Intentionally Inflicted Injuries Could Kill Claim

A principal area of uncertainty regarding the "intent" issue arises in the context of general liability claims involving physical assault or sexual molestation. In New York, until just four years ago, there was a split among the lower-level appellate courts regarding whether insureds should be covered under CGL policies for intentional assaults by third parties, even where the insured had no advance knowledge that the assault would occur. These injuries were neither expected nor intended from the vantage point of the insured.

Certain lower-level trial and appellate courts had taken the position that claims arising from an intentional assault, such as a rape, molestation or murder by a third party should be excluded from coverage for a landlord or business owner sued for negligence in failing to protecting people on its premises from harm. These courts reasoned that the assault was intentional conduct which would result in foreseeable, expected injuries.

Not until the Court of Appeals 2000 decision in Agoado Realty Corp. vs. United International Ins. Co. did the states highest court resolve the split by determining that the "intent" question must be resolved "from the point of view of the insured." Applying that standard, the court held that a murder of a tenant in a residential apartment building could not be deemed "expected" or "intended" conduct from the perspective of the insured landlord so as to exclude claims against the landlord by the decedents estate.

While this resolved the issue in the context of claims arising from assaults by third parties, the question remained as to how to address claims by insureds arising from assaults by their employees or agents. In April of this year, the New York Court of Appeals resolved the issue by concluding that claims against insured employers arising from intentional conduct on the part of their employees also had to be viewed from the perspective of the insured.

Accordingly, a beauty salon/health spa was held to be covered for claims arising from alleged improper sexual contact by a masseur employed at the spa in RJC Realty Holding Corp. vs. Republic Franklin Ins. Co.

Interestingly, in reaching this conclusion the court noted that claims such as those made against the salon/spa in that casefor negligent hiring, training and supervision of the employeecould be viewed, from the insureds perspective, as neither expected nor intended. Conversely, however, had the claims been based upon a theory of respondeat superiorwhere the law imposes liability upon an employer for the acts of his employee acting within the scope of his employment responsibilitiesthe court indicated that a different result would have issued.

But, in this instance, the court stated: If the allegation of sexual abuse is true, the masseur "departed from his duties for solely personal motives unrelated to the furtherance of [the salon/spas] business Since the masseurs actions were not [the salon/spas] actions for purposes of the respondeat superior doctrine, they were 'unexpected, unusual and unforeseen' from [the salon/spas] point of view, and were not 'expected or intended' by [the salon/spa].

"Accordingly, they were an 'accident' within the coverage of the policy, and were not excluded by the 'expected or intended' clause."

Notwithstanding the sound reasoning presented by the New York Court of Appeals in its decision in RJC Realty, a number of jurisdictions still subscribe to the position that the issue in determining whether a claim against an employer arising from conduct by an employee should be excluded as "expected" or "intended" conduct should be determined by looking at the underlying volitional act of the employee.

In applying this standard, this minority view bases its determination on the conception that an intentional act should not be considered an "accident" or unintended or unforeseen merely because the employers negligence prompted, supported or ignored the act. (See, e.g., GATX Leasing Corp. vs. Natl Union Fire Ins. Co., 7th Cir. 1995; Huey T. Littleton Claims Inc. vs. Employers Reins. Corp., 5th Cir. 1991 applying Louisiana law; Smith vs. Animal Urgent Care Inc., W.Va. 2000).

The courts viewing the intent issue from this perspective also reason that an employer-corporation is a fictitious entity, operating only through the actions of its agents. As such, they conclude, in as much as the employees act as agents of the employer, the employees intent must be seen as the employers intent.

As the decisions on this issue evolve, it should be noted that some courts have narrowed the application of the minority rule, with courts concluding that coverage is precluded only in those instances where claims are based solely and entirely on intentional acts, or where the employee was part of the companys management. (See, e.g., American States Ins. Co. vs. Natchez Steam Laundry, 5th Cir. 1998; Quality Painting Inc. vs. Truck Ins. Exch., Kan.1999).

Conversely, one court went the other way and expanded the minority rule. In Erie Ins. Co. vs. American Painting Co., Ind. Ct. App. 1997, the Indiana Court of Appeals concluded that there was no coverage under a CGL policy for claims arising from an employees burglarizing and setting fire to a home the insured had been hired by the homeowner to paint.

Even though the homeowner asserted claims for alleged negligence by the insured in its hiring and retention of the employee, the court held that "[t]hese acts by (the insured), even if proven to be careless and negligent, were intentional, not accidental." The issue remains unsettled, and will be subject to the controlling analysis of the jurisdiction in which the issue is presented.

Whether an injury is considered an "accident" or may be perceived as "expected" or "intended" is going to be a question which will always be subject to conflicting interpretations and debate. As claims are received, from both a brokers and a claim professionals standpoint, consideration should be given to the jurisdiction in question and the legal principles to be applied, and thoughtful analysis should always be the guide.

Peter J. Biging, Esq. is a partner in the New York office of Lewis Brisbois Bisgaard & Smith LLP. He can be reached at BIGING@lbbslaw.com

Reproduced from National Underwriter Edition, September 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.