FARMERS INSURANCE GROUP v. COUNTY OF SANTA CLARA (1994)

Craig Nelson and his homeowner's insurer, Farmers Insurance Group (hereafter, Farmers), appeal from the judgment entered after the trial court granted the summary judgment motion of the County of Santa Clara (hereafter, County).   Nelson is a deputy sheriff employed by County.   Three female deputy sheriffs sued Nelson, other deputies, and County in federal court for sexual harassment, based on conduct by Nelson and the others while all the deputies were on guard duty at the County jails in the early 1980's.   County agreed to defend the other deputies but declined to defend Nelson, stating that his conduct was outside the scope of his employment.   Nelson then tendered his defense to Farmers, who accepted it under a reservation of rights.   Farmers paid for Nelson's defense, and paid the settlement when Nelson settled with the plaintiffs on the eve of trial.   County did not oppose the confirmation of the settlement as being in good faith.  (Code Civ.Proc., § 877.6, subd. (c).)  After County rejected Farmers' and Nelson's government claim, they brought this action for indemnity.  (Gov.Code, §§ 825.2, 996.4;  Lab.Code, § 2802.)   On cross-motions for summary judgment (Code Civ.Proc., § 437c), the trial court granted County's motion, ruling as a matter of law that Nelson's conduct was outside the scope of his employment.   Plaintiffs appeal the judgment entered after that ruling.   For the reasons stated below, we reverse.

FACTS AND PROCEDURAL BACKGROUND

In December 1987, three female deputy sheriffs sued several male deputy sheriffs and County, alleging that they were sexually harassed while working on guard duty at County's jails.   Nelson was one of the male deputy sheriffs sued.   The action filed in federal district court in San Francisco was titled Bates, et al. v. County of Santa Clara et al., No. C87 20818 RPA (hereafter simply Bates action.)

Plaintiff Cynthia Bates alleged that Nelson sexually harassed her while they were working together on guard duty in the North County Jail and the main jail between April 1983 and June 1984.   At the main jail Nelson was Bates's training officer.   This meant that Nelson was supposed to evaluate Bates's progress, and it was his responsibility to tell his superiors when he thought that Bates was completely trained.   Being certified as fully trained was referred to as “get [ting] off training.”   Nelson said such things to Bates as the following:  (1) he would stick out his tongue, make gestures with it and say that he “was good at eating pussy and he knows I would enjoy it”;  (2) he would come up behind her and whisper that he would like to take her “to the hot tubs and eat pussy and he'd love to find out what it was like if I gave him a blow job with my braces on”;  (3) he commented that he would like to “butt fuck [another female deputy] and then pull out and come all over her face”;  and (4) he said:  “I bet you'd like me to fuck you in the butt, I bet you'd love that.”

Nelson also touched Bates on the back and front of her thighs three or more times.   On several occasions he told her that in order to get off training she had to “give him head.”   Nelson has admitted that he did and said these things.

According to Sergeant Pascual, the deputies at the jail work in close quarters.   When the deputies are not busy, they talk to pass the time and to relieve the stress of the job.   Deputies at the jail talked about “everything,” including sexual matters.   The jail “is a vulgar place to begin with.”   During 1983 and 1984, the male deputies were beginning to adjust to having female deputies work alongside them as guards in the jails, which was a change from the male-oriented or male-dominated environment that existed before that time.

In early 1984, Nelson grabbed or slapped female Deputy Toni Daugherty on the buttocks.   Nelson was attempting to place a double-sided piece of scotch tape on Daugherty's uniform trousers as a practical joke.   Nelson called Daugherty the next day and asked about the “red mark on her ass.”   Daugherty objected immediately when Nelson touched her, and he did not touch her again.   A third deputy, Zana Murphy, was also harassed by Nelson but primarily by other male deputies.   Before Nelson settled with Daugherty and Bates, the district court dismissed Murphy's allegations against Nelson.

