Michaelian

In this case we decide that the employer’s liability portion of a workers’ compensation insurance policy does not provide coverage when the insured employer is sued for sexual harassment and related tort causes stemming from the alleged harassment. We further decide that the insurer, under no policy obligation to indemnify or defend against a pending third party action, did not become liable for defense costs when it notified the insured it would provide a defense under a full reservation of rights and subsequently, after paying only a portion of the defense costs, withdrew. The insured did not allege facts showing either that the insurer was estopped from denying a duty to defend or that an exchange of letters, followed by partial payment, constituted an enforceable contract. We will affirm the trial court’s judgment entered after sustaining the insurer’s demurrer without leave to amend.

Facts and Procedural Background

The Insurance Policy

Respondent State Compensation Insurance Fund (State Fund) issued a “Workers’ Compensation & Employer’s Liability Insurance Policy” (Policy) to appellants Amen Michaelian, individually and as Amen Michaelian, D.D.S., Inc.…