Case5:11-cv-00455-LHK Document1-3 Filed01/28/11 Page1 of 8

OHAGAN
SPENCER
LLC

Laura R. Zaroski
312-422-6142 - Direct
312-422-6110- Fax
[zaroski@ohaqanspencer.com - E-mail

September 27, 2007

VIA ELECTRONIC MAIL AND CERTIFIED MAIL

(suztg@pacbell.net / davidgauntlett@pacbell.nm

David A. Gauntlett
Suzanne Gauntlett
Gauntlett & Associates
18400 Von Karman, Suite 300
Irvine, CA 92612

Re: Policy No.: N01262658

Employment Practices Liability Insurance
Insured: David A. Gauntlett; dba Gauntlett & Associates.
Claimant: Mariam Tarzi
Policy Period: July 10, 2006 to July 10,2007
as File No.: 20732

Dear Mr. & Mrs. Gauntlett:

As you know, this fum represents the Insurer subscribing to the above-referenced
Employment Practices Liability Insurance Policy issued to David A. Gauntlett;. dba Gauntlett &
Associates (the "Insured"). In this connection, we recently received notice of a civil lawsuit filed
by Mariam Tarzi ("Claimant"). We have reviewed the material provided by the Insured, as well
as the above-referenced Policy.

Generally, we note that the Policy was effective July 10,2006 to July 10, 2007. The
Policy has a Limit of Liability of$I,OOO,OOO for each First Party Insured Event and a $10,000
Self Insured Retention for each Insured Event. The Self Insured Retention applies to covered
Defense Costs as well as any covered settlement or judgments. Covered Defense Costs include
the Limit of Liability and are subject to the $10,000 Self Insured Retention. Accordingly, the
Insured is responsible for payment of the SelfInsured Retention, and the Insurer's obligation to
pay applies only to the amount in excess of the Self Insured Retention.

EXHIBIT

3
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O'HAGAN SPENCER, LLC

David A Gauntlett
Suzanne Gauntlett
September 27,2007
Page 2

Based upon the material provided, we understand that Claimant worked at the Insured's
firm for over nine years as an Assistant Finn Administrator!Assistant to David Gauntlett: On
May 9, 2007, Claimant sent a letter to the Insured claiming that she was owed unpaid overtime
wages, with interest. Thereafter, on May 14,2007, Claimant submitted her letter ofresiguation
to the Insured. In response, the Insured sent a series ofletters dated May 16, 2007 and May 25,
2007, disputing Claimant's allegations. .

On August 16, 2007, Claimant filed a lawsuit in the California Superior Court, Orange
County, alleging that the Insured: (I) failed to pay Claimant overtime wages; (2) failed to pay
Claimant wages due to her resiguation pursuant to Labor Code §§ 201-203, 1199; (3) failed to
provide Claimant with rest breaks and meal periods; (4) knowingly and intentionally failed to
comply with itemized employee wage statement provisions (Lab. Code, §226(B)); and that the
Insured violated the unfair competition law (Bus. § Prof. Code, §§ 17200-17208). The Insured
was served notice of the civil complaint on or about August 16,2007. The Insured tendered
notice ofthe civil complaint to the Insurer on September 6, 2007.

Initially, we note that Section 1. of the Policy states:

I. COVERAGE: WHATJS COVERED

A. We will pay Loss amounts thatthe insured is legally obligated to

pay on account of a claim because of an Insured Event to which
this policy applies. However, the amount we will pay is limited as
described in Section VI. COVERAGE LIMITS, Section IX. CO-
PAYMENT .and Section VII. SELF-INSURED RETENTION of
this policy.

B. This policy applies only if:

1. A Claim is first made against the insured in accordance

with Section Ill. WHEN COVERAGE IS PROVIDED;

2. The Claim is first reported in accordance with Section Ill.

WHEN COVERAGE IS PROVIDED section and the
CONDITIONS section X. A. Duties in the Event of a
Claim; and

3. The Insured Event takes place within the Coverage

Tenitory;
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O'HAGAN SPENCER, LLC

David A. Gauntlett
Suzanne Gauntlett
September 27,2007
Page 3

Section III.A. of the Policy provides:

III. WHEN COVERAGE IS. PROVIDED

A. This policy applies only to Claims arising out of an Insured Event

that are first made or brought during the Policy Period and reported
during the Policy Period or, if applicable, during the Limited or the
Extended Reporting. Period. A Claim is considered to be first
made on the date a Management or Supervising Employee is
served or first receives notice of a Claim. The date of Claim
arising from a fact, situation or circumstance reported in
accordance with the Notice of Potential Claim Condition will be
the date notice is given under the policy.

