State Compensation Insurance Fund Motion

Case 4:16-cv-06554-YGR Document 68 Filed 06/13/17 Page 1 of 30
JENNIFER D. WELLMAN, Staff Counsel (SB No. 238220)

1 CHARLES J. FORTUNATO, Staff Counsel (SB No. 208373)
State Compensation Insurance Fund
2 Corporate Legal
3880 Owens Drive, 3rd Floor
3 Pleasanton, CA 94588
Telephone: (925) 523-5000
4 Facsimile: (925) 523-5653
5
Attorneys for Third-Party Defendant
6 STATE COMPENSATION INSURANCE FUND
7
8
UNITED STATES DISTRICT COURT
9
NORTHERN DISTRICT OF CALIFORNIA, OAKLAND DIVISION
10
11
12 SENECA INSURANCE COMPANY, INC., CASE NO. 4:16-CV-06554-YGR
13 Plaintiff,
THIRD PARTY DEFENDANT STATE
14 vs. COMPENSATION INSURANCE FUNDS
OPPOSITION TO CYBERNET
15 CYBERNET ENTERTAINMENT, LLC; et al., ENTERTAINMENT, LLCS MOTION
FOR PARTIAL SUMMARY JUDGMENT
16 Defendants. AND NOTICE OF CROSS MOTION AND
CROSS MOTION FOR SUMMARY
17 JUDGMENT AGAINST CYBERNET
CYBERNET ENTERTAINMENT, LLC, ENTERTAINMENT, LLC. [FED R. CIV.
18 PROC., RULE 56]
Third Party Plaintiff,
19
vs. Date: July 18, 2017
20 Time: 2:00 p.m.
STATE COMPENSATION INSURANCE Courtroom: 1, 4th Floor
21 FUND, Judge: Hon. Yvonne Gonzalez Rogers
22 Third Party Defendant.
23
24
25
26
27
28
STATE FUNDS OPPOSITION TO CYBERNETS MOTION FOR PARTIAL SUMMARY JUDGMENT AND
CROSS MOTION FOR SUMMARY JUDGMENT AGAINST CYBERNET
1 TABLE OF CONTENTS
2 I. INTRODUCTION .................................................................................................................... 1
3
II. FACTUAL BACKGROUND ................................................................................................... 3
4
A. The Workers Compensation Claims .................................................................................. 3
5
B. The Defense and Withdrawal of Defense by State Fund of the Lawsuits .......................... 4
6
C. Summary Of The Underlying Allegations .......................................................................... 4
7
D. Policy Information .............................................................................................................. 5
8
9 III. SUMMARY JUDGMENT STANDARD ................................................................................ 7
10 IV. THE DUTY TO DEFEND UNDER A WORKERS COMPENSATION POLICY IS

VERY NARROW ..................................................................................................................... 7
11
V. LEGAL ARGUMENT .............................................................................................................. 8
12
13
A. The Court Must Deny Cybernets Partial Summary Judgment Motion Because It
Cannot Prove That The Plaintiffs Were Cybernet Employees ........................................... 8
14
B. State Fund Has No Duty To Defend Cybernet In The Lawsuits Under Part Two
15 Of The Policy Because The Claims Are Exclusively Covered By Californias
Workers Compensation System ........................................................................................ 9
16
17
1. The Workers Compensation Exclusion in Part Two Precludes Coverage For
Claims Covered By Part One Of The Policy .............................................................. 13
18
2. State Funds Motion Must Be Granted Because No Applicable Statutory
19 Exceptions To Californias Workers Compensation Exclusive Remedy Rule
Apply To This Case .................................................................................................... 15
20
21 3. State Funds Motion Must Be Granted Because No Common Law Exceptions

to Californias Workers Compensation Exclusive Remedy Rule Apply .................. 16
22
C. State Fund Has No Duty to Defend Or Indemnify Cybernet Under Part Two Of
23 The Policy ......................................................................................................................... 20
24
1. State Funds Motion Must Be Granted Because Part Two Of The Policy
25 Expressly Bars Coverage For Cybernets Alleged Intentional Acts........................... 20
26 2. State Funds Motion Must Be Granted Because State Fund Has No Duty to
Defend Cybernet Against Intentional Acts Pursuant to California Insurance
27 Code Section 533. ....................................................................................................... 21
28
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3. Other Intentional Acts................................................................................................. 22

1
2
a. Allegations of Ratification Do Not Obligate State Fund to Defend or
Indemnify Cybernet In The Lawsuits. .................................................................. 22
3
b. Emotional Distress Allegations Do Not Give Rise To A Duty To Defend
4 Or Indemnity Cybernet In The Lawsuits. ............................................................. 24
5
VI. CONCLUSION....................................................................................................................... 25
6
10
11
12
13
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15
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1 TABLE OF AUTHORITIES
2
Cases
3
Aetna Cas. Surety Co. v. Sheft H, 989 F.2d 1105 (9th Cir. 1993) ...................................................... 22
4
Bailey v. Interinsurance Exch., 49 Cal. App. 3d 399 (1975) .............................................................. 15
5
6 Baptist v. Robinson, 143 Cal. App. 4th 151 (2006) ............................................................................ 23
7 Culligan v. State Comp. Ins. Fund, 81 Cal. App. 4th 429 (2000) .......................................... 11, 14, 15
8
Everest Natl Ins. Co. v. Valley Flooring Specialties, 2009 U.S. Dist. LEXIS 36757, No. CV
9 F 08-1695 LJO GSA (E.D. Cal. 2009) ............................................................................................. 7
10 Fermino v. Fedco, 7 Cal. 4th 701 (1994) ........................................................................................... 16

11
Fretland v. Cnty. of Humboldt, 69 Cal. App. 4th 1478 (1987) ........................................................... 23
12
Gen. Star Indem. v. Schools Excess Liability, 888 F. Supp. 1022 (N.D. Cal. 1995) ............................ 7
13
14 Hart v. Natl Mortg. & Land Co., 189 Cal. App. 3d 1420 (1987) ...................................................... 23
15 Herrick v. Quality Hotels, and Inns & Resorts, Inc, 19 Cal. App. 4th 1608 (1993) .......................... 24
16
Holz Rubber Co., Inc. v. Am. Star Ins. Co., 14 Cal. 3d 45 (1975) ...................................................... 13
17
La Jolla Beach & Tennis Club, Inc. v. Indus. Indem, 9 Cal. 4th 27 (1994)........................................ 10
18
19 LaTourette v. Workers Comp. Appeals Bd., 17 Cal. 4th 644 (1998) ................................................. 13
20 Lee v. W. Kern Water Dist., 5 Cal. App. 5th 606 (2016) .................................................................... 17
21
Mirpad, LLC v. Calif. Ins. Guar. Assn 132 Cal. App. 4th 1058 (2005) ............................................ 23
22
Power Fabricating, Inc. v. State Comp. Ins. Fund, 167 Cal. App. 4th 1446 (2008) ............................ 9
23
24 Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903 (1986) .................................. 7, 8, 11
25 Rakestraw v. Rodrigues, 8 Cal. 3d 67 (1972) ..................................................................................... 23

26
Reagens Vacuum Truck Serv., Inc. v. Beaver Ins. Co., 31 Cal. App. 4th 375 (1994). ......................... 7
27
Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800 (1982) ............................................................................ 8
28
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S.G. Borello & Sons v. Dept of Indus. Relations, 48 Cal. 3d 341 (1989)............................................ 9
1
2 Silberg v. California Life Ins. Co., 11 Cal. 3d 452 (1974) ................................................................. 13
3 StreetScenes v. ITC Entmt Grp., Inc., 103 Cal. App. 4th 233 (2002)................................................ 23
4
Transamerica Ins. Co. v. Sup. Court, 29 Cal. App. 4th 1705 (1994) ................................................. 14
5
Transp. Indem. Co. v. Aerojet Gen. Corp., 202 Cal. App. 3d 1184 (1988) ........................................ 21
6
Statutes
7
8 Cal. Civ. Code 1641......................................................................................................................... 13

9
Cal. Ins. Code 533 ..................................................................................................................... 19, 21
10
Cal. Ins. Code 11750.1 ...................................................................................................................... 8
11
12 Cal. Lab. Code 3600 .................................................................................................................. 10, 11
13 Cal. Lab. Code 3602 .................................................................................................................... 8, 24

