The plaintiff in this case was a former employee who alleged that the termination of his employment was improper and caused him profound emotional distress. His employer and related companies assigned to the employee their rights, title, claims and interests when their insurers refused defense of a civil action brought against them by the employee. As assignee of the rights of the insureds, the employee filed a complaint against the insurers asserting four causes of action: Breach of contract; breach of the implied covenant of good faith and fair dealing; wrongful refusal to settle; breach of Insurance Code provisions governing proper claim handling by insurers. The employee appealed trial court judgment favorable to the insurers.

Our interest centers around the cause of action for breach of contract and the plaintiff's (employee's) principal contention that an insurer "must defend a suit that potentially seeks damages within the coverage of the policy." It was noted that the pertinent general liability insurance was applicable to "bodily injury or property damage to which this insurance applies, caused by an occurrence . . . ." The word "occurrence" was defined in the policy provisions as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

The appeal court said that the central question presented to it was "whether the policy covers bodily injury arising from termination of employment." Specifically, "is termination of employment an 'occurrence' covered by the insurance policy?"

The plaintiff cited various cases concerned with the meaning of "occurrence." The court stressed that none of them had to do with the matter of emotional distress arising from termination of employment. The plaintiff raised the issue of an insurer's duty to defend and the insured's reasonable expectation of coverage. The court said this was a question of law. It concluded that the policy language excluded coverage for "the employer's liability for an employee's emotional distress arising from the termination of employment." It found it unreasonable for the insured to expect the insurance to provide coverage.

The judgment of the trial court in favor of the insurers and against the plaintiff was affirmed.

(DYER, Plaintiff Appellant v. NORTHBROOK PROPERTY & CASUALTY INS. CO., Defendant, Respondent. CA Court of Appeal, Second District, Division One. No. B034700. May 25, 1989. 210 Cal. App. 3d 1540. CCH 1989-90 Fire and Casualty Cases, Paragraph 1948.)