After Bates and Daugherty made formal internal complaints, the Sheriff's Department investigated.   The investigator sustained the charges.   The County had promulgated a policy against sexual harassment in 1980 and Nelson was found to have violated this policy.   The Sheriff ordered Nelson suspended without pay for two weeks.   Nelson appealed the suspension through a union grievance procedure.   The arbitrator found that the penalty was too harsh, and reduced the suspension to two days.   The arbitrator found that while Daugherty objected immediately to Nelson's conduct and he never repeated it, that Bates did not inform Nelson that she objected to his comments.   The arbitrator found that since Bates engaged in discussions of her private life and in conversations of a sexual nature and otherwise acted like “one of the boys,” Nelson did not realize that she found his comments offensive.

The female deputies also complained about harassment by Sergeant Pascual and about other officers' failure to take remedial measures promptly.   County investigated these charges and decided there was insufficient evidence to support them.

In December 1987, the three female deputies filed their action.   They alleged that Nelson and others had sexually harassed them within the meaning of 42 United States Code section 2000e and Government Code section 12940, subdivision (h).   Nelson was served with a summons and complaint in the Bates action, and tendered his defense to County.   While County agreed to defend all the other deputies named in the action, it refused to defend Nelson on the ground that his actions were not within the scope of his employment.¹  Then Nelson tendered the defense to his homeowner's insurer, Farmers, who accepted it under a reservation of rights.   In conducting the defense, Nelson's attorneys cooperated with County's attorneys representing the other deputies and County.   Farmers paid some $156,366 in legal fees and costs for Nelson.

On the date set for trial Nelson settled with Daugherty and Bates for $150,000.   Farmers paid the settlement for Nelson.   The district court, on Nelson's motion, found that the settlement was made in good faith pursuant to Code of Civil Procedure section 877.6.   County made no oral or written objection to the confirmation of good faith settlement.

Nelson was the only defendant who settled, so the Bates action proceeded to trial against the remaining defendants.   The only claims that went to the jury were based on the Fair Employment and Housing Act, Government Code section 12940, since the state and federal claims were redundant.   The jury awarded verdicts against the defendants amounting to $2.7 million.   Of that, $2.183 million was awarded against County.   Judgment was entered on June 21, 1991.

Meanwhile, in April 1991, Nelson and Farmers filed a government claim with the County, demanding that County indemnify them for legal fees, costs, and the settlement payment.  (Gov.Code, §§ 825.2, 996.4.)   County rejected the claim, so Farmers and Nelson filed this suit for indemnity.   The parties filed cross-motions for summary judgment.   The trial court granted County's motion for summary judgment, and denied that of Nelson and Farmers.   The trial court found that as a matter of law Nelson's conduct was outside the scope of his employment.   First the trial court distinguished Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 285 Cal.Rptr. 99, 814 P.2d 1341 (hereafter, Mary M.), in which the Supreme Court found the city vicariously liable for the rape of a motorist committed by an on-duty police officer.   The trial court found that Nelson did not occupy the position of authority over the Bates plaintiffs that the police officer did over Mary M.   The trial court held that Nelson's conduct was so unusual and startling that it would be unfair to include the loss as a cost of County's doing business.

DISCUSSION

 The sole issue before this court is the propriety of the trial court's order granting County's motion for summary judgment and denying plaintiffs' motion.   Resolving that issue depends in turn on whether Nelson's conduct was within or outside the scope of his employment.   On this question we exercise independent review.  (580 Folsom Associates v. Prometheus Development Co. (1990) 223 Cal.App.3d 1, 13–14, 272 Cal.Rptr. 227.)   For the reasons stated below we conclude that the trial court erred.

