Jablonski v. Royal Globe Insurance

The Pleadings

In their second amended complaint, plaintiffs alleged 12 causes of action against defendants.^[1] The causes of action were for breach of contract, intentional infliction of emotional distress, breach of the covenant of good faith and fair dealing, fraud, abuse of process, intentional interference with a pending civil action, negligent interference with a pending civil action by spoliation of evidence, violation of Insurance Code section 790.03, interference with prospective advantage, negligent infliction of emotional distress, conspiracy and loss of consortium.

These various causes of action alleged in substance that defendant Michael Petkus, an individual, and defendant Jones Brand & Hullen (Jones), a business, were each retained by defendant Royal Globe Insurance Company (Royal Globe) as independent claims administrators, and each defendant was the agent of each remaining defendant, and always acting within the scope of the agency. Plaintiff was employed by Notres Lines as a truck driver. All of the defendants entered into a contract of workers’ compensation insurance with Notres Lines prior to September 28, 1984. On this date plaintiff was injured within the course and scope of his employment. Defendants denied coverage, and “refused to avail themselves to the jurisdiction of the workers’ compensation Appeals Board.” Defendants knew plaintiff was covered by the policy, and they intended to cause him emotional distress. Defendants misrepresented the existence of coverage, delayed in acting on plaintiff’s claim, and improperly investigated it. Defendants knew of documents constituting evidence in plaintiff’s workers’ compensation case and “concealed, lost, destroyed or otherwise disposed of’ this evidence. Defendants also conspired to do all of these things. Dag-mar Jablonski is plaintiff’s wife, and she suffered a loss of consortium from the acts of defendants.

Whether plaintiff can sustain his burden of proving these facts at trial is a bridge yet to be crossed. But for our purposes, because this appeal arises after the sustaining of a demurrer without leave to amend, we must “assume the truth of the facts alleged in the complaint and the reasonable inferences that may be drawn therefrom.” (Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782 , 789, fn. 3 [ 226 Cal.Rptr. 90 , 718 P.2d 77 , 62 A.L.R.4th 1083 ].)

The Demurrer

Defendants demurred to each of the 12 causes of action of the second amended complaint on the grounds that they failed to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) They also demurred to some of the causes of action on grounds of uncertainty because plaintiff failed to allege any affirmative acts on behalf of the defendants constituting outrageous and extreme conduct. (Code Civ. Proc., § 430.10, subd. (f).) In support of their general demurrer, defendants contended that the Workers’ Compensation and Insurance Act (Lab. Code, § 3200 et seq.) barred a civil suit against an employer’s compensation carrier and its agents. Plaintiff countered by arguing that the causes of action against Jones and Petkus were not barred by the exclusive-remedy rule of that act because those defendants were persons “other than the employer” within the meaning of Labor Code section 3852. He further argued that his causes of action against Royal Globe and its agents were not barred under the act because that insurer forfeited its protection when it committed intentional torts against him. The trial court rejected plaintiff’s arguments and sustained the demurrer without leave to amend.

On appeal plaintiff renews his contentions only as to the counts for fraud, intentional spoliation of evidence, unfair insurance practices and loss of consortium. As to these four causes of action he contends that the allegations of fraud and intentional destruction of evidence constitute intentional torts which legally transform all the defendants into “persons other than the employer” and hence render them amenable to civil suit. As a subsidiary issue, he further argues that the insurance carrier’s independent claims administrators are not employers under the Act in all events and consequently are subject to civil suits even in those circumstances where the carrier is immune. Because we agree with the first contention, we have no occasion to resolve the conflict over the amenability of independent claims administrators to suit in circumstances where the insurer is protected by the exclusivity provisions of the Act.

