Insurance Coverage Disputes and Society's Problems
May 2001
Unfortunately, insurance coverage disputes
mirror casualty and liability losses throughout the world. This article examines
recent litigation involving insurance coverage disputes and violent crimes and
sexual assaults.
by Jill
B. Berkeley
Schiff Hardin
LLP
Insurance coverage disputes are a mirror to casualty and liability losses
throughout the world. Where damage and injury occur from weather-driven calamities,
commercial transactions, automobile accidents, construction projects, or products
liability, insurance-related controversies are not far behind. In fact, we are
all well-accustomed to dealing with the everyday accident and even the catastrophic
disaster. Even large-scale environmental contamination from hazardous waste
or toxic torts from lead and asbestos seem commonplace to the coverage lawyer,
policyholder, and insurer. So much so that perhaps we become blasé, hardened,
and impervious to pain and suffering.
What is constantly shocking to me is the proliferation of society's problems
within the context of insurance coverage cases. This year is no different. Certainly
the insurance analysis keeps the impact of social issues several levels away.
One experiences the anguish and horror of victims from an intellectual distance.
The encounter is unmistakable, all the same.
The following are recent examples. Gun violence, discrimination, sexual assaults,
and other forms of physical abuse cry out in cases from many different perspectives,
including the victim, the perpetrator, the employer, and the professionals serving
them. More detailed summaries can be found in the Spring Edition 2001 of
CGL Reporter published by IRMI.
Violent Crimes
Brazas Sporting Arms v American Empire Surplus Lines, 220 F3d 1 (1st Cir 2000), examines a gun distributor's dilemma by looking at
the application of "arising out of" language in the completed operations coverage.
The insurer refused to defend its insured when it was sued for allegedly contributing
to a purportedly overflowing market for handguns, resulting in deaths. The insured
sued its insurer, claiming it breached its duty to defend and for unfair trade
practices. In determining whether the underlying actions sought damages for
injuries "arising out of" Brazas's products, the court ruled that the term falls
somewhere between proximate causation and but-for causation. It ruled that the
underlying plaintiffs' injuries derived from Brazas's distribution of its product,
but affirmed the ruling against Brazas's unfair trade practices claim, reasoning
that American Empire's exclusionary endorsement was not misleading.
Meridian Ins. Co. v Zepeda, 734 NE2d 1126 (Ind App 2000), focuses on the victim and whether he would be
collaterally estopped by a prior ruling in the criminal case. As a result of
shooting and paralyzing King, Zepeda was convicted of aggravated battery. King
filed a civil suit against Zepeda whose insurer, Meridian, claimed no coverage
since the injuries were "expected or intended" and Zepeda had been found guilty.
Thus, he was collaterally estopped from litigating whether he expected or intended
King's injuries. The court ruled that King never had a full opportunity to litigate
the issue of Zepeda's intent, and it was unfair to allow the use of offensive
collateral estoppel against him. A new trial was ordered.
Norris v State Farm Fire & Cas. Co., 16 SW3d 242 (Ark 2000), examines whether the unintended results of intentional
acts are excluded. During a fight among teenage boys, Rogers punched Thomas,
who landed on his face, resulting in brain damage. Thomas's mother, Norris,
sued. State Farm refused to defend. In a suit against State Farm, the court
ruled that the homeowners policy did not exclude coverage for the unexpected
or unintended results of willful and malicious acts. Rogers did not intend to
hit Thomas so hard that it would knock him down, and medical testimony established
that the injuries resulted from hitting the pavement, not from the punch. The
court remanded the case to determine whether the injuries were unintended or
accidental and thus covered by the policy.
State ex rel. Ripley County v Garrett, 18
SW3d 504 (Mo App 2000), dealt with police violence, where the availability of
insurance was linked to sovereign immunity. The lawsuit was against law enforcement
agents for malicious prosecution, slander, and false imprisonment. The County's
insurance policy contained an endorsement precluding coverage for any suit barred
by the doctrine of sovereign immunity and stating the policy was not intended
to act as a waiver of any common-law defense available to the insured. The court
ruled the County did not have to pay because of its sovereign immunity, thus
there was no coverage under the policy and no waiver of sovereign immunity.
The claimant was barred for proceeding against the County.
Acceptance Ins. Co. v Seybert, 757 A2d 380 (Pa Super 2000), examined alcohol-induced assault where the court
applied an assault exclusion to a negligence count. Seybert was assaulted in
the parking lot of a hotel after a night of drinking. He sued the attackers,
the hotel, and the bar. The bar's liquor liability policy contained an exclusionary
endorsement excluding coverage for assault and battery. The court ruled that
the exclusion clearly barred coverage for assault intentionally committed by
persons other than the named insured, regardless of the location of the assault.
American Insurance Group v Risk Enterprise Management, 761 A2d 826 (Del 2000), dealt with abduction where the court focused on the
duty to indemnify an additional insured. After being abducted from a shopping
mall parking lot and assaulted, Rose sued the owners and managers of the mall
as well as their security service. The security service's commercial general
liability policy, issued by AIG, named the mall as an additional insured "only
with respect to liability arising out of security operations agreed to be performed
for [the mall] by or on behalf of [the security service]." The mall's insurer
paid its share of the settlement and sued AIG for reimbursement. The court held
that since the duty to indemnify was at issue, and the record did not contain
the facts of the case, the case should be remanded to the trial court to determine
whether the tortuous conduct asserted against the mall arose out of the security
service's operations.
