Negligent Hiring can be an “Accident” for Purposes of Commercial General Liability Insurance Coverage
Normally, we focus on Louisiana cases, but, occasionally, cases from our sister states are noteworthy. One such case was recently decided by the California Supreme Court when the court held that negligent hiring can be an “accident” — or an “occurrence” — for purposes of coverage under a commercial general liability insurance policy. See Liberty Surplus Insurance Corporation v. Ledesma & Meyer Construction, 5 Cal. 5th 216 (Cal. Supreme Court June 4, 2018).
The case originated from a question certified to the California Supreme Court from the US Circuit Court of Appeals for the Ninth Circuit. See Liberty Surplus Insurance, 834 F.3d 998 (9th Cir. 2016). The certified question was “[w]hether 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.” Under the particular insurance policy at issue, “occurrence” was defined as an “accident.” Thus, the California Supreme Court rephrased the question as “[w]hen a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an “occurrence” under the employer’s commercial general liability policy?” As noted, the California Supreme Court found that under California law, these forms of negligence may be covered by general liability policies.
Facts of the case
Liberty Surplus involved allegations brought by a 13-year-old that she had been sexually abused by a construction worker employed by Ledesma & Meyer Construction (“L&M”) who was performing repairs at her middle school in San Bernardino. The lawsuit named L&M and its insurer, Liberty Surplus Insurance Corporation (“Liberty Surplus”) as well as the middle school where L&M employees were performing the repair work. The suit alleged negligent hiring, supervision, and retention of the worker. The insurance carrier for the construction company defended under a reservation rights, and sought declaratory relief in federal court contending it had no obligation to defend or indemnify L&M because the policy at issue provided coverage for “’bodily injury’ caused by an ‘occurrence.’”
Terms of the Policy at Issue
The insurance policy at issue provided that “[t]his insurance applies to ‘bodily injury’ and ‘property damages’ only if: (1) The ‘bodily injury’ … is caused by an ‘occurrence’ that takes place in the ‘coverage territory’….” In the “Definitions” section of the policy, the term “’Occurrence’” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Thus, the question of coverage turned on whether the injury to the child was the result of an “accident” caused by L&M and more generally whether, when an employee intentionally causes injury to a third party, that injury can be considered accidental if it was caused by the employer’s negligent hiring, retention, or supervision of the employee.
Not surprisingly, Liberty Surplus argued that sexual abuse was not an “accident” and that the hiring, retention, and supervision of the worker by L&M was intentional conduct which precluded coverage.
An appeal of the trial court’s grant of summary judgment to Liberty Surplus was subsequently taken by its insured, L&M. Because the issue was novel under California law, on appeal, the Ninth Circuit certified the above question to the California Supreme Court.
California Supreme Court’s Ruling
In holding that negligent hiring, retention, and supervision can be an “accident” as defined in the policy, the court accepted the common definition of an “accident” as something that is “… an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” From there, the court’s lengthy decision canvassed various cases with respect to accidents and causation. In the end, the court criticized the federal trial court for focusing too much on L&M’s deliberate acts of hiring, retention, and supervision of the employee. For the California Supreme Court, the focus was better aimed at the act of sexual abuse engaged in by the employee, which it opined could be considered an “unexpected, unforeseen or undesigned happening . . . that produce[d] damage”.”
It appears the California Supreme Court equated the “accident” with the conduct that proximately caused the child’s injury. L&M’s hiring, retention, and supervision of the employee were deliberate, intentional acts, which were in no way “accidents” as defined by the policy. Rather, it was the sexual abuse of a child by L&M’s employee that met the policy definition of “accident.” In other words, because the employee’s actions and the subsequent injury to the victim were essentially unintended and unforeseen from L&M’s perspective, they were accidents in the context of providing insurance for L&M. Thus, an “accident” does not necessarily refer to the conduct of the insured; rather, it is an “unexpected, unforeseen, or undesigned happening or consequence” resulting from the conduct of the insured. If such “happenings” resulted in property damage or personal injury, then, general liability coverage was applicable under the language of the policy at issue.
This case adds to the corpus of decisions attempting to resolve the question of whether unexpected consequences of an intentional act can be considered an “accident” for coverage. This is an enduring question in the law. See, for example, Bazley v. Tortorich, 397 So. 2d 475 (La. Supreme Court 1981) on the question of intentional act vs. accident under the Louisiana workers compensation act. Across the country, courts are clearly moving in the direction of finding that unintended consequences may be “accidents” under a policy of insurance. Insurance carriers should be reviewing their policies and drafting exclusions consistent with these trends.
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Kristin M. Lausten
This article is provided as an educational service for general informational purposes only. The material does not constitute legal advice or rendering of professional services.