Spring Meeting May 19-21, 1999 Randolph W. Hall Assistant City Attorney City of Oakland

WHEN CAN A CITY REFUSE TO DEFEND AND INDEMNIFY AN EMPLOYEE?

TABLE OF CONTENTS I. INTRODUCTION II. LEGAL FRAMEWORK A. The California Claims Act B. The Duty To Defend C. Grounds For Refusing To Provide A To The Public Employee D. The Duty To Provide Indemnification E. An Employee’s Private Automobile Insurance Policy May Satisfy The Public Entity’s Duty To Indemnify The Employee From Damages And Costs Arising From A Motor Vehicle Accident That Occurred During The Course And Scope Of Duty F. What Constitutes “Scope of Employment” And How Do We Analyze Whether An Act Or Omission Is Within The Scope of Employment? G. A Risk Is Inherit In, Or Created By, A Public Entity’s Operations If The Occurrence Was A Generally Foreseeable Consequence Of The Entity’s Operations H. Scope Of Employment Is Broadly Interpreted Under The Respondent Superior Doctrine I. An Employer Is Not Strictly Liable For All Actions Of Its Employees During Working Hours J. Vicarious Liability Arising Out Of Scope Of Employment K. Imposition Of Vicarious Liability Is Not Appropriate Where The Misconduct Does Not Arise From The Conduct Of The Employer’s Enterprise L. The Standard For Determining Whether A Risk Is “Unusual Or Startling” For Respondent Superior Analysis M. A Municipality’s Decision To Defend Some Employees In A Given Matter Does Not Create A Duty To Defend All Employees Named As Defendants In That Or Other Matters

III. CONCLUSION

[I wish to thank my colleagues Karen Rodrigue and Sophia Li who contributed to the preparation of this paper.

I. INTRODUCTION

Under what circumstances may a California public entity refuse to defend and indemnify an employee named as a defendant in a arising out of acts or omissions that allegedly occurred within the course and scope of her or his official duties? This question is frequently asked of city attorneys and is an issue of particular importance where the employee is alleged to have committed an intentional tort that could result in a significant award against the city or against the employee as an individual.

This paper presents an outline of factors that city attorneys may find useful when analyzing whether a public employer has a duty to accept an employee’s request that the public agency employer provide a defense and indemnification in a civil lawsuit arising out of alleged acts committed in the course and scope of employment. Unless specifically otherwise identified, all references to in this paper will be to the California Government Code.

II. LEGAL FRAMEWORK

A. The California Tort Claims Act

Any analysis of a public entity’s duty to defend and indemnify its employees must include a working understanding of the California Tort Claims Act (“the Act”). The Act, which was enacted in 1963, provides a comprehensive of the of governmental liability and immunity in California. (Los Angeles Protective League v. City of Los Angeles (1994) 27 Cal.App.4th 168, 174. The Act requires public entity employers to defend and indemnify their employees in civil arising out of acts performed by the employees in the course of scope of their official duties. (§§ 995, et seq.) and to pay any claim or against an employee in favor of the third party plaintiff (§§ 825, et seq.).

B. The Duty To Defend

Sections 995 and 996 set forth the requirements pertaining to a public entity’s duty to defend an employee in a lawsuit arising from acts or omissions allegedly taken within the course and scope of her or his official duties. Section 995 provides in pertinent part that, upon request of an employee, “a public entity shall provide for the defense of any civil action or proceeding brought against him, in his official or individual capacity or both, on account of an act or omission in the scope of his employment as an employee of the public entity.”

Pursuant to section 996.4, if the public entity refuses to provide the requested defense and the employee retains separate to defend the action, the employee “is entitled to recover from the public entity such reasonable attorney’s fees, costs and expenses as are necessarily incurred … if the action … arose out of an act or omission in the scope of his employment as an employee of the public entity, but he is not entitled to such reimbursement if the public entity establishes (a) that he acted or failed to act because of actual fraud, corruption or actual malice or that the action is one described in § 995.4.”

