gno.law

California Insurance Guarantee Ass'n v. Wood

California Court of Appeal · D008821 · 1990-01-31 · Published · 217 Cal. App. 3d 944 · 266 Cal. Rptr. 250 · 1990 Cal. App. LEXIS 78

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff and Respondent, v. IVAN A. WOOD, as Executor, Etc., Defendant and Appellant

Proceeding
appeal
Trial court
Superior Court of San Diego County
Trial judge
Jeffrey T. Miller
Outcome
other — D008821. Fourth Dist., Div. One.
Area
civil
Panel
Howard B. Wiener (author)

Analysis

A model's reading — qwen3.8-27b, prompt v1, 2026-10-13T07:37Z · confidence high

The trial court granted summary judgment in favor of CIGA, declaring that Cal-Farm was not obligated to defend or indemnify the Estate in the underlying wrongful termination action because the claims fell within the policy's exclusion for injuries arising out of business pursuits. The Court of Appeal affirmed the judgment, holding that the policy exclusion was unambiguous and applied to the alleged negligent infliction of emotional distress.

Ruling reviewedStandardThe courtThe model
Summary judgment declaring Cal-Farm had no duty to defend or indemnify the Estate in the Gonzalez lawsuit.
“In these circumstances Cal-Farm was not obligated to either defend or indemnify the Estate in the Gonzalez lawsuit. The court’s ruling was correct.”
de novocorrectagree with court
The appellate court correctly applied the standard that the duty to defend is determined by the allegations in the complaint and the policy language. It properly identified that the exclusion for injuries 'arising out of business pursuits' was unambiguous and covered the alleged emotional distress resulting from the termination of employment, which is a business pursuit. The court correctly distinguished the duty to defend from the merits of the underlying claim, noting that even if the claim were valid, the policy exclusion barred coverage.

Authorities

  • relied: Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263 — The duty to defend is broader than the duty to indemnify and is limited by the nature and kind of risk covered by the policy.
  • relied: CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598 — The insurer must defend if the complaint contains language creating the potential of liability under the policy, even if independent facts show the claim is not covered.
  • relied: Remmer v. Glen Falls Indent. Co. (1956) 140 Cal.App.2d 84 — An insurer is not required to defend when the complaint shows on its face that the injury is excluded from the policy.
  • relied: Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709 — An insurer can exclude coverage by language which is conspicuous, plain, and clear.
  • relied: Marlene F. v. Affiliated Psychiatric Medical Clinic, Inc. (1989) 48 Cal.3d 583 — Used to question the sufficiency of the underlying cause of action for negligent infliction of emotional distress, though the court noted this was not the issue on appeal.
  • relied: Thing v. La Chusa (1989) 48 Cal.3d 644 — Used to question the sufficiency of the underlying cause of action for negligent infliction of emotional distress, though the court noted this was not the issue on appeal.

The appellate opinion: sound — The opinion is sound because it correctly distinguishes the duty to defend from the merits of the underlying claim and applies the unambiguous policy exclusion to the specific facts alleged. It properly relies on established California authority regarding the breadth of the duty to defend and the effect of clear exclusions.

How this analysis was made · dispute it

A model's reading — claude-fable-5-1, prompt v1, 2026-10-13T04:32Z · confidence medium

The trial court granted summary judgment declaring that Cal-Farm (succeeded by CIGA) had no duty to defend or indemnify the Whelan Estate in the Gonzalez wrongful termination suit, including Maria Gonzalez's negligent infliction of emotional distress claim. The Court of Appeal affirmed, holding that although the duty to defend is broader than the duty to indemnify and does not turn on the merits of the underlying claim, Maria's alleged injuries fell squarely within the Farm and Ranch Master-Pak policy's exclusion for personal injury arising out of the business pursuits of the insured.

Ruling reviewedStandardThe courtThe model
Summary judgment that Cal-Farm had no duty to defend the Estate because Maria Gonzalez's negligent infliction of emotional distress claim fell within the Master-Pak policy's business pursuits exclusion
“Maria’s allegations of how she sustained her emotional distress bring her squarely within the policy’s unambiguous and plainly stated exclusion.”
unclearcorrectunsure
The court correctly rejected the Estate's framing (whether Maria stated a valid cause of action) and correctly stated the Gray/CNA rule that the insurer must defend if the complaint potentially seeks covered damages regardless of the claim's legal merit. Its application of the exclusion is plausible on these facts: the termination letters and Maria's own 'direct victim' allegations tie her injury to the operation of the ranch. But the court never articulated a standard of review, never asked whether the ranch operation itself is a 'business pursuit' excluded under a policy sold to a farm and ranch (an exclusion that would seemingly swallow the policy's purpose and thus might be ambiguous and construed against the insurer), did not address Crane v. State Farm's test for 'business pursuits,' and did not consider that the Master-Pak appears to be an excess policy. The result is defensible but the analysis is thin on the dispositive question.
Declaratory judgment that neither policy, including the Agri-Pak Farmowners policy, obligated Cal-Farm to defend or indemnify
“In these circumstances Cal-Farm was not obligated to either defend or indemnify the Estate in the Gonzalez lawsuit. The court’s ruling was correct.”
unclearcorrectunsure
The opinion analyzes only the business pursuits exclusion in the Farm and Ranch Master-Pak policy yet affirms as to both policies. The Agri-Pak policy's quoted exclusion (c) reaches only injury to an employee, which Maria was not, and the opinion does not explain why that policy's 'occurrence' (accidental cause) language or any exclusion defeats potential coverage for her claim. There may well be a sound answer (intentional termination letters are not an 'accident'), but the court does not give it, so I cannot confirm the ruling is correct from the opinion alone.