14
Cal. Lab. Code 4558 .......................................................................................................................... 8
15
16 Rules
17 Cal. Admin. Code, tit. 10, 2350 ......................................................................................................... 8
18
19
20
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25
26
27
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1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE

2 THAT, on July 18 at 2:00 p.m. or as soon thereafter as this matter may be heard in Courtroom 1 of
3 the United States District Court, Northern District of California, Oakland Division located at 1301
4 Clay Street in Oakland, California, Third Party Defendant State Compensation Insurance Fund
5 (State Fund) will and hereby does move the Court, per the Federal Rules of Civil Procedure, Rule
6 56, for summary judgment on the grounds that State Fund had no duty to defend or indemnify Third
7 Party Plaintiff Cybernet Entertainment, LLC (Cybernet) in the following civil actions: (1) John
8 Doe v. KINK.COM, et al. (San Francisco Superior Court Case No. CGC-15-545540); (2) Cameron
9 Adams v. KINK.COM, et al. (San Francisco Superior Court Case No. CGC-15-547035), and (3)
10 Joshua Rodgers v. KINK.COM (San Francisco Superior Court Case No. CGC-15-547036)
11 (lawsuits).
12 State Fund requests that the Court grant summary judgment in its favor, by finding that State
13 Fund has no obligation to defend or indemnify Cybernet for the lawsuits under Part Two of the State
14 Fund Policy.
15 State Fund makes this motion on the grounds that, as a matter of law, State Fund owes no
16 duty to defend or indemnify Cybernet under Part Two of the Policy because: (1) the plaintiffs in the
17 lawsuits have as their exclusive remedy under California law for their alleged injuries, workers
18 compensation, the coverage under Part One of the State Fund Policy, and (2) the underlying
19 allegations do not give rise to a duty to defend under Part Two of the State Fund Policy because the
20 underlying allegations are barred from coverage pursuant to California law and/or the express
21 language of the State Fund Policy. State Funds motion is based upon this Notice of Motion and
22 Motion; the accompanying Memorandum of Points and Authorities, State Funds Separate Statement
23 of Undisputed Material Facts, the Declaration of Jennifer D. Wellman, the Declaration of Emily
24 Carpio, the pleadings and records on file in this action; and on such further oral and documentary
25 evidence that may be presented to this Court at the hearing of this motion.
26 I. INTRODUCTION
27 This case involves three injured workers who are attempting to get two bites at the same
28 apple. On the one hand, they seek to recover workers compensation benefits before the Workers
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1 Compensation Appeals Board (WCAB) and, on the other, seek to recover civil damages from their
2 employer in their superior court lawsuits (lawsuits) for the same injuries. As the employers
3 workers compensation carrier at the time, it is State Fund that is caught in the crossfire.
4 The three workers, John Doe, Cameron Adams, and Joshua Rodgers, plaintiffs in the
5 superior court lawsuits, (plaintiffs) work in the adult pornography business and allege that, in
6 2013, they were injured while performing in pornographic films directed and produced by Cybernet
7 Entertainment, LLC (Cybernet). At the time of the alleged injuries, Cybernet had a workers
8 compensation insurance policy (Policy) issued by State Fund. Following the alleged injuries, the
9 workers filed separate claims for workers compensation benefits under Cybernets workers
10 compensation policy.
11 Consistent with its obligations under the Policy, State Fund accepted the workers claims
12 because the alleged occupational injuries occurred during the coverage period. State Fund has paid
13 appropriate medical expenses for the workers claims. The claims are currently pending before the
14 WCAB.
15 One year later, and while State Fund continued to defend the actions in the WCAB, the three
16 workers each filed separate lawsuits against Cybernet seeking damages for the same injuries for
17 which they continue to seek recovery for workers compensation benefits. In response, Cybernet
18 again called on State Fund, this time tendering to State Fund the defense of the lawsuits under the
19 employers liability portion of the Policy. Initially, State Fund provided Cybernet a defense in the
20 lawsuits under a reservation of rights. This defense was later withdrawn in December 2016.
21 Cybernet brought a third party complaint against State Fund in this proceeding seeking a
22 declaration that State Fund has a duty to defend Cybernet in the lawsuits under the employers
23 liability portion of the Policy.
24 On May 23, 2017, Cybernet filed a motion for partial summary judgment. Cybernet seeks a
25 determination that State Fund has a duty to defend Cybernet in the lawsuits under the employers
26 liability portion of the policy. State Fund hereby opposes that motion and, on its own motion, seeks
27 a declaration from this Court that State Fund has no duty to defend under the employers liability
28 portion of the Policy because: (1) all allegations in the lawsuits are covered by Californias workers
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1 compensation statutory framework and are expressly barred from employers liability coverage; (2)
2 State Fund has no duty to defend Cybernet against Cybernets own willful acts; and (3) any
3 allegations relating to Cybernets intentional conduct are expressly excluded from employers
4 liability coverage by the provisions of the Policy.
5 As a result, Cybernets motion for partial summary judgment must be denied and State
6 Funds motion for summary judgment must be granted in its entirety.
7 II. FACTUAL BACKGROUND
8 The plaintiffs allege that they were injured in the course and scope of their work for Cybernet
9 on various occasions between May and August 2013. (Declaration of Jennifer D. Wellman
10 (Wellman Decl.) at 2-4, Exs. A-C.) At the time of the alleged injuries, Cybernet had a workers
11 compensation insurance policy issued by State Fund. (State Fund Separate Statement of Material
12 Facts (State Fund SSUMF) No. 1; Cybernets Separate Statement of Undisputed Material Facts
13 (Cybernet SSUMF), No. 56.) The Policy has two parts: Part One is for payment of workers
14 compensation benefits (Part One) and Part Two is for employers liability insurance (Part Two).
15 Part Two defines the very narrow and only circumstances under which State Fund is required to
16 defend and/or indemnify Cybernet against causes of action by workers employed by Cybernet for
17 damages in civil proceedings (i.e. outside the workers compensation system). (Wellman Decl., 5,
18 Ex. D, Policy, Part Two.)
19 A. The Workers Compensation Claims
20 Prior to filing their lawsuits, the plaintiffs filed claims with State Fund seeking workers
21 compensation benefits for their alleged injuries. (State Fund SSUMF No. 2) State Fund has
22 accepted all three claims for purposes of adjusting the claims and paying benefits, as appropriate.
23 (SSUMF Nos. 3, 4.) State Fund was first advised of the three separate workers compensation
24 claims shortly after the alleged injuries occurred in the Summer of 2013. (Declaration of Emily
25 Carpio (Carpio Decl.) at 3, 8, 12.) To date, State Fund has paid a portion of Cameron Adams
26 claim for which she produced medical evidence of her injury. (Carpio Decl. at 9.) State Fund also
27 paid medical expenses for John Doe that were incurred during the initial thirty (30) day period in
28 which State Fund adjusted the claim. (Carpio Decl. at 7.) To date, State Fund has denied liability
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1 for any remaining portions of the three claims because the plaintiffs have not yet presented sufficient
2 evidence proving that they suffered the claimed injury/disease during the course and scope of
3 employment. (Carpio Decl. at 4, 9, 13)
4 In October 2014, the plaintiffs filed separate applications with the WCAB disputing State
5 Funds initial denial; those actions are currently pending. (Carpio Decl. at 4, 9, 14.) Should the
6 plaintiffs prove in the WCAB action that he/she has suffered an occupational injury/disease in the
7 course and scope of their employment with Cybernet, State Fund will pay all appropriate workers
8 compensation benefits that are due and owing under Part One of the Policy. (State Fund SSUMF
9 No. 9.)
10 B. The Defense and Withdrawal of Defense by State Fund of the Lawsuits
11 In June and July 2015, respectively, the three workers filed the following superior court
12 lawsuits: (1) John Doe v. KINK.COM, et al. (San Francisco Superior Court Case No. CGC-15-
13 545540; (2) Cameron Adams v. KINK.COM, et al. (San Francisco Superior Court Case No. CGC-
14 15-547035, and (3) Joshua Rodgers v. KINK.COM (San Francisco Superior Court Case No. CGC-
15 15-547036 (lawsuits). (Wellman Decl., Exs. A-C.) In response, Cybernet tendered the defense of
16 the lawsuits under Part Two of the Policy which State Fund initially accepted under a reservation of
17 rights. (Declaration of Karen Tynan In Support of Cybernets Motion for Summary Judgment
18 ((Tynan Decl.), 4, Ex. 1.) On December 7, 2016, State Fund withdrew its defense of the
19 lawsuits under Part Two of the Policy which has given rise to this action. (Tynan Decl., 5, Ex. 2.)
20
C. Summary Of The Underlying Allegations
21
The complaints in the lawsuits allege the following causes of action 1:
22
Negligence Based Causes of Action (all plaintiffs):
23
Number One - Negligence
24
Number Two - Negligence Per Se
25
Number Five - Breach of Implied Covenant of Good Faith and Fair Dealing
26
Number Six - Negligent Supervision
27
28
1
The ninth cause of action for premises liability in the lawsuits is not alleged against Cybernet.
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1 Number Seven - Negligent Hiring/Retention

