Pacific International Vegetable Marketing v. Nationwide Agribusiness Insurance…

Background

Pacific International Vegetable Marketing, Inc. and Dynapac Harvesting, Inc. sued their former general liability insurer, Nationwide Agribusiness Insurance Company. They alleged that Nationwide breached the insurance contract and the implied duty of good faith and fair dealing by refusing to defend them in an underlying lawsuit brought by the California Department of Fair Employment and Housing on behalf of Jane Doe.

The underlying lawsuit alleged that a foreman sexually assaulted and harassed Jane Doe, threatened her, and that the plaintiffs failed to respond appropriately. The agency asserted claims under California’s Fair Employment and Housing Act, including sex discrimination, sexual harassment, retaliation, failure to prevent discrimination and harassment, and aiding and abetting a violation. The underlying case settled in December 2020, with Dynapac paying Jane Doe $500,000 in exchange for a release of potential claims.

The insurance policy covered certain bodily-injury and property-damage liability and certain personal and advertising injuries, including false imprisonment and slander. It also contained an Employment-Related Practices Exclusion excluding liability based on employment-related practices, including harassment, discrimination, defamation, and other listed conduct. The exclusion applied whether the insured was liable as an employer or in another capacity.

Court’s Analysis

The court applied California law. It explained that an insurer generally must defend when the underlying complaint or known facts show a potential for liability covered by the policy. But no duty to defend exists when the underlying lawsuit cannot, under any reasonable theory, involve a covered claim.

The court granted Nationwide’s motion for judgment on the pleadings based on the Employment-Related Practices Exclusion and did not reach Nationwide’s other arguments. It found that all of the claims in the underlying lawsuit arose from alleged unlawful employment practices and therefore fell within the exclusion.

The plaintiffs argued that testimony and allegations about conduct outside work, including possible bodily injury, slander, or false imprisonment, created a potential for covered claims unrelated to employment. The court did not decide whether the described conduct could potentially support such claims. Instead, it held that those claims could not reasonably have been raised in the particular underlying lawsuit because Jane Doe was not a plaintiff. The Department of Fair Employment and Housing was an independent party and was authorized to bring claims based on unlawful employment practices. Jane Doe’s possible future participation in that lawsuit, or a possible separate lawsuit by her, was too speculative to create a duty to defend.

The court also held that the settlement’s release of unpleaded claims did not create a duty to defend. Because the underlying lawsuit involved only claims that the agency could bring and those claims concerned employment practices, there was no reasonable potential for unrelated covered claims.

As to Pacific International, the plaintiffs argued that the exclusion did not apply because Pacific International was not Jane Doe’s employer and was instead Dynapac’s parent company. The court did not decide whether Pacific International was Jane Doe’s employer. It held that the exclusion focused on the nature of the potential claims, not the insured’s role, and applied whether the insured was liable as an employer or in another capacity. The court concluded that Pacific International’s only possible liability in the underlying lawsuit was tied to employment practices.

Disposition

The court concluded that Nationwide did not owe either plaintiff a duty to defend in the underlying lawsuit. Judge Edward J. Davila granted Nationwide’s motion for judgment on the pleadings. The court accordingly dismissed this case with prejudice.