For purposes of a commercial general liability policy, an “occurrence” includes an insured employer’s alleged negligence in hiring, retaining or supervising an employee who intentionally injures a third–party claimant. (Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., Inc. (2018) ––– Cal.5th –––, 2018 WL 2470975)
Facts
A school district hired Ledesma & Meyer Construction Company, Inc. (L&M) to manage a construction project at a middle school. L&M, in turn, hired Darold Hecht as an assistant construction superintendent for the project. While the project was underway, Hecht allegedly sexually abused Jane Doe, who was a 13–year–old student at the school.
Doe later filed a state court lawsuit against various parties, including L&M. As to L&M, Doe alleged that L&M had negligently hired, retained and supervised Hecht, and that such negligence was a proximate cause of Doe’s injuries.
L&M tendered the lawsuit to its commercial general liability insurer, Liberty Surplus Insurance Corporation (Liberty). The Liberty CGL policy provided that Liberty would indemnify L&M against damages because of bodily injury caused by an “occurrence,” which was defined as “an accident….” The policy further provided that Liberty would defend L&M against any suit seeking such damages. Liberty agreed to defend L&M against Doe’s lawsuit under a reservation of rights.
Liberty then filed a federal court declaratory relief action, seeking a determination that Liberty had no duty to defend or indemnify L&M against Doe’s lawsuit. The federal district judge ruled that L&M’s alleged negligence in hiring, retaining and supervising Hecht was not an “occurrence,” or “accident,” and that Liberty thus had no duty to defend or indemnify L&M against Doe’s lawsuit. L&M appealed that ruling to the Ninth Circuit Court of Appeals. During the pendency of the appeal, the Ninth Circuit asked the California Supreme Court to review the “occurrence” issue, and the Supreme Court agreed to address that issue.
Holding
The California Supreme Court concluded that Doe’s claims against L&M for negligent hiring, retention and supervision were based on an “occurrence,” or “accident,” within the meaning of the Liberty policy. The Supreme Court noted that for purposes of liability coverage, an “accident” is generally defined as “an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” Further, “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….” Here, the gravamen of the claim against L&M was that L&M had negligently created conditions which allowed Hecht to sexually molest Doe. Although Hecht’s own acts of sexual molestation constituted “willful acts” that were not covered, L&M’s alleged negligence in hiring, retaining and supervising Hecht “were independently tortious acts” that could be covered. In other words, “Hecht’s intentional conduct does not preclude potential coverage for L&M.”
The Supreme Court rejected the argument that L&M’s alleged negligence was “too attenuated” from Hecht’s acts of molestation to be considered a cause of Doe’s injuries. Any such argument ignores California case law expressly recognizing that negligent hiring, retention, or supervision of an employee can indeed be a “substantial factor” of a sexual molestation perpetrated by the employee.
The Supreme Court also observed that insurance cases discussing where or when an “occurrence” takes place are not necessarily relevant in determining whether there has been an “occurrence” in the first instance. In determining whether there has been an “occurrence” in the first instance, the Supreme Court agreed that “an accident is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” Here, while L&M may have “deliberately” hired, retained or supervised Hecht, Hecht’s act of molesting Doe was an “additional, unexpected, independent, and unforeseen happening” that produced the damage. In other words, the sexual abuse Doe suffered at the hands of Hecht “may be deemed an unexpected consequence of L&M’s independently tortious acts of negligence” in hiring, retaining and supervising Hecht. Thus, with respect to L&M, there was an “occurrence,” or “accident,” within the meaning of the Liberty policy.
Comment
Whether an insured’s liability stems from an “occurrence,” or “accident,” requires a careful analysis of the causal connection between the insured’s alleged conduct and the claimant’s injury. In many cases, the insured’s alleged conduct may, at some level, have been “deliberate.” The real question is whether there was “some additional, unexpected, independent, and unforeseen happening” that produced the damage. Here, after L&M hired Hecht as a construction manager, the “additional, unexpected, independent, and unforeseen happening” was that Hecht sexually molested Doe. Thus, from L&M’s perspective, there was an “occurrence,” or “accident.”