The U.S. Court of Appeals for the Ninth Circuit has certified the following question of law to the Supreme Court of California: Whether 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.
The Case
Ledesma & Meyer Construction Company, Inc., Joseph Ledesma, and Kris Meyer (collectively, “L&M”) entered into a construction management contract with the San Bernardino County Unified School District to complete construction work at the Cesar E. Chavez Middle School (the “Project”). The construction contract specified that L&M would defend and indemnify “the Owner, its officers, employees, and agents” from all claims resulting from L&M's negligence, errors, acts, or omissions.
L&M hired an assistant superintendent for the project. Thereafter, L&M received notice that a tort claim had been filed against the school district, arising out of allegations that the assistant superintendent had sexually abused a 13-year old student at the middle school.
The school district tendered the defense and indemnification of the claim to L&M pursuant to the construction contract.
The lawsuit filed against L&M and the school district, among other defendants, alleged claims for negligence, negligent hiring/retention and supervision, violation of the California Education Code, violation of California Civil and Penal Codes, intentional infliction of emotional distress, violation of 42 U.S.C. § 1983, and battery.
Liberty Surplus Insurance Corp., which, had issued L&M a commercial general liability insurance policy, asked the U.S. District Court for the Central District of California to declare that it had no obligation to defend or indemnify L&M or the school district in the lawsuit.
The district court found that claims of L&M's negligent hiring, retention, and supervision of the assistant superintendent were too attenuated from the injury-causing conduct he allegedly committed to constitute an “occurrence” – defined as an accident – under the policy.
The dispute reached the Ninth Circuit.
The Liberty Policy
The Liberty policy provided:
SECTION I – COVERAGESThe Ninth Circuit's DecisionCOVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” … to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” … to which this insurance does not apply. …
b. This 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”;
* * *
SECTION V – DEFINITIONS
* * *
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
The circuit court certified the question above to the California Supreme Court.
FC&S Legal Comment
We will continue to monitor this case and discuss developments as warranted.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].