PRODUCERS DAIRY DELIVERY CO INC v. SENTRY INSURANCE COMPANY

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Court of Appeal, Fifth District, California.

PRODUCERS DAIRY DELIVERY CO., INC., et al., Plaintiffs and Appellants, v. SENTRY INSURANCE COMPANY, Defendant and Respondent.

Civ. 7355[F0578].

Decided: September 19, 1984

McCormick, Barstow, Sheppard, Wayte & Carruth and James P. Wagoner, Fresno, for plaintiffs and appellants. Chinello, Chinello, Shelton & Auchard, John D. Chinello, Jr., and Andrew B. Jones, Fresno, for defendant and respondent.

OPINION

STATEMENT OF THE CASE

Producers Dairy Delivery Co., Inc. (Producers) and Federal Insurance Company (Federal), plaintiffs, appeal from a summary judgment in favor of Sentry Insurance Company (Sentry or defendant) in a declaratory relief action involving the question of coverage afforded Producers, a named insured, under a “Standard Workmen's Compensation and Employer's Liability Policy” issued by Sentry.   L.A.S. Corporation (L.A.S.), a separate corporate entity closely associated with Producers with an interlocking management, is also a named insured under the Sentry policy.

This litigation followed the trial, appeal and settlement of a third party lawsuit for personal injuries and loss of consortium brought by Henry and Rose Noyes against Producers.   Henry Noyes was injured while unloading a Producers delivery truck and a major issue in the lengthy jury trial was whether Noyes, who was hired by L.A.S., was a special employee of Producers so as to limit his right of recovery against Producers to benefits under the Worker's Compensation Law.   Federal, Producers' general public liability insurer, conducted the defense of the personal injury action, and during trial, made demand upon Sentry for defense of the public liability issue.1

The jury in the personal injury action returned a special verdict finding Producers was not the special employer of Noyes at the time of the accident.   This court affirmed the judgment against Producers in the amounts of $400,000 for Henry Noyes and $22,000 for Rose Noyes.  (5 Civ. 3506.)   Prior to expiration of the time for petitioning the Supreme Court for hearing, Producers settled with Mr. and Mrs. Noyes for $548,000, an amount less than the judgment plus costs and accrued interest.

Producers and Federal filed suit against Sentry, seeking a declaration “that the policy of insurance issued by [Sentry] be held to cover [Producers] for the accident occurring to Henry Noyes and for all damages recovered by Henry Noyes and Rose Noyes from [Producers] as a result of said accident.”   The amended complaint further sought punitive damages for Sentry's alleged bad faith in refusing to participate in the defense and settlement of the Noyes action.

Sentry answered, generally denying plaintiffs' allegations and asserting as affirmative defenses that plaintiff had not stated a claim for punitive damages, and

“if it is determined this defendant issued a policy of insurance which provided for workers' compensation coverage alone, then the plaintiffs' action would be barred by principles of res judicata and/or collateral estoppel, by reason of the ․ finding in ‘Henry Noyes, et al. v. Producers Dairy Delivery Co., Inc., et al.’  (Civil Number 167031) that Henry Noyes was not a special employee of Producers ․”

Sentry moved for summary judgment on grounds that (1) its policy issued to Producers afforded only worker's compensation coverage in this situation;  (2) the finding that Producers was not a special employer in the prior action barred, under collateral estoppel principles, relitigation of whether Noyes was an employee of Producers;  and (3) no basis for the claim of punitive damages existed where Sentry acted reasonably, Producers was not injured by Sentry's failure to undertake the defense, and, under the policy provisions, the notice to defend was not timely.

Plaintiffs opposed the motion for summary judgment, arguing that (1) the employer's liability portion of the policy provided coverage for damages for bodily injury to any employee of any insured, i.e., L.A.S. or Producers, by the language of the policy and by virtue of the insured's reasonable expectation of coverage;  (2) the doctrine of collateral estoppel was inapplicable to the question of whether Noyes was an employee within the language of the policy;  (3) “under the doctrine of equitable subrogation no tender of defense was required”;  (4) the moving papers failed to establish breach of the notice provisions of the policy;  (5) the policy did not preclude recovery under both worker's compensation and employer's liability coverages;  and (6) Sentry failed to establish lack of liability for punitive damages for bad faith.