Sexual Assaults
Sexual assault in employment situations is addressed in Smith v Animal Urgent Care, ___ SE2d ___ (W Va 2000), and in Agricultural Ins. Co.
v Focus Homes, 212 F3d 407 (8th
Cir 2000), in which multiple coverage issues are discussed. In Smith, the victim filed a civil action against
an animal clinic and a doctor alleging sexual harassment. The insurer denied
coverage under its CGL policy. The court held that a claim based on sexual harassment
does not come within the CGL policy's definition of "occurrence," defined as
an accident, including continuous or repeated exposure to substantially the
same harmful conditions.
In Agricultural, employees of a residential
treatment facility sued the facility for sexual harassment by a resident. The
court held the employees' complaint did not allege bodily injuries within the
meaning of the CGL policy since the complaint alleged physical attacks that
were not outside the scope of the policy's coverage. Nonetheless, the court
found no coverage based on the policies' employers liability and employment
practices exclusions.
Bohrer v Church Mutual Ins. Co., 12 P3d 854
(Colo App 2000), dealt with sexual assault in counseling, a case in which the
court examined whether interest would be awarded on the punitive damages portion
of a judgment. A jury found against the minister, church, and the church's conference
in a sexual misconduct case. The plaintiff filed a garnishment action against
the minister's liability insurer. The state supreme court held the minister's
misconduct during the time period preceding the sexual misconduct was covered
by the policy and remanded to apportion the damages attributable to each period.
Regarding post-judgment interest, the appellate court ruled that allowing the
plaintiff to recover interest on the uncovered portion of the compensatory damage
claim would be against public policy.
Sexual assault in religious situations was the topic of Evangelical Luthern Church v Atlantic Mutual, 169 F3d 947 (5th Cir 1999), where the church's vicarious liability was covered,
and in Doe v Shaffer, 738 NE2d 1243 (Ohio 2000),
where public policy issues were examined. In Evangelical,
a minister sexually assaulted a learning disabled adult. The victim sued the
minister and the local and national church, alleging negligent training, supervision,
placement, and monitoring. The court concluded that the church's insurer had
a duty to defend because negligent training is not an intentional tort and the
minister's intentional acts were not the acts of the church.
In Doe, the court ruled that an insurance
policy did not prohibit coverage to the Catholic Diocese for negligence claims
related to sexual molestation of a mentally retarded man residing in a Diocese
residential care facility. The reasons behind a public policy forbidding insurance
coverage for the intentional tort of sexual molestation do not exist for the
tort of negligence.
Sexual assault in a daycare situation was the focus of State Farm Fire & Cas. Co. v T.B., 728 NE2d 919 (Ind
App 2000), and whether the failure to defend or file a declaratory judgment
creates estoppel. State Farm denied coverage under its homeowners policy, did
not defend, and filed to file a declaratory action. Since the outcome of child
molestation suit resulted in an outcome where there was coverage, and no fraud,
collusion, or bad faith was involved in the stipulated judgment, State Farm
was bound by that judgment.
Padget v South Carolina Ins. Reserve Fund, 531 SE2d 305 (SC App 2000), determined that sexual harassment was outside the
scope of a university professor's official duties. The general tort liability
policy issued by South Carolina Insurance Reserve Form defined "insured" narrowly,
covering employees who act "in the scope of official duty" rather than "employees
acting both in the course of employment."
Conclusion
Social problems are not likely to disappear. Violence, crime, and inequality
are the daily news. These stories find their way into coverage disputes, much
like everyday household accidents. I only wish we could live without them.
These summaries are adaptations of case annotations written
by the
CGL Reporter Editorial Board. The Board is composed of members of the Insurance Coverage
Litigation Committee (ICLC) of the Tort and Insurance Practice Section (TIPS)
of the American Bar Association. TIPS receives royalties from the annual net
sales of the
CGL Reporter to seed the TIPS Scholarship Fund, which provides stipends for minorities, women,
solo practitioners, and others who qualify to support participation in TIPS
activities and continuing legal education.
Contributing Editors for the Spring 2001 Edition of
CGL Reporter include Michael E. Brown of Kightlinger & Gray
in Indianapolis; Janet R. Davis of Meckler,
Bulger & Tilson in Chicago; Geoffrey H. Genth of Kramon & Graham, P.A., in Baltimore; Joel B. Kleinman of Dickstein Shapiro Morin & Oshinsky in Washington D.C.; Julia A. Molander of Sedgwick, Detert, Moran
& Arnold in San Francisco; Daniel F. Mullin of Abbot, Davis, Rothwell, Mullin & Earle, P.C. in Seattle; and Joseph P. Postel of Meachum, Spahr, Cozzi &
Postel in Chicago. Executive Co-Editors include Susan
M. Popik of Chapman, Popik & White in San Francisco as well as Jill B. Berkeley.
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