June 7, 2018

In a long-awaited decision by the California Supreme Court, the Court issued a ruling on June 4, 2018 in Liberty Surplus Ins. Co. v. Ledesma & Meyer Construction Co., S236765 (Cal. June 4, 2018) holding that where an employee commits an intentional act, allegations of negligent hiring, training and supervision of that employee by the employer may constitute an accidental "occurrence" under the employer's CGL policy, thus triggering a duty to defend.

In Ledesma, the insured (Ledesma) contracted with a school district to manage a construction project at a middle school. The insured assigned an employee to serve as a superintendent of the project. A 13 year old student of the school filed a lawsuit in a California state court against Ledesma and others, claiming that the superintendent had sexually abused her. The complaint included a cause of action against Ledesma for negligently hiring, retaining and supervising the superintendent.

Ledesma tendered the complaint to its CGL carrier, Liberty, who agreed to defend Ledesma under a reservation of rights. Liberty's policy required it to defend Ledesma against suits seeking damages for "bodily injury" because of an "occurrence," defined as an "accident." Liberty filed a declaratory relief action in a California federal court, arguing that it had no duty to defend or indemnify Ledesma because the allegations of negligent hiring, retention and supervision of its employee did not constitute an accidental "occurrence." The federal district court agreed and granted Liberty's motion for summary judgment.

Ledesma appealed that ruling to the United States Court of Appeals for the Ninth Circuit. The Court, noting that this is an unsettled area of law, certified the following question to the California Supreme Court: "When a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an 'occurrence' under the employer's commercial general liability policy?"

On June 4, 2018, the California Supreme Court answered that question in the affirmative, ruling that even though the employee's intentional acts were beyond the scope of its policy, "[Ledesma's] allegedly negligent hiring, retention, and supervision were independently tortious acts, which form the basis of its claim against Liberty for defense and indemnity." In so holding, the Court focused on the fact that the question of whether an event constitutes an "accident" must be analyzed from the standpoint of the insured seeking coverage under the policy, in this case, the employer Ledesma. Thus, "[a]t the time Doe was molested, from [Ledesma's] point of view the event could have been 'an unexpected, unforeseen, or undesigned happening or consequence' of its hiring, retention, or supervision of Hecht. . . . Hecht's molestation of Doe may be deemed an unexpected consequence of [Ledesma's] independently tortious acts of negligence." The Court concluded by noting that "[a]bsent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence."

Clearly this important decision has broad-reaching implications to claims against employers and others who may be responsible for someone else's intentional torts. The fact that the underlying tort may be uninsurable as a matter of law may not necessarily preclude insurance coverage for the employer's separate and independent torts which are alleged to have played a role in the commission of that tort, including such claims as negligent hiring, supervision and training.

For more information contact: Bryan Weiss