The trial judge heard the motion, took the matter under submission and recalled the parties for an oral ruling granting Sentry's motion for summary judgment.   The judge ruled that whether Noyes was or was not an employee of Producers, no employer's liability coverage was provided and Sentry had no duty to defend.

Judgment was entered in favor of Sentry and plaintiffs filed this appeal.

STATEMENT OF FACTS

The trial court granted the parties' request that the court take judicial notice of the entire file and proceedings in the Noyes case.   We grant plaintiffs' request to take judicial notice of the file and transcripts in the prior litigation.  (Evid.Code, §§ 452, subd. (d), 453.)

The Noyes unpublished opinion indicates the evidence concerning whether Noyes was a special employee of Producers at the time of the accident was highly conflicting and presented a close factual question.   Larry Shehadey was president of Producers, a closely-held family corporation;  his son Richard Shehadey was vice president, and Richard Olson, corporate attorney, was secretary.   All three were directors of the corporation.   The corporation was formed primarily “to buy, sell and otherwise deal in wholesale and retail dairy products.”

L.A.S. was a separate corporation, although it was not considered “that way” by the Shehadeys.   The corporation was owned solely by Larry and Elaine Shehadey, who, with Richard Olson, were also the officers and directors of the corporation.   According to Larry “there really wasn't any difference” in the two companies, as “they intermingled their operations.”   Both Producers and L.A.S. operated out of the same location at 144 East Belmont Avenue in Fresno.   The initials “L.A.S.” stood for “Larry A. Shehadey.”   L.A.S. Corporation was formed to operate a milk distributing business consisting of the hauling of milk from dairy farms by means of tank tractors.

L.A.S. did not have management or supervisory personnel;  management employees of Producers supervised L.A.S. transport employees.   All salaried employees of L.A.S. were truck drivers with the exception of Elaine Shehadey, who received a salary for doing landscape work, and Larry Shehadey, who received a salary of $100 per month for a time.   Mr. Shehadey received a salary from Producers.   Producers' employees who had the power to hire and fire L.A.S. employees were Larry Shehadey, Producers' operations manager, Richard Shehadey, and Producers' plant supervisor, Carl Kehret.   There were no clerical personnel employed by L.A.S., and Producers' employees performed all L.A.S. clerical services.   However, separate accounts were kept for the respective payrolls of Producers and L.A.S.

L.A.S. had a common carrier's permit from the Public Utilities Commission which Producers did not have.   Such permit allowed L.A.S. to haul another company's merchandise for a fee.   Producers paid a transportation fee to L.A.S.;   however, this fee was paid only on certain paper products and yogurt transported by L.A.S. from the Los Angeles area.   L.A.S. did not charge Producers for hauling other milk products.   Producers was L.A.S.'s primary customer, although L.A.S. hauled products for other companies.

Producers supplied L.A.S. transport drivers with uniforms which bore a Producers logo.   Producers also supplied some of the trucks and related equipment used by L.A.S. for deliveries.   Producers' employees handled mechanical problems with the equipment.   Although Larry Shehadey testified the Teamster's Union represented employees of both Producers and L.A.S., the union contract named only Producers as employer.

In addition to evidence from the Noyes action, the parties also offered deposition testimony of Richard Shehadey on the question of the insured's expectation of coverage.   Shehadey stated he handled the transaction concerning insurance for both companies.   In 1972 and 1973 he obtained a Sentry worker's compensation insurance policy from agent Larry Rocker, with whom he discussed the coverage.   At the same time, he obtained a policy of liability insurance from Federal through Chubb Pacific.   Shehadey said he understood “the workmen's compensation employee liability policy covers a relationship between the employee and the company.   The liability policy covered the vehicles and liability on the outside․  Third party.”   Shehadey thought since both Producers and L.A.S. were covered under the Sentry policy, “any employees working for either would be covered.”   He explained that he understood it made no difference which corporation was the employer;  “That was the reason we put the two onto one policy so there would be no question.”

Shehadey considered third parties other than employees of either corporation were covered by the public liability policy issued by Federal.   He did not expect the coverage of the Federal and Sentry policies to overlap.

Sentry did not present any affidavits or deposition testimony of its personnel concerning the determination of noncoverage or the decision not to participate in the defense of the Noyes suit.

The Sentry policy, which is entitled, “Standard Workmen's Compensation and Employers' Liability Policy,” expressly lists both Producers and L.A.S. as insureds and provides two types of coverage, identified as “Coverage A” and “Coverage B.”   Coverage A provides worker's compensation insurance according to the Worker's Compensation Law of California.   The provisions of the policy in issue are coverage B and the defense and exclusion clauses.

“Coverage B—Employers' Liability

“To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom,

“(a) sustained in the United States of America, ․ by any employee of the insured arising out of and in the course of his employment by the insured either in operations in a state designated in Item 3 of the declarations [California] or in operations necessary or incidental thereto, ․

“․

“II Defense, Settlement, Supplementary Payments

“As respects the insurance afforded by the other terms of this policy the company shall:

“(a) defend any proceeding against the insured seeking such benefits and any suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent;  but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient; ․”

“EXCLUSIONS

“This policy does not apply:

“(a) under coverages A and B to operations conducted at or from any workplace not described in Item 1 or 4 of the Declarations if the insured has, under the workmen's compensation law, other insurance for such operations or is a qualified self-insurer therefor;

“․

“(f) under coverage B, to any obligation for which the insured or any carrier as his insurer may be held liable under the workmen's compensation or occupational disease law of a state designated in Item 3 of the Declarations, any other workmen's compensation or occupational disease law, any unemployment compensation or disability benefits law, or under any similar law.”

The court made the following ruling determining that the Sentry policy did not afford coverage for losses arising out of the accident sustained by Henry Noyes, and that Sentry was not obligated to defend Producers in the personal injury lawsuit:

“The policy issued by Sentry, ․, was a standard workmen's compensation and employer's liability policy.   Under the specific terms of said policy, workmen's compensation benefits would have been payable to Henry Noyes on behalf of Producers had Noyes been an employee of Producers at the time of his injury.   And, of course, no coverage would have been provided under the employer's liability provisions of Sentry's policy because of the specific conclusion [sic —exclusion].

“If Noyes was not an employee of Producers at the time of his injury, no coverage would have been provided under the employer's liability provision of said policy, Coverage B, again by the specific terms thereof.

“It, therefore, appears that whether or not Henry Noyes was an employee, no coverage would have been provided under the employer's liability provisions of said policy.   The ․ basic question ․ is whether or not, despite the fact that no coverage could have been provided for the damages suffered by Mr. Noyes, ․ there was a duty to defend.   The law is quite clear at this time, ․, that the duty to defend arises whenever an insurer ascertains facts which give rise to the ․, potential liability for damages covered by the policy.

“There is no question in this case that Sentry had knowledge of the facts because not only were they the workmen's compensation insurer for Producers, but under the same policy for LAS. Corporation.  As a matter of fact, paid workmen's compensation benefits to Henry Noyes on behalf of LAS. Corporation.

“In the standard workmen's compensation and employer's liability policy issued by Sentry to Producers, and under Coverage B, the policy provides—and I quote—‘As respects the insurance afforded by the other terms of this policy, the company shall defend any suit against the insured alleging such injuries and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent.’

“The words ‘such injury’ as contained in the clause just quoted necessarily mean an injury for which coverage is or could potentially be provided under the policy.   As indicated previously, no actual or potential coverage for the damages sustained by Mr. Noyes were provided under the employer's liability provisions of Sentry's policy.   That is Coverage B thereof.

“That being the case, ․ Sentry had no duty to defend Producers against the claim presented by Mr. Noyes.   That leaves, I'm sure, in counsel's mind what coverage is provided by the ․ employer's liability provisions of the policy.”

