(Article from Insurance Law Alert, May 2018)
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Addressing a matter of first impression under Wisconsin law, the Wisconsin Supreme Court ruled that a liability policy does not cover negligent supervision claims that are based solely on an employee’s intentional and unlawful act. Talley v. Mustafa, 911 N.W.2d 55 (Wisc. 2018).
The coverage dispute arose out of an assault at a food market owned by Mustafa. Talley, a customer, alleged that Mustafa’s security guard punched him, causing serious injury. Talley sued Mustafa, the security guard, and Auto-Owners (Mustafa’s liability insurer). The complaint alleged, among other things, that Mustafa failed to properly train and supervise his employees. Auto-Owners defended under a reservation of rights and sought a declaration of no coverage. A Wisconsin circuit court dismissed the claims against Auto-Owners, finding that punching someone could not be a covered “occurrence,” defined in the policy as an accident. An appellate court reversed, holding that a reasonable insured would expect coverage for the negligent supervision claim and that a disputed issue of fact existed as to whether Mustafa had a duty to train and supervise the security guard with due care. The Wisconsin Supreme Court reversed.
The Wisconsin Supreme Court held that the negligent supervision claim could qualify as an occurrence only if Mustafa’s own conduct accidentally caused Talley’s injuries. Because the complaint did not allege any specific separate acts by Mustafa that accidentally caused Talley’s injuries, the court found no coverage. The court stated: “We hold that when a negligent supervision claim is based entirely on an allegation that an employer should have trained an employee not to intentionally punch a customer in the face, no coverage exists.”
The court emphasized that it is not the case that a negligent supervision claim will never trigger coverage. Rather, when an underlying plaintiff alleges facts independent from the intentional act giving rise to the injury, coverage may exist. For example, allegations that Mustafa knew or should have known of the employee’s violence or that Mustafa engaged in behavior that led the employee to punch the customer could serve as independent acts that might give rise to a covered negligent supervision claim.
Addressing a separate issue, the court ruled that coverage determinations are made without regard to the insured party’s beliefs as to non-coverage. Mustafa and Auto-Owners argued that where, as here, the insured and insurer agree that there is no coverage under the policy, their agreement controls the coverage determination. The court rejected this rule, holding that coverage is determined by the court’s evaluation of policy language, the factual record and controlling law.