The California Supreme Court has held that based on a policy’s “severability” clause, an exclusion for the intentional act of “an” insured only applied to the particular insured who committed the intentional act, and did not apply to another insured who was merely negligent in failing to prevent the intentional act. ( Minkler v. Safeco Ins. Co. of America (2010) WL 2402973)
Facts
Scott Minkler (Minkler) filed a lawsuit against David Schwartz (David) and David’s mother, Betty Schwartz (Betty). In his complaint, Minkler alleged that beginning in 1987 and continuing for several years thereafter, he had been sexually molested by David in Betty’s home. Minkler further alleged that Betty had negligently failed to prevent David’s acts.
During the time of the alleged molestations, Betty was the named insured on a series of homeowners policies issued by Safeco Insurance Company of America (Safeco). Betty’s son David also qualified as an insured on the policies. The policies specifically excluded coverage for bodily injury “which is expected or intended by an insured or which is the foreseeable result of an act or omission intended by an insured.” However, the policies’ “Conditions” section contained a “severability” clause which stated that “[t]his insurance applies separately to each insured. This condition will not increase our limit of liability for any one occurrence.”
David and Betty tendered Minkler’s lawsuit to Safeco for defense and indemnity. Relying on the policies’ exclusion for intentional acts of “an” insured, Safeco refused to defend either David or Betty against Minkler’s lawsuit.
Thereafter, Minkler obtained a default judgment against Betty for over $5 million. Betty assigned her claims against Safeco to Minkler, and Minkler agreed not to enforce the judgment against Betty’s personal assets.
Minkler (as Betty’s assignee) then filed a bad faith lawsuit against Safeco in state court. Minkler alleged that the Safeco policies were ambiguous because the policies’ “severability” clause stated that “this insurance applies separately to each insured ,” while at the same time the policies’ “intentional act” exclusion purported to bar coverage for all claims arising from intentional acts of “ an insured.” Minkler thus alleged that the Safeco policies did not bar coverage for Betty’s alleged negligence in failing to prevent David’s intentional acts of molestation. Safeco removed the lawsuit to federal district court.
The federal district court ruled in favor of Safeco. The district court found that despite the policies’ “severability” clause, the policies’ exclusion for intentional acts of “an” insured precluded coverage for both an insured who commits an intentional act and any other insured who might only be negligently liable for such act. In other words, the intentional act of any one insured (such as David) barred coverage for all other insureds (such as Betty).
Minkler appealed to the Ninth Circuit Court of Appeals. During the pendency of the appeal, the Ninth Circuit requested the California Supreme Court to address the interplay between the policies’ “severability” clause and the policies’ exclusion for the intentional acts of “an” insured. The Supreme Court agreed to address that issue.
Holding
The California Supreme Court held that the Safeco policies’ exclusion for intentional acts of “an” insured, read in conjunction with the policies’ “severability” clause, created an ambiguity which had to be construed in favor of coverage. According to the Supreme Court, while an exclusion for the intentional acts of “an” insured would normally mean that the intentional act of one insured bars coverage for all insureds, a severability clause stating that “ [t]his insurance applies separately to each insured” reasonably implies a contrary result. Given that ambiguity, Betty would “reasonably have expected Safeco’s policies … to cover her separately for her independent acts or omissions causing such injury or damage, so long as her conduct did not fall within the policies’ intentional acts exclusion, even if the acts of another insured contributing to the same injury or damage were intentional.”
In short, given the policies’ “severability” clause, the exclusion for intentional acts of “an” insured did not bar coverage for Betty’s alleged negligence in failing to prevent David’s molestation of Minkler.
Comment
Minkler is an extremely important case. In several prior decisions, the California Courts of Appeal had interpreted an exclusion for intentional acts of “an” insured (as opposed to “the” insured) to mean that the intentional act of any one insured would bar coverage for all other insureds under the same policy. However, the prior cases did not specifically deal with what effect a “severability” clause might have on such an exclusion. In Minkler , the Supreme Court held that if the policy does contain a “severability” clause which states that the policy applies “separately to each insured,” the severability clause renders ambiguous an exclusion for intentional acts of “an” insured. As Minkler indicates, that ambiguity will be resolved in favor of the insured. In reaching that conclusion, the Minkler court rejected the rule followed by a majority of jurisdictions and instead adopted the rule followed in a minority of jurisdictions.
The Minkler court noted that an insurer can avoid the problem simply by changing the language of the severability clause from “[t]his insurance applies separately to each insured” to “ [t]he limits of liability of this policy apply separately to each insured.” According to the Court, such language would make it clear that the severability clause’s purpose is merely “to extend the full individual indemnity limits to each person among several insureds under the same policy,” and “not to make exclusions from coverage individual rather than collective .”
The Minkler court was also careful to stress that its reasoning and conclusion were aimed at the “specific circumstances of this case, which involves the interplay between a severability clause and an exclusion for the intentional acts of ‘an’ insured….” The Court emphasized that its conclusion in this case “does not mean a severability clause necessarily affects all exclusions framed in terms of ‘an’ or ‘any’ insured.” Rather, “each exclusion applicable to ‘an’ or ‘any’ insured must be examined individually, and in context, to determine the effect a severability clause like the one at issue here might have on its operation.”
In any event, after Minkler , it is clear that a standard “severability” clause will limit an insurer’s ability to rely on an exclusion for intentional acts of “an” insured to deny coverage for an “innocent insured.”