California companies' duty to defend important to note, attorney says

By Angela Underwood | Feb 2, 2018

Attorney Alexander J. Berline said California's duty to defend law for employees is an important fact all businesses should consider.

SAN FRANCISCO — Attorney Alexander J. Berline said California's duty to defend law for employees is an important fact all businesses should consider.

Berline, attorney for plaintiff and appellees PHP Insurance Group Inc. and others, discussed the Jan. 17 ruling in favor of his client by the U.S. Court of Appeals for the 9th Circuit based on defendant and appellant Greenwich Insurance’s appeal of the trial court's summary judgment in favor of PHP.

“Procedurally the case will soon be over,” Berline said. “There are no other issues to be resolved.”

While Greenwich opposed the district court’s decision holding it had a duty to preserve a class-action discrimination and harassment complaint filed by PHP employees based on California Labor Code violations, 9th Circuit Judges Diarmuid O’Scannlain, Johnnie Rawlinson and Sarah Vance did not.

Based on the first amended complaint that alleged PHP employees were mostly Vietnamese-speaking workers and PHP employed such immigrant workers to benefit from their lack of understanding of labor and employment rights was a call for defense, according to the complaint.

“These allegations sufficiently triggered a duty to defend based on the policy’s definition of ‘discrimination’ due to the ‘segregation, classification or modification of any term or condition of employment of any Employee  ... because of race [or] national origin,’” according to the complaint. 

The 9th Circuit panel of judges agreed, citing Hudson Ins. Co. v. Colony 2010 to prove their point of a duty to protect.

“The district court properly held that Greenwich had a duty to defend based on allegations in the first amended complaint that were potentially covered by the policy’s definitions of discrimination and harassment,” according to the opinion concurred by all three judges.

Berline said PHP does not expect Greenwich to pursue any further challenges to the 9th Circuit Court of Appeal decision and discussed Greenwich's failing appeal argument.

“They felt the employee action was simply a ‘wage and hour’ case which was not covered by their policy,” Berline said. “Our successful counterargument was that there were also substantial other facts alleged of ‘discrimination’ and ‘harrasment’ which, although untrue, were enough to trigger the duty to defend.”  

According to the appeal, “[t]he duty to defend does not usually turn on whether facts supporting a covered claim predominate or generate the claim. Instead, California courts have repeatedly found that remote facts buried within causes of action that may potentially give rise to coverage are sufficient to invoke the defense duty.”

Greenwich did not respond to the Northern California Record’s request for comment.

Berline noted the case sets an example for businesses to consider when applying for commerce insurance.

“It is important that employers carefully consider their insurance coverage when faced with suits by employees,” Berline said. “Under California insurance law, the duty to defend is triggered by facts which suggest the ‘mere possibility of coverage’ — the titles of the formal causes of action do not control.

When contacted for general comment on the ruling, Property Casualty Insurers Association of America's public affairs representative, Nicole Mahrt Ganley, said the organization could not comment on the litigation.

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