C. Grounds For Refusing To Provide A Defense To The Public Employee

Section 995.2(a) provides the standard under which a public entity may refuse to provide a defense to a public employee in a civil action. “A public entity may refuse to provide for the defense of a civil action … brought against the employee … if the public entity determines that … the employee’s act or omission was not within the scope of employment, or that the employee acted or failed to act because of actual fraud, corruption or actual malice, or that the public entity’s defense of the action would create a specific .”

Note: Section 995.2(b) requires that if an employee requests in writing that the public entity provide a defense, the public entity shall inform the employee within 20 days whether it will or will not provide a defense and the reason for a refusal to provide a defense.

D. The Duty To Provide Indemnification

The provisions pertaining to a public entity’s duty to provide indemnification are found in §§ 825 through 825.6. Section 825(a) provides that, except as otherwise stated, if the public entity is requested by an employee to defend a civil action against her or him “for an injury arising out of an act or omission occurring within the scope of his or her employment as an employee of the pubic entity,” and “the request is made in writing not less than 10 days before the day of , and the employee reasonably cooperates in good faith in the defense, … the public entity shall pay any judgment based thereon or any compromise or settlement of the claim or action to which the public entity has agreed.”

“The primary purpose of the indemnification is to avoid dampening the ardor of employees who might otherwise be preoccupied with the possibility of having to personally finance and pay large judgments in tort suits arising from the performance of their duties”. California Municipal Law Handbook, p. VIII-45; Johnson v. State of California (1968) 69 Cal.2d 782, 792.

If the public entity does not conduct the defense as requested and the employee pays the claim or judgment awarded against her or him, the employee may be entitled to recover such payment from the public entity. This “entitlement” may be conferred only if: (1) the requesting employee establishes that the act or omission upon which the claim or judgment is based occurred within the scope of her or his employment as an employee of the public entity and (2) the public entity fails to establish that the requesting employee acted or failed to act because of actual fraud, corruption or actual malice or (3) that the requesting employee willfully failed or (4) refused to conduct the defense of the claim or action in good faith or (5) refused to reasonably cooperate in good faith in the defense conducted by the public entity. § 825.2 (b).

Note: It is the requesting employee’s burden to prove by a preponderance of the that the act or omission was within the scope of employment. Los Angeles Police Protective League v. City of Los Angeles, supra, 27 Cal.App.4th at p.176; Rivas v. City of Kerman (1992) 10 Cal.App.4th 1110, 1118-1119. (Italics added).

E. An Employee’s Private Automobile Insurance Policy May Satisfy The Public Entity’s Duty To Indemnify The Employee From Damages And Costs Arising From A Motor Vehicle Accident That Occurred During The Course And Scope Of Duty

An interesting twist to the indemnification obligation occurs where a public employee, operating her or his private vehicle, in the scope of employment, is involved in an accident. When this situation occurs, the employee’s automobile policy may satisfy the public entity’s duty to indemnify. Younker v. County of San Diego (1991) 233 Cal.App.3d 1324. Government Employees Insurance Company v. Gibraltar Casualty Company (1986) 184 Cal.App.3d 163. However, if the employee is involved in an accident and is underinsured, the city may not be able to rely on the employee’s insurance company to make up any shortfall between the amount of a damages award or settlement and the policy limit.

Practice Tip: To more effectively defend against “negligent entrustment” claims, cities that allow their employees to use the employees’ private vehicles in the course and scope of city business would be wise to require their employees to list the City as an additional insured on their automobile insurance policies. Such cities should require stringent safety standards for private vehicles used for city business, require their employees to maintain coverage in an amount reasonably sufficient to cover foreseeable damages and demand annual DMV proof of each employee’s driving record.

F. What Constitutes “Scope Of Employment” And How Do We Analyze Whether An Act Or Omission Is Within The Scope Of Employment?

The Act makes clear that the critical issue in determining whether a public entity has a duty to defend and indemnify a public employee is whether the alleged act or omission occurred within the “scope” of the employee’s duties. What is scope of employment? How do the determine whether an act or omission has occurred within the scope of employment? What standards do the courts provide us to determine whether public agencies have a duty to defend and indemnify?

