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Court of Appeal, First District, Division 1, California.

UNITED PACIFIC INSURANCE COMPANY, Plaintiff and Respondent, v. The McGUIRE COMPANY, John McGuire, Elinor McGuire, Donald McGuire, Jean McGuire, and Rees Stevenson, Defendants and Appellants.

No. A045445.

Decided: July 24, 1990

Raymond Coates,Geneva Wong Ebisu, Low, Ball & Lynch, Menlo Park, for plaintiff and respondent. Paul A. Renne, James A. Richman, Cooley, Godward, Castro, Huddleson & Tatum, San Francisco, for defendants and appellants.

Defendants in a wrongful termination action appeal a summary judgment determining that the employer's insurer has no duty to defend or to indemnify them in that lawsuit.


On or about January 1, 1986, United Pacific Insurance Company (United) issued to The McGuire Company (McGuire) a policy of insurance which was effective from January 1, 1986 to January 1, 1987.   Section II of this policy provided what United characterizes as “comprehensive general liability insurance coverage” for damages for which McGuire might become liable because of bodily injury or property damage caused by “an occurrence.”   The policy was in a standard form which defined an occurrence as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”

Immediately following the provision for coverage the following language appeared.


“This insurance does not apply:

“(a) to liability assumed by the insured under any contract or agreement except an incidental contract․”

Attached to the standard policy was an endorsement entitled “SPECIAL FORM COMPREHENSIVE GENERAL LIABILITY ENDORSEMENT,” for which McGuire paid a premium of $6,158.   Immediately under the title of the endorsement was a declaration stating that the endorsement “modifie[d] such insurance as is afforded by the provisions of the policy relating to the following:  COMPREHENSIVE GENERAL LIABILITY INSURANCE.”

Part I of the endorsement, entitled “BROAD FORM CONTRACTURAL LIABILITY COVERAGE,” provided, in significant part, “The definition of incidental contract is extended to include any oral or written contract or agreement relating to the conduct of the named insured's business.”   Part XI of the endorsement, entitled “EXTENDED BODILY INJURY COVERAGE,” provided, “The definition of occurrence includes any intentional act by or at the direction of the insured which results in bodily injury, if such injury arises solely from the use of reasonable force for the purpose of protecting persons or property.”   Part XIV of the endorsement, entitled “EXTENDED DEFINITION OF OCCURRENCE,” defined occurrence as “an accident, an event or a continuous or repeated exposure to conditions which results, during the policy period, in bodily injury or property damage neither expected nor intended by the insured.”

On June 27, 1986, McGuire fired Dale Burgess, who had been an employee of McGuire since April 1978.   In December 1986, Burgess sued McGuire, John McGuire, Elinor McGuire, Don McGuire, Jean McGuire, Rees Stevenson, Frank Doodha, and Bryant Normandie Partnership in San Francisco Superior Court.   This action became at issue on Burgess's second amended complaint, which asserted nine theories of recovery, as follows:  (1) wrongful termination, (2) a general allegation of breach of a covenant of good faith and fair dealing, (3) an allegation of breach of a covenant of good faith and fair dealing focussing on defendants' alleged purpose to deprive Burgess of a share in proceeds from the sale of McGuire, (4) breach of a written contract for a term of years, (5) breach of a covenant of good faith and fair dealing in connection with an agreement concerning employment and stock purchases, (6) interference with prospective economic advantage, (7) breach of fiduciary duty, (8) fraud and deceit, and (9) imposition of a constructive trust.

Burgess and the defendants sued by him settled his lawsuit for $2 million on May 26, 1989.

Procedural History

On October 15, 1987, United sued the named defendants (except for Frank Doodha and Bryant Normandie Partnership) in Burgess's wrongful termination action for declaratory relief.   United's complaint alleges that the defendants tendered their defense in Burgess's action to United, and that United accepted it under a reservation of rights, but seeks a declaration that United has no duty to indemnify the defendants or to provide a further defense.

