Supreme Court Finds Insurance Coverage for Intentional (and Despicable) Act of Contractor’s Employee

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Not to cast shade on your fun in the sun, but here’s an unusual, albeit sad and creepy, one for you. I’m bummed even writing about this one.

In Liberty Surplus Insurance Corporation v. Ledesma & Meyer Construction Company, Inc., Case No. S236765 (June 4, 2018), the California Supreme Court addressed whether a general contractor’s commercial general liability carrier was obligated to defend and whether the carrier was liable for damages sustained by a young girl who was molested by an employee of the general contractor during construction at a school. At issue was whether the policy’s definition of an “occurrence,” which was defined, like most policies, as “an accident,” was triggered by the “intentional” and clearly not accidental act of the general contractor’s employee.

Ledesma & Meyer Construction Company

In Ledesma, general contractor Ledesma & Meyer Construction  Company, Inc. was hired by the San Bernardino Unified School District to manage a construction project at a middle school. Darold Hecht, an assistant superintendent of Ledesma, was assigned to the project. Jane Doe, a 13-year old student at the school, sued Hecht in state court alleging that he had sexually abused her. She also sued Ledesma on a claim for negligent hiring, retention and supervision.

Ledesma tendered the complaint to its insurer, Liberty Surplus Insurance Corporation and Liberty Insurance Underwriters, Inc. (collectively “Liberty”) which issued a reservation of rights while at the same time filing a declaratory relief action in federal court contending that it had no duty to defend or indemnify Ledesma. Liberty argued that, while the policy provided coverage for “bodily injury” caused by an “occurrence,” the term “occurrence” was defined as “an accident,” and Hecht’s actions were not an accident but intentional. The district court agreed and granted a motion for summary judgment on the issue in favor of Liberty.

Ledesma appealed to the 9th Circuit Court of Appeal. In turn, the Court of Appeal, because the case raised a question of California law for which there was no controlling precedent, requested that the California Supreme Court render a decision. The California Supreme Court agreed.

The California Supreme Court Decision

While noting that Hecht’s sexual misconduct was a “wilful act” (somewhat interestingly, the old English spelling of “wilful” rather than “willful” is used) beyond the scope of insurance coverage under Insurance Code section 533, which provides in pertinent part that “[a]n insurer is not liable for a loss caused by the wilful act of the insured,” Hecht’s intentional conduct did not preclude potential coverage under the policy.

The Supreme Court went into some detail discussing the cases relied on by the district court in granting summary judgment in favor of Liberty, but the Cliffs Notes version is this: While the commercial general liability insurance policy would not provide coverage were it Hecht’s policy, since Hecht’s acts were intentional, the policy was not Hecht’s but Ledesma’s, and the claim against Ledesma was not that Ledesma engaged in an intentional act but that Ledesma negligently hired, retained and supervised Hecht resulting in bodily injury to Jane Doe. Thus, concluded the Supreme Court:

[T]he public policy against insurance for one’s own intentional sexual misconduct does not bar liability coverage for others whose mere negligence contributed in some way to the acts of abuse. In such cases . . . there is no overriding policy reason why a person inured by sexual abuse should be denied compensation for the harm from insurance coverage purchased by the negligent facilitator.

Liberty’s arguments, if accepted, would leave employers without coverage for claims for negligent hiring, retention, or supervision whenever the employee’s conduct is deliberate. Such a result would be inconsistent with California law, which recognizes the cause of action even when the employee acted intentionally. . . . Absent an applicable exclusion, employers may legitimately expect coverage for such claims under commercial general liability insurance policies, just as they do for other claims of negligence.

And, with that, I’m done with this rather distasteful case.

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