We begin our inquiry with an understanding of the meaning that the courts give to “scope of employment”. As used in the Act, “[t]he phrase ‘scope of employment’ is intended to make applicable the general principles that California Courts use to determine whether the particular kind of conduct is to be considered within the scope of employment in cases involving actions by third persons against the employer for the of his employee.” Farmers Insurance Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1003.

In Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal.3d 962, the California Supreme explained scope of employment principles under the respondent superior doctrine. The Court stated that, “an employer is liable for risks ‘arising out of the employment.’ [Citations omitted.] A risk arises out of the employment when ‘in the context of the particular enterprise an employee’s conduct is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer’s business. [Citations omitted.] In other words, where the question is one of vicarious liability, the inquiry should be whether the risk was one ‘that may fairly be regarded as typical of or broadly incidental’ to the enterprise undertaken by the employer. (Citations omitted). Accordingly, the employer’s liability extends beyond its actual or possible control of the employee to include risks inherit in or created by the enterprise.” Farmers, supra, 11 Cal.4th at p.1003; Perez, supra, 41 Cal.3d at p. 968, [employer vicariously liable for injuries sustained by plaintiff when he was knocked from a tractor driven by employee while disking employer’s orchard]. [These principles were reiterated in Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 209.]

G. A Risk Is Inherent In, Or Created By, A Public Entity’s Operations If The Occurrence Was A Generally Foreseeable Consequence Of The Entity’s Operations

“One way to determine whether a risk is inherent in, or created by, an enterprise is to ask whether the actual occurrence was a generally foreseeable consequence of the activity. However, ‘foreseeability’ in this context must be distinguished from ‘foreseeability’ as a test for negligence. In the latter sense ‘foreseeable’ means a level of probability which would lead a prudent person to take effective precautions. However, ‘foreseeability’ as a test for respondent superior merely means that in the context of the particular enterprise an employee’s conduct is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer’s business.” Rodgers v. Kemper Constr. Co. (1975) 50 Cal.App.3d 608-619. (Rodgers). (Italics added). The Rodgers foreseeability test is useful because it reflects the central justification for respondent superior, i.e., that losses fairly attributable to an enterprise – those which foreseeably result from the conduct of the enterprise – should be allocated to the enterprise as a cost of doing business. Farmers, supra, 11 Cal. 4th at p. 1004; John R. v. Oakland Unified School Dist. (1989) 48 Cal.3d 438, 450; Hinman v. Westinghouse Elec. Co. (1970) 2 Cal.3d 956, 959-960.

H. Scope Of Employment Is Broadly Interpreted Under The Respondent Superior Doctrine

In California, scope of employment has been interpreted broadly under the respondent superior doctrine. For example, “[t]he fact that an employee is not engaged in the ultimate object of his employment at the time of his wrongful act does not preclude attribution of liability to an employer.” Alma W. v. Oakland Unified School Dist. (1981) 123 Cal.App.3d 133, 139. Thus, acts necessary to the comfort, convenience, health, and welfare of the employee while at work, though strictly personal and not acts of service, do not necessarily take the employee outside the scope of employment. (ibid.) Similarly, “ ‘where the employee is combining his own business with that of his employer, or attending to both at substantially the same time, no nice inquiry will be made as to which business he was actually engaged in at the time of injury, unless it clearly appears that neither directly nor indirectly could he have been serving his employer.’ [Citations omitted.]” John R., supra, 48 Cal.3d at p.447. An employer’s vicarious liability may extend to willful and malicious torts of an employee as well as negligence. Mary M., supra, 54 Cal.3d at p. 209; John R., supra, 48 Cal.3d at p. 447. Finally, an employee’s tortious act may be within the scope of employment even if it contravenes an express company rule and confers no benefit to the employer. Mary M., supra, 54 Cal.3d at p. 209; Perez, supra, 41 Cal.3d at pp. 969-970.

I. An Employer Is Not Strictly Liable For All Actions Of Its Employees During Working Hours

Notwithstanding that scope of employment is broadly defined by California Courts, the law is clear that an employer is not strictly liable for all actions of its employees during working hours. An employer will not be held vicariously liable for an employee’s malicious or tortious conduct if the employee substantially deviates from the employment duties for personal purposes. Alma W., supra, 123 Cal.App.3d at p.