2 Under the circumstances in this case, there is no theory under which State Fund would have a
3 duty to defend Cybernet against the above negligence based causes of action. As discussed below,
4 there is no coverage, whatsoever, for negligence based causes of action under Part Two of the
5 Policy. The Courts inquiry is, therefore, confined to whether any of the intentional allegations
6 trigger employers liability coverage under Part Two of the Policy.
7 Intentional Conduct Causes of Action 2
8 Number Three - Intentional/Fraudulent Misrepresentation
9 Number Four - Civil Conspiracy to Commit Fraud
10 Number Eight - Intentional Infliction of Emotional Distress
11 Number Ten - Battery 3
12 (Wellman Decl., Exs. A-C.) In addition to the fact that these claims are covered by Part One of the
13 Policy, there is no coverage under Part Two of the Policy because the plaintiffs allege that
14 Cybernets intentional acts were despicable and committed knowingly, willfully and maliciously,
15 with the intent to harm, injure, vex, annoy and oppress Plaintiff and with a conscious disregard of
16 Plaintiffs rights, health, and safety. (State Fund SSMUF No. 10; Wellman Decl, Ex. A at 108,
17 120, 165, 189; Ex. B at 95, 107, 152, 191; and Ex. C at 93, 105, 150.) There is, therefore, no
18 coverage for these causes of action under Part Two of the Policy given the intentional act exclusion
19 and California Insurance Code section 533, discussed below.
20 D. Policy Information
21 State Fund issued California Workers Compensation and Employers Liability Policy,
22 policy number 1704509-2012, to Cybernet Entertainment, LLC for the policy period of August 20,
23 2012 to August 20, 2013. The Policy automatically renews every August 20 until cancelled
24 (Cybernet SSUMF No. 56.) Cybernet does not dispute that State Fund has no duty to defend
25 Cybernet in the lawsuits under Part One of the Policy. (State Fund SSUMF No. 13.) As provided
26
27
2
The plaintiffs allege ratification in their intentional tort causes of action only.
28
3
The tenth cause of action was alleged by Doe and Adams only.
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1 above, the tender of defense of the lawsuits was made pursuant to Part Two of the Policy only.
2 (Tynan Decl.) at 4, 5; Ex. 1, 2.). Part Two of the Policy provides:
3 PART TWO EMPLOYERS LIABILITY INSURANCE
4 A. How This Insurance Applies
5 This employers liability insurance applies to bodily injury by accident or bodily

injury by disease of an employee. Bodily injury means physical or mental injury,
6 including resulting death. Bodily injury does not include emotional distress, anxiety,
discomfort, inconvenience, depression, dissatisfaction or shock to the nervous
7 system, unless caused by either a manifest physical injury or a disease with a physical
dysfunction or condition resulting in treatment by a licensed physician or surgeon.
8 Accident is defined as an event that is neither expected nor intended from the
standpoint of the insured.
9
1. The bodily injury must arise out of and in the course of the injured
10
employees employment by you.
11
2. The employment must be necessary or incidental to your work in
California.
12
3. Bodily injury by accident must occur during the policy period.
4. Bodily injury by disease must be caused or aggravated by the
13 conditions of your employment. The employees last day of last exposure to the
conditions causing or aggravating such bodily injury by disease must occur during the
14 policy period.
5. If you are sued, the suit and any related legal actions for damages for
15 bodily injury by accident or by disease must be brought under the laws of the State of
California.
16
B. We Will Pay
17
We will pay all sums you legally must pay as damages because of bodily injury to
18 your employees eligible for benefits under this policy, provided the bodily injury is
covered by this employers liability insurance.
19
***
20
21
C. Exclusions
22 This insurance does not cover:

***
23
4. any obligation imposed by a workers compensation, occupational
24
disease, unemployment compensation or disability benefits law, the provisions of any
25 federal law unless endorsed on this policy or any similar law;
5. damages or bodily injury intentionally caused or aggravated by you;
26
(Wellman Decl., 5, Ex. D, Part Two (emphasis added).)
27
28
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1 III. SUMMARY JUDGMENT STANDARD