The court interpreted the purpose of the employer's liability coverage provisions under coverage B to provide for insurance in instances where an employee of the insured was injured in a jurisdiction where worker's compensation laws were not in effect;  or where an employee has a common law right of relief against the employer in addition to the worker's compensation remedy (e.g., dual capacity).   The court found no facts or allegations in the underlying action which fit these two situations.   The court concluded:

“The Court is well aware that the allegations in the complaint do not limit the duty of an insurer to defend.   But here, all of the facts, as indicated by the moving papers and the opposing papers, show that there was no common law liability which could possibly exist.   Therefore, since no coverage would apply under coverage B if Mr. Noyes was an employee of Producers, and since no coverage could possibly exist under coverage B if Mr. Noyes was not an employee, there was no duty on the part of Sentry to defend.”

DISCUSSION

 The question for the trial court in granting a motion for summary judgment is whether the party opposing the motion has presented any facts which raise a triable issue, and whether “the declarations filed in support of [the motion], strictly construed, contain facts sufficient to entitle the [defendant] to judgment.”  (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785.)   Doubts as to the propriety of granting the motion are resolved in favor of its denial.  “Such summary procedure is drastic and should be used with caution so that it does not become a substitute for the open trial method of determining facts.”   (Ibid.;  see also Wiler v. Firestone Tire & Rubber Co. (1979) 95 Cal.App.3d 621, 625–627, 157 Cal.Rptr. 248.)

Plaintiffs contend the trial court erroneously construed the provisions of the Sentry policy and overlooked triable questions of fact.   We agree and reverse the judgment.

I A Triable Issue Exists Whether Noyes Was an Employee of Producers.

Coverage B provides that Sentry will pay on behalf of “the insured” sums which the latter is legally obligated to pay for bodily injury “sustained ․ by any employee of the insured․”  Plaintiffs first argue it was error to grant the summary judgment because the evidence presented a triable issue whether Noyes was an employee of Producers so as to bring his claim within coverage B.  (See Code Civ.Proc., § 437c, subd. (c).)

 Defendant Sentry asserted below that the question of Noyes' status as an employee was determined adversely to plaintiffs in the personal injury action and plaintiffs were collaterally estopped from relitigating this question.   Although the trial court did not base its ruling upon this ground, plaintiffs address the application of collateral estoppel in the appeal, contending the doctrine is inapplicable because the issue here is not identical, and there was no final judgment on the merits.   Plaintiffs do not dispute that the third requirement for application of collateral estoppel is satisfied, i.e., the party against whom the plea is asserted was a party or in privity with the party in the prior adjudication.  (Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd. (1962) 58 Cal.2d 601, 604, 25 Cal.Rptr. 559, 375 P.2d 439.)

Plaintiffs' argument that relitigation of the issue is not precluded because Producers settled with Noyes prior to finality of the decision in the appeal is without merit.   In Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936–940, 190 Cal.Rptr. 29, the plaintiff asserted the defendant manufacturer of a machine was collaterally estopped by a determination in a prior action that the machine was designed defectively.   In spite of a settlement during the pendency of appeal, this court found the prior adjudication sufficiently final to support application of the doctrine of collateral estoppel, stating:

“[I]f a judgment for the plaintiff is settled on appeal favorably to the plaintiff, the decision may be final for issue preclusion purposes provided the other factors of certainty and firmness are satisfied.”  (Id., at p. 936, 190 Cal.Rptr. 29;  see Rest.2d Judgments, § 13 and coms.)

Here, the settlement occurred after the affirmance on appeal, and thus the adjudication is even more “final” than in Sandoval.

However, we conclude that the issue decided in the prior adjudication is not identical with the one presented in this action as is required for the application of the collateral estoppel doctrine.  (Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd., supra, 58 Cal.2d at p. 604, 25 Cal.Rptr. 559, 375 P.2d 439.)   The question of special employment for purposes of determination of the availability of third party tort liability is different from the question of whether an individual is an employee within the scope of employer's liability coverage.   As plaintiffs contend, the matters pertinent to the former determination, such as the extent of Producers' supervision over the details of Noyes' duties, are not determinative of the reasonable expectation of the insured regarding coverage.