Discussion I, II^[2]

Civil Suit Against the Compensation Carrier and Its Agents

The California Workers’ Compensation and Insurance Act (Lab. Code, § 3200 et seq., the Act) provides an elaborate scheme for the adjudication of claims by employees against their employers for injuries “arising out of and in the course of’ their employment. (Lab. Code, § 3600.) Except as otherwise provided, liability for compensation provided by the Act is to be “in lieu of any other liability whatsoever . . . .” {Ibid.) The Legislature has included claims against workers’ compensation insurance carriers within the exclusive workers’ compensation scheme by defining the term “employer” to include insurers for purposes of third party suits. Thus, with exceptions not relevant here, only claims or rights of action for industrial injuries against persons other than the “employer” may be pursued by the injured employee outside of the workers’ compensation arena. (Lab. Code, §§ 3850, subd. (b), 3852.) Thus, Labor Code section 3852 provides in relevant part: “The claim of an employee, including, but not limited to, any peace officer or firefighter, for compensation does not affect his or her claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer.” (Italics added.) In addition, Labor Code section 5300 defines the exclusive jurisdiction of the appeals board: “All the following proceedings shall be instituted before the appeals board and not elsewhere, except as otherwise provided in Division 4. [fl] (a) For the recovery of compensation, or concerning any right or liability arising out of or incidental thereto. . . .”

As the high court explained in Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d 616 , Labor Code “Section 3300 defines the word ‘employer’;[^[3] ] it is evident that such definition does not include an insurer. Thus, if the insurer is to be invested with the employer’s immunity under section 3601, that immunity is to be derived from sections 3850 and 3852. Those sections, which fall within chapter 5, part 1, division 4, of the Labor Code, entitled ‘Subrogation of Employer,’ allow an employee to file an action at law for damages proximately resulting from his industrial injury against ‘any person other than the employer.’ However, since ‘employer’ is for these purposes defined by section 3850 to include an insurer, a literal reading of the section would negate an action at law against the insurer as a third party under section 3852. In other words, the insurer would retain immunity from lawsuit as the ‘alter ego’ of the employer.” (Id., at pp. 624-625, italics in original, citations omitted.)

As we have just noted, under the subrogation part of the Act an employer “includes insurer as defined in this division.” (Lab. Code, § 3850, subd. (b).) An insurer in turn is defined in relevant part as “any private company, corporation, mutual association, reciprocal or interinsurance exchange authorized under the laws of this State to insure employers against liability for compensation . . . .” (Lab. Code, § 3211.) Royal Globe is such an insurer.

Consequently, in order to state a cause of action against Royal Globe and its surrogate agents plaintiff must allege that the conduct in question was such that the workers’ compensation carrier was no longer acting in the proper role of an insurer and thus forfeited its status as an employer and the mantle of protection against civil suits. (Unruh v. Truck Insurance Exchange, supra, 1 Cal.3d 616 ; see generally, 2 Witkin, Summary of Cal. Law (9th ed. 1987) Workers’ Compensation, § 65, pp. 623-624; 2 Hanna, Cal. Law of Employee Injuries and Workmen’s Compensation (2d ed. 1988) Employer’s Insurer as Third Party, § 23.02[2], pp. 23-16-23-20.)^[4] In the words of the Unruh court, the issue is “whether the carrier which commits an intentional tort becomes a ‘person other than the employer.’ ” (7 Cal.3d at p. 630.) When the compensation carrier merely acts negligently, the high court concluded, it was still acting within its role as an insurer and hence remains immune from civil suits at law. (Ibid.) “However, we are unable to conclude that a compensation insurer remains within its proper role as such, when, as in the instant case, through its agents or others employed by it, such insurer intentionally embarks upon a deceitful course of conduct in its investigations which causes injury to the subject of the investigation. ... A deceitful investigation, in place of an honest one, frustrates the laudable objectives of the workmen’s compensation law. Permitting the employee to maintain an action at law for the insurer’s intentional torts will subserve these objectives but at the same time will not discourage the insurer from fulfilling its proper role in the compensation scheme.” (Ibid.)

As the Courts of Appeal have generally read the Unruh decision, its holding is “based upon the specific conduct and the outrageous and extreme perfidious nature clearly described by the pleadings . . . .” (Everfield v.

