Low, Ball & Lynch’s

WEEKLY LAW RESUME

March 16, 2026 Issue  By: Ray Coates

Insurance - Exclusion For Employment Related Practices Does Not Prevent Coverage

North American Building Maintenance, Inc. v. Fireman’s Fund Insurance Co.

 (March 9, 2026)

Court of Appeal, Fifth District

This case presents the issue of whether an insurance company owes a duty to defend its insured, under a commercial general liability (CGL) policy, against a lawsuit brought by a third party alleging assorted labor violations as well as a cause of action for false imprisonment.

Plaintiff North American Building Maintenance (NABM) provided janitorial services for Target stores. NABM, in turn, subcontracted with California Building Management Services (CBMS) to perform the actual work at the Target stores.  In September 2002, three former janitorial workers at a Target store in Santa Barbara filed a class action lawsuit for damages and injunctive relief.  Target and  NABM were named as defendants.  CABM was inaccurately identified in the original complaint as a dba of NABM.   The complaint asserted 11 causes of actions. The janitors claimed that they were not properly paid for their work.  They also alleged they had been locked in the business premises at night, against their will, while they performed their janitorial services.

NABM tendered defense of the suit to its CGL carrier, Defendant Fireman’s Fund Insurance Co., on the theory there was potential liability and thus, the potential right to indemnification and a duty to defend on the false imprisonment claim.  Fireman’s Fund denied it had a duty to defend NABM on any cause of action,  including the alleged false imprisonment.

The subject CGL policy contained coverage for “personal and advertising injury” caused by an offense arising out of NABM’s business.  “Personal and advertising injury” in the policy was defined to include “false arrest, detention or imprisonment.”   The policy’s coverage exclusions were supplemented by an “Employment-Related Practices” liability exclusion (EPL exclusion).  This exclusion included any employment-related practices, policies, acts or omissions.  Fireman’s Fund’s refusal to defend was primarily based on the EPL exclusion.

In October 2003, NABM filed the subject action against Fireman’s Fund for breach of contract, insurance bad faith, unfair business practices, and declaratory relief.  NABM and Fireman’s Fund each filed motions for summary adjudication, which were limited to the question whether Fireman’s Fund had a duty to defend NABM against the claim of false imprisonment.   The trial court found in favor of Fireman’s Fund.  NABM appealed.  The Fifth District Court of Appeal reversed.

The Court of Appeal reiterated the fundamental rule that an insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage.  Here, a complicating issue was the fact that the original complaint wrongly alleged there was an employment relationship between the janitors and NABM.  The evidence showed that the janitors were independent contractors.  NABM argued that the EPL exclusion could only apply if there was an employment relationship between the insured and the third party claimant.  Fireman’s Fund contended that the exclusion was broad and applied whether the janitors were employees or not. 

The Court of Appeal sided with NABM.   Analyzing the language of the policy, the court held that the only reasonable interpretation was that the EPL exclusion only applied where the insured was a past, present, or prospective employer of the third part claimant.  Because the exclusion could not apply to a claim by an independent contractor, the Court held that Fireman’s Fund had a duty to defend NABM based on the false imprisonment cause of action.   The judgment in favor of Fireman’s Fund was, therefore, reversed.

COMMENT

This case provides a further example that an insurer’s duty to defend is extremely broad.   While the complaint indicated there could be an employment relationship between the janitors and NABM, extrinsic facts revealed there was no employment relationship, and that the EPL exclusion did not apply.  Therefore, Fireman’s Fund had a duty to defend.   

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