We note the Policy's defmition of Claim is as follows:

A. CIaim(s) means:

1. A written demand for monetary damages;

2. A civil proceeding commenced by the service of a

complaint or similar pleading;

3. An arbitration proceeding to which the insured must submit

or to which an insured submits with our consent.

4. A fonnal administrative or regtilatory adjudicatory or

investigative proceeding cOlmnenced by the filing of a
notice of charge, formal investigative order or similar
document; or

5. A fonnal civil, criminal, administrative or regulatory

investigation commenced by the service upon or other
receipt by the insured of a written notice or subpoena from
the investigating authority identifying the insured as a
person against whom a formal proceeding may be
commenced;

against any insured, including any appeal therefrom; however, a

Claim shall not include a labor or grievance proceeding which is
pursuant to a collective bargaining agreement.
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O'HAGAN SPENCER, LLC

David A. Gauntlett
Suzanne Gauntlett
. September 27, 2007
Page 4

* * *
C. Employment-related Discrimination means tehnination of the
employment relationship, a demotion, a failure or refusal to hire or
promote, denial of an employment benefit or the taking of any
adverse or differential employment action because of race, color,
religion, age, sex, disability, pregnancy, sexual orientation,
national origin, or any other basis prohibited by federal, state or
local law, including but not limited to the Family Medical Leave
Act, Age Discrimination in Employment Act, Americans with
Disabilities Act, the Fair Labor Standards Act and the Unifonned
Services Employment and Reemployment Rights Act.

* * * *
F. . First Party Insured Event means actual or alleged acts of
Employment-related Discrimination, Employment-related
Harassment, or Inappropriate Employment Conduct by an insured
against an Employee, fonner Employee or applicant for
employment with an insured entity.

G. Inappropriate Employment Conduct means any actual or

alleged;

1. Wrongful dismissal or discharge or tennination of

employment, whether actual or constructive;
2. Wrongful demotion, wrongful discipline or retaliatory
discharge;
3. Employment-related lnisrepresentation to, humiliation of,
or retaliation against an Employee, a former Employee or
an applicant for employn:ient;
4. Employment-related wrongful infliction of emotional
distress or mental anguish upon an Employee, a fonner
Employee or an applicant for employment;
5. False imprisomnent, false arrest, detention or malicious
prosecution of an Employee, a fonner Employee or an
applicant for employment; or
6. Employment-related libel, slander, defamation of character
or any invasion of right of privacy of an Employee, a
fonner Employee or an applicant for employment.
 Case5:11-cv-00455-LHK Document1-3 Filed01/28/11 Page5 of 8

O'HAGAN SPENCER, LLC

David A. Gauntlett
Suzanne Gauntlett.
September 27,2007
Page 5

Inappropriate Employment Conduct shall not include any act or

failure to act except as set forth above.

* * * *
1. Loss

1. Loss means:

a. The amount the insureds become legally obligated

to pay on account of each Claim and for all Claims
in the policy period and the Limited or Extended
Reporting Periods, if exercised, made against them
for Employment-related Discrimination,
Employment-related Harassment, and Inappropriate
Employment Conduct for which coverage applies,
including, but not limited to, damages, back pay and
front pay, judgments, any award of pre-judgment
and post-judgment interest, settlements and Defense
Costs; and

b. The amount the insureds become legally obligated

to pay on account of each Claim and for all Claims
in the Policy Period and the Limited or Extended
Reporting Periods, if exercised, made against them
for Third Party Discrimination Or Third Party
Harassment for which coverage applies, including,
but not limited to, damages judgments, any award
of pre-judgment and post-judgment interest,
settlements and Defense Costs.

2. Loss does not include:

a. Taxes, civil or criminal fines orpenalties imposed

by law;
b. Any amount for which the insureds are absolved
from payment;
c. The mUltiple portion of any multiplied damage
award;
d. ·Non-monetary relief (this provision does not
apply to Defense Costs);
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O'HAGAN SPENCER, LLC .