A. Loss of Consortium.

Plaintiff Dagmar Jablonski’s loss of consortium cause of action stands or falls with her husband’s claims. (Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148 , 162-163 [ 233 Cal.Rptr. 308 , 729 P.2d 743 ]; Santiago v. Employee Benefits Services [1985] 168 Cal.App.3d 898 at p. 906 [ 214 Cal.Rptr. 679 ].) It follows that if Emanuel’s claims are barred, Dag-mar’s derivative cause of action for loss of consortium is similarly proscribed and vice versa. We turn then to Emanuel’s claims.

B. Fraud.

In the fraud count, plaintiff alleged that defendants, after being informed of his industrial injury and intention to pursue a claim for benefits, “represented to plaintiff that they were not liable to pay any monies to him or indémnify him for any losses because there was no workers’ compensation coverage in existence at that time. At the time said representations were made by said defendants, said defendants were acting within the intent to deceive and defraud plaintiff and in bad faith. Said representations of material fact were false in that defendants, and each of them, were liable to plaintiff under the aforementioned contract, and the laws of the State of California.” He further alleged that defendants “knew that said representations were false and fraudulent at the time they were made, and made such false and fraudulent representations for the purpose of inducing plaintiff to rely thereon to his detriment.”

Plaintiff concedes that mere delay in payment or other conduct related to the botched processing of a compensation claim does not cause the insurer to lose its exclusivity defense. We accept the concession. “The authorities on this point are legion, unanimous, and summarized, e.g., in Caplan v. Fireman’s Fund Ins. Co. (1985) 175 Cal.App.3d 146 , 148 [ 220 Cal.Rptr. 549 ]; Soto v. Royal Globe Ins. Co. (1986) 184 Cal.App.3d 420 , 429-431 [ 229 Cal.Rptr. 192 ]; Cervantes v. Great American Ins. Co. [(1983)] 140 Cal.App.3d 763 [ 189 Cal.Rptr. 761 ].” (Continental Casualty Co. v. Superior Court (1987) 190 Cal.App.3d 156 , 159-160 [ 235 Cal.Rptr. 260 ].) As plaintiff recognizes, in the case of delayed or mishandled claims, the authorities have held that the worker’s proper remedy is the penalty provisions afforded under Labor Code section 5814.^[5]

But plaintiff argues that this is not a case of a delayed or mishandled claim. It is instead, he asserts, a case where the insurer’s conduct has truly amounted to an intentional tort independently causing him injury. In such a case an action at law has been permitted. In support of this assertion, plaintiff relies upon Teague v. Home Ins. Co. (1985) 168 Cal.App.3d 1148 [ 214 Cal.Rptr. 773 ], There the workers’ compensation carrier hired an investigative agency to surveil an injured applicant for the alleged purpose of harassing and humiliating him. Among other things, the investigators illegally entered his garage at home and then unlawfully entered into his vehicle as well. The worker brought suit against the carrier and the investigating agency for intentional infliction of emotional distress. The trial court sustained the insurer’s demurrer and dismissed the action. On appeal, the worker argued that the insurer should be denied protected status because its conduct was so outrageous as to take it out of the workers’ compensation scheme. This conduct consisted of delaying benefits, employing unnecessary surveillance and making an illegal entry into his garage and vehicle. The Teague court rejected those claims and ruled that the complaint was insufficient to state a cause of action for intentional infliction of emotional distress because the conduct did not rise to the level of outrageous conduct required by the Unruh case. But the court went on to hold that the worker had set forth sufficient facts to “establish another intentional tort which exceeds the bounds of acceptable investigative practice—that of trespass. As this court indicated in Gates v. Trans Video Corp. (1979) 93 Cal.App.3d 196 [ 155 Cal.Rptr. 486 ], even when an employee may not maintain a civil action against his employer for intentional infliction of emotional distress, when it is accompanied by a physical disability, he may be entitled to a judgment for other intentional torts. Here, we find that the intentional tort of trespass does not fall within the scope of behavior which may be reasonably expected of insurers. It ‘goes beyond the normal role of an insurer in a compensation scheme intended to protect the worker.’ ” (Id., at p. 1153, citations and fn. omitted.)^[6]