2 In the context of employers liability coverage, a moving party is entitled to summary
3 judgment if it proves that there is no duty to indemnify the underlying claims because of governing
4 law, policy terms, or exclusions. Everest Natl Ins. Co. v. Valley Flooring Specialties, 2009 U.S.
5 Dist. LEXIS 36757, No. CV F 08-1695 LJO GSA (E.D. Cal. 2009). [T]he duty to defend is not
6 unlimited and is measured by the nature and kinds of risks covered by the policy. Id., 2009 U.S.
7 Dist. LEXIS at 21 (quoting Waller v. Truck Ins. Exch., 11 Cal. 4th 1, 19 (1995)) (emphasis added).
8 Where a moving party proves that there is governing law and policy language that precludes
9 coverage, there can be no reasonable expectation of a defense and consequently there is no duty to
10 defend. Reagens Vacuum Truck Serv., Inc. v. Beaver Ins. Co., 31 Cal. App. 4th 375, 383 (1994).
11 The insured may not speculate about unpled third party claims to manufacture coverage. Gen.
12 Star Indem. v. Schools Excess Liability, 888 F. Supp. 1022, 1029 (N.D. Cal. 1995), quoting, Hurley
13 Constr. Co. v. State Farm Fire & Cas. Co., 10 Cal. App. 4th 533, 535 (1992).
14 IV. THE DUTY TO DEFEND UNDER A WORKERS COMPENSATION POLICY IS
VERY NARROW
15
As a perfunctory matter, it is worth noting that all duties to defend are not created equal.
16
The duty to defend under the employers liability insurance portion of a workers compensation
17
insurance policy is more narrow than that of a general liability policy. The Court in Producers
18
Dairy Delivery Co. v. Sentry Ins. Co. (Producers Dairy) directly rejected the appellants attempt to
19
compare the workers compensation duty to defend to that of a general liability policy. Producers
20
Dairy, 41 Cal. 3d 903 (1986). In doing so, the Court cited to applicable workers compensation
21
insurance code sections to support its finding that the workers compensation duty to defend was not
22
as broad as the duty to defend in other insurance policies.
23
Insurance Code section 11750, authorizing the creation of a rating organization for
24
workers' compensation, states in pertinent part: "The purpose of this article is to
25 promote the public welfare by regulating concert of action between insurers in
collecting and tabulating rating information and other data that may be helpful in the
26 making of adequate pure premium rates for workers' compensation insurance and for
employers liability insurance incidental thereto and written in connection therewith
27
...." (Italics added.) California Insurance code section 108 provides that general
28 liability insurance shall not include workers compensation coverage.
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The Insurance Commissioner has also ruled that other classes of insurance may not
1
be included in the same policy providing workers' compensation and employers
2 liability insurance. (Cal. Admin. Code, tit. 10, 2350 [general rule 8, published
separately in the Manual of Rules, Classification and Basic Rates for Workers'
3 Compensation Insurance].)
4 Producers Dairy, 41 Cal. 3d at 914-915.
5 The public policy explained in Producers Dairy is further bolstered by the limited statutory carve-
6 outs to the broad scope of the workers compensation exclusive remedy rule. Virtually all injuries
7 suffered in the course and scope of employment fall within the ambit of workers compensation,
8 even if benefits ultimately are not payable for the subject injury. Specifically, there are a few rare
9 instances where the Legislature has carved out injuries from the exclusive remedy provisions of the
10 workers compensation law. These carve-outs authorize such employees to sue their employers in
11 civil court for damages, but not for workers compensation benefits which must be pursued before
12 the WCAB. Cal. Lab. Code 3602, 4558. Importantly, and as discussed below, workers
13 compensation insurance carriers may further limit the scope of employers liability coverage with
14 express exclusions in the policy, as State Fund has done in its Policy, further limiting an insurers
15 duty to defend. Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 809 (1982).
16 V. LEGAL ARGUMENT
17
A. The Court Must Deny Cybernets Partial Summary Judgment Motion Because
18 It Cannot Prove That The Plaintiffs Were Cybernet Employees
19
A prerequisite to coverage under workers compensation or employers liability coverage is
20
that the underlying claim must be made by an employee of the insured. Cal. Ins. Code 11750.1(f)
21
(Employers liability insurance means insurance of any liability of employers for injuries to, or
22
death of, employees arising out of, and in the course of employment ) (emphasis added);
23
Producers Dairy, 41 Cal. 3d at 913-14; (Wellman Decl., Ex. D, Policy, Part Two, A -This
24
employers liability insurance applies to bodily injury by accident or bodily injury by disease of an
25
employee.).
26
To prevail on its motion for partial summary judgment, Cybernet must prove as a matter of
27
law that Cybernet was the plaintiffs employer at the time of the alleged injuries. An independent
28
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1 contractor is not an employee. S.G. Borello & Sons v. Dept of Indus. Relations, 48 Cal. 3d 341,
2 350-51 (1989).
3 John Doe and Joshua Rodgers both assert that they were independent contractors, not
4 employees. (Wellman Decl., Ex. A at 21, and Ex. C at 26). Cybernet has presented no evidence
5 that Doe or Rodgers were not independent contractors at the time of the alleged injuries. In her
6 complaint, Adams does not assert that she was an employee of Cybernet. Instead, Adams states that
7 her talent agent was contacted by Kink.com. (Wellman Decl., Ex. B at 23.) Cybernet has
8 produced no other evidence proving that Adams was one of its employees. As a matter of law,
9 Cybernet has the burden to prove that the plaintiffs were Cybernet employees in order to prevail on
10 its motion. Cybernet, as the moving party, has the burden to show that all elements of its cause of
11 action have been met. Cybernet has failed to prove the required employment status for coverage
12 under the Policy. Therefore, this Court must deny Cybernets motion for partial summary judgment
13 its entirety.
14 Notably, State Fund is not raising the status of the plaintiffs employment in its summary
15 judgment motion because such a distinction does not change the fact that there is no theory under
16 which State Fund has a duty to defend Cybernet in the lawsuits. Regardless of whether the plaintiffs
17 were independent contractors or employees of Cybernet, State Fund has no duty to defend Cybernet
18 in the lawsuits under Part Two of the Policy. Power Fabricating, Inc. v. State Comp. Ins. Fund, 167
19 Cal. App. 4th 1446, 1455 (2008) ([T]he issue regarding who employed Kryzak at the time of the
20 accident does not preclude summary judgment for State Fund. If Kryzak was not Powers
21 employee, ELI coverage would not be triggered. If Kryzak was Powers employee, the workers
22 compensation exclusion would apply.). The Court may, therefore, grant State Funds summary
23 judgment motion without rendering any affirmative determination of the plaintiffs employment
24 status at the time of their alleged injuries.
25 B. State Fund Has No Duty To Defend Cybernet In The Lawsuits Under Part Two
26
Of The Policy Because The Claims Are Exclusively Covered By Californias
Workers Compensation System
27
The court must deny Cybernets motion and grant State Funds motion because State Fund
28
has no duty to defend Cybernet in the lawsuits under Part Two of the Policy for claims that are
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1 exclusively covered by Californias workers compensation system.

