Generally, an insured will not receive coverage under a liability policy when they intentionally cause the loss or injury for which they are seeking coverage. As expected, insurers regularly deny claims when they are able to characterize an insured’s conduct as intentional, even when the damage or injury caused was accidental or not intended by the insured. In recent years, insurers in California have been able to successfully defend their denial of insurance claims involving an intentional act before California courts. The success experienced by these insurers has largely been the result of a California Supreme Court decision in 2009 holding that “an injury-producing event is not an ‘accident’ within the policy’s coverage language when all of the acts, the manner in which they were done, and the objective accomplished occurred as intended by the actor.” Delgado v. Interinsurance Exchange of the Automobile Club of Southern California, 47 Cal.4th 302 (2009). Prior to the Delgado decision, California courts followed a more expansive interpretation of liability policies requiring insurance companies to defend policyholders against lawsuits even where the underlying claim alleged only intentional conduct. See Gray v. Zurich ins. C.o., 65 Cal.2d 263 (1966).
Recently, the California Supreme Court provided clarity that once again expanded the interpretation of liability policy provisions to provide coverage even when an event involves an intentional act. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., 418 P.3d 400 (2018), Ledesma & Meyer (“L&M”) contracted with a school district to manage a construction project. The assistant superintendent that L&M hired sexually abused a 13 year-old student, and L&M was sued for negligently hiring, retaining and supervising the assistant superintendent. L&M tendered the defense of the case to Liberty, its insurer. L&M’s insurance policy provided coverage for bodily injury caused by an “occurrence,” which was defined in the policy as an accident. Liberty sought declaratory relief from the federal district court contending it had no obligation to defend or indemnify L&M since the injury to the student was not caused by an “occurrence” or accident, since the alleged negligent hiring and supervision of the assistant superintendent was too attenuated from the injury-causing conduct, and the alleged negligent hiring and supervision of the assistant superintendent was not an accident despite the fact L&M did not intend for the injury to occur. Liberty also argued that because the sexual abuse was an intentional act by the superintendent hired by L&M, it could not be an “occurrence” triggering coverage.
The district court granted summary judgment to Liberty on the cause of action for negligent hiring, retention, and supervision. L&M appealed the decision arguing the district court misapplied California law, and the Court of Appeals sought the opinion of the California Supreme Court. The California Supreme Court noted that the applicable definition of “accident” in California means an unexpected, unforeseen, or undersigned happening or consequence from either a known or unknown cause. The Court further explained that 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 (which here would be the conduct of L&M rather than the conduct of the assistant superintendent). The Court determined that the sexual abuse of the student may be deemed an accident or an unexpected consequence of L&M’s independent act of negligently hiring, retaining and supervising the assistant superintendent.
The Court noted that the insured’s “allegedly negligent hiring, retention and supervision were independently tortious acts, which form the basis of its claim against [the insurer] for defense and indemnity.” It then pointed out that the employee’s molestation “was the act directly responsible for the injury, while [the insured’s] negligence in hiring, retaining, and supervising him was an indirect cause.” It reasoned that the insured’s acts:
must be considered the starting point of the series of events leading to the molestation. [The insured] does not rely on any event preceding its own negligence to establish potential coverage. As alleged by [the plaintiff], the ‘occurrence resulting in injury’ began with [the insured’s] negligence and ended with [the employee’s] act of molestation.
The Court further explained that Liberty’s arguments, if accepted, would leave employers without coverage for claims of negligent hiring, retention, or supervision whenever an employee’s conduct is deliberate, and such a result would be inconsistent with California law. The Court concluded that absent an applicable exclusion, employers should expect to provide coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.
This decision should cause concern for insurance providers who have developed a practice of regularly denying general liability claims based upon the premise that there was an intentional act involved. Given that in California, a duty to defend exists if the insurer becomes aware of, or if a third party lawsuit pleads facts giving rise to the potential for coverage, this ruling will apply in a variety of contexts where an intentional act is at issue in a claim involving negligence.