Deliberate Actions of Employees Do Not Bar General Liability Coverage for Employer’s Liability for Negligent Hiring, Retention, and Supervision.

In June 2018, the California Supreme Court, in response to a certified question from the Ninth Circuit, held that deliberate acts of an employee do not bar coverage under general liability policies for an employer’s liability for claims of negligent hiring, retention and supervision. ^[1]

Ledesma & Meyer Construction Company (“L&M”) tendered its defense to Liberty Surplus Insurance (“Liberty”) after a 13-year old student filed a lawsuit alleging that L&M’s employee had sexually abused her while he was supervising a construction project at her school.  Jane Doe alleged causes of action against L&M for negligent hiring, retention, and supervision of the employee.

Liberty assumed the defense of L&M under its general liability policies subject to a reservation of rights.  Thereafter, Liberty filed a declaratory relief action in federal court contending that it was not obligated to defend or indemnify L&M.  The district court granted Liberty’s summary judgment finding that Ms. Doe’s injury was not caused by an “occurrence”, defined in the policy as an “accident”.  The court rationalized that the negligent hiring, retention and supervision by L&M was much earlier in time, and thus too attenuated from the injurious conduct of its employee to constitute an occurrence.

In its review, the California Supreme Court said it is not the actions of the employee that are considered, but rather the negligent actions of the employer which would invoke coverage obligations.  In other words, the employee’s intentional conduct does not preclude coverage for L&M.  For its part, L&M’s hiring, retention, and supervisory conduct were separately and distinctly tortious, and it is that conduct that forms the basis for coverage under the Liberty policy.  Consequently, in a causation analysis, L&M’s acts are considered the starting point of the events that led to the molestation.

The Court poignantly noted that “employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.”  In resolving an unsettled area of law, the California Supreme Court acknowledged that the impact of its ruling is not confined to the employment realm. Consequently, insureds may look to their general liability policies to cover their separately tortious part in an injury despite the fact that the underlying tort action is uninsured.

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[1] Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., Inc. (2018) 5_Cal.5th 216.