W. Marine Prods., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA

572 F.Supp.3d 841

WEST MARINE PRODUCTS, INC., Plaintiff,

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, et al., Defendants.

Case No. 5:21-cv-01940-EJD

United States District Court, N.D. California, San Jose Division.

Signed November 22, 2021

Shaun Hamilton Crosner, Jacquelyn Michelle Mohr, Michael Stephen Gehrt, Nicolas Aidan Pappas, Pasich LLP, Manhattan Beach, CA, for Plaintiff.

Michael James Hartley, Courtney Ashe Palko, Baute Crochetiere & Hartley LLP, Los Angeles, CA, for Defendant National Union Fire Insurance Company of Pittsburgh, PA.

Ralph Anthony Guirgis, Sean Robert Simpson, Clyde & Co. US LLP, Irvine, CA, for Defendant Westchester Fire Insurance Company.

ORDER GRANTING NATIONAL UNION'S MOTION TO DISMISS; GRANTING IN PART WESTCHESTER'S MOTION TO DISMISS

Re: Dkt. Nos. 22, 23

EDWARD J. DAVILA, United States District Judge

In this insurance coverage dispute, Plaintiff West Marine Products, Inc. ("West Marine") seeks coverage for two wage and hour lawsuits filed in state court: Adams v. West Marine Products, Inc. , San Mateo County Superior Court Case No. 19CIV00436 ("Adams Action") and Wade v. West Marine Products, Inc. , Sonoma County Superior Court Case No. SCV-265874 ("Wade Action") (collectively, the "Underlying Actions")—under insurance policies issued by Defendants National Union Fire Insurance Company of Pittsburgh, PA ("National Union") and Westchester Fire Insurance Company ("Westchester"). West Marine alleges that National Union owes a duty to defend and indemnify it against the Adams Action, and that Westchester owes a duty to defend and indemnify it against both Underlying Actions.

Defendants have filed separate motions to dismiss. Dkt. Nos. 22, 23. National Union contends that there is no coverage for the Adams Action because (1) the alleged wage and hour violations are not Claims for Loss "arising from" an "Employment Practices Violation" ("EPV"), as that phrase is defined in the National Union Policy and (2) the Policy Exclusion, "Compensation & Labor Liability," applies. Dkt. No. 23. Westchester argues that there is no coverage because the alleged wage and hour violations in the Adams and Wade Actions do not qualify as an "Employment Practices Wrongful Act," as that phrase is defined in the Westchester Policy. In the alternative, Westchester contends that coverage for the Adams Action and at least a portion of the Wade Action are precluded by an exclusion in its Policy. Dkt. No. 22. Westchester also contends that it has no duty to defend in the Underlying Actions because its Policy provides that West Marine, not Westchester, has the duty to defend claims which are excluded in full or in part by any exclusion. For the reasons discussed below, National Union's motion to dismiss is GRANTED, and Westchester's motion to dismiss is GRANTED in part.

I. BACKGROUND

A. Adams Action

Adrianne Adams ("Adams"), a former West Marine employee, initiated the Adams Action in January 2019. See generally Dkt. No. 1-1 at 400–428. The Adams Complaint alleges ten causes of action: (1) failure to pay overtime wages in violation of California Labor Code ("CLC") §§ 510 and 1198 ; (2) failure to provide meal breaks in violation of CLC §§ 226.7 and 512(a); (3) failure to provide rest breaks in violation of CLC § 226.7; (4) failure to pay minimum wages in violation of CLC §§ 1194, 1197 and 1197.1; (5) failure to pay timely wages at termination in violation of CLC §§ 201, 202, and 203; (6) failure to timely pay wages during employment in violation of CLC § 204; (7) failure to provide accurate wage statements in violation of CLC § 226(a); (8) failure to keep accurate payroll records in violation of CLC § 1174(d); (9) violation of California Business & Professions Code section 17200 ("UCL") based on the alleged CLC violations; and (10) violation of CLC section 2699 et seq. , the Private Attorneys General Act ("PAGA") based on West Marine's alleged CLC violations. Id. The Adams Complaint seeks restitution of unpaid wages, statutory damages, statutory penalties, interest, and attorneys’ fees. Id. at 424–28. The parties have reached a tentative settlement and are seeking court approval of the settlement.