2 Part One of State Funds Policy provides for workers compensation benefits. Workers
3 compensation insurance covers claims by injured workers who suffer injuries or occupational
4 diseases in the course and scope of their employment. Cal. Lab. Code 3600; see also La Jolla
5 Beach & Tennis Club, Inc. v. Indus. Indem. (La Jolla Beach)
6 Workers' compensation benefits are designed to provide the injured worker with the
7 medical treatment he/she needs in order to recover from any work related injury or illness, partially
8 replace the wages he/she loses during recovery, and help the injured worker return to work.
9 Generally, all injuries suffered in the course and scope of employment are covered by Californias
10 workers compensation system, and provide the exclusive remedy for the employee. Labor Code
11 section 3602(a) provides:
12
Where the conditions of compensation set forth in Section 3600 concur, the right to
13 recover such compensation is, except as specifically provided in this section and
Sections 3706 and 4558, the sole and exclusive remedy of the employee or his or her
14 dependents against the employer, and the fact that either the employee or the
employer also occupied another or dual capacity prior to, or at the time of, the
15
employee's industrial injury shall not permit the employee or his or her dependents to
16 bring an action at law for damages against the employer.
17
(emphasis added).
Injured workers claims are litigated before the WCAB. Section 3600 provides in pertinent
18
part:
19
20 (a) Liability for the compensation provided by this division, in lieu of any other
liability whatsoever to any person except as otherwise specifically provided in
21 Sections 3602, 3706, and 4558, shall, without regard to negligence, exist against an
employer for any injury sustained by his or her employees arising out of and in the
22
course of the employment and for the death of any employee if the injury proximately
23 causes death, in those cases where the following conditions of compensation concur:
24 ***
25 (2) Where, at the time of the injury, the employee is performing service growing
26
out of and incidental to his or her employment and is acting within the course of his
or her employment.
27
(3) Where the injury is proximately caused by the employment, either with or
28 without negligence.
-10-
***
1
2
(7) Where the injury does not arise out of an altercation in which the injured
employee is the initial physical aggressor.
3
The exclusive remedy doctrine extends, therefore, to claims based on negligence and
4
intentional acts under most circumstances. Cal. Lab. Code 3600(a)(3),(a)(7). Workers
5
compensation laws even extend to claims for intentional acts including those injuries that result
6
when the employee is not the initial aggressor. Cal. Lab. Code 3600 (a)(7) (emphasis added).
7
Workers compensation and employers liability insurance are mutually exclusive.
8
Culligan v. State Comp. Ins. Fund, 81 Cal. App. 4th 429, 436 (2000). Specifically, if an employees
9
claim is compensable under California workers compensation law, then it is not covered by the
10
employer liability portion of a workers compensation policy. La Jolla Beach., 9 Cal. 4th at 42.
11
In Producers Dairy, worker Henry Noyes was seriously injured when he fell while unloading
12
milk from one of Producers trucks. Producers Dairy, 41 Cal. 3d at 907. Sentry Insurance had
13
issued a joint Workers Compensation and Employer Liability Policy to LAS and Producers. Id.
14
Noyes, as an employee of LAS, sought and collected workers' compensation benefits under the
15
Sentry policy. Id. After collecting workers compensation benefits from Sentry, Noyes and his wife
16
sued Producers for personal injuries and loss of consortium, respectively, on the theory that
17
Producers failed to maintain the delivery truck in a safe condition. Id. The Court held that because
18
Noyes collected benefits under Sentrys workers compensation policy, he and his wife were not
19
entitled to recover damages for personal injuries and loss of consortium under the employer liability
20
portion of the policy. Id. Producers argued that Sentry had a duty to defend Producers in the
21
underlying action under the employer liability portion of the policy. Id. at 911-12. The Court
22
rejected Producers argument and held:
23
24
Rather than filling any gaps in coverage, appellants' proffered construction of the
policy would require Sentry to pay for Noyes's injuries twice, once by providing on
25 LAS's behalf workers' compensation benefits owing to Noyes as an LAS employee,
and the second time by providing on Producers' behalf indemnity for Noyes's tort suit
26 as a nonemployee. This dual recovery under a single policy is contrary to both the
27 plain meaning of the policy itself, and the concept of employers' liability insurance as
it is commonly understood.
28
-11-
1 Id. at 917. The Court explained that these two kinds of coverage are mutually exclusive. Most
2 employers' liability policies limit coverage to liability for which the insured is held liable as an
3 employer. Id. at 916. Here, as in Producers Dairy, the plaintiffs are attempting to disguise
4 workers compensation benefits as inflated damages sought in civil court. The plaintiffs are
5 attempting to recover both workers compensation benefits and civil damages for the same injuries
6 the very reason, and policy behind, why the two coverages are mutually exclusive.
7 There are nine causes of action alleged against Cybernet in the Doe and Adams actions, and
8 eight causes of action alleged against Cybernet in the Rodgers action. (Wellman Decl., Exs. A-C.)
9 For all causes of action, the plaintiffs allege that they were performing service growing out of and
10 incidental to his/her employment and were acting within the course of his/her employment. The
11 plaintiffs also allege that their injuries were proximately caused by their employment, either with or
12 without negligence. Indeed, the same information and allegations submitted in the lawsuits are
13 currently pending before the WCAB. (Carpio Decl. 4, 8, 12 and Cybernet SSUMF Nos. 16, 35,
14 52.) Given the underlying allegations, Cybernet must show that an exception to Californias
15 exclusive remedy rule applies in order to allow coverage under Part Two.
16 Rather than provide a viable exception to the workers compensation exclusive remedy rule,
17 Cybernet argues that State Funds failure to pay the full amount of the claimed workers
18 compensation benefits under Part One triggers State Funds obligation to defend Cybernet against
19 those same claims for damages in the lawsuits under Part Two of the Policy. In support of its
20 position Cybernet cites only to State Funds claim denial letters which provide that: there is no
21 medical evidence to support that you [the workers] sustained a work related injury while performing
22 your job with Cybernet Entertainment LLC. (Tynan Decl. Ex. 4.) To adopt Cybernets approach is
23 to allow every injured worker to file a civil action for damages against his/her employer in state
24 court after their claim for workers compensation benefits is denied this approach circumvents
25 public policy and it is not the law.
26 Indeed, while State Fund defends against workers compensation claims under Part One of
27 the Policy, it is under no obligation to pay any portion of the claims if industrial and medical
28 causation cannot be shown. See LaTourette v. Workers Comp. Appeals Bd., 17 Cal. 4th 644, 650
-12-
1 (1998), quoting McAllister v. Workmens Comp. App. Bd. 69 Cal. 2d 408 (1968) (The applicant for
2 workers compensation benefits has the burden of establishing the reasonable probability of
3 industrial causation.). The outcome of the workers compensation claim litigated before the
4 WCAB does not give the employee the right to sue its employer for civil damages. Such an
5 interpretation directly contravenes the very purpose of the workers compensation exclusive remedy
6 rule. Cal. Lab. Code 3600, et seq.
7 If the WCAB were to hold that the plaintiffs suffered their injury/disease in the course and
8 scope of their employment with Cybernet, the plaintiffs would be entitled to workers compensation
9 benefits from State Fund. (Carpio Decl. at 6, 11, 15.) Determination of those issues is within the
10 exclusive jurisdiction of the WCAB and the benefits are afforded under Part One of the Policy only
11 within the workers compensation system. State Fund is under no obligation to defend Cybernet
12 against those same allegations in superior court. On this basis alone, State Funds motion must be
13 granted and Cybernets motion must be denied because all underlying allegations are covered by
14 Californias workers compensation exclusive remedy rule.
15 1. The Workers Compensation Exclusion in Part Two Precludes Coverage
16
For Claims Covered By Part One Of The Policy
"An insurance policy, like any other contract, must be construed in its entirety, with each
17
clause lending meaning to the other. Producers Dairy, 41 Cal. 3d at 916-17; citing Holz Rubber
18
Co., Inc. v. Am. Star Ins. Co., 14 Cal. 3d 45, 56 (1975); Cal. Civ. Code 1641; see also Silberg v.
19
California Life Ins. Co., 11 Cal. 3d 452, 465 (1974) (holding that a clause when read in conjunction
20
with other parts of the policy, can be interpreted as excluding persons eligible for workers
21
compensation benefits whether or not they receive such benefits.).
22
Consistent with Californias exclusive remedy rule, Part Two of the Policy contains a
23
workers compensation exclusion that provides that This insurance does not cover: 4. Any
24
obligation imposed by workers compensation, occupational disease, unemployment compensation
25
or disability benefits law, the provision of any federal law unless endorsed on this policy or any
26
similar law; (Wellman Decl., Ex. D, Part II, C. 4.) Part Two of the Policy, therefore, expressly
27
bars coverage for those claims covered by Part One of the Policy, workers compensation insurance.
28
-13-
1 In Transamerica Insurance Co. v. Superior Court, the Court interpreted State Funds Policy
2 and specifically the workers compensation law exclusion. In interpreting the language, the Court
3 held:
4 "[T]here is a clear exclusion in the amendment relating to the employer's liability
5
portion of the Policy, excluding coverage 'for any obligation for which the insured or
any carrier as his insurer may be held liable under any workers' compensation or
6 occupational disease law, any unemployment compensation or disability benefits law,
or under any similar law. ...'
7
This clearly indicates that where workers' compensation liability exists, there is no
8
coverage under the employer's liability portion of the Policy, thereby affording only
9 defense and indemnity for the workers' compensation claim. A workers'
compensation claim was successfully made in this case and a defense was provided to
10 [the employer] for the claim.
11 Transamerica Ins. Co. v. Sup. Court, 29 Cal. App. 4th 1705, 1715 (1994).
12 The exclusion in the State Fund Policy was also analyzed by the Court of Appeal in the
13 Culligan case. In that case, an employer was sued by three of his employees who alleged wrongful
14 termination and discharge based on retaliation for having complained about noxious odors coming
15 from a printing and dry cleaning business leased by the employer in the same building. Id. at 432.
16 The employees alleged respiratory distress, headaches, nausea, and other health problems, but the
17 relief they sought in the complaint was only for lost wages and benefits, plus emotional distress as a
18 result of being fired. Id. The employees complaint alleged causes of action for breach of
19 employment contract, breach of the implied covenant of good faith, and wrongful discharge. Id.
20 The employer, Culligan, tendered the claims to State Fund, under its workers compensation
21 and employers liability policy. Culligan, 81 Cal.App.4th at 432-33. State Fund declined the tender
22 of defense and Culligan brought a separate action for breach of contract, bad faith, unfair business
23 practices, and declaratory relief, alleging that, at a minimum, a defense obligation was owed under
24 the employers liability provision of the Policy. Id. at 433. The trial court granted summary
25 judgment to State Fund, Culligan appealed, and the Court of Appeal affirmed the trial courts order
26 granting summary judgment to State Fund. Id.
27 The Court held that the exclusion for workers compensation benefits either payable or
28 required to be provided was held to manifest a clear intention to exclude coverage for any injury
-14-
1 incurred in the course and scope of employment. Id. at 438, (citing Bailey v. Interinsurance Exch.,
2 49 Cal. App. 3d 399, 403 (1975)). The court continued,
3 [T]he obligation imposed by the workers compensation law is readily understood
4
to mean the obligation as an employer, under workers compensation to provide
benefits. The inchoate obligation exists whether or not an employee actually chooses
5 to seek benefits... under Culligans [the employees] construction, that structural
distinction would be lost, for an employee required by the exclusivity rule to use only
6
workers compensation could simply choose not to use it and consequently create a
7 duty to defend. The cost limits of the compensation bargain would be lost, all at the
whim of the employee.
8
Culligan, 81 Cal. App. 4th at 439.
9
As a result, the plaintiffs sole remedy with regard to their claims covered by the workers
10
compensation system is to pursue their pending actions in the WCAB whether or not they are
11
actually awarded benefits.
12
Here, regardless of whether the plaintiffs pursue their WCAB actions is irrelevant to State
13
Funds coverage obligations under Part Two. What is important is that the plaintiffs are required to
14
comply with workers compensation laws for injuries sustained in the course and scope of their
15
employment. In that vein, there is no dispute that State Fund has provided Cybernet with all
16
appropriate insurance coverages and services under the workers compensation insurance portion
17
(Part One) of the Policy. Specifically, State Fund has affirmed the existence of coverage for
18
purposes of adjusting, defending, and paying workers compensation benefits, if any are owed.
19
(State Fund SSUMF Nos. 4, 8.)
20
Accordingly, Cybernets motion must be denied and State Funds motion must be granted in
21
its entirety because the plaintiffs claims are covered by Part One of the policy and, therefore, barred
22
from coverage under the express exclusion (Part II, C.4.) in Part Two of the Policy.
23
2. State Funds Motion Must Be Granted Because No Applicable Statutory
24 Exceptions To Californias Workers Compensation Exclusive Remedy
Rule Apply To This Case
25
Express statutory exceptions to the workers compensation exclusive remedy rule contained
26
in Labor Code section 3600 are found at Labor code sections 3602 (b), 3706 and 4558 none of
27
them are applicable to the facts here.
28
-15-
1 Labor Code section 3602 (b) provides:

