January 21, 2019 In a recent decision, the U.S. Court of Appeals for the Ninth Circuit has reversed the district court's decision and in doing so answered the question as to whether a commercial general liability policy covers an employer-insured for negligently failing to prevent an employee's intentional misconduct. The Ninth Circuit sent this as a certified question to the California Supreme Court that stated “When a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does that suit allege an 'occurrence' under the employer's commercial general liability policy? The case is Liberty Surplus Ins. Co. v. Ledesma & Meyer Construction Co., Inc., 418 P.3d 400 (Cal. 2018).

Ledesma & Meyer Construction (Ledesma) was sued because its employee sexually abused a minor student while Ledesma was overseeing the construction of a middle school. The student sued Ledesma alleging claims of negligent hiring, training and supervision of the employee that committed the intentional tort.

Ledesma had a CGL policy in place from Liberty Surplus Ins. Co. and Liberty Surplus Underwriters, Inc. (together, Liberty). When Ledesma filed a claim with Liberty, Liberty sought declaratory relief contending that they had no obligation to defend or indemnify Ledesma, its principals, and the San Bernadino Unified School District, against the claim because the claim was premised on an intentional act which would be excluded from coverage under the CGL policy. Liberty reasoned that, since the policy covered “bodily injury” that was caused by an “occurrence” and an “occurrence” is defined as an “accident” the claims for negligent hiring, training and supervision were too distanced from the intentional injury-causing conduct to trigger coverage. The district court granted summary judgment in favor of Liberty.

On appeal, the Ninth Circuit certified the question of coverage to the California Supreme Court which rephrased the question to: “When a third party sues an employer for the negligent hiring, training, and supervision of an employee who intentionally injured that third party, does that suit allege an 'occurrence' under the employer's commercial general liability policy? The Supreme Court answered yes, reasoning that “[b]ecause the term 'accident' includes negligence, a policy which defines 'occurrence' as an 'accident' provides 'coverage for liability resulting from the insured's negligent acts.'” Based on the Supreme Courts answer, the Ninth Circuit reversed the decision of the district court, remanding for further proceedings.

The Ninth Circuit reasoned that Liberty was accused of negligence. The perspective is viewed from the standpoint of the insured, in this case Ledesma. At the time the minor was allegedly molested, from Liberty's perspective the event could have been an “unexpected, unforeseen, or undersigned happening or consequence” of its hiring, retention, or supervision of the employee who abused the minor.

Editors Note: Although the attack on the minor was undisputedly intentional by Ledesma's employee, the standpoint of the insured is the perspective that is relevant here. Liberty did not intend that the minor was attacked, nor did any of the facts allege that there was any reason to foresee or expect this sort of an attack from that employee. A summary judgment is a court ruling that no factual issues remain to be tried, or the issues are so one-sided that they do not need to be tried so the cause of action in the complaint can be decided on the facts without taking the case to trial. In this case, the district court found that there were no factual issues that a jury would have to decide, and found in favor of the insurer. As discussed above, that decision was reversed by the Ninth Circuit.

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