Authorities

  • relied: Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263 — The duty to defend is broader than the duty to indemnify and is measured by the potential for coverage under the policy, limited by the nature and kind of risk covered.
  • relied: CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598 — An insurer must defend whenever the complaint contains language creating the potential of liability under the policy, even if the insurer independently knows facts showing the claim is not covered.
  • relied: Remmer v. Glen Falls Indemnity Co. (1956) 140 Cal.App.2d 84 — An insurer need not defend when the complaint shows on its face the injury is excluded from the policy, but must defend a suit that potentially seeks damages within coverage.
  • relied: Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709 — An insurer may exclude coverage by language that is conspicuous, plain and clear.
  • relied: Marlene F. v. Affiliated Psychiatric Medical Clinic, Inc. (1989) 48 Cal.3d 583 — Cited only to note doubt about the sufficiency of Maria's negligent infliction of emotional distress claim; the court held the merits were not the issue.
  • relied: Thing v. La Chusa (1989) 48 Cal.3d 644 — Cited only to note doubt about the sufficiency of a bystander emotional distress claim; not determinative of the duty to defend.
  • missed: Crane v. State Farm Fire & Casualty Co. (1971) 5 Cal.3d 112 — The Supreme Court construed a 'business pursuits' exclusion narrowly, requiring continuity and a profit motive and resolving doubts about the exclusion's scope against the insurer; the court here applied the exclusion without addressing this controlling construction.

The appellate opinion: sound with gaps — The opinion correctly separates the duty to defend from the merits of the underlying claim and states the governing Gray/CNA/Remmer rules with the right authorities, and the conclusion that a ranch hand's termination arises out of the insured's business is defensible. It skips, however, any discussion of whether a farm's own operations are a 'business pursuit' excluded under a farm and ranch policy (and the Crane construction of that term), does not state the standard of review, and affirms as to the Agri-Pak policy without analyzing it.

How this analysis was made · dispute it

record incomplete

Opinion — Wiener

Opinion

WIENER, Acting P. J.—

Defendant Ivan A. Wood, executor of the estate of Ellen Douglas Whelan (Estate), appeals the summary judgment entered in favor of plaintiff California Insurance Guarantee Association (CIGA), the successor to Cal-Farm Insurance Company (Cal-Farm). The judgment declared Cal-Farm was not obligated to indemnify and/or defend the wrongful termination action filed against the Estate by Reyes and Maria Gonzalez. We affirm.

I

Reyes Gonzalez worked as a ranch hand at the Whelan Ranch in Oceanside from 1970 until he was discharged in 1985. Following his termination he and his wife sued his former employer for damages based on contract and tort theories.

During Reyes’s employment the Estate was covered by two Cal-Farm general comprehensive insurance policies: the Farm and Ranch Master-Pak policy and the Agri-Pak Farmowners policy. 1 CIGA filed this declaratory *947 relief action to determine whether the policies required Cal-Farm to defend and/or indemnify the Whelan Estate in the Gonzalez lawsuit.

Wood’s argument that Cal-Farm must defend the Estate in the wrongful termination action rests solely on Maria Gonzalez’s cause of action for negligent infliction of emotional distress. Maria alleges she is entitled to damages because she witnessed her husband suffer severe emotional distress upon receipt of the December 1984 and May 1985 termination letters; she was a direct victim of the defendant’s acts because her husband’s termination directly affected her future security, including the loss of present and future income and loss of her home of 15 years; and it was foreseeable defendant’s acts would cause her serious emotional distress.

II

The Estate argues Cal-Farm is obligated to defend because Maria Gonzalez has stated a valid cause of action for negligent infliction of emotional distress. In effect the Estate says Maria’s allegations of negligent infliction of emotional distress are sufficient to withstand a general demurrer. This argument, however, is misdirected. The validity of Maria’s cause of action is a different issue than the question of Cal-Farm’s duty to defend. While we seriously question the sufficiency of Maria’s cause of action in light of Marlene F. v. Affiliated Psychiatric Medical Clinic, Inc. (1989) 48 Cal.3d 583 [257 Cal.Rptr. 98, 770 P.2d 278] and Thing v. La Chusa (1989) 48 Cal.3d 644 [257 Cal.Rptr. 865, 771 P.2d 814], this is not the issue before us. Our task is to determine whether the facts alleged at the outset of the Gonzalez lawsuit required Cal-Farm to defend pursuant to the terms of its policies.

Although insurers and insureds routinely speak of the insurer’s duty to “indemnify and defend” as if the duties were coextensive, it is well settled that the duty to defend is broader than the duty to indemnify. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 274 [54 Cal.Rptr. 104, 419 P.2d 168]; CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 605 [222 Cal.Rptr. 276].) “We look to the nature and kind of risk covered by the policy as a limitation upon the duty to defend; . . (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 275.) ”[T]he insurer is *948 not required to defend an action against the insured when the complaint in that action shows on its face that the injury complained of is not only not covered by, but is excluded from, the policy.” (Remmer v. Glen Falls Indent. Co. (1956) 140 Cal.App.2d 84, 90 [295 P.2d 19, 57 A.L.R.2d 1379].) However, the insurer must defend a suit which potentially seeks damages within the coverage of the policy. (Ibid.) “Indeed, the duty to defend is so broad that as long as the complaint contains language creating the potential of liability under an insurance policy, the insurer must defend an action against its insured even though it has independent knowledge of facts not in the pleadings that establish that the claim is not covered.” (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 606.)

Thus, notwithstanding the doubtful validity of Maria’s cause of action, Cal-Farm must defend if the policies’ terms require it to do so. Where there is coverage an insurer must defend even though the insured may ultimately prove the case to be legally meritless. (See Jackson TP., etc. v. Hartford Acc. & Indent. (1982) 186 N.J.Super. 156 [451 A.2d 990, 992].) To conclude otherwise would not only frustrate the insured’s reasonable expectation that the insurer will defend, but also create a peculiar form of coverage restricted to only those cases which the insurer decides are brought on meritorious legal and factual grounds. To permit the insurer to determine its duty to defend in this manner would hardly give the insured the peace of mind and security which the insured, has every right to expect. Accordingly, the issue here is not whether Maria will ultimately prevail on her complaint, but whether Cal-Farm had a duty to defend under the policies issued to the Estate. In making this determination we look to the language of the policies.

Ill

An insurer can exclude coverage by language which is conspicuous, plain and clear. (Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709, 721 [193 Cal.Rptr. 632].) Where the insurer does so in unambiguous terms the insured has no rights under the contract.

The uncontradicted facts here demonstrate that the cause of action for negligent infliction of emotional distress comes within the literal language of the exclusion set forth in subparagraph (b) of the Farm and Ranch Master-Pak policy pertaining to personal injuries “arising out of the business pursuits of the insured.” 2 Specifically, the December 1, 1984, letter to Reyes Gonzalez states that he is being terminated due to “continuing operating losses primarily as a result of excessive labor costs.” The May 3, 1985, *949 letter declares that Reyes’s “temporary work position will be eliminated and there is no other permanent work available.” Clearly these allegations relate to personal injuries “arising out of the business pursuits of the insured.” Maria appears to recognize the nexus between her husband’s employment and her injuries. She specifically alleges she is the “direct victim” of the defendant’s acts in terminating her husband. Maria’s allegations of how she sustained her emotional distress bring her squarely within the policy’s unambiguous and plainly stated exclusion. In these circumstances Cal-Farm was not obligated to either defend or indemnify the Estate in the Gonzalez lawsuit. The court’s ruling was correct.

Disposition

Judgment affirmed.

Huffman, J., and Froehlich, J., concurred.

1

The Farm and Ranch Master-Pak policy provides the insured with liability coverage for “ultimate net loss in excess of the applicable underlying limit which the insured shall become legally obligated to pay as damages because of [1|] 1. personal injury, or [j[] 2. property damage to which this insurance applies.”

Subparagraph (a) excludes insurance coverage for “. . . personal injury or property damage arising out of any act committed by or at the direction of the insured with intent to cause personal injury or property damage,. . .” Subparagraph (b) excludes insurance coverage for “personal injury or property damage arising out of business pursuits of the insured or property at or from which a business or profession is conducted by the insured; . . . .” Subparagraph (d) excludes insurance coverage for “. . . any obligation for which the insured or any carrier as his insurer may be held liable under any workmen’s compensation, unemployment compensation or disability benefits law, or under any similar law; . . .”

An “occurrence” under the Farm and Ranch Master-Pak policy is defined in paragraph 8 as “an accident, including injurious exposure to conditions, which results, while this policy is in force, in personal injury or property damage which is neither expected nor intended from the standpoint of the insured.”

The Agri-Pak Farmowners policy provides liability coverage for any “occurrence” under the policy. “Occurrence” is defined in part as “an accident, or a continuous or repeated expo *947 sure to conditions which result in damages during the policy period provided the cause is accidental. All damages arising out of such exposure due to substantially the same conditions, shall be considered as arising out of one occurrence. . . .”

Paragraph (c) of the Agri-Pak policy excludes claims applicable to “[b]odily injury or to sickness, disease or death of (1) any employee of the Insured while engaged in the employment of the Insured,...”

2

See footnote 1, ante, pages 946-947.

Cites, in this corpus

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