2 (b) An employee, or his or her dependents in the event of his or her death, may bring
3
an action at law for damages against the employer, as if this division did not apply, in
the following instances:
4
(1) Where the employees injury or death is proximately caused by a willful
5 physical assault by the employer.
6
(2) Where the employees injury is aggravated by the employers fraudulent
7 concealment of the existence of the injury and its connection with the employment, in
which case the employers liability shall be limited to those damages proximately
8 caused by the aggravation. The burden of proof respecting apportionment of damages
between the injury and any subsequent aggravation thereof is upon the employer.
9
10
(3) Where the employees injury or death is proximately caused by a defective
product manufactured by the employer and sold, leased, or otherwise transferred for
11 valuable consideration to an independent third person, and that product is thereafter
provided for the employees use by a third person.
12
The exceptions provided in subsections (b)(1) and (b)(2) do not apply here given Insurance
13
Code section 533 and/or the intentional act exclusion in Part Two of the Policy (discussed in
14
sections C.1. and C.2. below). There are no allegations in the lawsuits that a defective product
15
caused or contributed to the alleged injuries. (Wellman Decl., Exs. A-C.) Labor Code section 3602
16
(b) is, therefore, not applicable.
17
Labor Code section 3706 refers to an employers failure to secure workers compensation
18
directly. There is no dispute that Cybernet secured a workers compensation insurance policy from
19
State Fund. Nor does Labor Code section 4558 (b) apply, as there are no allegations in the lawsuits
20
regarding a guard on a power press. (Wellman Decl., Exs. A-C.)
21
3. State Funds Motion Must Be Granted Because No Common Law
22
Exceptions to Californias Workers Compensation Exclusive Remedy
23 Rule Apply
24 In support of its common law exception argument, Cybernet relies on a narrow body of
25 case law which holds that an action can be maintained against an employer for damages where an
26 employers conduct is of such an extreme nature that it falls outside the employment compensation
27 agreement. See Fermino v. Fedco (Fermino), 7 Cal. 4th 701 (1994) and Lee v. W. Kern Water
28
-16-
1 Dist. (Lee), 5 Cal. App. 5th 606 (2016). Those cases are factually distinguishable and the legal
2 principles discussed therein are not applicable here.
3 In Fermino, the court explained that workplace injuries fell into three potential categories:
4 (1) injuries caused by employer negligence or without employer fault that are compensated at a
5 normal rate under the workers compensation system; (2) injuries caused by normal employer
6 conduct that intentionally, knowingly or recklessly harms an employee, for which the employee may
7 be entitled to extra compensation under the workers compensation system, and (3) intentional
8 employer conduct which brings the employer beyond the boundaries of the compensation bargain,
9 for which workers compensation is not an employees exclusive remedy. (Cybernets Motion at
10 11:7-14), citing Fermino, 7 Cal. 4th at 713-14.
11 As stated in Cybernets motion: The Lee court applied Fermino to approve a jury instruction
12 stating, Employer conduct is considered outside the scope of the workers compensation scheme
13 when the employer steps outside of its proper role or engages in conduct unrelated to the
14 employment. (Cybernet Motion, 12:15-17); Lee., 5 Cal. App. 5th at 618 . Cybernet cites Fermino,
15 What matters, the court explained, is whether the conduct itself, concretely, is of the kind that is
16 within the compensation bargain. (Cybernet Motion, 11:24-25.) (internal quotation marks
17 omitted); Fermino, 7 Cal. 4th at 718.
18 As for the first and second categories, the plaintiffs allegations of negligent and intentional
19 conduct falls within Californias workers compensation exclusive remedy rule and is excluded from
20 Part Two coverage of the Policy.
21 Cybernet rests the crux of its common law exception argument on its assertion that the
22 plaintiffs allege conduct that falls under the third category of workplace injuries, those outside the
23 compensation bargain. Cybernets argument fails as a matter of law because the allegations in the
24 lawsuits relate to Cybernets conduct as the plaintiffs employer (i.e. recruitment, directing, and
25 producing pornographic material).
26 Specifically, all allegations in the lawsuits stem from the recruitment, direction, and filming
27 of pornographic movies. (Wellman Decl., Exs. A-C.) Cybernet cannot dispute its role as the
28 employer regarding these allegations. Simply stated - Cybernet directs and produces pornographic
-17-
1 films. All acts alleged relate to the recruitment, filming, and post-filming interview activities.
2 Cybernet expressly concedes that Cybernet is in the business of producing videos depicting
3 sexually explicit activity and bondage. (Cybernet Motion at 10:14-15.) Cameron Adams alleges:
4 Cybernet employs the staff and management who work on the various productions for
5
PUBLICDISGRACE.COM Defendant KINK.COM comprises a network of fetish
and BDSM (bondage, discipline, sadism, masochism) sites, Defendant
6 PUBLICDISGRACE.COM is one of Defendant KINK.COMs BDSM sites that
describes itself as follows: Public Disgrace is hardcore public sex with women fu
7
[**]ed and bound while being used in extreme gangbangs and BDSM sex in public.
8 (Wellman Decl., Ex. B at 18.)
9 Indeed, the mere availability of a limits sheet in which workers may limit the types of acts
10 they are to perform or to which they would be subjected, and the plaintiffs inherent
11 acknowledgement that certain undesired conduct is a very real possibility, shows that the alleged
12 conduct was a contemplated part of the employment. Even more, the plaintiffs allege that they were
13 put on notice of risks during the shoot when they observed blood pathogens, yet they continued to
14 perform despite their observations during the filming. (Cybernet SSUMF Nos. 6, 28, 45.)
15 Moreover, Doe and Rodgers both allege that they knew prior to filming that Cybernet did not require
16 models to be tested for STDs or HIV. (Wellman Decl., Ex. A at 31, Ex. C at 35.) Adams alleges
17 that she was encouraged by KINK Defendants to interact with members of the public, that she
18 knew had not been tested for HIV or STDs, and got paid extra to do so. (Wellman Decl., Ex. B at
19 41.) Adams was, therefore, compensated extra for the very work she agreed to perform, and for
20 which she now seeks damages.
21 Finally, all three plaintiffs include in their underlying allegations an article that was
22 published several months before the incidents that gave rise to their alleged injuries, as follows:
23
On February 20, 2013, SF Weekly published a front page article titled "Gag Order:
24 Sex Workers Allege Mistreatment at Kink.com.'' In the article, author Kate Conger
outlines ACWORTH's recent arrest for cocaine possession, stating "many were
25
surprised by the misstep from a man who's built his empire on a strict code of ethical
26 behavior and transparency ... " Ms. Conger continues:
27 However, even as Kink flourishes - it's nearly doubled the number of sites it operates
since moving into the Armory doubts about its ethical standards linger. The
28 Company attracted unwanted attention last summer when it abruptly switched its cam
-18-
girls' pay rate and sparked a debate about its commitment to models' rights. Now, two
1
former models allege they were denied workers' compensation when injured on Kink
2 sets, one of whom further states she was coerced into a performance that left her with
longstanding injuries and was offered money in exchange for keeping quiet about
3 those injuries. Other workers claim to have been terminated ... when they questioned
Kink's business practices, including the use of an erectile dysfunction drug called
4
Trimix ....
5
The potential legal quandaries revealed by former Kink models challenge Acworth's
6 ethical claims, and this isn't the first time he's been called out for going against his
7
models' rights and shooting rules.
8 (Wellman Decl., Ex. A at 42, Ex. B at 43, and Ex. C at 33.) Even with this pre-existing
9 knowledge of Cybernets alleged unethical conduct and unlawful business practices, the plaintiffs
10 chose to work for Cybernet.
11
This is not, therefore, a claim by a water district desk clerk for severe emotional distress
12
damages following a mock armed robbery (Lee) or a situation where a check-out clerk at a
13
department store was held against her will in a room for several hours after she begged to leave
14
based on her employers suspicion of theft of $4.95 (Fermino). Lee, 5 Cal. App. 5th 606; Fermino,
15
7 Cal. 4th 701. Unlike Fermino and Lee, the underlying allegations show that the plaintiffs were not
16
exposed to any risks that were not part of their employment. To the contrary, the allegations
17
demonstrate that the plaintiffs had actual and/or constructive knowledge of the risks associated with
18
employment by Cybernet. To suggest that the facts regarding the compensation bargain
19
contemplated by the courts in Fermino and Lee are even remotely similar to this case is astounding.
20
Moreover, the Court in Fermino was not asked to determine whether an insurers duty to
21
defend was triggered due to the underlying allegations. Fermino, 7 Cal. 4th at 708 (1994). While
22
the court held that the employee had a right of action against the employer, the Court was not asked
23
to interpret Insurance Code section 533 or the intentional act exclusion in an employers liability
24
insurance policy, as we have here. (Wellman Decl., Ex. D., Policy, Part II, C.5.)
25
Even assuming arguendo there are allegations that could possibly fall outside the
26
compensation bargain, there remain only the allegations of Cybernets intent to injure the
27
plaintiffs which fall squarely into the express exclusions of Insurance Code section 533 and the
28
terms of the Policy. Cal. Ins. Code 533; (Wellman Decl., Ex. D, Policy, Part II.).
-19-
1 Because there is no statutory or common law exception to Californias workers