The rules governing interpretation of insurance policies require the provisions be strictly construed against the insurer and in favor of the insured.   In an underlying tort action in Exchange Cas. & Surety Co. v. Scott (1961) 56 Cal.2d 613, 619–620, 15 Cal.Rptr. 897, 364 P.2d 833, the jury found the operator of an automobile was not a “permissive user” of the owner, and therefore the owner was not liable based on imputed statutory liability under then Vehicle Code section 402.   In a subsequent insurance action, the injured party contended the issue of whether the operator of the vehicle was a “permissive user” for purposes of the insurance policy was different from the issue of “permissive use” under tort law, and the driver of the vehicle was an additional insured within the terms of the insurance contract.   The Supreme Court reasoned that the Vehicle Code section must be construed in a manner not favoring a position of liability on the otherwise nonnegligent owner while it is well established that uncertainties in insurance contracts must be construed in favor of imposing liability on the insurer:

“Specifically, uncertainties created by the language of the contract as to the persons protected are to be construed in favor of imposing liability on the insurer ․ even though the evidence as to [the driver's] permitted operation of the ․ automobile may have been similar in the prior and in the instant action, the issue of permission to be decided in each proceeding was different because of the operation of the opposing modes of construction applicable to the imputed liability statute in the first action, and the insurance contract in the present action.”  (Id., at pp. 619–620, 15 Cal.Rptr. 897, 364 P.2d 833.)

The Supreme Court concluded that the question of the driver's permission within the terms of the insurance policy was not litigated in the prior action and collateral estoppel did not apply.

Also, in Jurd v. Pacific Indemnity Co. (1962) 57 Cal.2d 699, 702–703, 21 Cal.Rptr. 793, 371 P.2d 569, the Supreme Court held the adjudication favorable to an automobile owner in an action under the imputed liability statute did not invoke collateral estoppel principles in a subsequent suit against the owner's insurer on the question of the driver's permission within the language of the automobile owner's liability policy.

 Producers is entitled to benefit from the rules of strict construction to be applied against the insurer so that even though the evidence may be much the same, the issues in the two actions are dissimilar, one pursuant to workers' compensation law and the second to the liability of the insurer under the insurance policy;  collateral estoppel does not apply.  (See also Jordan v. Consolidated Mut. Ins. Co. (1976) 59 Cal.App.3d 26, 39–40, 130 Cal.Rptr. 446;  Ball v. Citizens Casualty Co. (1959) 170 Cal.App.2d 590, 592–593, 339 P.2d 241.)

II If Noyes was an Employee of L.A.S. Only, the Phrase “The Insured” in the Coverage Clause of Coverage B, Construed Broadly, Refers to Any Employee of Either Named Insured.

 Additionally, as plaintiffs contend in the alternative, even if as a matter of law Noyes was an employee of L.A.S. only, coverage B nevertheless provides coverage to Producers because both entities are named insureds.   Because there are two named insureds, the term “the insured” found in subparagraph (a) of coverage B is ambiguous.

In State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 202–203, 110 Cal.Rptr. 1, 514 P.2d 953, the Supreme Court found the words “the insured” to be ambiguous and held the phrase could be interpreted to mean (1) all persons coming within the definition of insured;  (2) only those persons defined as named insureds;  and (3) only that person against whom claim was made and who sought the protection of the policy.  (Compare Pleasant Valley Assn. v. Cal-Farm Ins. Co. (1956) 142 Cal.App.2d 126, 298 P.2d 109, interpreting the phrase “the insured” in an employee exclusion clause.)