County declined to provide Nelson a defense, stating that his conduct was outside the scope of his employment.  (Gov.Code, §§ 995, 995.2.)   After a public entity refuses to provide a defense, its employee has a statutory right to indemnity if the action arose out of an act in the scope of his employment.   There are exceptions to the statutory right to indemnity when the employee's conduct was motivated by fraud, corruption, or actual malice.  (Gov.Code, § 996.4.)   The exceptions are not pertinent here.²

 Ordinarily, whether conduct is within the scope of employment is a question of fact.   However, where the operative facts are undisputed the question becomes one of law.  (White v. County of Orange (1985) 166 Cal.App.3d 566, 570, 212 Cal.Rptr. 493.)   In this case the material facts are undisputed, so the question is one of law.

 County contends the term “scope of employment” has various meanings depending upon what statute is under consideration.   We think scope of employment has the same definition regardless of context.   The drafters of the Government Tort Claims Act stated that use of the “scope of employment” term was intended to make applicable the general law of respondeat superior.  (Recommendations, General Provisions Relating to Liability, 4 Cal. Law Revision Com.Rep. (1963) p. 814, fn. 3;  see also Henriksen v. City of Rialto (1993) 20 Cal.App.4th 1612, 1617, fn. 2, 25 Cal.Rptr.2d 308.)

 While the meaning of “scope of employment” is elusive, we find some guidance in two recent Supreme Court opinions.   While these are cases in which a third party sues the employer for the wrong of its employee, the general law of scope of employment applies equally to the term as it is used in the provisions of the Tort Claims Act.   In John R. v. Oakland Unified School Dist. (1989) 48 Cal.3d 438, 256 Cal.Rptr. 766, 769 P.2d 948 (hereafter, John R.), a junior high school student who was sexually molested by his teacher sought to hold the school district vicariously liable for the teacher's conduct, based on the doctrine of respondeat superior.  (Id. at p. 441, 256 Cal.Rptr. 766, 769 P.2d 948.)   The court noted that an employer is liable for the torts of his employee committed within the scope of employment.   Willful and malicious torts are included in the employer's liability.  (Id. at p. 447, 256 Cal.Rptr. 766, 769 P.2d 948.)  “Scope of employment is viewed broadly in this context.”  (Ibid.)  That an employee is not engaged in the ultimate object of his employment at the time he commits the tort does not necessarily absolve the employer.   Where the employee is engaged in his own business and that of his employer at the same time, no nice inquiry will be made as to which business he was actually engaged in at the time of the injury, unless it appears that he was clearly not serving his employer.   (Ibid.)

 The justification for the application of respondeat superior is that the employer may spread the risk through insurance and carry the cost as part of the costs of doing business.  (48 Cal.3d at p. 450, 256 Cal.Rptr. 766, 769 P.2d 948.)   Three policy objectives are considered in determining whether the employer should be held vicariously liable.   The first is that imposing liability on the employer may prevent recurrence of the tortious conduct, because it creates a strong incentive for the employer to guard against such tortious conduct.  (Mary M., supra, 54 Cal.3d at pp. 214–215, 285 Cal.Rptr. 99, 814 P.2d 1341.)   The second objective is to give greater assurance of compensation to the victim.   The third objective is to spread the risk among the beneficiaries of the enterprise, if appropriate.  (Id. at pp. 215–216, 285 Cal.Rptr. 99, 814 P.2d 1341.)

The John R. court found that all the policy considerations militated against imposing vicarious liability on the school district.   With respect to the first factor, requiring a school district to monitor so closely the contacts between teachers and students would be cumbersome and counterproductive.  (John R., supra, 48 Cal.3d at p. 451, 256 Cal.Rptr. 766, 769 P.2d 948.)   Assuring victims of compensation is a policy that would also not be served by imposing liability.   The risk of a teacher molesting a student is not a normal risk that can be insured against.  (Ibid.)  With respect to the beneficiaries of the enterprise bearing the loss, the court noted that the community as a whole benefits from the enterprise.  (Id. at pp. 451–452, 256 Cal.Rptr. 766, 769 P.2d 948.)  “But the connection between the authority conferred on teachers to carry out their instructional duties and the abuse of that authority to indulge in personal, sexual misconduct is simply too attenuated to deem a sexual assault as falling within the range of risks allocable to a teacher's employer.”  (Id. at p. 452, 256 Cal.Rptr. 766, 769 P.2d 948.)   The court concluded that the doctrine of vicarious liability should not apply.  (Id. at pp. 452–453, 256 Cal.Rptr. 766, 769 P.2d 948.)