United moved for summary judgment.   The trial court granted the motion on December 22, 1988 and ordered judgment entered accordingly on January 24, 1989.   McGuire, John McGuire, Elinor McGuire, Don McGuire, Jean McGuire, and Rees Stevenson appeal.


 The parties' rights in the present case depend on the construction of an insurance policy.   The parties do not contend that such construction depends on any evidence extrinsic to the policy itself.   The case thus presents a pure question of law, appropriately resolved in the context of a motion for summary judgment, and the issue is whether the trial court answered that question correctly or incorrectly.  (Loyola Marymount University v. Hartford Accident & Indemnity Co. (1990) 219 Cal.App.3d 1217, 1221–1222, 271 Cal.Rptr. 528;  State Farm Fire & Casualty Co. v. Eddy (1990) 218 Cal.App.3d 958, 964–965, 267 Cal.Rptr. 379.)

The trial court determined that United had no duty to indemnify and no duty to defend, because “the emotional distress that is alleged in the underlying complaint” does not constitute bodily injury.   Appellants conceded at oral argument that because United did provide a defense to Burgess's suit, under a reservation of rights, the question of United's duty to defend is not an issue on this appeal and we need concern ourselves only with the duty to indemnify.   Two published opinions by the United States District Court for the District of Montana (United Pacific Ins. v. First Interstate Bancsystems (D.Mont.1987) 664 F.Supp. 1390 [United I ] and United Pacific Ins. v. First Interstate Bancsystems (D.Mont.1988) 690 F.Supp. 917 [United II ] set forth the principles upon which the present case is resolved and fully support the trial court's decision with respect to the duty to indemnify.

We compare the policy language with the allegations of Burgess's second amended complaint to determine whether there was coverage.  (United I, supra, at p. 1392;  United II, supra, at pp. 918–919;  see Royal Globe Ins. Co. v. Whitaker (1986) 181 Cal.App.3d 532, 538, fn. 7, 226 Cal.Rptr. 435.)   Burgess sought damages for “mental upset, distress and aggravation” in eight out of the nine theories of recovery which he asserted.   Burgess did not allege that his mental upset, distress, and aggravation manifested itself in any psychosomatic symptoms or physical injuries, such as ulcers.   Under these circumstances, the firing of Burgess could be an occurrence which would give rise to coverage under part XIV of the endorsement only if “bodily injury” were defined in the policy or the endorsement as including mental distress or equivalent injury, such as “mental suffering” or “mental anguish.”  (United I, supra, at p. 1393.)  “Bodily injury” is not so defined.   The policy involved in the present case defines “bodily injury” as “bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.”   Thus, the damages claimed by Burgess “do not fall within the specific definitions of bodily injury ․ contained in the policy.”  (United II, supra, at p. 918.)   Similarly, Burgess's second amended complaint asserts no claims for any damages which may be characterized as property damage.   Coverage is therefore precluded for all of Burgess's tort theories of recovery under part XIV of the endorsement.  (Ibid.)

The same analysis defeats appellants' claim of coverage under part XI of the endorsement, in which an expanded definition of “occurrence” is still limited to acts which result in “bodily injury.”   Likewise, it defeats appellants' claim that some of them who did not allegedly participate directly in Burgess's termination, but consented to the termination, would be entitled to coverage even if the others were not.   Burgess's injuries were still not of a type which could invoke coverage, no matter what the theory of tort liability for a given defendant might have been.

The federal district court applied Montana law in deciding United I and United II.  (United I, supra, at p. 1392.)   Appellants contend that under California law, emotional distress is bodily injury.

