Mr. Guerrera reported the complaint to Netherlands Insurance Company and Midwestern Indemnity Company (together, the “Insurers”), seeking defense and indemnification based on a “School Leaders Errors & Omission Liability Coverage” insurance policy the district had acquired from Netherlands and an umbrella policy the district had acquired from Midwestern.

The district alleged that, because of Mr. Guerrera's negligence, negligent hiring, negligent supervision, and negligent failure to implement appropriate controls (and other wrongful acts), the district had sustained losses of over $4 million.

The Insurers denied coverage, asserting that the policies did not cover claims made by the district against its employees working within the scope of their duties.

Mr. Guerrera admitted all allegations except those relating to punitive damages and declined to assert any affirmative defenses. The district and Mr. Guerrera submitted a proposed judgment and accompanying evidentiary materials to the state court.

The Insurers declined to participate in the proceedings because they believed the insurance policies did not insure Mr. Guerrera against suit by the district.

The trial court entered judgment in favor of the district in the amount of $4,199,812 and approved a covenant between the parties in which the district agreed not to execute the judgment against Mr. Guerrera. The trial court also noted that the covenant was not the result of any collusion or fraud by either party.

The district subsequently sued the Insurers, seeking payment under the insurance policies for the judgment it had obtained against Mr. Guerrera.

The district court granted summary judgment in favor of the Insurers, and the district appealed to the Sixth Circuit.

The Netherlands Policy

The policy between the district and Netherlands provided:

SECTION II – WHO IS AN INSURED

Each of the following is an insured:

A. The “educational institution”, and its board of governors, board of education, school committee, board of trustees, or commission.

B. Each of the following is also an insured for acts within the scope of their duties as such: . . .

1. Your “employees”. However . . . no “employee” is an insured for “claims” made:

a. By you or by a co-“employee” for “loss” arising out of and in the course of his or her employment or performing duties related to the conduct of your business

The policy between the district and Midwestern followed form to the Netherlands policy.

The Sixth Circuit's Decision

The Sixth Circuit affirmed, finding that Mr. Guerrera was not an “insured” under the policies.

In its decision, the circuit court explained that according to the policies, an employee generally was an “insured.” The circuit court added, however, that there was an exception in the policies for claims made by the district against its employees for loss arising in the course of employment or during the performance of duties related to the district's business.

In other words, the circuit court said, an employee was not an “insured” for purposes of such a claim.

It then found that those circumstances existed in this case.

The Sixth Circuit noted that the district sought satisfaction of a judgment resulting from a lawsuit the district filed against Mr. Guerrera, its employee. As a basis for that suit and corresponding judgment, the district alleged that because of “the wrongful acts of [Mr.] Guerrera in the performance of . . . [s]chool [d]istrict duties . . . the [s]chool [d]istrict ha[d] sustained a loss of over $4,000,000[.]”

The circuit court added that the district's complaint alleged several wrongful acts connected with Mr. Guerrera's duties as superintendent, including “negligent hiring, negligent supervision, [and] negligent failure to implement appropriate controls[.]”

The Sixth Circuit found that, by the district's “own characterization,” the loss arose in the course of Mr. Guerrera's employment, and the policies “clearly and unambiguously” explained that Mr. Guerrera was not an “insured” in such circumstances.

The case is Cuyahoga Heights Local School District v. Netherlands Ins. Co., No. 18-4037 (6th Cir. July 3, 2019).