Source: http://scocal.stanford.edu/opinion/la-jolla-beach-tennis-club-inc-v-industrial-indemnity-co-31639
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Matched Legal Cases: ['art 1', 'art 2', 'art 1', 'art 1', 'art 1', 'art 1', 'art 1', 'art 1', '§ 4', '§ 5300', '§ 3700', '§ 1', '§ 11650', '§ 3207', '§ 11630', '§ 3209', 'art 1', '§ 1', 'art 2', '§ 1']

La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. - 9 Cal.4th 27 S036170 - Mon, 12/19/1994 | California Supreme Court Resources	Stanford Law School - Robert Crown Law Library
Home > Opinions > La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co.	Citation 9 Cal.4th 27
La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27 , 36 Cal.Rptr.2d 100; 884 P.2d 1048
[No. S036170. Dec 19, 1994.]
LA JOLLA BEACH AND TENNIS CLUB, INC., et al., Plaintiffs and Appellants, v. INDUSTRIAL INDEMNITY COMPANY, Defendant and Respondent.
(Superior Court of San Diego County, No. 627975, William C. Pate, Judge.)
H. Paul Kondrick, Seltzer, Caplan, Wilkins & McMahon and Michael H. Riney for Plaintiffs and Appellants.
Craig R. Berne, James T. Linford, Adleson, Hess, Christensen & Kelly, Randy M. Hess, Duane W. Shewaga, Brobeck, Phleger & Harrison, David M. Halbreich, David E. Weiss, Farella, Braun & Martel, William R. Friedrich, Dennis M. Cusack, Kathryn Oliver, Luce, Forward, Hamilton & Scripps, George S. Howard, Jr., and Albert T. Harutunian III as Amici Curiae on behalf of Plaintiffs and Appellants.
Morris, Polich & Purdy, Lawrence E. Picone, Gerald P. Schneeweis, Sonnenschein, Nath & Rosenthal, Paul E. B. Glad, John Leland Williams, Rhonda V. Magee and Andre Hassid for Defendant and Respondent.
Craig A. Berrington, Bruce Wood, Patrick J. McNally, Monica Lussnig, Crosby, Heafey, Roach & May, Raoul D. Kennedy, Ezra Hendon, Chernow & Lieb, Diane Heidenreich, Victor Rabinowitz, McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, James H. Wilkins, Wendy S. Lloyd, Buchalter, Nemer, Fields & Younger, Roxani M. Gillespie, Richard de Saint Phalle, Marie G. Quashnock, Charles W. Savage, Barbara Gallios-Lee, William P. Molmen, Lewis, D'Amato, Brisbois & Bisgaard, Duane C. Musfelt, Horvitz & Levy, Ellis J. Horvitz, Daniel J. Gonzalez, Julie L.Woods, Hancock, Rothert & Bunshoft, Ray L. Wong, Paul J. Killion and Monica M. Slakey as Amici Curiae on behalf of Defendant and Respondent.
This case presents a convergence of two distinct but related areas of law: insurance and workers' compensation. In particular, we determine whether a workers' compensation insurer has a duty to defend a former employee's civil suit alleging wrongful termination in violation of public policy. We conclude that no reasonable construction of the workers' compensation insurance contract provides coverage for such a suit, and hence there is no duty to defend. We therefore reverse the Court of Appeal. [9 Cal.4th 32]
On April 24, 1986, Adnan Saleh filed a complaint against the Sea Lodge, the F. W. Kellogg Trust and Estate (Trust), the then owner of the lodge, and Robert Kellogg, manager of the lodge. Saleh alleged that he had been employed at the Sea Lodge as the restaurant manager for approximately six years until his termination on April 1, 1986. According to the complaint Saleh "was terminated in whole or in part because he was not 'white'. Prior to plaintiff's termination, he was told not to hire any more of 'his own kind', i.e. Palestinian or Arabic ancestried [sic] persons, and not to hire any 'foreigners.' " Saleh further alleged that Robert Kellogg told various employees of the Sea Lodge that "they were not to hire any foreigners except for some Mexicans, who should be kept in back."
