Culligan v. State Comp. Ins. Fund

In Culligan v. State Comp. Ins. Fund (2000), several employees sued Culligan for wrongful discharge, alleging that they were terminated in retaliation for having complained about noxious odors in the workplace that caused a variety of health problems (Workplace disease). The complaint sought to recover only lost wages and benefits plus damages for emotional distress arising from the firing and loss of employment. (Id. at p. 432.) Culligan, which had a two-part policy with State Fund like that here, tendered its defense under Part 1, covering workers' compensation benefits. Given La Jolla, State Fund declined the tender. Culligan then tendered its defense under Part 2, the "gap filler," which contained exclusions for wrongful termination and workers' compensation benefits. Again State Fund declined the tender. Culligan settled with the employees and then sued State Fund for not providing a defense. The trial court granted summary judgment to State Fund, and the appellate court affirmed the ruling. (Culligan, supra, 81 Cal.App.4th at pp. 432, 433, 436, 440-441.) On appeal, the issue was whether a duty to defend arose under Part 2. Given the wrongful discharge exclusion, Culligan conceded that there was no potential coverage for harm arising from the employees' termination and loss of employment. (Culligan, supra, 81 Cal.App.4th at p. 437.) However, Culligan claimed there was potential coverage for damages arising from bodily injury the employees had suffered before their termination due to exposure to noxious fumes in the workplace. Although, as here, Part 2 also excluded " 'any obligation imposed by a workers' compensation . . . law . . . ,' " Culligan argued that the exclusion applied only to actual claims for benefits that Culligan became obligated to pay. Culligan noted, however, that one employee did not file such a claim. Thus, as to that employee, the workers' compensation exclusion was inapplicable, the employee's bodily injury was potentially within coverage of Part 2, and State Fund was obligated to defend--at least initially--against the entire action. (Ibid.) On appeal, the court rejected Culligan's view that the workers' compensation exclusion applied only to compensation claims that had been filed and which Culligan had became obligated to pay. Rather, as the court explained, "The 'obligation imposed' by the workers' compensation law is readily understood to mean the obligation as an employer, under workers' compensation, to provide benefits. That inchoate obligation exists whether or not an employee actually chooses to seek benefits. The contrary view advanced by Culligan would oddly place in the employee's hands (by a decision to seek or not seek benefits) the scope of coverage, and could create delay and uncertainty in determining in any given case whether a claim made resulted in an actual payment 'obligation.' " (Culligan, supra, 81 Cal.App.4th at p. 439.) In addition, the court found that "any asserted 'bodily injury' or 'disease' claims from the underlying action concerned employees who were employed by Culligan and subject to the remedy of the workers' compensation law. Accordingly, as a matter of law, coverage was precluded by the workers' compensation exclusion." (Culligan, supra, 81 Cal.App.4th at pp. 439-440.)