(CN) – The California Supreme Court ruled Monday that insurers must cover employers in lawsuits over incidents such as rape, which can be considered an “accident” subjecting the employer to claims of negligent hiring, supervision or retention.
The ruling came out of the court’s review of a Ninth Circuit appeal over whether Liberty Surplus Insurance Corporation was obligated to cover the costs of defending contractor Ledesma & Meyer against claims that an employee hired to supervise a school construction project raped a 13-year-old girl.
The unanimous seven-judge Supreme Court panel concluded that an injury, such as rape, intentionally inflicted on a third party by an employee can be considered an accident, therefore entitling the employer to insurance coverage for claims that the employer negligently hired, supervised, or retained the employee.
"Liberty’s arguments, if accepted, would leave employers without coverage for claims of negligent hiring, retention, or supervision whenever the employee’s conduct is deliberate. Such a result would be inconsistent with California law, which recognizes the cause of action even when the employee acted intentionally,” Justice Carol Corrigan wrote for the court in a 16-page opinion.
Ledesma & Meyer's attorney Jeffrey Ehrlich called the decision important for California employers.
"Many California appellate decisions had taken the contrary view, and held that if the policyholder acted deliberately, the consequences of that deliberate conduct could never constitute an insurable accident," Ehrlich said in an email. "The Liberty Mutual decision holds otherwise, but leaves it to the lower courts to sort out the specifics of which kinds of deliberate acts can produce insurable consequences."
Jane Doe and her parents sued the San Bernardino City School District and contractor Ledesma & Meyer, claiming negligence and negligent hiring after its owner Joseph Ledesma hired his brother-in-law, Darold Hecht, to supervise a project at the Cesar E. Chavez Middle School.
Ledesma & Meyer hired Hecht to work at the school even though he was a registered sex offender and convicted of sexually assaulting two other young girls, Doe and her parents said in the lawsuit.
Starting in the fall of 2006, Hecht — then a 34-year-old married father — had flirted with the young teen in front of teachers and school security guards, Doe said. He picked her up multiple times from the bus stop and sexually abused her, according to the lawsuit.
The girl’s lawsuit claimed that after her parents learned that Hecht had raped her, the school dropped its investigation and failed to notify her parents.
In 2012, Liberty sued Ledesma & Meyer and its principals, claiming it was not obligated to cover the costs of defending them in Doe’s lawsuit, which sought $5 million on multiple claims.
U.S. District Judge Gary Klausner ruled for the insurer in August 2016, triggering an appeal to the Ninth Circuit.
Later that month, the Ninth Circuit certified a question to the California Supreme Court: Were events like those that led to the girl’s lawsuit caused by an accident that obligates insurers to cover employers?
Citing a California appellate court's 2009 ruling in Delgado v. Interinsurance Exchange of Automobile Club of Southern California, Corrigan found that Hecht's acts directly caused the girl's rape, while Ledesma & Meyer's negligence in hiring and supervising Hecht caused it only indirectly. The rape therefore qualified as an accident warranting insurance coverage.
In Delgado, the court reasoned that in determining whether an injury was accidental, the acts of an insured "must be considered the starting point of the causal series of events."
"'In a case of assault and battery, it is the use of force on another that is closely connected to the resulting injury. To look to acts within the causal chain that are antecedent to and more remote from the assaultive conduct would render legal responsibilities too uncertain,'" Corrigan wrote, quoting from Delgado.
"As alleged by Doe, the 'occurrence resulting in injury’ began with L&M’s negligence and ended with Hecht’s act of molestation," Corrigan continued.
In a 7-page concurrence, Justice Goodwin Liu said he agreed that the causal connection was close enough to justify imposing liability on Ledesma & Meyer. But he disagreed with Delgado's findings that the acts of the insured should be considered the starting point of events.
"There are myriad situations where we would examine prior events to determine whether an insured’s acts resulted in an accidental injury," Liu wrote.
"Suppose an insured driver steps on the accelerator because a passenger spilled coffee on the driver and as a result the car hits another car and causes injury to its occupants. In determining whether the injury was accidental, we would of course look to the act of the coffee-spilling passenger, even though the passenger was not the insured,” he added.
Chief Justice Tani Cantil-Sakauye, and Justices Patricia Bigelow, Ming Chin, Mariano-Florentino Cuellar and Leondra Kruger also sat on the panel.
Patrick Fredette with McCormick Barstow in Cincinnati argued for Liberty. He could not immediately be reached for comment Monday.
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