(Article from Insurance Law Alert, June 2018)
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The California Supreme Court ruled that an insurer must defend a suit alleging negligent hiring and supervision of an employee who intentionally injured a third party, finding that such claims allege an “occurrence” under a general liability policy. Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc., 418 P.3d 400 (Cal. 2018).
A construction company (“L&M”) was hired to manage a school building project. A student sued L&M, alleging sexual abuse by a project supervisor. L&M’s insurers defended the negligent hiring and supervision claims under a reservation of rights and sought a declaration of no coverage. A California federal district court granted the insurers’ summary judgment motion, finding that the alleged injury was not caused by an “occurrence” because the injury-causing event was intentional molestation. The district court reasoned that L&M’s alleged negligent hiring and supervision were “too attenuated” from the injury to establish causation. L&M appealed, and the Ninth Circuit sought the California Supreme Court’s guidance.
The California Supreme Court ruled that the insurers were obligated to defend the suit because a potential for coverage exists, notwithstanding the employee’s alleged intentional acts. The court rejected the district court’s causation analysis, holding that under California law, causation is established so long as the defendant’s conduct is a “substantial factor” in causing injury. Applying this framework, the California Supreme Court reasoned that “a finder of fact could conclude that the causal connection between L&M’s alleged negligence and the injury inflicted . . . was close enough to justify the imposition of liability on L&M.” Additionally, the court noted that in deciding whether underlying claims allege an accident under an insurance policy, the relevant viewpoint is that of the insured; thus, the supervisor’s intentional conduct may be deemed an unexpected consequence of L&M’s independent act of negligent hiring.
As discussed in
last month’s Alert, the Wisconsin Supreme Court recently ruled that a liability policy does not cover negligent supervision claims that are based solely on an employee’s intentional conduct.