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Liability Insurance

Insurance Coverage Disputes and Society's Problems

Jill Berkeley | May 1, 2001

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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."


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.

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