David A. Gauntlett
Suzanne Gauntlett
September 27,2007
Page 6

e. Liquidated damages where there is a fmding of

willfillness;
f. Payment of insurance plan benefits by or on
. behalf of retired Employees or that to which a
claimant would have been entitled as an
Emp loyee had the insured provided the claimant
with a continuation of insunince;
g. Costs incurred by an insured to modify or adapt
any building or property in order to make such
building or property more accessible or
accommodating to any disabled person;
h. Matters which may be deemed uninsurable
according to the law under which this policy is
construed;
i. Amounts owed under federal, state, Or local wage
and hour laws;
j. Commissions, bonuses, profit sharing or benefits
pursuant to a contract of employment; or
k. Damages arising from any written or express
contract of employment or obligation to malce
payments, including but not limited to severance
payments in the event of the tennination of
employment. (emphasis added)

Claimant's civil complaint alleges failure to pay certain wages owed. Under the above
Policy, Claimant's allegations do not fall within the Policy's definition of covered "Loss."
Accordingly, the Insurer is constrained to advise that there is no coverage for this matter.

Additionally, we note Section II. ofthe Policy entitled EXCLUSIONS: WHAT IS NOT
COVERED, which provides as the follows:

II. EXCLUSIONS: WHAT IS NOT COVERED

J. Gain or Profit. This policy does not cover any Loss based upon,
arising out of, or attributable to an insured gaining in fact any
profit, remuneration or fmancial advantage to which such insured
was not legally entitled.

* * * * *
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O'HAGAN SPENCER, LLC

David A. Gauntlett
. Suzanne Gauntlett
September 27,2007
Page 7

L. Compensation Earned or Due. This policy does not cover

compensation earned by or due to the claimant in the course of
employment but not paid, including any unpaid salary, bonus,
hourly pay, overtime pay, severance pay, retirement benefits,
vacation days or sick days; but tllis exclusion shall not apply to any
back payor front payor any additional compensation allegedly due
as a result of Employment-related Discrimination.

M. Empioyment Contracts. This policy does not cover amounts

determined to be payable under an express written contract with or
express wlitten severance obligation of the insured; but this .
exclusion shall not apply if and to the extent that liability would
have attached to the insured in the absence of the written contract
with or obligation of the insured.

At noted above, Claimant is seeking to be reimbursed for unpaid overtime and other
wages that were allegedly withheld. The Exclusions section of the Policy specifically excludes
coverage for wages owed. Accordingly, we again must advise that there is no coverage.

The Insurer's enmneration of specific coverage issues in no way serves to waive or limit
the rights that the Insurer has, or may obtain. Further, the Insurer reserves the light to
supplement and/or amend this letter to address additional coverage issues as they may arise,
including rescission and rights under Buss v. Transamerica, based upon all of the provisions,
terms, conditions, exclusions, endorsements, and definitions found in the Policy and additional
facts tliat may.come to the Insurer's attention. Please adviSe us immediately if you believe you
have infonnation that may change the above coverage detennination .. Nothing stated herein and
no further action taken by the Insurer or on its behalf should be construed as a waiver of any of
its rights under ilie Policy, at law or in equity. On the contrary, by providing this or any prior
correspondence to the Insured, engaging in any prior or future discussions with the Insured, or
paying or agreeing to pay any amount to or on behalf of the Insured, the Insurer does not waive
any rights that it has under the Policy, at law or in equity.

Please be advised tl,at pursuant to regulations promulgated under the California Insurance
Code, if you believe that this Claim has been wrongfully denied or rejected, in whole or in part,
you may have the matter reviewed by the California Department of Insurance. The California
Department of Insurance can be contacted at California Department of Insurance Claim Services
Bureau, 11ili Floor, 300 South Spling Street, Los Angeles, California 90013, (213) 897-5961.

t=VU"l 7
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O'HAGAN SPENCER, LLC

David A. Gauntlett
Suzanne Gauntlett
September 27,2007
Page 8

If you have any questions regarding the above, please do not hesitate to contact me.

Very truly yours.

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cc: Rob Yonowitz, Esq. (Via Electronic Mail- ryonowitz@laborlawyers.com)

Fisher & Phillips LLC

Matthew D. May (Via Electronic Mail)

O'Hagan Spencer LLC

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