Because of the ambiguity of the phrase “the insured” “[a]ny ․ uncertainty in [the] insurance policy is to be resolved against the insurer” (Crane v. State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115–116, 95 Cal.Rptr. 513, 485 P.2d 1129), and the phrase must be interpreted as broadly as possible.   “[C]overage clauses are interpreted broadly so as to afford the greatest possible protection to the insured.”  (State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, 101–102, 109 Cal.Rptr. 811, 514 P.2d 123.)   Coverage B necessarily includes Noyes as an employee of L.A.S. who was an “insured” under the policy.   The named insured is identified as both:  “Producers Dairy Delivery Co./LAS Corporation,” thus the insuring language must be interpreted to mean any employee of any insured.   Because Producers was an “insured” and Noyes was an employee of an “insured,” the policy's coverage applies.

III The Phrase “The Insured” in Exclusion (f) Must be Read Narrowly.

 We further conclude that exclusion (f) of coverage B, indicating the policy does not apply “to any obligation for which the insured or any carrier as his insurer may be held liable under workmen's compensation or occupational disease law,” has no application to the present situation.   As plaintiffs argue, “the insured” in this clause also is ambiguous and here must be construed strictly to refer only to the “insured” against whom an obligation under worker's compensation law was or could be imposed.  “It is ‘well-established’ in this state that exclusions in insurance policies must be ‘phrased in clear and unmistakable language.’ ”  (Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 236, 178 Cal.Rptr. 343, 636 P.2d 32.)   Only L.A.S. was liable for worker's compensation benefits, and therefore Producers is not within the exclusion.   Sentry does not address this argument directly.

Plaintiffs' interpretation of this exclusion clause finds support in California cases interpreting employee-insured exclusion clauses in liability insurance policies and out-of-state cases involving multiple insureds under the same policy, only one of which was the actual employer of the injured party.   In Pacific Indem. Co. v. Transport Indem. Co. (1978) 81 Cal.App.3d 649, 655, 146 Cal.Rptr. 648, we interpreted the employee-insured exclusion in an automobile liability policy to apply only where an employment relationship existed between the injured employee and the insured seeking coverage under the policy.   In the Pacific Indemnity case it was stressed that a “restrictive interpretation of the employee-insured exclusion has been consistently followed in California.”  (Ibid.)  “[A]n exclusionary clause of this type applies only when the injured party was employed by the particular named insured, or an additional insured, who seeks the protection of the policy.”  (U.S. Fire Ins. Co. v. Transport Indem. Co. (1966) 244 Cal.App.2d 110, 117, 52 Cal.Rptr. 757.)

In United States Fire Insurance Co. v. McCormick (1970) 286 Ala. 531, 243 So.2d 367, the policy named both the corporate employer and its owner, McCormick, as named insureds.   An action was brought against McCormick and others identified as additional insureds by virtue of their status as executive officers.   Despite an exclusion similar to (f), the court held the exclusion inapplicable to the individual owner and executive officers because the injured party was an employee of the corporation, not the individuals.  (Id., 243 So.2d at pp. 373–375;  see also Great American Ins. Co. v. Nordic Diesel & Mach. Co. (1972) 38 A.D.2d 906, 329 N.Y.S.2d 651, 652, holding that “[t]he policy provision excluding coverage for injuries to employees of Nordic, the named insured, is not applicable to the additional insured, ․”)

 Of course, exclusion (f) could not apply to the liability of Producers to Mrs. Noyes for loss of consortium;  such obligation is not covered under any worker's compensation law.  (See Williams v. State Compensation Ins. Fund (1975) 50 Cal.App.3d 116, 123, 123 Cal.Rptr. 812.)   Sentry makes no mention of this issue.

IV Coverage B Provides Coverage to Producers for the Claim of Noyes by its Terms or in Light of the Reasonable Expectations of the Insured.

We conclude that in light of the language of the policy, including the ambiguous usage of “the insured” in the coverage and exclusions clauses under coverage B, Producers is entitled to coverage for its tort liability to Mr. and Mrs. Noyes.

Sentry, relying on the trial court's construction of the policy, contends the plain language of coverage B provided no coverage for the third party tort obligation of Producers, because (1) if Noyes was not an employee of Producers, the situation would be outside the requirement of coverage B that injury be sustained “by any employee of the insured arising out of and in the course of his employment by the insured ․;”  and (2) if Noyes was an employee of Producers, exclusions (a) and (f) presented “double recovery” because Noyes had received worker's compensation benefits on behalf of L.A.S.

We do not accept the interpretation that the worker's compensation and employer's liability coverages of the policy are mutually exclusive.   We construe exclusion (f) to say “no more than that Coverage B does not apply to any obligation under Coverage A.”  (See Standard Dry Kiln Co. v. Bituminous Fire & Mar. Ins. Co. (9th Cir.1973) 479 F.2d 427, 431.)   As explained in volume 7B, Appleman, Insurance Law and Practice, section 4571, pages 2–4, employer's liability policies are routinely written in combination with worker's compensation insurance

“to provide protection for those situations where worker's compensation may not apply and thus avoid a gap in protection because employee claims subject to worker's compensation law are generally excluded in other types of liability policies.”

The treatise notes that “[u]nder appropriate circumstances, both worker's compensation and employer's liability coverage may apply to the same injury.”   (Appleman, supra, § 4571, p. 3.)   Further,

“employer's liability insurance is intended to apply only to those situations where the insured employer is not subject to worker's compensation law, or where, even though subject to such law, the employee has a right to bring a common law tort action despite the provisions of the worker's compensation law.”  (Id., at p. 4.)

In Western Fire Ins. Co. v. J.R. Snyder, Inc. (Mich.1977) 76 Mich.App. 242, 256 N.W.2d 451, 455, an exclusion similar to (f) was interpreted not to be a bar to recovery,

“but rather ․ a limit of liability to the damages in excess of those recovered under the Workmen's Compensation Act.”  (See also Erickson v. Bituminous Casualty Corporation (Ill.1973) [10 Ill.App.3d 19] 293 N.E.2d 702, 705;  Brickley v. Offshore Shipyard, Inc. (E.D.La.1967) 270 F.Supp. 985, 988–989:  “The plain meaning of the words of this exclusion is simply to say that Coverage B does not include Coverage A․  We find no reasonable basis to hold that the words of Exclusion F are intended to remove from coverage a claim for damages by an injured employee merely because that employee might also have a claim for compensation.”)

 Furthermore, the reasonable expectations of the insured as evidenced by the deposition testimony of Richard Shehadey and the declaration filed in opposition to the motion for summary judgment support coverage under these circumstances.   There is an “overriding consideration ․ that the interpretation of the insurance policy must be pursued in light of the insureds' reasonable expectations.”  (Middlesex Mutual Ins. Co. v. Bright (1980) 106 Cal.App.3d 282, 292, 165 Cal.Rptr. 45.)

 Richard Shehadey testified he understood Producers and L.A.S. were both covered under the policy and “any employees working for either would be covered”;  he said the reason the two entities were put onto one policy was so there would be “no question” as to either worker's compensation or employer's liability.  “The meaning of an insurance policy is determined by the insured's reasonable expectation of coverage, and all doubts are resolved against the insurer.”  (Gyler v. Mission Ins. Co. (1973) 10 Cal.3d 216, 219–220, 110 Cal.Rptr. 139, 514 P.2d 1219.)

We find plaintiffs' interpretation of the policy to be persuasive and reasonable and supported by the authorities;  Sentry cites no cases supporting the trial court's restrictive interpretation of the policy.

V A Triable Issue Exists as to the Allegations of Bad Faith.

 Finally, because a triable issue exists as to coverage, as argued in the alternative, the granting of the summary judgment on the bad faith cause of action also was error.   Sentry's duty to defend extended to even “groundless, false or fraudulent” claims.   Because the policy provides coverage for Producers' claim, Sentry's knowledge of facts creating potential liability and the sufficiency of notice to defend present questions of fact.

For the foregoing reasons, the summary judgment was granted improperly.   The judgment is reversed.

FOOTNOTES

1.   Sentry was involved in the Noyes action on a complaint in intervention for worker's compensation benefits dispensed to Henry Noyes;  judgment was entered in favor of Producers on the complaint in intervention.

PAULINE DAVIS HANSON, Associate Justice.

FRANSON, Acting P.J., and VAN AUKEN *, J., concur.

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