We examine the authorities which appellants cite in support of their contention.   In Employers Cas. Ins. Co. v. Foust (1972) 29 Cal.App.3d 382, 385, 105 Cal.Rptr. 505, plaintiffs suing the insureds had suffered “ ‘emotional distress and resulting physical injuries.’ ”   Under those circumstances, there was coverage under a policy which, like the policy in the present case, covered bodily injury, and defined bodily injury as “ ‘[b]odily injury, sickness or disease, including death resulting therefrom.’ ”  (Ibid.)  In Abellon v. Hartford Ins. Co. (1985) 167 Cal.App.3d 21, 32, 212 Cal.Rptr. 852, on the other hand, the policy covered “ ‘all damages resulting from bodily injury caused by any one accident.’ ”   The court found coverage for a wife's emotional distress, not because that emotional distress constituted bodily injury or manifested itself in resulting physical injuries, but because that emotional distress resulted from her husband's bodily injuries—blindness and brain damage caused by a traffic accident.  (Id., at p. 24, 212 Cal.Rptr. 852.)

Dyer v. Northbrook Property & Cas. Ins. (1989) 210 Cal.App.3d 1540, 1546, 259 Cal.Rptr. 298, unlike Foust and Abellon, does contain language which supports appellants' contention.   The Dyer court states that several cases define “ ‘bodily injury’ arising from wrongful termination to include harm caused by emotional distress.”  (Ibid.)  However, the two cases cited in support of that statement do not so define bodily injury.   One of them is Abellon, which, as noted above, has nothing to do with wrongful termination.   The other is Agarwal v. Johnson (1979) 25 Cal.3d 932, 944–946, 160 Cal.Rptr. 141, 603 P.2d 58, which does involve a plaintiff who suffered emotional distress after being fired from his job.   However, the Agarwal opinion does not discuss the tort of wrongful termination.   The plaintiff in Agarwal won his judgment on the theories of defamation and intentional infliction of emotional distress, and the opinion discusses the sufficiency of the evidence to support the judgment as to the intentional infliction of emotional distress theory.  (Id., at pp. 945–947, 160 Cal.Rptr. 141, 603 P.2d 58.)  Agarwal has nothing to do with the definition of bodily injury as that term might be used in an insurance policy.   The language in Dyer on which appellants rely is not only unsupported by the cases which the Dyer court cites, the language is barely even dictum.   The language appears in the course of a discussion which assumes, for the sake of argument, that bodily injury does include emotional distress, but nevertheless holds that coverage does not exist for wrongful termination under a policy which defines an occurrence as an “accident,” because firing someone is no accident.  (Dyer v. Northbrook Property & Cas. Ins., supra, 210 Cal.App.3d at pp. 1546–1547, 259 Cal.Rptr. 298.)

Lastly, appellants quote a practice book, 2 California Insurance Law & Practice (1987 Rev.) Homeowners Policies, § 36:23, pages 36–24 through 36–25, which says that “bodily injury is generally recognized to include emotional distress.”   This book cites one case in support of the quoted statement, Royal Globe Ins. Co. v. Whitaker, supra, 181 Cal.App.3d at p. 538, 226 Cal.Rptr. 435.  Whitaker is similar to Dyer v. Northbrook Property & Cas. Ins., supra, 210 Cal.App.3d at p. 1547, 259 Cal.Rptr. 298, in that Whitaker holds that there is no coverage or duty to defend under a policy which covers bodily injury resulting from an accident, when the event giving rise to a claim consists of an alleged act (promising to close escrow on a particular date, with no intention of performing the promise) which is no accident.  (Royal Globe Ins. Co. v. Whitaker, supra, 181 Cal.App.3d at pp. 535, 538–539, 226 Cal.Rptr. 435.)   The Whitaker court, like the Dyer court, assumes for the sake of argument that bodily injury does include emotional distress, and in support of that assumption notes that the “insurance company conceded that the ‘great mental anguish, nervousness, anxiety, worry and disappointment’ [alleged in the complaint filed against the insured] constituted ‘bodily injury’ within the meaning of the policy.”  (Id., at p. 538, fn. 8, 226 Cal.Rptr. 435.)   The Whitaker opinion gives no indication of how “bodily injury” was defined in the policy.