By a parity of reasoning, plaintiff argues that fraud cannot be a part of the normal activities of the insurer. In his words, an “insurance carrier and its claims administrators which fraudulently conceal, with intent to deceive the existence of coverage and then intentionally destroy evidence supporting the existence of coverage, are clearly not only stepping outside of their proper role, but acting in a manner diametrically opposed to such role, and undermining rather than promoting Worker’s Compensation, with its objective of simple and speedy compensation for the injured worker.”

protected behavior by a compensation carrier.^[7] We hold it does. Facially at least, this is not the kind of sham pleading which simply characterizes the mishandling of a claim as fraudulent. The kind of fraud alleged here is no different from, and in some respects is more aggravated than, the reprehensible conduct engaged in when the “insurer intentionally embarks upon a deceitful course of conduct in its investigations which causes injury to the subject of the investigation.” (Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d at p. 630.) This is unlike the delayed or refused payment cases in which the delay and refusal has been draped in tortious apparel to conceal its true form as an improperly processed claim case. Instead, the gravamen of this count is the insurer’s outright fraud in concealing the very existence of a compensation policy so as to induce the injured employee not to seek the benefits to which he was entitled. As the Court of Appeal explained in an analogous case, “[ujnder the authority of Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d 616 , we conclude that an insurer who, with a duty to disclose, fraudulently conceals from an employee the existence of an injury and its cause forfeits its ‘alter ego’ status and may be sued at law by that employee or by a third party defendant because ‘such conduct goes beyond the normal role of an insurer in a compensation scheme intended to protect the worker.’ (Id., at p. 630.)” (Chase Chemical Co. v. Hartford Accident & Indemnity Co. (1984) 159 Cal.App.3d 229 , 239 [ 205 Cal.Rptr. 469 ].) For the same reasons, we conclude that the complaint in this case alleged sufficient facts of outrageously deceitful conduct to remove it from the protection of the Workers’ Compensation Act. Like the high court in Unruh, “[w]e cannot give our approval to such misconduct which tramples upon the employee’s rights . . . .” (Unruh, at p. 630.) The trial court therefore erroneously sustained defendants’ demurrer to the fraud count.^[8]

Torts, § 658, p. 750.) In Smith, the plaintiff was blinded when a wheel and tire flew off a passing van and crashed into the windshield of her car. The van was towed to the dealer who had earlier customized it with special wheels. The dealer agreed with plaintiff’s counsel to maintain certain parts of the van pending further investigation. Thereafter, the dealer destroyed, lost or transferred the parts and thus made it impossible for plaintiff’s experts to pinpoint the cause of the failure of the wheel assembly on the van. Plaintiff sued the dealer and alleged a cause of action for intentional spoliation of evidence. The trial court sustained the dealer’s demurrer and plaintiff then petitioned the Court of Appeal for a writ of mandate. The reviewing court granted the writ. It held that a cause of action for the tort of intentional spoliation of evidence had been stated by allegations that the defendant dealer had intentionally destroyed physical evidence it had promised to preserve and the loss of that evidence significantly prejudiced plaintiff’s opportunity to recover damages for her injuries.^[9] “While intentional spoliation of evidence has not been recognized as a tort heretofore,” the Smith court acknowledged, “we conclude that a prospective civil action in a product liability case is a valuable ‘probable expectancy’ that the court must protect from the kind of interference alleged herein.” (151 Cal.App.3d at p. 502.)

As we have already noted, defendants have admitted the truth of all the factual allegations of plaintiff’s complaint for the purposes of the demurrer. (Coleman v. Gulf Ins. Group, supra, 41 Cal.3d at p. 789, fn. 3.) In this cause of action plaintiff alleged, and defendants admitted, that they intentionally destroyed “relevant evidence touching upon the wrongful conduct of defendants.”^[10] For the evidence to be “relevant” to this civil action, it must relate to plaintiff’s claim that defendants committed fraud such as to remove themselves from the immunity of the Act. An intentional destruction of evidence which would only affect an employee’s claim under the Act can be redressed by the Workers’ Compensation Appeals Board. In such an instance, it would simply be another case of a mishandled claim giving rise