Although liability insurance policies almost always exclude coverage for conduct that is intentional (as opposed to negligent), it is always important to evaluate every claim against every defendant involved so as to determine whether insurance coverage is available. This is what happened in Liberty Surplus Insurance Corporation v. Ledesma & Meyer Construction Company. Inc.
In this case, Liberty sued its insured, a construction company, seeking to verify that it had no duty to defend or indemnify against a negligent hiring claim arising out of the alleged sexual abuse of a minor by a construction company employee. Observing that the insurance policy covered “bodily injury” caused by an “occurrence,” and that “occurrence” is defined as an “accident,” the trial court ruled in favor of Liberty, holding that the conduct of the employee (the alleged abuser) was unmistakably willful as opposed to accidental, and therefore not insured under the policy.
On appeal, the federal appeals court determined that the law in California on this issue is unclear. It therefore used a special procedure wherein it asked the Supreme Court of California to clarify the law. The California Supreme Court ruled that “[U]nder 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.” Armed with that clarification of California law, the Ninth Circuit reversed the trial court’s ruling. The court stated that “the relevant perspective is that of [the construction company],” and that from its “point of view the event could have been ‘an unexpected, unforeseen, or undersigned happening or consequence.’” It went on to say that “[t]his was true despite the fact that [the employee’s] conduct in perpetrating the assault was willful.”
So, given that the primary claim against the insured construction company – negligent hiring – is not an intentional act, even though the employee’s act was intentional, the law in California properly provided coverage to the insured.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack