Woodland Hills personal injury lawyer Barry P. Goldberg has advanced expertise in insurance coverage law. This expertise is a critical compliment to a personal injury practice. Mr. Goldberg has been tracking the Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc. (S236765; 9th Cir. No. 14-56120) case for several reasons. On June 4, 1018, the California Supreme Court published its long-awaited decision in the “Liberty Surplus” case to clarify California law which has a significant effect on both insurance policy holders and injury victims alike.
Although the Liberty Surplus decision has been widely reported as creating a viable resource for recovery in sexual assault cases, the application of the stated principles is far more wide-reaching. In fact, our office recently used the guiding case law and reasoning in Liberty Surplus in order to obtain insurance coverage for parents who allegedly “negligently entrusted” a vehicle to their son. In that circumstance, we argued that liability based upon “negligent supervision” for a driver that acted intentionally was covered under Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315 (Minkler).
The Court’s of Appeal have been struggling with squaring the principle of no coverage for intentional acts, the broader duty to defend, and the “independent” tort of negligent supervision. Critical for understanding the Court’s holding in Liberty Surplus is to view the case through the eyes of the named insured. Is the alleged excluded or intentional conduct and “accident” from the insured’s perspective?
California Insurance Law Excludes Coverage for Intentional Conduct.
It is now fairly well established that liability insurance only applies when there is an “accident.” (Delgado v. Interinsurance Exchange of Automobile Club of Southern California (2009) 47 Cal.4th 302, 308 (Delgado).) “[A]n accident is ‘“an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.”
Even though the “intentional” conduct cannot be covered, most enterprising plaintiff attorneys would plead in the alternative that the alleged conduct was also “negligent.” In the case of an assault, it was always alleged that the injury occurred due to excessive or negligent self-defense in order to implicate liability insurance coverage. The prevailing argument was that while the defendant intended his act —striking the plaintiff— he did not intend the consequences. Examples of injuries caused in mutual combat or even alleged “horseplay” are too numerous to cite. The clearest example would be pushing a friend into the pool. You intended to push the friend, you did not expect the friend to hit his face against the edge and lose his front teeth!
However, the court in Delgado, for better or worse, put an end the creative separation between intended action and intended consequences.).) “Under California law, the word ‘accident’ in the coverage clause of a liability policy refers to the conduct of the insured for which liability is sought to be imposed . . . .” (Id. at p. 311, emphasis added.) Further, a sexual assault (and other illegal conduct) is considered a “wilful act” beyond the scope of insurance coverage under Insurance Code section 533. (J. C. Penney Casualty Ins. Co. v. M. K. (1991) 52 Cal.3d 1009, 1025.)
Derivative Liability is an “Accident” from the Insured’s Stand Point.
In insurance law, there is a difference between an excluded intentional act and negligent supervision. Minkler, supra.) In that case, the plaintiff sued his Little League coach for sexual molestation. He also sued the coach’s mother, whom he accused of negligent supervision for failing to prevent molestations that occurred in her home. The coach was listed as an additional insured on his mother’s homeowner’s insurance policy. The California Supreme Court held that an exclusion for injuries arising from an insured’s intentional acts did not apply to the mother’s liability for negligence.
“[T]his is not a situation where the only tort was the intentional act of one insured, and where the liability of a second insured, who claims coverage, is merely vicarious or derivative. On the contrary, [the plaintiff’s] claim against [the mother] clearly depends upon allegations that she herself committed an independent tort in failing to prevent acts of molestation she had reason to believe were taking place in her home. Under such circumstances, she had objective grounds to assume she would be covered, so long as she herself had not acted in a manner for which the intentional acts exclusion barred coverage.” (Id. at p. 325.)
The Courts of Appeal Struggle with Analysis and Application.
Several cases were decided by the California Courts of Appeal on various fact patterns and analysis that confused a clear application of the case law. In the Liberty Surplus case, the Court listed several competing Court of Appeal decisions which will not be repeated and analyzed in this article. However, a good example of the problems with analysis were presented in American Empire Surplus Lines Ins. Co. v. Bay Area Cab Lease (N.D.Cal. 1991) 756 F.Supp. 1287 (American Empire).
In American Empire, the insured taxi cab company sought property insurance coverage for a child molestation committed by one of its drivers at a school. It was not a comprehensive general liability policy. In dicta, the court concluded that “negligent hiring” cannot be an “accident.” This conclusion is clearly erroneous. From this conclusion has sprung many coverage denials based upon negligent hiring and negligent supervision cases in enumerable circumstances ranging from assaults to sexual misconduct.
California Supreme Court Reaffirms Minkler.
In Liberty Surplus the Court considered when a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an “occurrence” under the employer’s commercial general liability policy. The Court concluded that the answer turns on whether the injury can be considered “accidental.” In the facts presented, it concluded that it could.
Delgado made it clear that the relevant perspective is that of the insured. The insured may have been negligent in hiring a sexual molester. However, the insured did not expect that its employee would sexually attack someone. The Court recognized society’s interest in providing an incentive for employers to take precautions against sexual abuse by their employees. However, it noted that the threat of liability for negligent hiring, retention, and supervision is a significant deterrent even when insurance coverage is available. The Court also acknowledged that insurance does not generally cover intentionally inflicted injuries. But as noted in Minkler, “the public policy against insurance for one’s own intentional sexual misconduct does not bar liability coverage for others whose mere negligence contributed in some way to the acts of abuse. In such cases . . . there is no overriding policy reason why a person injured by sexual abuse should be denied compensation for the harm from insurance coverage purchased by the negligent facilitator.” (Minkler, supra.)
Woodland Hills personal injury lawyer Barry P. Goldberg recommends that in cases of assault, sexual misconduct or other crimes, that lawyers examine closely whether there can be negligence claims against insured parties for supervision or hiring.