Saleh alleged this conduct gave rise to claims for breach of an employment agreement, breach of the implied covenant of good faith and fair dealing, wrongful termination, intentional infliction of emotional distress, and violation of the Fair Employment and Housing Act. On May 9, 1986, the Trust tendered defense of the Saleh complaint to its workers' compensation carrier, defendant Industrial Indemnity Company (Industrial) fn. 1
The Trust also tendered defense to its comprehensive general and excess liability carrier, American National Fire Insurance Company (American). [9 Cal.4th 33] Industrial refused to provide the Trust with a defense. American initially accepted the tender under a reservation of rights but later withdrew its defense.
In responding to Saleh's complaint, the Trust raised as an affirmative defense the exclusive jurisdiction of the Workers' Compensation Appeals Board. It also took the position that Saleh had not been terminated but had voluntarily resigned. The Trust denied it had engaged in any discriminatory conduct. The parties eventually settled. Saleh was paid $16,500.
On or about August 29, 1990, plaintiff La Jolla Beach and Tennis Club, Inc., the Trust's successor in interest, and Kellogg (La Jolla) brought this action against Industrial and American. fn. 2 La Jolla sought declaratory relief regarding Industrial's obligation to defend and indemnify it in the Saleh action. La Jolla further alleged that Industrial's failure to provide it with a defense or indemnity in that action gave rise to claims for breach of contract and tortious breach of the implied covenant of good faith and fair dealing.
Industrial moved for summary judgment asserting it had no duty to defend or indemnify La Jolla under either part 1 or part 2 of the policy. (See ante, fn. 1.) The trial court granted Industrial's motion, and judgment was entered. La Jolla appealed solely on the ground that Industrial had a duty to defend under part 1 of the policy, or the workers' compensation coverage.
The Court of Appeal reversed. Relying on a recent Court of Appeal opinion, Wong v. State Compensation Ins. Fund (1993) 12 Cal.App.4th 686 [16 Cal.Rptr.2d 1], the court concluded that Saleh's complaint set forth facts that would support a potential claim covered by part 1. The court noted that Industrial "defines its workers' compensation coverage in terms of amounts payable under the workers' compensation law. Thus, when our Supreme Court defined the scope of the workers' compensation remedy, of necessity the court also defined the scope of Industrial's workers' compensation coverage."
The Court of Appeal further noted that this court has held, "that, in general, workers' compensation is the exclusive remedy for emotional distress caused by a termination of employment." Accordingly, the court [9 Cal.4th 34] reasoned, "where an employee claims he suffered emotional distress as a result of his termination, he has made a claim which comes within the workers' compensation provisions of policies like Industrial's."
The Court of Appeal rejected Industrial's argument that Saleh's choice of a civil forum precluded coverage or defense under the workers' compensation policy. It stated that the policy language did not expressly exclude defense of civil actions. "Moreover, it is well established that while the superior court does not have jurisdiction to grant relief for injuries suffered within the course and scope of employment, it does have, concurrently with the Workers' Compensation Appeals Board (WCAB), the jurisdiction to determine jurisdiction. [Citation.] 'Thus, if there is a final determination as to the matter of coverage (i.e., of jurisdiction) in either the [WCAB] or the superior court proceedings, such determination will be res judicata in subsequent proceedings before the other tribunal between the same parties or those privy to them.' [Citation.] [¶] In our view the undisputed jurisdiction of the civil courts to determine the existence of WCAB jurisdiction lends considerable support to the conclusion ... that insured employers 'could reasonably expect an appropriate defense to any claim based on injuries potentially covered by the policy ... regardless of whether the plaintiff's choice of forum was appropriate.' "
Applying these principles, the Court of Appeal concluded that "Insofar as Saleh alleged he suffered emotional distress upon his termination, his claim" was potentially "within the scope of the workers' compensation act.... Thus it had the potential for coming within the coverage provisions of part 1 of the Industrial policy," and this potential gave "rise to a duty to defend."
The court noted, however, that Saleh alleged "discriminatory termination" had caused his emotional distress. "Because liability on discrimination claims falls outside the scope of our workers' compensation law, it also falls outside the scope of a workers' compensation insurance policy." Nonetheless, the court concluded Saleh's claims might still fall within part 1 of the policy. It reasoned, "If La Jolla was able to establish it had not terminated Saleh because of his Palestinian ancestry and that his termination did not otherwise violate public policy, Saleh would still have a remedy under the workers' compensation law for the emotional distress he suffered upon his termination." "Given this potential, La Jolla was entitled to a defense under part 1 of the policy." Industrial's petition for rehearing was denied. [9 Cal.4th 35]
We granted Industrial's petition for review. fn. 3
The question before us is whether part 1 of Industrial's workers' compensation policy potentially provided coverage for the claims asserted in Saleh's complaint, and thus gave rise to a duty to defend those claims. To answer this question, we first review the applicable principles of workers' compensation and insurance law.
