Separation of Insureds Clause and the Intentional Acts Exclusion
The Supreme Court of California agreed to answer a question of California insurance law directed to it by the United States Court of Appeals for the Ninth Circuit. The question was: where a contract of liability insurance covering multiple insureds contains a severability clause, does an exclusion barring coverage for injuries arising out of the intentional acts of an insured bar coverage for claims that one insured negligently failed to prevent the intentional acts of another insured? This case is Minkler v. Safeco Insurance Company of America, 110 Cal.Rptr.3d 612 (2010).
This case involved a claim against insureds under a homeowners policy. The claimant alleged that he was sexually molested by David Schwartz who is the son and additional insured under the homeowners policy of Betty Schwartz. The claimant sued David for sexual molestation and sued Betty for negligent supervision. Safeco Insurance Company denied coverage for both David and Betty, citing the intentional acts exclusion. This exclusion stated that there was no coverage for bodily injury or property damage which is expected or intended by an insured or which is the foreseeable result of an act or omission intended by an insured. Safeco contended that this exclusion applied to all the insureds under the policy terms.
The claimant secured a default judgment against Betty and she assigned her claims against Safeco to him. The claimant then sued Safeco, contending that the severability of interests clause in the policy excepted Betty's coverage from the exclusion. The circuit court got the case and forwarded it to the California Supreme Court, requesting clarification on the issue of the separation of insureds clause versus the intentional acts exclusion.
The court stated that, absent contrary evidence, in a policy with multiple insureds, exclusions from coverage described with reference to the acts of "an" or "any", as opposed to "the", insured are deemed under California law to apply collectively, so that if one insured has committed acts for which coverage is excluded, the exclusion applies to all insureds with respect to the same occurrence. However, when the policy has a severability of interests (or separation of insureds) clause that provides that the insurance applies separately to each insured, an ambiguity is created and that has to be construed in favor of coverage that a lay policyholder would reasonably expect. Given the language of the separate insurance clause, a lay insured would reasonably anticipate that, under a policy containing such a clause, each insured's coverage would be analyzed separately, so that the intentional act of one insured would not, in and of itself, bar liability coverage for another insured for the latter's independent act that did not come within the terms of the exclusion.
With reference to this case, then, the court concluded that Betty was not precluded from coverage for any personal role she played in David's molestation of the claimant merely because David's conduct fell within the exclusion for intentional acts. The court found that Betty, in light of the severability clause, would reasonably have expected Safeco's policies, whose general purpose was to provide coverage for each insured's legal liability for injury or damage to others, to cover her separately for her independent acts or omissions, so long as her conduct did not fall within the intentional acts exclusion. This would be so even if the acts of another insured contributing to the same injury or damage were intentional.
The claimant's claim against Betty clearly depended upon allegations that she herself committed an independent tort in failing to prevent acts of molestation she had reason to believe were taking place in her home. Under such circumstances, she had objective grounds to assume she would be covered, so long as she herself had not acted in a manner for which the intentional acts exclusion barred coverage. Therefore, the answer to the question presented by the circuit court is "no".
Editor's Note: This case is presented not only to show how California views the scope of an exclusion that refers to "an insured" when it comes to coverage for other insureds under the policy, but also to present rulings from other jurisdictions around the country that have taken up this question. The California Supreme Court cited some cases that found the presence of a severability clause rendered such an exclusion ambiguous; the clause made the exclusion several, not collective, such that the noncovered act of one insured does not preclude coverage for other insureds who did not themselves act intentionally. Other court rulings were listed that concluded that a severability clause does not alter the collective application of an exclusion for intentional acts by "an" or "any" insured. These latter cases reasoned that a severability clause is intended only to extend policy limits separately to each insured and, in any event, cannot prevail over a clear expression that coverage for all insureds is barred in a case where an or any insured has committed an excluded act.