139; John R., supra, 48 Cal.3d at p. 447; Hinman v. Westinghouse Elec. Co., supra, 2 Cal.3d at p. 960; Jeffrey E. v. Central Baptist Church (1988) 197 Cal.App.3d 718, 721. If the employee “inflicts an injury out of personal malice, not engendered by the employment” (Carr v. Wm. C. Crowell Co. (1946) 28 Cal.2d 652, 656) or acts out of “personal malice unconnected with the employment” (Rodgers, supra, 50 Cal. App.3d at p. 621), or if the misconduct is not an “outgrowth” of the employment (Carr v. Wm. C. Crowell Co., supra, 28 Cal.2d at p. 657), the employee is not acting within scope of employment.

Stated another way, “[i]f an employee’s tort is personal in nature, mere presence at the place of employment and attendance to occupational duties prior or subsequent to the offense will not give rise to a cause of action against the employer under the doctrine of respondent superior.” Alma W., supra, 123 Cal.App.3d at p. 140. In such cases, the losses do not foreseeably result from the conduct of the employer’s enterprise and so are not fairly attributable to the employer as a cost of doing business.

J. Vicarious Liability Arising Out Of Scope Of Employment

An employer may be subject to vicarious liability for injuries caused by an employee’s tortious actions resulting or arising from pursuit of the employer’s interests. (Perez, supra, 41 Cal.3d 962 [tractor operator carried unauthorized passenger while serving the employer’s business]; De Rosier v. Crow (1960) 184 Cal.App.2d 476 [waitress employed by bowling alley/liquor attempted to stop fight involving patrons and owner of bowling alley/bar]).

Vicarious liability may also be proper where the tortious conduct results or arises from a dispute over the performance of an employee’s duties, even though the conduct is not intended to benefit the employer or to further the employer’s interests. Fields v. Sanders (1947) 29 Cal.2d 834 [employee truck driver beat motorist with wrench during dispute over employee’s driving on a company job]; Carr v. Wm. C. Crowell Co., supra, 28 Cal.2d 652 [employee of general contractor threw hammer at subcontractor during dispute over construction procedure]. Vicarious liability may even be appropriate for injuries caused after work hours where a dispute arises over the rights and privileges of off-duty employees. Rodgers, supra, 50 Cal.App.3d 608 [injuries inflicted by off-duty employees of general contractor during dispute over right to use subcontractor’s equipment]. In these types of situations, the tortious actions are engendered by events or conditions relating to the employment and therefore are properly allocable to the employer.

Practice tip: Be mindful of vicarious liability issues, particularly sexual harassment or employment discrimination issues in situations where employees are encouraged to attend after shift gatherings at off- job sites. The greater the extent that these off- site functions can be tied to work benefits and employer interests, the greater the chance that the employer will be held vicariously liable for tortious conduct that occurs at these off- site, after work functions. An example is after shift parties held by certain police units. Most attendees are male officers although a small number of female officers may be present. There is no official requirement that officers who work a specific shift in a specific unit attend these parties; however, the officers generally perceive that the unit commander views these parties as essential to building and maintaining esprit de corps. It is also a general perception among the officers that if they do not attend, it will hamper their chances for advancement. The parties are frequently characterized by uninhibited behavior encouraged by generous portions of alcohol. Would the municipal employer be likely to be found liable if complaining officers were able to establish an ongoing pattern of sexual harassment or gender discrimination at these parties? Would the municipality be vicariously liable if an inebriated officer negligently shot someone while at one of the parties?

