Guillon v. AMCO Insurance Company

Background

Crush Steakhouse-Ukiah, Inc. contracted with AMCO Insurance Company for liability insurance. In 2018, three former Crush employees sued Crush, several Crush employees, and Crush’s Chief Executive Officer and Director, Douglas Joseph Guillon. The former employees alleged sexual harassment, retaliation, wrongful termination, other employment-law violations, and battery. Guillon requested coverage under Crush’s AMCO Premier Businessowners Liability Policy. On August 29, 2019, AMCO told Guillon that it had no obligation to defend or indemnify him or Crush.

Guillon sued AMCO for breach of contract, breach of the covenant of fair dealing, and elder abuse. AMCO removed the case to federal court and moved to dismiss for failure to state a claim.

Relevant Policy Provisions

Coverage A required AMCO to pay damages for bodily injury or property damage caused by an “occurrence,” which the policy defined as an accident. Coverage A also included a duty to defend suits seeking covered damages. Coverage B covered damages arising from specified “personal and advertising injuries,” including false arrest, detention, or imprisonment and certain publications violating privacy rights.

Both coverages were subject to an Employment Related Practice Exclusion. The exclusion removed coverage for injuries arising from employment-related practices, including coercion, demotion, discipline, harassment, humiliation, discrimination, and malicious prosecution.

Court’s Analysis

The court applied California law. It explained that an insurer must defend when the underlying lawsuit potentially seeks damages covered by the policy, but there is no duty to defend when no possibility of coverage exists.

The court first held that the Employment Related Practice Exclusion applied. The allegations in the underlying lawsuit involved employment practices such as harassment, discrimination, retaliation, coercion, and discipline. The court rejected Guillon’s argument that the exclusion did not apply to conduct occurring outside the workplace. Applying the relationship-based analysis described in the opinion, the court concluded that the outside-workplace conduct stemmed from the employment relationship. The court therefore held that all alleged conduct in the underlying lawsuit fell within the exclusion, leaving no potential coverage and defeating Guillon’s breach-of-contract claim.

The court alternatively held that Coverage A did not apply. The underlying allegations described intentional and malicious conduct, not an accident. The court rejected Guillon’s argument that the battery claim could create coverage because he might be held vicariously liable. It concluded that the former employees alleged that Guillon himself committed an intentional tort and, in any event, that vicarious liability would not transform the alleged battery into an accidental “occurrence.” The court also distinguished a prior California decision involving possible coverage for negligent hiring, retention, or supervision because the underlying employees had not asserted comparable claims against Guillon.

The court further held that Coverage B did not apply. Guillon’s complaint did not explain specifically how the alleged injuries qualified as personal or advertising injuries, and his opposition did not explain why that coverage provision applied. The court found that he had forfeited the argument that Coverage B provided coverage.

Disposition

The court held that Guillon had failed to show any potential for coverage under the policy. Because his additional claims were inextricably tied to the breach-of-contract claim, those claims also failed. The court concluded that amendment would be futile, declined to allow Guillon to amend, and granted AMCO’s motion to dismiss with prejudice.