Plaintiffs are the heirs of a motorcyclist who died in an accident caused by an employee of Sinco Co., Inc. ("Sinco"). Sinco had an automobile policy, an excess and umbrella policy, and a commercial general liability ("CGL") policy. The CGL policy was issued by Fireman's Fund. Plaintiffs partially settled with Sinco and its employee for the full policy limits under the automobile policy and the excess and umbrella policy. Fireman's Fund denied coverage and defense under the CGL policy, on the basis that the employee was an insured under the policy and therefore the policy's exclusion for automobile accidents applied. In the partial settlement, plaintiffs, Sinco and the employee agreed to arbitrate plaintiffs' claims and plaintiffs took an assignment of Sinco's claims under the CGL policy against Fireman's Fund.
The arbitrator awarded plaintiffs more than $27 million. The arbitrator found that the employee was acting within the course and scope of his employment at the time of the accident, and that Sinco had been negligent in hiring and retaining the employee, an uninsured and undocumented alien with a lengthy criminal record. The arbitrator further found that at the time of the accident, the employee needed the automobile to visit job sites, he was on his way to work in the vehicle he used to visit job sites, and that he was under the influence of drugs and driving erratically. After the arbitrator's award, plaintiffs filed this bad faith action against Fireman's Fund. Fireman's Fund demurred to the complaint arguing that the automobile exclusion applied. The trial court sustained the demurrer without leave to amend, holding that the CGL policy provided no coverage for the automobile accident.
On appeal, plaintiffs asserted: (1) that the policy definition of "insured" was not equivalent to vicarious tort liability; (2) that the employee was not an "insured" because at the time of the accident he was not performing duties related to the conduct of Sinco's business, and therefore the automobile exclusion does not apply; and (3) that Fireman's Fund had a duty to defend the claim because there is a potential for coverage. The appellate court affirmed the dismissal of the action on demurrer, holding that the employee was an insured, rendering the automobile exclusion applicable, and negating any duty to defend.
The CGL policy at issue defines "insured" to include employees, "but only for acts within the scope of their employment while performing duties related to the conduct of [Sinco's] business." Plaintiffs asserted that the latter phrase limited the "within the scope of employment" condition. Thus, according to plaintiffs, Fireman's Fund narrowed the definition of "insured", and thereby narrowed the scope of its automobile exclusion. Plaintiffs argued that although the arbitrator concluded that Sinco was liable under a respondeat superior theory because its employee was acting within the scope of his employment, the insurance policy language was different that the requirement for establishing respondeat superior liability. Plaintiffs argued that while the employee was considered, for the purpose of tort liability, to be in the course and scope of his employment, he was, for purposes of insurance coverage, on his way to work but had not yet gotten there, and therefore was not an "insured."
The appellate court rejected plaintiffs argument, stating that it is difficult to conceive of activities within the course and scope of employment that would not constitute duties related to the conduct of the business. The appellate court cited the Supreme Court's decision in Hinojosa v. Workmen's Comp. Appeals Bd. (1972) 8 Cal.3d 150, which held that when an employee was required to use his own vehicle to go to various work sites, the use of the vehicle was a requirement of employment. The Supreme Court stated that in such situations, "the employer clearly benefited from [the employee's] bringing the car to work." Sinco benefitted from the employee driving his vehicle to work for use in the business. If the employee did not drive his automobile to work, he would not be able to drive the automobile to the work sites as required. The appellate court went on to state that "[i]f an employee's activity is not purely personal, it is related to the conduct of the business."
As to the duty to defend, plaintiffs argued that at the time of the Sinco action, there was a potential for coverage, because extrinsic facts showed that the employee was on his way to work and that there was a potential for a finding that the "going and coming" rule would apply, thereby excluding the employee from having done the act in the course and scope of his employment. The appellate court disagreed, finding that at all relevant times, the "required vehicle" exception to the "going and coming" rule applied, and therefore the employee was acting within the course and scope of his employment. Additionally, at the time plaintiffs filed their complaint in the Sinco action, they alleged, in effect, that the employee was the agent of Sinco and acting within the course and scope of his authority. Accordingly, the complaint and the matters that were judicially noticed legally supported Fireman's Fund's position that it had no duty to defend.
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