Posted In: Insurance Recovery
Insurance Blog: California Court Holds That an "Accidental" Injury Can be an Occurrence Under an Employer's CGL Policy
By Kerri L. Keller & Kerri L. Keller on August 16, 2018
In a recent policyholder-friendly decision, the California Supreme Court held that an employer’s negligent hiring, retention, and supervision can be deemed an occurrence under a policy where “occurrence” is defined as “an accident.” Thus, the court allowed coverage for an insured employer who was sued after one of its employees was accused of sexual abuse.
In Liberty Surplus Insurance v. Ledesma & Meyer Construction, 418 P.3d 400, 5 Cal. 5th 216 (Cal. 2018), the employer Ledesma & Meyer had been sued for negligent hiring, retention, and supervision after a superintendent it hired to manage a construction project at a local school was accused of sexually abusing a student. Liberty Mutual, the insurer, argued that it had no duty to defend or indemnify its insured under these circumstances.
The California Supreme Court disagreed. In finding that there was coverage, the Court centered its analysis on the following issue: “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?” Id. at 489. The court further clarified that the issue turned on whether the injury can be deemed “accidental.” Id.
In answering these questions, the court first noted that under California law, the term “accident” in a liability insurance policy is an “unexpected, unforeseen, or undersigned happening or consequence from either a known or unknown cause.” Id. at 490. Further, the court noted that the term “accident” is “more comprehensive” than the term “negligence” and thus includes negligence. Id. In other words, a policy that provides coverage for bodily injury caused by an accident, promises coverage for the insured’s negligent acts. Id.
Here, the court noted that the employee’s sexual misconduct was a “willful act” that was beyond the scope of coverage; however, it noted it was the employer’s conduct that was relevant for purposes of determining insurance coverage. According to the court, the employee’s molestation was the act directly responsible for the injury and the employer’s conduct of hiring, retaining, and supervising him was an “indirect cause.” Nevertheless, the court stated that the employer’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.” Id. at 492 (emphasis added). Furthermore, the court noted that “[b]ecause liability insurance is a contract between the insurer and the insured, and the policy is read in light of the parties’ expectations, the relevant viewpoint is that of the insured rather than the injured party.” Id. at 493.Here, the court did note that while society has an interest in providing an incentive for employers to take precautions against sexual abuse by their employees, the mere threat of liability was still incentive for employers to take precautions against sexual abuse by their employees. According to the court, [a]bsent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance polices, just as they do for other claims of negligence.” This was a clear policyholder victory, which takes into account the purpose of commercial general liability polices, and one that all courts will hopefully adopt.
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