California Capital Insurance Company v. Republic Underwriters Insurance Company

Background

California Capital Insurance Company sued Republic Underwriters Insurance Company. California Capital acted on its own behalf and as assignee of The Golf Club at Boulder Ridge, LLC. Republic had insured the golf club under a workers’ compensation and employers’ liability policy, while California Capital had provided commercial general liability coverage.

On July 2, 2014, Alessandro J. Schrick, an employee of the golf club, was injured when George Talaat struck him in the head with a golf club. Schrick was not working at the time. The golf club allowed employees to golf as an employment benefit, and Schrick had reserved a tee time to play with his father.

Republic’s workers’ compensation administrator denied Schrick’s workers’ compensation claim, finding that his injury did not result from his employment. Schrick later sued the golf club and Talaat for negligence. California Capital allegedly defended the golf club under a reservation of rights and funded a $500,000 settlement. The golf club assigned California Capital its claims against Republic based on Republic’s alleged failure to defend or indemnify the golf club.

California Capital asserted claims for reimbursement, breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief.

Republic’s Policy

The workers’ compensation portion of Republic’s policy covered benefits required by workers’ compensation law and gave Republic a duty to defend claims or proceedings before the California Workers’ Compensation Appeals Board for benefits payable under that coverage. It stated that Republic had no duty to defend a claim that was not covered.

The employers’ liability portion covered bodily injury by accident or disease when the injury arose out of and in the course of the employee’s employment. It required Republic to pay sums the insured legally owed as damages for covered bodily injury to employees and required Republic to defend suits for damages payable under that coverage. It excluded obligations imposed by workers’ compensation and similar laws.

Parties’ Positions

Republic moved for summary judgment, arguing that it had no duty to defend or indemnify the golf club in the Schrick lawsuit under either part of the policy. California Capital did not argue that the workers’ compensation portion covered the civil lawsuit. Instead, it argued that the injury’s connection to Schrick’s employment created at least a potential for coverage under the employers’ liability portion, triggering a duty to defend.

Under California law, an insurer must defend when an underlying lawsuit potentially seeks damages covered by the policy. The insurer may avoid that duty only by showing that the underlying allegations and known facts cannot bring the claim within coverage.

Court’s Analysis

The court concluded that the cases California Capital cited about recreational activities and workers’ compensation did not establish potential coverage under Republic’s employers’ liability policy. Those cases addressed whether workers’ compensation benefits were properly denied, while this case concerned potential coverage for damages in a civil lawsuit.

The court relied on the distinction between workers’ compensation and employers’ liability insurance. Workers’ compensation coverage generally applies to benefit obligations, while employers’ liability coverage acts as a gap-filler for situations in which an employee may bring a civil action against the employer despite the workers’ compensation system or is not subject to that system.

The court also relied on a California appellate decision explaining that the workers’ compensation exclusivity rules apply whether or not an employee actually seeks or receives workers’ compensation. Therefore, the fact that Schrick did not receive workers’ compensation did not itself create a duty to defend the civil lawsuit.

The court found that the undisputed facts created no potential for coverage under either policy part. If Schrick’s injury arose out of and occurred in the course of his employment, the court reasoned, it would not thereby become covered under the employers’ liability portion when the workers’ compensation portion did not cover the civil lawsuit. The court rejected California Capital’s argument that denial of a workers’ compensation claim created potential employers’ liability coverage.

Disposition

The court held that Republic owed no duty to defend or indemnify the golf club in the Schrick lawsuit. Because all four of California Capital’s claims depended on Republic owing that duty, the court found no genuine dispute of material fact and ruled that Republic was entitled to judgment as a matter of law.

The court granted Republic’s motion for summary judgment. It did not reach Republic’s alternative argument that the breach-of-contract and implied-covenant claims failed because of a lack of damages.