• Baek v. Cont'l Cas. Co., B251201, --- Cal.Rptr.3D ---- (2014)
  • January 12, 2015
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office


    Continental Casualty Company (Continental) issued a comprehensive general liability (CGL) policy to the named insured, Heaven Massage and Wellness Center (Center), which also provided insured status to: (1) the Center's "members" and "partners" "with respect to the conduct of [the Center's] business"; and (2) the Center's employees "for acts within the scope of their employment by [the Center] or while performing duties related to the conduct of [the Center's] business."

    In May 2010, plaintiff Jaime W. sued the Center and Luiz Baek, a therapist employed by the Center, for injuries suffered as a result of a sexual assault by Baek while he was giving the plaintiff a massage. Both the Center and Baek tendered the underlying action to Continental, which denied coverage for the claim based on the "professional services" exclusion.

    Baek filed an action against Continental for breach of contract, bad faith and fraud and the trial court sustained Continental's successive demurrers to Baek's first and second amended complaints. The basis for Continental's demurrers was its contention that, as a matter of law: (1) Baek only qualified as an insured with respect to "'acts within the scope of [his] employment [by the Center]' or 'while performing duties related to the conduct of [the Center's business]"; and (2) the alleged sexual assault did not fall within the scope of Baek's employment or the Center's business because the "alleged acts were not part of the professional services [Baek] was hired to perform[.]"

    The trial court adopted Continental's coverage position, sustained its demurrer to Baek's second amended complaint without leave to amend and entered judgment in favor of Continental. Baek filed an appeal and the Court of Appeal sustained the judgment in Continental's favor.


    Initially, the appellate court agreed with Baek's argument that allegations in the underlying complaint of Baek's employee status for the Center were controlling for duty to defend purposes notwithstanding an "independent contractor" agreement between Baek and the Center which was attached to Baek's complaint. The appellate court found that the allegations of an employee relationship between Baek and the Center as raised in the underlying action created a sufficient "potential" for such an employee/employer relationship absent additional, sufficient extrinsic evidence available to Continental showing that no such employment relationship existed.

    Notwithstanding the potential of an employee/employer relationship between Baek and the Center, the appellate court found the allegations regarding the intentional sexual assault on the part of Baek did not involve any acts or resulting injuries potentially within Baek's "scope of employment" for the Center. In so finding, the appellate court followed the legal reasoning in Lisa M. v. Henry Mayo Newhall Mem'l Hosp. (1995) 12 Cal.4th 291 and Farmers Ins. Grp. v. Cnty. of Santa Clara (1995) 11 Cal.4th 992 in which the California Supreme Court held that acts of intentional, sexual misconduct were not "engendered by" or an "outgrowth" of employment even though the acts themselves occurred at the place of employment and would not have occurred but for that employment. The appellate court further emphasized that, even if the employment "involved intimate physical contact" with others, the acts of sexual misconduct did not "arise" out of employment "unless [the act's] motivating emotions were fairly attributable to work-related events or conditions." (Citing Lisa M., supra, 12 Cal.4th 291, 301).

    The appellate court directly analogized the present case to the situations in Lisa M. and Santa Clara, finding that "Baek's employment as a massage therapist provided him the opportunity to meet Jaime W. and to be alone with her, but nothing alleged in the underlying complaint suggested that the alleged assault was 'engendered by' or an "outgrowth" of his employment... Instead, as in Lisa M., the opposite was true: as alleged in the complaint, Baek 'simply took advantage of solitude with a naive [client] to commit an assault for reasons unrelated to his work.'" (Citing Lisa M., supra, 12 Cal.4th 291, 301).

    As a result, the appellate court found that the alleged sexual assault did not occur "with respect to the conduct of [the Center's] business" or while Baek was "performing duties related to the conduct of [the Center's] business" as required for Baek to qualify as an insured with respect to the underlying suit. In doing so, the appellate court joined other, out-of-state decisions holding that a sexual assault cannot be said to occur "while performing duties related to the conduct of" an insured's business "even if [the assault] occurs at the place of work and during the work day." (Citing Chestnut Associates, Inc. v. Assurance Co. of Am. (M.D.Fla. Apr. 29, 2014) 8:13-CV-1755-T-17TBM and Parts Inc. v. Utica Mut. Ins. Co. (D.Md. 2009) 602 F.Supp.2d 617).

    Finally, the appellate court rejected Baek's arguments that Jaime W.'s false imprisonment claim in the underlying action created a potential for coverage triggering Continental's defense duty. Rather, the Court found this claim was "inextricably intertwined" with the sexual assault allegations "because Baek is alleged to have falsely imprisoned Jaime W. in order to sexually assault her." (Emphasis in original).


    Under the reasoning of Baek, allegations of sexual assault or other acts of intentional sexual misconduct in the workplace, standing alone, would not normally qualify as actions performed "with respect to" or "in relation to" the conduct of an insured's business as those terms are used in liability insurance policies. As a result, the Baek decision appears to broaden the circumstances under which a liability insurer may deny coverage in the first instance for employees, partners or others seeking additional insured status for liability claims of: (1) sexual assault; (2) other intentional, sexual misconduct; and (3) other liability claims which are "inextricably intertwined" with that conduct.

    A primary issue not addressed in Baek is the question of what circumstances must be present for a sexual assault or other sexual misconduct to be considered potentially within the "scope of employment." In this context, it is important to note that the cases relied on by the Baek court distinguish a line of California authority wherein certain "employee's willful, malicious and even criminal torts may fall within the scope of his or her employment for purposes of respondeat superior, even though the employer has not authorized the employee to commit crimes or intentional torts." (Lisa M., supra, 12 Cal. 4th 291, 296-97 [citing Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 209; John R. v. Oakland Unified School Dist. (1989) 48 Cal.3d 438, 447; Carr v. Wm. C. Crowell Co. (1946) 28 Cal.2d 652, 654].)

    Of these cases, it is well established that physical assaults without a sexual motivation may still fall within an employee's "scope of employment" for vicarious liability purposes. As a result, the reasoning in Baek appears limited to workplace sexual assaults and sexual misconduct, and workplace assaults without a sexual component may still involve conduct within the employee's "scope of employment" for liability insurance purposes.

    Conversely, those cases in which an employee's sexual misconduct were still within that employee's "scope of employment" have involved situations where governmental employees such as a police officer: (1) have had the legal authority to detain other persons; and (2) have allegedly sexually assaulted person(s) within their custody. (See Mary M., supra, 54 Cal.3d 202, 214-17; White v. County of Orange (1985) 166 Cal.App.3d 566.) Therefore, it follows that the reasoning in Baek would not apply to claims against police officers or other governmental employees with the power to detain other persons who allegedly sexually assault persons in their custody, although other coverage limitations such as an "occurrence" requirement, an "intentional act" exclusion, a "sexual misconduct" exclusion and/or Insurance Code ยง533 may still preclude coverage for such claims.

    At the same time, the legal rule from Mary M. has not been extended to school employees who sexually assault students during work hours. (See, e.g., John R. v. Oakland Unified Sch. Dist. (1989) 48 Cal.3d 438, 449; Alma W. v. Oakland Unified Sch. Dist. (1981) 123 Cal.App.3d 133, 139-40). Therefore, it would appear that, under the reasoning of Baek, sexual assaults and other intentional sexual misconduct by school employees against students would not fall within that employee's "scope of employment" for liability insurance purposes.