The California Supreme Court recently issued an opinion in Liberty Surplus Insurance Corporation et al. v. Ledesma & Meyer Construction Company, Inc., et al. which could drastically alter the scope of insurance coverage for claims involving intentional conduct. The case involved a general liability policy of L&M, a construction company. L&M was hired by San Bernadino Unified School District on a construction project. A student at the school sued the company alleging that one of its employees had sexually abused her. The lawsuit alleged that the company was negligent in hiring and supervising the alleged abuser.
The construction company tendered the claim to its insurer under its general liability policy, which ultimately filed and prevailed on a declaratory judgment action that there was no coverage for the student’s claim under the policy. The holding reasoned that there was no coverage because the injury was caused by the alleged abuser’s intentional conduct (not covered under the policy) rather than L&M’s negligent hiring or supervision of the alleged abuser (covered). The question was posed to the California Supreme Court.
The California Supreme Court held merely because the underlying claim alleged intentional abuse did not mean that the construction company’s own negligence in hiring and supervising the alleged abuser could also be considered a cause of the damage. Borrowing from tort law, the Court noted that injuries may have more than one cause. Any cause which is a “substantial factor” in causing the plaintiff’s injuries can be considered the legal cause of injury and thus constitute an “occurrence” under liability policies.
It is unclear how broadly courts will interpret this decision moving forward, however it seems highly likely to expand coverage under liability policies and defenses under a reservation of rights. The Court’s language identifying that the causation question depends on the facts presented, seems likely to expand coverage litigation as insurers and insureds debate whether injuries were caused by covered or non-covered events. If you have a question about coverage under an insurance policy, contact ECG and its insurance coverage attorneys today.
Author: Michael S. Wilde, Enterprise Counsel Group, Associate Attorney