In contrast, the court found the public entity employer liable in Mary M., supra, 54 Cal.3d 202, 285 Cal.Rptr. 99, 814 P.2d 1341.   In that case a city police officer, on duty, in uniform, and driving a marked police car, stopped a motorist and asked her to perform field sobriety tests.  (Id. at p. 207, 285 Cal.Rptr. 99, 814 P.2d 1341.)   The motorist, Mary M., did poorly and began to cry, and the officer ordered her to get into the front seat of the police car.   The officer drove Mary M. home, followed her in, and raped her.   The officer was convicted of rape and sent to state prison.   (Ibid.)  Mary M. then brought her civil suit, arguing that the city was vicariously liable under the doctrine of respondeat superior.  (Id. at p. 208, 285 Cal.Rptr. 99, 814 P.2d 1341.)

 The Supreme Court found the doctrine applied.   The test for determining whether an employee is acting outside the scope of employment is whether “in the context of the particular enterprise an employee's conduct is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer's business.”  (Rodgers v. Kemper Constr. Co. (1975) 50 Cal.App.3d 608, 619, 124 Cal.Rptr. 143.)  “In other words, ․ the inquiry is whether the risk was one that ‘that may fairly be regarded as typical of or broadly incidental’ to the enterprise undertaken by the employer.  [Citation.]”  (Id. at p. 619, 124 Cal.Rptr. 143.)

The court concluded that imposition of liability on the city for the policeman's rape of a motorist would encourage the employer to take preventive measures.  (Mary M., supra, 54 Cal.3d at p. 215, 285 Cal.Rptr. 99, 814 P.2d 1341.)   Imposing liability on the city also furthered the policy of assuring that victims are compensated.  (Ibid.)  The propriety of spreading the risk among the beneficiaries of the enterprise also favored imposition of liability.  (Id. at p. 216, 285 Cal.Rptr. 99, 814 P.2d 1341.)   The court believed the unique authority an armed and uniformed police officer has over a citizen is much different from the authority a teacher has over a student.   (Ibid.)  The court rejected the city's argument that the rape of a citizen by a police officer is so unusual or startling that imposing liability on his employer would be unfair.  (Id. at p. 217, 285 Cal.Rptr. 99, 814 P.2d 1341.)   The court found it was not startling that police officers might misuse their authority by engaging in assaultive conduct.  (Id. at p. 217, 285 Cal.Rptr. 99, 814 P.2d 1341.)  “The precise circumstances of the assault need not be anticipated, so long as the risk is one that is reasonably foreseeable.   Sexual assaults by police officers are fortunately uncommon;  nevertheless, the risk of such tortious conduct is broadly incidental to the enterprise of law enforcement, and thus liability for such acts may appropriately be imposed on the employing public entity.”  (Id. at pp. 217–218, 285 Cal.Rptr. 99, 814 P.2d 1341, fn. omitted;  see also White v. County of Orange, supra, 166 Cal.App.3d 566, 212 Cal.Rptr. 493 [county vicariously liable for deputy sheriff's abuse of authority in falsely imprisoning female motorist, threatening her with rape and murder].)

 Indemnity depends on the principle that every person is responsible for his own wrong, and where another has been compelled to pay, the wrongdoer should reimburse him.  (Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 74, 38 Cal.Rptr. 490.)   County forcefully argues that Nelson should bear the loss caused by his wrongful conduct, not County.   This argument is misdirected because Nelson in fact did not bear the loss caused by his misconduct;  his homeowner's insurer did.   Farmers stands in the position of an innocent party who was required to pay and who should be entitled to indemnity.   Equitable indemnity depends on who, in equity, should bear the loss.   Statutory indemnity, at issue here, depends on whether the statutory requirements for eligibility are met.   In this case, if Nelson's conduct was within the scope of his employment, he has a statutory right to indemnity.  (Gov.Code, § 996.4.)

