Diversified Restaurant Group, LLC v. Houston Casualty Company

Summary

The United States District Court for the Northern District of California granted Pennsylvania Manufacturers Indemnity Company and Manufacturer’s Alliance Insurance Company’s Rule 12(b)(6) motion to dismiss claims arising from alleged failures to defend and indemnify restaurant operators in an underlying sexual-harassment action. The court held that the employment-related-practices exclusion barred coverage under the general liability policy for the underlying claims, including negligence, sexual assault, and false-imprisonment theories. Houston Casualty Company had not moved to dismiss.

Holdings

1. The employment-related-practices exclusion barred coverage for all claims in the underlying action because the alleged conduct arose out of the employment relationship and employment-related practices, policies, acts, or omissions.
2. Potential claims for sexual assault and false imprisonment were also subject to PMIC's employment-related-practices exclusion because they were closely intertwined with workplace harassment and arose from the employment relationship.
3. PMIC's employer-liability exclusion independently barred Coverage A coverage for the underlying employee's bodily injuries.
4. PMIC's Coverage B did not provide an alternative basis for coverage because Coverage B was also subject to the employment-related-practices exclusion.
5. MAIC's C.7 exclusion barred coverage for all claims in the underlying action, including potential sexual-assault claims, because the damages arose out of employment-related personnel practices, policies, acts, or omissions.
6. The insureds failed to state claims for breach of the implied covenant of good faith and fair dealing or insurance bad faith because the exclusions conclusively precluded coverage and the insurers' denial of defense and indemnity was reasonable and legally justified.

Questions Presented

1. Whether the employment-related-practices exclusion in PMIC's policy barred any potential duty to defend or indemnify the insureds for the underlying employment-related claims, including potential claims for sexual assault, false imprisonment, and negligence.
2. Whether PMIC's employer-liability exclusion independently barred coverage for the underlying employee's alleged bodily injuries.
3. Whether MAIC's C.7 exclusion barred coverage for the underlying claims, including potential sexual-assault claims, because the damages arose from employment-related personnel practices, acts, or omissions.
4. Whether the insureds stated claims for breach of contract, breach of the implied covenant of good faith and fair dealing, or declaratory relief against PMIC and MAIC.

Disposition

dismissed