No coverage for sexual assault found in homeowners policy
A young girl and her mother filed a complaint against the girl's paternal grandparents and their son (the girl's uncle), alleging that the uncle "sexually abused and sexually exploited" the girl from the time she was 7 until she turned 16. The suit alleged that the grandparents knew of the abuse and intentionally failed to inform the girl's parents or law-enforcement authorities. The complaint further alleged that the grandparents and uncle had placed the girl under a constant threat of bodily harm, and that "she was subjected to threats, intimidation, coercion and acts of violence" to prevent her disclosure of the sexual abuse. In addition, the complaint claimed that the girl's mother, after discovering the abuse, also was subjected to threats, intimidation, coercion and acts of violence to prevent her disclosure of it.
The claims against the grandparents and uncle were for negligence, intentional and negligent infliction of emotional distress, breach of duty in loco parentis, civil conspiracy and civil assault. An additional claim for battery was lodged against the uncle. The girl's mother also asserted a claim for loss of services, comfort and society against all three defendants.
The liability section of the defendants' homeowners policy stated: "We will pay any amount up to your Limit of Coverage for which a Covered Person becomes legally liable as a result of bodily injury or property damage that is caused by an accident. Continuous or repeated exposure to the same conditions is considered a single accident. We will not cover bodily injury or property damage that is expected or intended by a Covered Person."
In an endorsement to the policy, the carrier specifically excluded coverage for liability "arising out of any sexual molestation, corporal punishment, or physical or mental abuse." In addition, its personal catastrophe liability supplement (umbrella coverage) incorporated all of the above-stated provisions of the primary policy and added exclusions "for any fines, penalties, punitive or exemplary damages."
The defendants' homeowners insurer initially assumed defense of the claims, subject to a reservation of its rights. However, the carrier later took the position that the claims set forth in the complaint were not covered by its policy, and that it therefore had no duty to indemnify or further defend. A trial court granted the insurer's motion for declaratory and summary judgment. The decision was appealed.
The appeals court upheld the ruling, holding that the causes of action in the complaint didn't constitute an "accident," as required for recovery under the policy and that they also were barred from coverage by the policy's intentional-acts exclusion. The finding concerning the homeowners policy also barred recovery under the insureds' umbrella coverage.
West Virginia Fire & Casualty Co. vs. Stanley, No. 3123) (W.Va. 05/21/ 2004) 2004.WV.0000036 (www.versuslaw.com).
Agency's duty to inspect property is a matter for a jury to decide
In 1994, a military surplus store in Pennsylvania purchased insurance for its business from an agency. The agency recommended a commercial property and liability package policy but did not inspect the property before selling the coverage.
From 1994 through 1998, the store renewed the commercial package policy. In 1995, the insurer had an employee inspect the property. The store's executives said that during the inspection, the insurer's employee identified various risks and made recommendations for minimizing them. Additionally, they said the employee observed that the property was located directly across the highway from the Susquehanna River and that a stream traversed the store's property. However, the insurer's employee did not recommend the purchase of flood coverage, the store's executives said.
In 1999, the store suffered more than $375,000 in damage to its building and contents when the stream traversing its property overflowed and flooded the building. When the store's executives notified the agency of the loss, they were told they had no coverage for flood damage.
The store then sued the agency and its agents working on the store's account, asserting they had breached their duty to investigate the store's insurance needs and inspect the property themselves. The store's executives said the agency did not inform them that their insurance plan excluded flood damage or that flood insurance was available for an additional premium.
The agency filed motions for summary judgment, which a trial court granted. The store appealed.
The appeals court noted that an agency's duty of care is to exercise the skill and knowledge normally possessed by members of its profession. Failure to do so renders the agency liable for any loss. Whether an agency has breached the duty of care is generally an issue for a jury, and the court must construe all facts and inferences in favor of the insured.
The insureds' expert said that a physical inspection of the insured's premises was the standard of care in the industry and that the agent shouldn't think this was optional or that the carrier had the duty to inspect. The expert asserted that an onsite inspection would have revealed the need for flood insurance.
The appeals court differed. "We do not declare, as a matter of law, that insurance agents always have a duty to inspect the businesses on which they offer coverage. The duty of an insurance agent…necessarily depends on the facts and circumstances of each individual case. Thus, we simply adhere to the general rule that insurance agents have a duty to exercise the skill and knowledge normally possessed by members of that profession."
The court said the insured had presented expert evidence from which a jury could conclude that inspecting the premises and offering flood insurance fell within the agency's duty of care, and that the agency failed to meet it. Another issue, the appeals court said, was whether the insured would have accepted flood insurance had the agency offered it.
Because of these unresolved issues, the trial court erred in giving the summary judgment, the appeals court said. "Given that (the insured) is located near a river and in fact has a stream running under the property, one reasonable inference is that the (agency) should have inspected the property and offered flood insurance as part of a 'full coverage' package. We are unwilling to declare as a matter of law that the contrary is true and that the (agency) is entitled to summary judgment."
The appeals court did rule that the agency did not have a "fiduciary duty" to the insured, but rather that this was a "garden variety" negligence claim. The summary judgment was overruled, and the case was sent back to the trial court.
Wisniski vs. Brown & Brown Ins. Co. of Pa., 2004 Pa.Super. 211 (Pa.Super. 06/07/2004) 2004 PA Super 211, 2004.PA.0002230 (www.versuslaw.com).
Readers can contact Don Renau via e-mail at drenau@thepoint.com.
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