B. Wade Action

Michael Wade ("Wade") filed the Wade Action in January of 2020, asserting a single cause of action under PAGA. Wade alleges that during his 15 years as an employee, "Defendants engaged in a uniform policy and systematic scheme of wage abuse against their hourly-paid or non-exempt employees." Id. at 435. Under the heading First Cause of Action, Wade alleges that West Marine subjected employees to violations of the CLC by: (a) failing to pay minimum wage in violation of CLC §§ 1194 and 1198 ; (b) failing to pay overtime in violation of CLC §§ 204, 510, 1194, and 1198 ; (c) failing to provide and pay proper compensation for meal periods in violation of CLC §§ 226.7 and 512; (d) failing to provide and pay proper compensation for rest periods in violation of CLC §§ 226.7 and 512; (e) failing to pay wages at the end of employment in violation of CLC § 203; (f) failing to pay wages in a timely manner during employment in violation of CLC § 204 ; (g) failing to furnish complete, accurate, itemized wage statements in violation of CLC § 226; (h) failing to maintain accurate records relating to work periods, meal periods, total daily hours, hours per pay period, and applicable pay rates in violation of CLC § 1174; (i) failing to reimburse for necessary business-related expenses and costs in violation of CLC §§ 2800 and 2802; and (j) failing to pay accrued but unused vacation time in violation of CLC § 227.3. Id. at 441-42. Wade seeks statutory attorney's fees and costs, prejudgment interest, and civil penalties. Id. at 443.

C. West Marine's Coverage Dispute With National Union

West Marine demanded coverage for Adams under National Union's Employment Practices Liability Insurance Policy No. 02-880-15-42, which National Union issued to West Marine's parent company for the December 1, 2016 to December 1, 2017 Policy Period, with a six-year runoff endorsement from September 14, 2017 through September 14, 2023. Id. at Ex. A. National Union declined coverage, asserting that the Adams Action does not allege any EPV. Id. at 15, ¶ 61. The National Union Employment Practices Liability Coverage provision states:

This policy shall pay the Loss of each and every Insured arising from a Claim made against such Insured for any [EPV].

Id. at 38. A "Claim" is defined in pertinent part as a civil proceeding for monetary, non-monetary or injunctive relief that is commenced by a complaint. Id. at 52. The Policy defines EPVs as any actual or alleged:

(1) wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of an implied contract;

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(5) employment-related misrepresentation(s) to an Employee of any Organization;

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or

(12) with respect to any of the foregoing items (1) through (11) of this definition: negligent hiring, retention, training or supervision, infliction of emotional distress or mental anguish, failure to provide or enforce adequate or consistent corporate policies and procedures, or violation of an individual's civil rights;

but only if the Employment Practices Violation relates to an Employee of or an applicant for employment with an Organization or an Outside Entity, whether committed directly, indirectly, intentionally or unintentionally.

Id. at 54–55.

National Union also declined coverage on the basis of Policy Exclusion (6), which precludes coverage for Loss in connection with any Claim:

(a) for any violation of responsibilities, obligations or duties imposed by the Fair Labor Standards Act ["FLSA"] ... or any similar ... state ... law or amendment to a law; or

(b) alleging, arising out of, based upon or attributable to any of the circumstances described in any of the following:

(i) the refusal, failure or inability of any Insured to pay wages or overtime pay (or amounts representing such wages or overtime pay) for services rendered or time spent in connection with work related activities (as opposed to tort-based back pay or front pay damages for torts other than conversion); [or]

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(iii) failure to provide or enforce legally required meal or rest break periods; ...

Id. at 40.

D. Coverage Dispute with Westchester

West Marine demanded coverage for the Underlying Actions under a Westchester Policy issued to the parent company of West Marine. Id. at 15. This Policy obligates Westchester to:

[p]ay the Loss of the Insureds which the Insureds have become legally obligated to pay by reason of an Employment Practices Claim first made against the Insureds during the Policy Period or, if elected, the Extended Period ... for an Employment Practices Wrongful Act taking place prior to the end of the Policy Period .

Id. at 106 (emphasis in original). "Employment Practices Claim" is defined to mean, in pertinent part, "b) a civil, judicial, administrative, regulatory, arbitration or mediation proceeding against an Insured seeking monetary damages or nonmonetary or injunctive relief ... brought by or on behalf of an Employee in their capacity as such." Id. at 107. The Westchester Policy specifies thirteen types of "Employment Practices Wrongful Acts," three of which are at issue here: (1) "breach of an actual or implied employment contract"; (2) "employment-related ... misrepresentation"; and (3) the "wrongful failure or refusal to adopt or enforce workplace or employment practices, policies or procedures." Id. at 107.

In addition, pursuant to subsection 4 of Section C [Exclusions], insurance under Westchester's Employment Practices Coverage Section is subject to the following exclusion:

Insurer shall not be liable to make payment for Loss under this Coverage Section on account of any Claim :

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2. alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving: (i) improper payroll deductions, unpaid wages,

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