[1] Pursuant to constitutional mandate, the Legislature has vested the Workers' Compensation Appeals Board (WCAB) with exclusive jurisdiction over claims for workers' compensation benefits. (Cal. Const., art. XIV, § 4, Lab. Code, § 5300.) Accordingly, the superior court and the WCAB in this case "do not have concurrent jurisdiction over the whole of the controversy, and one of them will be without jurisdiction to grant any relief whatsoever, depending upon whether or not the injuries were suffered within the course and scope of an employment relationship and so covered by the workmen's compensation laws." (Scott v. Industrial Acc. Com. (1956) 46 Cal.2d 76, 82-83 [293 P.2d 18], italics in original.) "It is elementary that the type and extent of relief which can be granted and the factors by which such relief is determined differ materially between the two tribunals; the superior court cannot award workmen's compensation benefits, and the commission cannot award damages for injuries." (Id. at p. 83.) The only point of concurrent jurisdiction of the two tribunals is jurisdiction to determine jurisdiction; jurisdiction once determined is exclusive, not concurrent. (Ibid.)
[2] "[T]he legal theory supporting such exclusive remedy provisions is a presumed 'compensation bargain,' pursuant to which the employer assumes liability for industrial personal injury or death without regard to fault in exchange for limitations on the amount of that liability. The employee is [9 Cal.4th 36] afforded relatively swift and certain payment of benefits to cure or relieve the effects of industrial injury without having to prove fault but, in exchange, gives up the wider range of damages potentially available in tort.... The function of the exclusive remedy provisions is to give efficacy to the theoretical 'compensation bargain.' " (Shoemaker v. Myers (1990) 52 Cal.3d 1, 16 [276 Cal.Rptr. 303, 801 P.2d 1054].)
In California, every employer except the state is required to "secure the payment of compensation." (Lab. Code, § 3700.) This mandate is satisfied by either purchasing workers' compensation insurance, or self-insuring. (Ibid.) [3] "The terms of workers' compensation policies issued in California are strictly governed by statute, and each policy is conclusively presumed to contain all the provisions required by law." (1 Cal. Liability Insurance Practice: Claims and Litigation (Cont.Ed.Bar 1994) § 1.28, pp. 1-21 to 1-22; Ins. Code, § 11650.)
The statutes carefully distinguish between "compensation" and "damages." " 'Compensation' means compensation under Division 4 [the Workers' Compensation and Insurance section of the Labor Code] and includes every benefit or payment conferred by Division 4 upon an injured employee, including vocational rehabilitation, or in the event of his death, upon his dependents, without regard to negligence." (Lab. Code, § 3207; Ins. Code, § 11630 ["As used in this chapter [Chapter 2-Workers' Compensation Policies], the term 'compensation' means the benefits insured by workers' compensation insurance."].) " 'Damages' means the recovery allowed in an action at law as contrasted with compensation." (Lab. Code, § 3209.)
[4] Workers' compensation policies generally contain two types of coverage: The first is workers' compensation insurance (part 1 in the policy at issue in this case), "under which the insurer agrees to pay all workers' compensation and other benefits that the employer must legally provide to covered employees who are occupationally injured or disabled." (1 Cal. Liability Insurance Practice: Claims and Litigation, supra, § 1.28, p. 1-22.) The second, which is optional, is employers' liability insurance (part 2 in the policy at issue in this case). (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 914 [226 Cal.Rptr. 558, 718 P.2d 920].) This insurance "protects employers against lawsuits by employees who are injured in the course of employment, but whose injuries are not compensable under the workers' compensation laws." (1 Cal. Liability Insurance Practice, supra, § 1.28, p. 1-22.) This coverage "also indemnifies employers against civil suits brought by employees." (Ibid.)
"[E]mployers' liability insurance is traditionally written in conjunction with workers' compensation policies, and is intended to serve as a 'gap-filler,' providing protection to the employer in those situations where the [9 Cal.4th 37] employee has a right to bring a tort action despite the provisions of the workers' compensation statute or the employee is not subject to the workers' compensation law.... Gener