order on a summary judgment motion out of this courthouse, 

Ironshore Specialty Ins. Co. v. 23andMe, Inc., to support its argument. No. 14-cv-03286 

BLF, 2016 WL 3951660 (N.D. Cal. July 22, 2016). However, the reasoning in Ironshore

does not apply here because the policy language in this case is materially different than 

that in Ironshore. In Ironshore, the policy language provided that the exclusion applied to 

“Your assumption of liability or obligations in a contract or agreement. This exclusion 

does not apply to liability or obligations: a. that you would have in the absence of the 

contract or agreement[.]” 2016 WL 3951660, at *3.

The exclusion here applies to “Any liability assumed by an insured under any

contract or agreement, unless such liability would have attached to the insured by law in 

the absence of such contract or agreement.” Dkt. No. 29-1 at 91 (emphasis added). In 

Ironshore, Judge Beth Freeman clearly distinguished between the language in Medill and 

the language in front of the court there, which did not include the word “any” anywhere in 

the exclusion language. Ironshore, 2016 WL 3951660, at *4. The court in Ironshore then 

went on to analyze the rest of the exclusion language in that clause, and ultimately denied 

the insurer’s motion for summary judgment on the basis of the contract exclusion clause. 

Id. at *4-*7. This further analysis is not warranted here. 

Here, the Court finds Zurich has the more persuasive argument, and that Medill is 

on point. In the policy, the phrase “arising out of” connotes a broad definition for the type 

of contract that will be excluded from coverage, as does the extension of the contract
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exclusion to “[a]ny liability assumed by an insured under any contract . . . .” Dkt. No. 29-1 

at 91. This case is different than Medill in that Medill dealt with the scope of the coverage

provision, and this case deals with the scope of an exclusion to coverage. The upshot of 

this difference is that the burden is on Zurich and not WGH to show its interpretation of 

the exclusion is correct. MacKinnon, 31 Cal. 4th at 648. The Court finds Zurich’s 

argument more persuasive, even with the burden resting on Zurich. E.M.M.I., 32 Cal. 4th 

at 471. Absent an employment contract between the class plaintiffs and WGH, this case 

would not exist.

Lastly, the parties also dispute whether the exception to the exclusion applies here. 

The exception excepts from the exclusion such liability that “would have attached to the 

insured by law in the absence of such contract or agreement.” Id. As summarized above, 

WGH argues the exception applies because adherence to the Labor Code and IWC Wage 

Orders are required by law, regardless of any contract. While that contention is true, it is 

also true that the alleged Labor Code and IWC Wage Order violations would not exist

absent an employment contract. These claims arise directly from the employment 

relationship. WGH’s argument is unavailing. Thus, the Court finds the contract exclusion 

applies, and GRANTS Zurich’s motion for summary judgment on this issue as well.

G. The Settlement Does Not Constitute “Damages.”

The parties dispute whether the settlement constitutes “damages” under the policy. 

The policy provides that Zurich “will pay those sums that the insured becomes legally 

obligated to pay as ‘damages’ because of any ‘claim’ arising from a ‘wrongful act’ to 

which this insurance applies.” Dkt. No. 29-1 at 88. “Damages” are “the monetary portion 

of any judgment, award or settlement, provided such settlement is negotiated with our 

assistance and approval. “Damages” do not include: . . . 2. Personal profit or advantage to 

which the insured is not legally entitled; [and] 3. Criminal or civil fines, penalties 

(statutory or otherwise), fees or sanctions . . . .” Id. at 96. 

WGH asserts the settlement entered into with the Robledo and Isquierdo class 

constitutes coverable “damages.” Dkt. No. 29 at 19. WGH also argues that even if the 
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settlement does not constitute damages, but rather wages and penalties, this would create a 

conflict in the policy language, which must be resolved in WGH’s favor. Id. at 20. Zurich 

disagrees, arguing that the settlement constitutes wages, interest, and civil penalties, which 

are excluded as damages in its definition. Dkt. No. 32 at 12.

WGH admitted no liability in the underlying litigation. However, the plain 

language of the settlement agreement demonstrates that the manner in which the settlement 

proceeds were allocated precludes the settlement being considered “damages” under the 

policy. The settlement agreement provides: “the Parties have determined that all 

settlement payments to an Eligible Class Member will be designated as payment for and 

allocated as follows: (1) 40% wages; (2) 20% interest; and (3) 40% civil penalties for each 

settlement payment installment.” Dkt. No. 29-1 at 268 (settlement agreement in the 

underlying litigation). Contrary to WGH’s argument, the Court finds no evidence from the 

plain text of the settlement agreement that the allocation of the settlement into these 

different buckets was for tax reasons alone. Thus, the 80% of the settlement constituting 

wages and civil penalties fall squarely into what is excluded from the definition of 

“damages” in the policy. As for the interest owed, the Court also finds it is excluded from

“damages.” It would make very little sense for the Court to consider wages and civil 

penalties as excluded from the definition of “damages” only to find that the interest 

incurred as a result of the unpaid wages was considered damages. 

Second, the parties dispute whether the policy language is ambiguous. The Court 

does not find the policy language ambiguous, and finds that WGH’s interpretation of how 

such a purported ambiguity should be reconciled is strained. Dkt. No. 34 at 16; Waller, 11 

Cal. 4th at 18-19 (“Courts will not strain to create an ambiguity where none exists.”). As 

relevant here, the policy provides that settlements are covered as damages unless the 

purported damages are for personal profit or advantage which the insured is not legally 

entitled to or criminal or civil fines, penalties, fees, or sanctions. The Court finds this is 

the only reasonable interpretation of the disputed language.
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H. The Court Need Not Reach the Other Arguments In Zurich’s Motion.

Zurich’s last argument is that there remain numerous factual questions to be 

resolved by trial, and so summary judgment against it would be inappropriate if the Court 

was inclined to deny its motion as to the coverage issues. Dkt. No. 32 at 18-20. Given 

that the Court has found summary judgment in Zurich’s favor merited on the coverage 

issue, the Court declines from reaching the factual issues.

IV. CONCLUSION

For the reasons stated above, the Court GRANTS IN PART and DENIES IN PART 

Zurich’s motion for summary judgment. The Court grants summary judgment to Zurich as 

to each claim in WGH’s complaint. WGH’s motion for partial summary judgment is 

DENIED except as to the insured v. insured exclusion. The insured v. insured exclusion to 

coverage is inapplicable in this case. Yet because this issue has no bearing on the question 

of coverage, this finding has no effect on the overall outcome of this case. Zurich is not 

obligated to cover WGH’s settlement in the underlying litigation because the claims 

against WGH and the settlement do not fall within the basic coverage provision of the 

policy. The clerk of the court will enter judgment accordingly.

IT IS SO ORDERED.

Dated: August 31, 2017 _____________________________________

NATHANAEL M. COUSINS

United States Magistrate Judge