The California Supreme Court is poised to answer the following unsettled question of California law certified by the Ninth Circuit Court of Appeals on August 22, 2016 (see order here): “Whether there is an ‘occurrence’ under an employer’s commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the employee who intentionally injured the third party.”
Ledesma and Meyer Construction (“L&M”), an insured under a commercial general liability policy issued by Liberty, argues that the policy should provide coverage to L&M and the San Bernardino County Unified School District for claims of negligent hiring, retention, and supervision brought by former a Cesar Chavez Middle School student who was repeatedly sexually assaulted by an L&M employee, Hecht (who had previously been convicted on similar charges and has since been sentenced to 24 years in prison for his crimes in this case) during a 2002 construction project at the middle school.
In 2014, the U.S. District Court for the Central District of California (Case No. 2:12-cv-00900-RGK-SP), relying on Delgado v. Interinsurance Exchange of Automobile Club of Southern California, 211 P. 3d 1083, 1092 (2009), granted summary judgment in favor of Liberty, and held that L&M’s negligent hiring, retention, and supervision of Hecht was too attenuated from the injury-causing conduct committed by Hecht to constitute a coverage-triggering “occurrence” (which is defined as an “accident”) under the policy (see opinion here). L&M appealed.
In certifying the question, the Ninth Circuit noted that the California Supreme Court, in Minkler v. Safeco Insurance Company of America, 232 P. 3d 612, 617 n. 3 (2010) (in which the Circuit had certified a different question regarding coverage for damages caused by sexual molestation of a minor), had “signaled the unsettled nature of the question whether such intentional abuse constitutes an ‘occurrence’ under a liability policy that defined ‘occurrence’ as an ‘accident[,]’” but declined to address the question because the parties had failed to raise it. The Ninth Circuit also noted that, while the California Supreme Court had held in Delgado, supra, and in Hogan v, Midland National Insurance Co., 476 P. 825, 827 (1970), that intentional conduct did not constitute an “occurrence” under an insurance policy that defined “occurrence” as an “accident[,]” neither case had “address[ed] the question of whether claims of negligence in hiring, retaining and supervising an employee who commits a sexual assault” fall within a policy’s coverage for accidental occurrences.
The Ninth Circuit further observed that the California Courts of Appeal have not given clear guidance on the issue, although one unpublished decision in 2010 held that negligent supervision of a cab driver who intentionally shot a passenger did not constitute an occurrence, and that “[i]n the absence of a controlling decision on this question, a deep division of the federal courts of California persists.” As examples of this “deep division,” the Ninth Circuit cited the following cases: Fireman's Fund Ins. Co. v. Nat'l Bank for Coops., 849 F.Supp. 1347, 1367-68 (N.D. Cal. 1994) (finding liability under a policy that provided coverage for damages resulting from an “occurrence” where plaintiff asserted a claim of negligent supervision of an employee who committed fraud); Westfield Ins. Co. v. TWT, Inc., 723 F. Supp. 492, 495 (N.D. Cal. 1989) (negligent supervision may constitute an “occurrence” under the insurance policy); Farmer ex rel. Hansen v. Allstate Ins. Co., 311 F. Supp. 2d 884, 893 (C.D. Cal. 2004) (negligent supervision of child molester did not qualify as an “occurrence” for purposes of insurance coverage), aff'd sub nom. Farmer v. Allstate Ins. Co., 171 F. App'x 111 (9th Cir. 2006); Am. Empire Surplus Lines Ins. Co. v. Bay Area Cab Lease, Inc., 756 F. Supp. 1287, 1290 (N.D. Cal. 1991) (negligent hiring of cab driver who sexually molested a child did not constitute an “accident” for purposes of insurance coverage).
While the weight of authority (although arguably not directly on point) seems clearly to support the district court’s decision, the California Supreme Court now has the opportunity to settle the question once and for all by issuing definitive controlling California authority. While a decision confirming the district court’s analysis in this case is unlikely to make any waves, a decision to the contrary could, on the other hand, be a significant development, which may well result in a flood of new categories of claims and subsequent efforts by carriers to revise policy language accordingly.
L&M filed its Opening Brief with the Supreme Court on December 20, 2016. Liberty’s Answering Brief is due on February 16, 2017. The California insurance practice group at Locke Lord LLP is monitoring this case and we will keep you posted.