 County's electing to defend all the other deputies but not Nelson tells us that, with respect to charges of sexual harassment, County believed this conduct occurred in the course and scope of employment with respect to all the other male deputies.   How could it, then, have been outside the scope of Nelson's employment?   It makes no sense to say that, because he used stronger language or made more obscene gestures than the others, Nelson's conduct was outside the scope.   If all the charged male deputies engaged in harassive conduct, the degree or quality of their acts cannot make it within the scope for one but outside the scope for another.

At oral argument County's attorney explained that those deputies County elected to defend were of higher rank than Nelson, and that their culpable conduct was a failure to remedy the situation and/or a failure to investigate the harassment charges properly.   County's attorney was mistaken because the record shows that Sergeant Pascual, who was defended, was an alleged harasser.   In any event, County's position, then, is that the supervisors' negligence in investigating and taking remedial steps was within the scope, but that the underlying conduct was not.   We find this position as illogical as saying mild harassment is within the scope, but more severe harassment is not.

Before discussing the policy issues further, we note some of the more striking facts.   All the conduct complained of occurred on the jail premises while the deputies and the deputies-in-training were in uniform carrying out their appointed tasks as guards in the jail.   As her supervisor and a superior officer, Nelson had authority over Bates and could give her a direct order that she had to obey.   As in the White and Mary M. cases, the wrongful acts flowed from the exercise (or abuse) of Nelson's authority.   Particularly, his remark about requiring sexual favors before he would certify that Bates was fully trained compels the conclusion that the conduct occurred in the scope of employment.

Nelson and Farmers are entitled to indemnity because they have shown that Nelson's conduct occurred in the course and scope of his employment.   The standard for scope of employment is met;  Nelson's conduct was not so unusual or startling that it would be unfair to include the loss as a cost of the employer's doing business.   The policies behind indemnity and behind finding conduct within the scope of employment in vicarious liability situations are not offended by this holding.   The authority of a training officer over his subordinate in the employment situation is like the authority of a police officer over a citizen.   A female deputy could reasonably be afraid to object to unwanted touchings and unsolicited off-color remarks, for fear of losing her livelihood.   The power of an employer or a supervisor over his employee is extensive, especially in the eyes of the subordinate employee.

That Nelson acted in violation of County's policy against harassment has no significance.   Presumably an employer never wants his employee to commit intentional torts or crimes while the employee is acting in the scope of his employment.   In a recent case, an appellate court rejected the argument that the harassing employee must be acting outside the scope because the company had a policy against sexual harassment.  (Kelly–Zurian v. Wohl Shoe Co. (1994) 22 Cal.App.4th 397, 417, 27 Cal.Rptr.2d 457.)

Imposing liability on County here furthers the objective of preventing a recurrence of the tortious conduct.   County would now have an additional incentive to ensure that its policy against sexual harassment is implemented and enforced.   The second factor, ensuring that the victims are compensated, has no weight either way in this case.³  The victims have been compensated;  the question is whether Nelson's insurer should bear the loss.   The third factor favors indemnity also.   It is appropriate to spread the risk to the beneficiaries of the enterprise.   Here the community as a whole benefits from the safe and lawful operation of the jail and from other law enforcement activities.   The cost resulting from misconduct occurring in that enterprise should fairly be borne by the community.  (Mary M., supra, 54 Cal.3d at p. 217, 285 Cal.Rptr. 99, 814 P.2d 1341.)

