Insurers are increasingly being called upon to defend and indemnify their insureds for actions arising out of assaults, sexual abuse, harassment, and the like. When these allegations are asserted solely against the insured's employees and no conduct (intentional or negligent) is asserted against the insured employer, the question arises as to whether the intentional acts exclusion can be invoked to disclaim coverage to the insured. In such cases, the insured employer's liability is sought to be imposed on a vicarious liability respondeat superior basis.

Given the breadth of the duty to defend, the insured — often joined by plaintiff's counsel seeking a "deep pocket" — will usually concede that the employee, the active wrong-doer, may not be entitled to coverage. Instead, the insured will argue that it is entitled to a defense and indemnification because the assault was not intended from its standpoint. These insureds also argue that allegations of vicarious liability are not grounded in intentional conduct, and therefore the exclusion should not be applicable. Insurers, at least those in New York, should resist the temptation to "compromise" and provide a defense subject to a reservation of rights. Such a "compromise" requires the insurer to inform the insured of its right to select its own (potentially high-priced) counsel, or risk a finding of "bad faith" according to at least one New York Appellate Division decision about which we have previously written. More importantly, insurers that decline to provide a defense when the only allegation in the complaint alleges intentional conduct by the insured's employees may be on solid ground, depending on the specific allegations.

In RJC Realty Holding Corp. v. Republic Franklin Insurance Company, 2 N.Y.3d 158 (2004), the New York Court of Appeals considered if an insurer was obligated to defend its insured, a beauty salon in an action against the salon based on an alleged sexual assault by its employee. Reversing the Appellate Division, the Court of Appeals essentially answered that it depends on whether the actions of the employee could be imputed to the employer. Invoking the traditional rules applicable to determining whether an employee's actions could be imputed to the employer under the doctrine of respondeat superior, the Court held that if the action of the employee could not be imputed to the employer, then the intentional element of the cause of action also could not be imputed to the employer for coverage purposes.