California Supreme Court Issues Ruling on Employer Liability for Bad Acts by Employees
A recent ruling from the California Supreme Court better defines the relationship between insurance companies and their insured. The case arose as a result of a certified question from the Ninth Circuit Court of Appeals. The question was: what qualifies as an “occurrence” under an employer’s commercial general liability insurance policy?
The case, Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., involves a construction company and the construction of a school in the San Bernardino Unified School District. In particular, the construction company was hired to manage the construction of a middle school, and one of the superintendents they hired to supervise the project was later accused of sexually molesting a student.
General Liability Insurance Policy
Following the accusations were the lawsuits. Of course the accuser was sued, but the construction company was sued as well for negligent hiring, supervision, and retaining the type of character who would engage in this type of activity. It was at this point the insurance carrier denied coverage for the company because it was an intentional act, and the policy only covered negligent acts under the law.
The construction company took the insurance company to court and lost in the federal district court. The court sided with the insurance company, essentially holding that because the underlying act was intentional, it was not covered under a general liability policy meant to cover negligent acts. Then the question was certified, on appeal, to the California Supreme Court to clarify this position.
Court’s Order and Ruling
The California Supreme Court disagreed with the district court and ruled that under California law the insurance company would have to pay under the terms of the policy. The court agreed that the underlying act was an intentional act, but that the actor responsible for the act was not the insured. The construction company was the insured entity, and they had a policy of coverage for their acts of negligence.
The court then made the next logical step. The accusations were not that the company was negligent in making the intentional act themselves, but that they were accused of negligent hiring, retaining, and supervising the man who did act intentionally.
This case is important for any company with a general liability insurance policy in California. Of course the parameters of your company’s individual policy will control, but most likely it mirrors the policy in question in this case. To ensure you are covered for the incidents you think you are, it is important to have the right legal team review and analyze your policies. Unless you know what is in your policy, there is a chance your company is facing liabilities that it does not now think possible. In light of this ruling, it may be that you need to update your company’s policies.
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