California Supreme Court Certifies Ninth Circuit’s Question: Is There An Accidental “Occurrence” For Purposes Of A Negligent Hiring And Supervision Claim Against The Insured That Arises From Bodily Injury Deliberately Caused By The Insured’s Employee?
Liberty Surplus Ins. Corp. v. Ledesma and Meyer Constr. Co., Inc., 834 F.3d 998 (9th Cir. 2016), question certified by, 2016 Cal. LEXIS 8832 (Cal., Oct. 19, 2016)
Categories: Duty to Defend – Commercial General Liability Insurance – “Occurrence” or “Accident” – Negligent Hiring/Retention/Supervision of Deliberate Tortfeasor
On October 19, 2016, the California Supreme Court certified the following question posed by the Ninth Circuit: “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?”
The particular facts of the case giving rise to this question include the following. Ledesma & Meyer Construction Co., Inc. (“L&M”) entered into a construction management contract with the San Bernardino County Unified School District to complete construction work at a middle school. Several years later, a tort claim was filed against the School District arising out of allegations that L&M’s Assistant Superintendent had sexually abused a 13-year old student at the Middle School, for which the School District requested a defense and indemnity under the construction management contract. That was followed by a related lawsuit in state court against the School District, L&M, and others, the operative complaint of which included alleged claims for Negligent Hiring/Retention and Supervision and Battery, among others. L&M and the School District both requested a defense from Liberty Surplus Insurance Co. (“Liberty”).
Liberty had issued a commercial general liability insurance policy to L&M that, as relevant, applies to bodily injury caused by an “occurrence,” defined by the policy to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Liberty agreed to defend L&M against the underlying action but not the School District. As a result, L&M reportedly paid for the School District’s defense in the underlying action. Liberty then filed an action in the United States District Court for the Central District of California seeking a declaration that it has no duty to defend or indemnify L&M or the School District. The district court granted summary judgment to Liberty, concluding that L&M’s alleged negligent hiring, retention, and supervision was too attenuated from the injury-causing conduct allegedly committed by the employee’s conduct to constitute an “occurrence.”
In seeking certification, the Ninth Circuit stated that, while California Supreme Court case law “provide[s] general guidance on the question of whether deliberate conduct constitutes an ‘accident’ under a liability policy” it does not “address[] 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 an ‘occurrence,’ which is defined as an ‘accident.’” The California Supreme Court previously alluded to the issue in the footnote of a 2010 case but, as the issue had apparently not been raised by the parties to that case, the court did not decide it. The Ninth Circuit noted that there is a California Court of Appeal decision holding that the alleged negligent supervision of a cab driver who intentionally shot a passenger did not constitute an occurrence, but it was ordered not to be published. And “[i]n the absence of a controlling decision on this question, a deep division of the federal district courts of California persists.”
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