K. Imposition Of Vicarious Liability Is Not Appropriate Where The Misconduct Does Not Arise From The Conduct Of The Employer’s Enterprise

Conversely, vicarious liability is not appropriate where the misconduct does not arise from the conduct of the employer’s enterprise but instead arises out of a personal dispute (e.g. Monty v. Orlandi (1959) 169 Cal.App.2d 620, 624 [bar owner not vicariously liable where on-duty bartender assaulted plaintiff in the course of a personal dispute with his wife]), or is the result of a personal compulsion (e.g. Thron v. City of Glendale (1994) 28 Cal.App.4th 1379, 1383 [city not vicariously liable where fire marshal set business premises on fire during an inspection]). In such cases, the risks are engendered by events unrelated to the employment, so the mere fact that an employee has an opportunity to abuse facilities or authority necessary to the performance of his or her duties does not render the employer vicariously liable. Alma W., supra, 123 Cal.App.3d at p. 140.

Query: There certainly seems to be a double standard as to peace officers where the officers have abused their authority to gain sexual favors from members of the public who they have detained or arrested. Under the Mary M. standard, as discussed below, a public entity employer is vicariously liable for the officer’s illegal conduct. Under Alma W., there would be no vicarious liability for similar conduct if the offending employees are not peace officers.

Another little query: Is the municipality vicariously liable for the actions of the parking meter checker who, after years of verbal abuse by irate citizens whose vehicles she had ticketed, “snapped” as a result of the cumulative stress of her job and beat a complaining citizen to within an inch of his life? What do you think? Would you recommend that your city provide a defense and indemnification?

Several decisions have addressed whether an employee’s sexual misconduct directed toward a third party is within the scope of employment for respondent superior purposes. Those cases hold that, except where sexual misconduct by on-duty police officers against members of the public is involved (e.g. Mary M., supra, 54 Cal.3d 202; White v. County of Orange (1985) 166 Cal.App.3d 566), the employer is not vicariously liable to the third party for such misconduct. Jeffrey E., supra, 197 Cal.App.3d 718 [church not liable for repeated acts of sexual assault on minor by Sunday school teacher]; Rita M. v. Roman Catholic Archbishop (1986) 187 Cal.App.3d 1453 [Roman Catholic archbishop not liable for seduction.].

Query: What of the police officer who, while off duty, uses her or his badge, gun or other indicia of official status to coerce sex from prostitutes or to extort money from drug dealers? Is that officer acting within course and scope as defined by Mary M.?

In each of the non-police decisions cited in the previous paragraph, vicarious liability was rejected as a matter of law because it could not be demonstrated that the various acts of sexual misconduct arose from the conduct of the respective enterprises. The common thread running through the decisions is that the acts or omissions at issue had been undertaken solely for the employees’ personal gratification and had no purpose connected to the employment. Moreover, the acts had not been engendered by events or conditions relating to any employment duties or tasks; nor had they been necessary to the employees’ comfort, convenience, health or welfare while at work. As the court in John R., supra, 48 Cal.3d at page 452, concluded “the connection between the authority conferred on teachers to carry out their instructional duties and the abuse of that authority to indulge in personal, sexual misconduct is simply too attenuated to deem a sexual assault as falling within the range of risks allocable to a teacher’s employer.”

In Farmers, supra, 11 Cal.4th at p.1003, a case in which the employee’s homeowners’ insurance company sought indemnification for a settlement, the court concluded that the harassing employee did not act within the course and scope of employment even where it was proven that the harassing employee committed “virtually all of the harassing acts during his work hours at the employer’s job site”. Farmers, supra, at p. 1007. The court explained that Farmers (the insurance company) could not “prevail on the scope of employment issue without also establishing that the acts arose out of the employment.” Ibid. In explaining its basis for this conclusion, the court reiterated the holdings of several prior decisions that “[i]f an employee’s tort is personal in nature, mere presence at the place of employment and attendance to occupational duties prior or subsequent to the offense will not give rise to a cause of action against the employer under the doctrine of respondent superior.” Ibid. Also see Alma W., supra, 123 Cal.App.3d at p. 140; Monty v. Orlandi, supra, 169 Cal.App.2d at p. 623; cf. John R., supra, 48 Cal.3d 438.