2 compensation exclusive remedy rule, Cybernets motion fails as a matter of law and must be denied.
3 For the same reason, State Funds motion must be granted because all claims are covered by Part
4 One under which State Fund is not obligated to defend Cybernet in a civil action.
5 C. State Fund Has No Duty to Defend Or Indemnify Cybernet Under Part Two Of
6
The Policy
7 1. State Funds Motion Must Be Granted Because Part Two Of The Policy
Expressly Bars Coverage For Cybernets Alleged Intentional Acts
8
As mentioned briefly above, any allegations that are arguably not covered by the workers
9
compensation system are expressly barred by the employer intentional act exclusion as follows:
10
[T]his insurance does not cover: (5) damages or bodily injury intentionally caused or aggravated
11
by you. (Wellman Decl., Ex. D, Policy, Part II, C.5.)
12
As discussed in Cybernets motion, it is the plaintiffs allegations that may give rise to State
13
Funds duty to defend. Indeed, Cybernet concedes, [I]n determining whether there is a duty to
14
defend, State Fund must consider the allegations in the underlying complaint and any extrinsic facts
15
it has learned. (Cybernets Motion at 16:11-13); citing Waller v. Truck Ins. Exch., 11 Cal. 4th at
16
19.
17
The plaintiffs allege that all intentional tort causes of action were despicable and committed
18
knowingly, willfully and maliciously, with the intent to harm, injure, vex, annoy and oppress
19
Plaintiff and with a conscious disregard of Plaintiffs rights, health, and safety. (State Fund
20
SSMUF No. 11; Wellman Decl. at Ex. A at 108, 120, 165, 189; Ex. B at 95, 107, 152, 191; and
21
Ex. C at 93, 105, 150 (emphasis added).)
22
In its motion, Cybernet offers a blatant misrepresentation to the Court that the plaintiffs
23
allege only that Cybernet ratified the conduct of others.
24
The underlying allegations of Cybernets actual intent to injure the plaintiffs is the exact
25
conduct that Cybernet is trying to disavow and avoid as such conduct is expressly excluded from
26
Part Two coverage of the Policy. (Wellman Decl. Ex. D, Policy, Part II, C. 5.) To that end,
27
Cybernets suggestion that intent to harm or injure must be actually proven in the lawsuits before the
28
-20-
1 exclusion is triggered is entirely unsupported, as it is only the allegations that are relevant to State
2 Funds duty to defend.
3 Cybernets arguments relating to its alleged intentional conduct fail as a matter of law
4 because Cybernets entire analysis is based on the faulty foundation that the plaintiffs do not allege
5 actual intent to injure. On this basis alone, and as a matter of law, State Fund has no duty to defend
6 any causes of action that include Cybernets specific intent to injure which includes the third
7 (Intentional/Fraudulent Misrepresentation), fourth (Civil Conspiracy to Commit Fraud), eighth
8 (Intentional Infliction of Emotional Distress) or tenth (Battery as to Doe and Adams only) as those
9 causes of action all include allegations of the specific intent/conduct that is expressly excluded by
10 Part Two, section C. 5. of the Policy.
11 2. State Funds Motion Must Be Granted Because State Fund Has No Duty
12
to Defend Cybernet Against Intentional Acts Pursuant to California
Insurance Code Section 533.
13
A third hurdle that Cybernet cannot, as a matter of law, defeat is that of California Insurance
14
Code section 533. Specifically, even if the Court were to find that the intentional act exclusion does
15
not apply, State Fund has no duty to defend Cybernet against the plaintiffs claims of intentional
16
conduct because California Insurance Code section 533 bars coverage for willful acts of an
17
insured. Specifically, Section 533 provides: [A]n insurer is not liable for a loss caused by the
18
wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured's
19
agents or others. Cal. Ins. Code 533.
20
In Transport Indemnity Co. v. Aerojet General Corp., the court was asked to determine
21
whether an employer's aggravation of injuries by fraudulent concealment is necessarily a wilful
22
act under section 533, thus precluding coverage under the employers liability portion of the
23
workers compensation policy. Transp. Indem. Co. v. Aerojet Gen. Corp. (Transport), 202 Cal.
24
App. 3d 1184 (1988). The Court defined wilful act for purposes of section 533 as follows:
25
A "wilful act" as the term is used in section 533, is conduct "more blameworthy than
26 the sort of misconduct involved in ordinary negligence, and something more than the
mere intentional doing of an act constituting such negligence." (citations omitted)
27
Similarly, a wilful act within the meaning of section 533 is more than conduct
28 amounting to conscious or reckless disregard of the safety of others. (citations
omitted.)
-21-
1 Id. at 1188 (citations omitted). The court held that section 533 did not absolve the insurers duty to
2 defend because there was no specific intent to injure alleged. Id. at 1189-1191.
3 The Ninth Circuit has also commented on the long standing public policy behind section 533
4 as follows: "[S]ection 533 ... reflects the very sound and long standing public policy ... which
5 disapproves of contracts which directly or indirectly exempt anyone from personal responsibility for
6 his own wilful injury to another." Aetna Cas. Surety Co. v. Sheft H, 989 F. 2d 1105 (9th Cir. 1993)
7 (citing Evans v. Pac. Indem. Co., 49 Cal. App. 3d 537, 539 (1982)).
8 Here, the plaintiffs allegations fall squarely within the definition of a wilful action to
9 trigger Section 533, as all three plaintiffs allege that Cybernet committed all intentional torts with
10 with the intent to harm, injure, vex, annoy and oppress Plaintiff (State Fund SSUMF No.
11 14 (emphasis added).)
12 On this basis alone, State Fund has no duty to defend any causes of action that include
13 Cybernets specific intent to injure as a matter of law - the third (Intentional/Fraudulent
14 Misrepresentation), fourth (Civil Conspiracy to Commit Fraud), eighth (Intentional Infliction of
15 Emotional Distress) or tenth (Battery as to Doe and Adams only) - as all include allegations of the
16 specific intent/conduct that is expressly excluded by Insurance Code Section 533.
17 3. Other Intentional Acts
18
a. Allegations of Ratification Do Not Obligate State Fund to Defend
19 or Indemnify Cybernet In The Lawsuits.
20 Cybernet argues throughout its motion that the plaintiffs allegations of ratification of
21 conduct provides a basis for an exception to the workers compensation exclusive remedy rule under
22 Labor Code section 3602(b)(1). To the contrary, ratification is expressly excluded from coverage by
23 the intentional act exclusion (Part Two, C. 5) because ratification can only result from intentional
24 conduct. Specifically,
25 Ratification is the voluntary election by a person to adopt in some manner as his own
an act which was purportedly done on his behalf by another person, the effect of
26
which, as to some or all persons, is to treat the act as if originally authorized by him.
27 A purported agent's act may be adopted expressly or it may be adopted by implication
based on conduct of the purported principal from which an intention to consent to or
28 adopt the act may be fairly inferred, including conduct which is 'inconsistent with
-22-
any reasonable intention on his part, other than that he intended approving and
1
adopting it.
2
Rakestraw v. Rodrigues, 8 Cal. 3d 67, 73 (1972) (emphasis added). Ratification is, therefore, an
3
intentional tort that can only be completed with the requisite intent.
4
Next, Cybernet relies on two cases for the proposition that an employer may be held civilly
5
liable for co-worker assault by ratification. Hart v. Natl Mortg. & Land Co., 189 Cal. App. 3d
6
1420 (1987); Fretland v. Cnty. of Humboldt, 69 Cal. App. 4th 1478 (1987). While this may be true,
7
nonetheless, ratification is an intentional tort and is not covered by Part Two of the Policy.
8
(Wellman Decl., Ex. D, Policy, Part II, C. 5.)
9
Cybernet next argues that whether an employer has ratified an employees conduct is
10
generally a factual question. StreetScenes v. ITC Entmt Grp., Inc., 103 Cal. App. 4th 233, 242
11
(2002); Baptist v. Robinson, 143 Cal. App. 4th 151, 169-170 (2006). Relying on Mirpad, LLC v.
12
California Insurance Guaranty Association, Cybernet illogically concludes that the very existence of
13
a factual question establishes a duty to defend. Mirpad, LLC v. Calif. Ins. Guar. Assn (Mirpad)
14
132 Cal. App. 4th 1058, 1068 (2005).
15
Cybernets analysis is misguided for two reasons:
16
First, as discussed above, State Fund is not required to prove that Cybernet actually ratified
17
the alleged conduct in order to determine whether it has a duty to defend as the underlying
18
allegations dictate whether a duty to defend attaches. Here, not only is ratification an intentional
19
tort, but it is alleged only within the intentional tort causes of action (i.e. intentional
20
misrepresentation, civil conspiracy to commit fraud, intentional infliction of emotional distress, and
21
battery). In these causes of action, the plaintiffs also allege Cybernets express intent to injure
22
them.
23
Second, in Mirpad, the disputed fact related to the language of the policy, not the nature of
24
the underlying action. Id. Here, Cybernet has not raised a factual dispute as to the meaning of any
25
word or phrase in the Policy. There is, unlike in Mirpad, no outstanding factual issue for this Court
26
to resolve in order to determine that State Fund has no duty to defend.
27
Cybernets argument that allegations of ratification in the underlying complaints give rise to
28
State Funds duty to defend under Part Two of the Policy fails as a matter of law because ratification
-23-
1 is an intentional tort and, therefore, barred by statute and the express exclusion in the Policy. Cal.
2 Ins. Code 533; (Wellman Decl., Ex. D, Policy, Part II C. 5.)
3 b. Emotional Distress Allegations Do Not Give Rise To A Duty To
4
Defend Or Indemnity Cybernet In The Lawsuits.
Cybernet relies on Herrick v. Quality Hotels, and Inns & Resorts, Inc., for the proposition
5
that a claim for emotional distress may also trigger an exception to the exclusivity rule and that
6
determining such a claim is a factual question. Herrick v. Quality Hotels, and Inns & Resorts, Inc.
7
(Herrick), 19 Cal. App. 4th 1608 (1993). There, a manager pulled a handgun on an employee and
8
threatened to kill him. Id. at 613. The employee brought a civil action for damages which included
9
a claim for intentional infliction of emotional distress against the employer directly. But the court
10
was not asked to determine whether the employers workers compensation insurer had a duty to
11
defend those claims. The court found an exception to the workers compensation exclusive remedy
12
rule based on the employers intentional conduct under Labor Code section 3602(b)(1). Id. at 1620;
13
see also Cal. Lab. Code 3602(b)(1) (Where the employee's injury or death is proximately caused
14
by a willful physical assault by the employer). As discussed in section B. 2. above, the Labor Code
15
section 3602(b)(1) exclusion does not apply to the facts of this case.
16
Here, the plaintiffs causes of actions in their lawsuits, for intentional infliction of emotional
17
distress, include allegations of Cybernets actual intent to injure which is expressly excluded from
18
Part Two coverage of the Policy. (Wellman Decl., Ex. A at 165, Ex. B at 152, and Ex. C at
19
150.) Any ratification of intent to cause emotional distress is also intentional and is expressly
20
excluded.
21
Therefore, unlike in Herrick, Labor Code section 3602(b)(1) does not provide a statutory
22
exception that would afford coverage under Part Two because such intentional acts are expressly
23
excluded from coverage both by California Insurance Code section 533 and the intentional act
24
exclusion of the Policy. As a result, Cybernets argument that a claim for emotional distress triggers
25
State Funds duty to defend under Part Two of the Policy fails as a matter of law.
26
27
28
-24-
VI. CONCLUSION
1
Cybernets motion for partial summary judgment must be denied in its entirety because
2
Cybernet has failed to meet its burden to show as a matter of law that: (1) the plaintiffs were
3
Cybernet employees at the time of the alleged injuries; (2) there is any applicable exception to
4
Californias workers compensation exclusive remedy rule that applies in this case; or (3) there is
5
coverage under Part Two of the Policy given the underlying allegations of Cybernets express intent
6
to injure.
7
State Funds motion for summary judgment should be granted in its entirety because there is
8
no conceivable theory under which the plaintiffs causes of actions in their lawsuits trigger State
9
Funds duty to defend under Part Two of the Policy because: (1) the alleged claims are covered by
10
Californias workers compensation exclusive remedy rule; and (2) any allegations that are arguably
11
not covered by Californias workers compensation statutory framework are barred from Part Two
12
coverage by the Policys intentional acts exclusion and/or Insurance Code section 533.
13
14
Respectfully Submitted,
15
16 DATED: June 13, 2017 CHARLES J. FORTUNATO