Examination of appellants' authorities thus reveals no case holding that alleged emotional distress which does not manifest itself in physical injuries is “bodily injury” within a policy definition such as that which appears in the policy under consideration in the present case, and further reveals that the statements of such an equation which appear in appellants' authorities are not supported by the published opinions which they cite.

We must attribute a meaning to the adjective “bodily.”   The ordinary meaning is somatic, having to do with the body as distinguished from the mind or the psyche.  “BODILY suggests contrast with mental or spiritual.”  (Webster's Seventh New Collegiate Dictionary (1972) 94.)   That is the meaning which the court attributed to the term in United II and that is the meaning which the trial court attributed to it in the present case.   We believe those judges were correct in that attribution.   There is no reason why the word “bodily” should have different meanings in California and in Montana.   We hold that in the absence of any claim that Burgess's emotional distress manifested itself in physical injuries, United is under no obligation to indemnify appellants under the policy and parts XI and XIV of the endorsement which United issued to McGuire.

 Appellants contend that because Burgess's suit was based, in part, on alleged violations of McGuire's contractural obligations, coverage existed under part I of the endorsement.   Appellants interpret part I as providing coverage for liabilities arising under any contract relating to the conduct of McGuire's business.   Appellants apparently interpret the policy language as extending coverage for all contractural liability incurred in the conduct of McGuire's business.   Thus, coverage would extend to civil liability for thefts perpetrated by entering into contracts with no intent to perform, by accepting payment for promised goods or services, with no intent to deliver, or by accepting delivery of goods or the benefit of services, with no intent to pay for them.   Such broad coverage is not possible, under Insurance Code section 533 and Civil Code section 2773.   The former section provides, “An insurer is not liable for a loss caused by the wilful act of the insured;  but he is not exonerated by the negligence of the insured, or of the insured's agents or others.”   The latter section provides, “An agreement to indemnify a person against an act thereafter to be done, is void, if the act be known by such person at the time of doing it to be unlawful.”

As United correctly argues, part I of the endorsement must be read in conjunction with Exclusion (a) of the standard contract, to mean that “the insurance will apply to liability assumed by the insured under any oral or written contract or agreement relating to the conduct of the named insured's business.”   Although “we must resolve uncertainties in favor of the insured and interpret the policy provisions according to the layman's reasonable expectations,” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 274, 54 Cal.Rptr. 104, 419 P.2d 168) we cannot attribute to any reasonable layman an expectation that United's intent in issuing the endorsement was an intent to license McGuire deliberately to disregard its contractural obligations.   “[S]uch an endorsement [extending coverage to liability assumed by the insured under contract] only covers third party tort liabilities that the insured assumes by contract.”  (Fireman's Fund Ins. Co. v. City of Turlock (1985) 170 Cal.App.3d 988, 999, 216 Cal.Rptr. 796;  accord, Loyola Marymount University v. Hartford Accident & Indemnity Co., supra, 219 Cal.App.3d at pp. 1225–1226, 271 Cal.Rptr. 528;  American Guar. & Liability v. Vista Medical Supply (N.D.Cal.1988) 699 F.Supp. 787, 792 [interpreting California law].)  Burgess's theories of recovery based on alleged violations of contract had nothing to do with such third party tort liability.   Accordingly, there was no coverage under the policy and endorsement with respect to Burgess's contract theories of recovery.

Appellants invoke the rule that ambiguities in an insurance contract must be resolved against the insurer.  “But that principle comes into application only where the policy provision is truly ambiguous, i.e., susceptible to two or more constructions, all of which are reasonable.”  (Loyola Marymount University v. Hartford Accident & Indemnity Co., supra, 219 Cal.App.3d at p. 1222, 271 Cal.Rptr. 528.)   That rule has no application where, as here, the policy language, correctly interpreted, contains no ambiguities.

*   *   *   *   *   *

The trial court did not err in ordering summary judgment for United.   The judgment is affirmed.



PETERSON*, Associate Justice. FN* Assigned by the Chairperson of the Judicial Council.

RACANELLI, P.J., and STEIN, J., concur.

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