Tenwolde v. County of San Diego (1993) 14 Cal.App.4th 1083, 17 Cal.Rptr.2d 789, on which County relies, is distinguishable.   In that case a deputy sheriff improperly spent county funds on political activities.   Taxpayers sued successfully to enjoin the illegal political activity, and the deputy was assessed their attorney's fees.   The deputy's indemnity action against the county was successful, and county appealed.  (Id. at pp. 1085–1087, 17 Cal.Rptr.2d 789.)   The appellate court reversed.   It found that while the deputy's conduct was potentially within the scope of his employment, policy considerations required that he bear the loss personally.  (Id. at pp. 1092–1093, 17 Cal.Rptr.2d 789.)   The county was the victim of the deputy's wrongful conduct (misuse of county funds), and it was improper to require county to bear this loss.  (Id. at p. 1093, 17 Cal.Rptr.2d 789.)

Clearly Tenwolde is inapposite.   In that case the county was the victim, and it would have been unreasonable to require the county to bear the defense costs of its employee who misappropriated county funds.   In this case there were three female deputy victims.   County knew it was integrating a historically all-male staff.   County also might have known, given the extensive litigation in this area, that the transition to a harmonious gender-integrated workplace is not easy in any business.   As between Farmers and County, only County was in a position to prevent this harm.   Only County is in a position to prevent this sort of harm in the future.   Plaintiffs are therefore entitled to indemnity.

 We reject County's argument that it cannot be bound to a settlement to which it did not agree pursuant to Government Code section 825, subdivision (a).   That section does not apply, because it applies only when the public entity does assume its employee's defense.  (Rivas v. City of Kerman (1992) 10 Cal.App.4th 1110, 1116–1124, 13 Cal.Rptr.2d 147.)   When the public entity declines the defense, the entity's employee is entitled to indemnity for the judgment and for his legal costs if the act occurred in the scope of employment.⁴  (Gov.Code, § 825.2.)   The settlement here was reasonable in light of the jury verdict in the Bates action.   The federal court determined that the settlement was entered into in good faith, in a proceeding of which County had notice but in which it chose not to participate.   In Sanchez v. Truck Ins. Exchange (1994) 21 Cal.App.4th 1778, 26 Cal.Rptr.2d 812, we held that an insurer who refused to defend its insured could be obligated to pay a stipulated judgment entered into between the injured party and the insured in good faith.   The rule is that an insurer who has an opportunity to defend but wrongfully refuses to do so is liable on the judgment against the insured.  (Id. at p. 1786, 26 Cal.Rptr.2d 812.)   Here County could have defended Nelson and exercised control over the ultimate liability.   It chose not to do so.   Since Nelson's conduct occurred in the scope of employment, and the settlement was confirmed as made in good faith, County is bound to it.

DISPOSITION

The judgment is reversed.   The trial court is directed to vacate the order granting County's summary judgment motion, and to enter a new order granting the motion of Farmers and Nelson.   Costs are awarded to appellants.

FOOTNOTES

1.   County also stated that defending Nelson might cause a conflict of interest between Nelson and County, but this claim is not an issue on appeal.

2.   Government Code section 995.2 provides that a public entity may refuse to defend its employee when:  (1) the employee's conduct was not within the scope of employment, (2) the employee acted with fraud, actual malice, or corruption, or (3) the entity's defense would create a conflict of interest between the entity and the employee.   County declined Nelson's defense based on two grounds:  that the conduct was outside the scope of employment, and that County's assuming the defense would create a conflict, but County abandoned the latter ground.   County never asserted the fraud, malice, and corruption exception in this case.

3.   In general, however, requiring the public entity to bear this loss gives greater assurance that victims will be compensated.   It is a fortuity that Nelson had homeowner's insurance and that his insurer accepted his defense.   Such insurance coverage would not be provided today, based on the willful acts exclusion.  (See Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co. (1993) 14 Cal.App.4th 1595, 18 Cal.Rptr.2d 692.)

4.   If the public entity can show that although the conduct occurred within the scope, that it was motivated by the employee's actual malice, fraud, or corruption, there is an exception to the duty to defend and indemnify.  (Gov.Code, §§ 825.2, 995.2.)

PREMO, Acting Presiding Justice.

WUNDERLICH and MIHARA, JJ., concur.