Staff Counsel
17
JENNIFER D. WELLMAN
18 Staff Counsel
19 BY: /s/Jennifer D. Wellman

Staff Counsel for Third Party Defendant
20
State Compensation Insurance Fund
21
22
23
24
25
26
27
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-25-

State Compensation Insurance Fund Motion

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Case 4:16-cv-06554-YGR Document 68 Filed 06/13/17 Page 1 of 30

JENNIFER D. WELLMAN, Staff Counsel (SB No. 238220)

12 SENECA INSURANCE COMPANY, INC., CASE NO. 4:16-CV-06554-YGR

9 III. SUMMARY JUDGMENT STANDARD ................................................................................ 7

10 IV. THE DUTY TO DEFEND UNDER A WORKERS COMPENSATION POLICY IS

21 3. State Funds Motion Must Be Granted Because No Common Law Exceptions

3. Other Intentional Acts................................................................................................. 22

6 Baptist v. Robinson, 143 Cal. App. 4th 151 (2006) ............................................................................ 23

10 Fermino v. Fedco, 7 Cal. 4th 701 (1994) ........................................................................................... 16

25 Rakestraw v. Rodrigues, 8 Cal. 3d 67 (1972) ..................................................................................... 23

2 Silberg v. California Life Ins. Co., 11 Cal. 3d 452 (1974) ................................................................. 13

8 Cal. Civ. Code 1641......................................................................................................................... 13

12 Cal. Lab. Code 3600 .................................................................................................................. 10, 11

13 Cal. Lab. Code 3602 .................................................................................................................... 8, 24

1 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE

1 Number Seven - Negligent Hiring/Retention

5 This employers liability insurance applies to bodily injury by accident or bodily

22 This insurance does not cover:

1 III. SUMMARY JUDGMENT STANDARD

1 exclusively covered by Californias workers compensation system.

1 Labor Code section 3602 (b) provides:

10 chose to work for Cybernet.

1 Because there is no statutory or common law exception to Californias workers

16 DATED: June 13, 2017 CHARLES J. FORTUNATO

19 BY: /s/Jennifer D. Wellman

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