While the scope of employment may encompass tortious conduct that disregards the employer’s express orders (Mary M., supra, 54 Cal.3d at p. 209; Perez, supra, 41 Cal.3d at pp. 969-970), an employer will not be held vicariously liable where “ ‘it clearly appears that neither directly nor indirectly could [the employee] have been serving his employer.’ ”

Query: Would the ruling in Farmers have been the same if the county had argued that the harasser had not acted in the course and scope of employment in the underlying case with the victim rather than raising the issue when the harasser’s insurance company sought indemnification of its settlement?

L. The Standard For Determining Whether A Risk Is “Unusual Or Startling” For Respondent Superior Analysis

The Farmers court set forth the standard for determining whether a risk is “unusual or startling” for respondent superior purposes. “The inquiry should be whether the risk was one that may fairly be regarded as typical of or broadly incidental to the enterprise undertaken by the employer.” Farmers, supra, 11 Cal.4th at p. 1009; see also Perez, supra, 41 Cal.3d at p. 968; Hinman v. Westinghouse Elec. Co., supra, 2 Cal.3d at p. 960. Thus, it is not enough that a risk be neither unusual nor startling as a general matter; rather, the risk must be evaluated in the context of the employer’s particular enterprise. Ibid.; Rodgers, supra, 50 Cal.App.3d at pp. 618-619. “Under the foregoing standard, we are compelled to conclude that evidence of the general prevalence of sexual harassment in workplaces and in newly integrated work environments has little, if any, probative value in determining whether lewd propositioning and offensive touchings of coworkers are typical of or broadly incidental to the particular enterprise here – a county jail.” Farmers, supra, 11 Cal.4th at p. 1009.

Although the offending acts in Farmers occurred in a jail setting, the above language is applicable to situations in many municipal employee units, particularly in historically all male units that have only recently received small numbers of female employees. Examples are fire fighters, certain police units, heavy physical labor public works units and heavy equipment operators. Attorneys representing employees who complain of sexual harassment or gender discrimination commonly attempt to bolster their claims with allegations that, based on the widely available literature, the city should have known of the high probability that women working in traditionally male-dominated areas would be more likely to be victims of unlawful gender discrimination. They then attempt to make the highly attenuated argument that since this phenomenon is so well documented and prevalent in similar workplaces, it follows that the offending discriminatory conduct is incidental to the particular workplace. Therefore the offending conduct was within course and scope of employment.

The above language in Farmers is an important tool for asserting that the offending behavior, notwithstanding that it occurred on the job-site and during regular work hours, was purely personal and was not incidental to or within the scope of employment. Therefore, the municipality has no duty to defend or indemnify the offending employee.

M. A Municipality’s Decision To Defend Some Employees In A Given Matter Does Not Create A Duty To Defend All Employees Named As Defendants In That Or Other Matters

Farmers makes clear that “a public entity’s decision to defend certain employees accused of sexual harassment is [not] an appropriate factor for determining scope of employment” with respect to other employees requesting that the public entity defend and indemnify them.

“We … decline to hold that a public entity’s agreement to undertake representation of certain employees for such reasons will defeat the entity’s right to refuse the defense of other employees whose acts of sexual harassment are undisputed.” Farmers, supra, 11 Cal.4th at p.1018.

The above language in Farmers establishes that municipalities have no duty to provide a defense and indemnification to an employee simply because it has decided to defend and indemnify other employees named in the same lawsuit. This is true even where all employee defendants allegedly committed the same acts or omissions. It is certainly true that the municipality should make decisions based on the facts pertinent to each named individual. However, there may be circumstances in which the municipality’s best interests are served by providing a defense and indemnification to an employee even in the absence of a duty to so do. An example is the “loose cannon” defendant employee who would injure the municipality’s interests much more severely if he or she is not provided with counsel to represent them through the litigation and trial.

III. CONCLUSION

A city’s duty to provide a defense and indemnification to a defendant employee rests entirely on a determination of whether the employee committed the complained of conduct in the course and scope of employment. That determination should be made as early as possible. If the public entity agrees to provide a defense and indemnification, where the facts indicate that a conflict of interest may develop or that the employee may have acted outside the course and scope of employment, then the agreement should be subject to a reservation of rights letter. It may also be advisable in some cases to obtain an early court determination of the course and scope issues.