United then sought a declaratory judgment that it had no duty to defend or indemnify Kent. Kent filed a counterclaim for breach of contract and sought a declaratory judgment that United did, in fact, have a duty to defend and indemnify. United moved for summary judgment.

The U.S. District Court for the Western District of Texas, applying Texas law, determined that United had no duty to defend or indemnify Kent in the clerk's lawsuit under the following exclusions:

(1) The employer's liability exclusion, which excluded coverage for an employee's “bodily injury” suffered during employment or while “[p]erforming duties related to the conduct of” the business; and

(2) The abuse or molestation exclusion, which excluded coverage for molestation or actual or threatened abuse of anyone in Kent's “care, custody, or control,” or arising out of Kent's negligence in the employment, investigation, supervision, or retention of the alleged assailant.

The district court applied Texas' “eight corners rule” – comparing the “four corners” of the insurance policy with the “four corners” of the pleadings – and granted summary judgment to United and dismissed Kent's counterclaim.

Kent appealed to the Fifth Circuit, arguing that the district court had erred in granting summary judgment because United had not established the applicability of the policy exclusions to the claims in the clerk's lawsuit. Specifically, Kent asserted that it was not clear that the clerk was under the care, custody, or control of Kent and, thus, it also was unclear whether the clerk's bodily injury had occurred before or after she had ceased her work duties.

The United Fire Policies

The employer's liability exclusion in the United Fire policies stated that coverage did not apply to:

“Bodily injury” to:

(1) An “employee” of the insured arising out of and in the course of:

(a) Employment by the insured; or

(b) Performing duties related to the conduct of the insured's business. 

The policies' abuse or molestation exclusion stated:

This insurance does not apply to “bodily injury” . . . arising out of:

1. The actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured, or

2. The negligent:

a. Employment;

b. Investigation;

c. Supervision;

d. Reporting to the proper authorities, or failure to so report; or

e. Retention;

of a person for whom any insured is or ever was legally responsible and whose conduct would be excluded by Paragraph 1 above.

For the purposes of this endorsement, abuse means an act which is committed with the intent to cause harm. 

The Fifth Circuit affirmed.

In its decision, the circuit court first found that the allegations in the clerk's action “unambiguously” triggered the employer's liability exclusion.

The Fifth Circuit pointed out that the clerk alleged that she was employed by Kent as a store clerk and that “[w]hile alone locking the store at closing time, [she] was attacked and sexually assaulted by a co-employee of [Kent] who was employed at a different location.” The circuit court added that the clerk also alleged that, as a result, she suffered “[p]hysical pain and suffering,” “[m]ental anguish,” and “[p]hysical impairment,” among other things. In the Fifth Circuit's opinion, these allegations fell “squarely” within the employer's liability exclusion.

The circuit court rejected Kent's contention that the clerk did not allege that she was acting under Kent's control when she said that she was attacked, finding that the clerk alleged that she “was employed by [Kent] as a store clerk working at [a Kent store]” and that she was attacked “[w]hile alone locking the store at closing time[.]” The Fifth Circuit observed that the policies did not define the term “control,” and it found that the district court had interpreted control according to its commonly understood meaning as “the power or authority to manage, direct, govern, administer, or oversee,” and that the clerk had “unambiguously” alleged that she was in Kent's care, custody, or control by stating that she was employed by Kent and was locking the store at closing time when she was attacked.

The Fifth Circuit next rejected Kent's argument that the clerk had not alleged abuse, molestation, or intent within the meaning of that exclusion.

The Fifth Circuit noted that the policy did not define “molest” and that the district court – “again, supplying a commonly understood meaning” – defined molest as “to annoy, disturb or persecute especially with hostile intent or injurious effect” or “to make annoying sexual advances . . . to force physical and usually sexual contact.” The circuit court noted that the clerk alleged that she had been “attacked and sexually assaulted by a co-employee” and suffered bodily and mental injuries as a result, and it said that it agreed with the district court that there was no genuine dispute of material fact that those allegations fell within the abuse or molestation exclusion.

The case is United Fire and Casualty Co. v. Kent Distributors, Inc., No. 18- 50134 (5th Cir. Jan. 11, 2019).