Coverage and Liability Issues in Sexual Misconduct Claims

CALIFORNIACoverage Trigger & Number ofOccurrencesWhere a child care worker’s husband molested three children overa period of many months and the policy provided that “repeatedexposure” to the same “general conditions” is one occurrence, thecourt found that there was one occurrence for each child that wasabused. State Farm Fire and Casualty Co. v. Elizabeth N., 12 Cal.Rptr. 2d 327 (Cal. Ct. App. 1992).Where a foster parent negligently failed to stop her husband frommolesting a child over a three-year period and the policy providedcoverage for “act(s), errors or omissions . . . occurring during thepolicy period” with limits of $500,000 each claim, the court found therewas $1.5 million in insurance coverage available. National Union FireIns. Co. v. Lynette C., 33 Cal. Rptr.2d 496 (Cal. Ct. App. 1994).Intentional Acts ExclusionsPerpetrator:Non-perpetrator:Sexual Misconduct ExclusionsThe California courts have applied the inferred intent rule to instancesof child abuse and held there is no coverage for a perpetratorbecause molestation constitutes an intentional act causing intentionalharm. J.C. Penny Cas. Ins. Co. v. M.K. 278 Cal. Rptr. 2d. 64 (Cal.1991); Quan v. Truck Ins. Exchange, 79 Cal. Rptr. 2d 134 (Cal. Ct.App. 1998); Farmer v. Allstate Ins. Co., 311 F. Supp. 2d 884 (C.D.Cal. 2004); Cf. State Farm Fire & Cas. Co. v. Nycum, 943 F.2d 1100(9th Cir. 1991(Cal.)) (Where allegations did not raise to conclusivepresumption that touching was intentional child molestation.) Wheredamages are sought for a perpetrator’s sexual as well as separablenon-sexual conduct, an insurer may owe a duty to defend. HoraceMann Ins. Co. v. Barbara B., 17 Cal. Rptr. 210 (Cal. 1993).Negligence-based claims brought against supervisory defendant areexcluded from coverage if the policy precluded coverage for acts of“any” insured as opposed to “the” insured. See Allstate Ins. Co. v.Gilbert 852 F.2d 449 (9th Cir. 1988); American States Ins. Co. v.Borbor, 826 F.2d 888 (9th Cir. 1987); Farmer v. Allstate, 311 F. Supp.2d 884 (C.D. Cal. 2004).The California courts have generally upheld sexual misconductexclusions. See Farmer v. Allstate Ins. Co., 311 F. Supp. 2d 884 (C.D.Cal. 2004) (no coverage for actions by day care center employeewho sexually abused child or for day care center operator’s negligentsupervision of employee where policy excluded coverage for bodilyinjury “arising out of sexual molestation … inflicted upon any person byor at the direction of an insured person [or] an employee of an insuredperson. …”); Northland Ins. Co. v. Briones, 97 Cal. Rptr. 2d 127(Cal. Ct. App. 2000) (No coverage where instructor allegedly raped,assaulted and stalked female student and policy did not apply to injuryarising out of “physical abuse, sexual abuse, sexual molestation orsexual harassment by anyone. . .”); Jane D. v. Ordinary Mutual, 38 Cal.Rptr. 2d. 131 (Cal. Ct. App. 1995) (No coverage where adult femalewas induced by priest to engage in sexual relations during counselingand policy excluded “licentious, immoral, or sexual behavior intendedto lead to or culminate in sexual act” because any allegations of nonsexualconduct were “inseparably intertwined” with the excludedsexual misconduct); Cf. National Union Fire Ins. Co. v. Lynette C.,279 Cal. Rptr. 394 (Cal Ct. App. 1991), modified on remand, 33 Cal.Rptr. 2d 496 (Cal. Ct. App. 1994) (Coverage found for foster motherwho negligently failed to protect foster child from molestation wherepolicy excluded coverage if insured acted with actual lasciviousness orimmoral purpose and intent).– 6 –