Answering a question posed by the Ninth Circuit, the California Supreme Court found that a suit against a employer for negligent hiring, retention and supervision of a employee who intentionally injures a third party alleges an occurrence under a CGL policy. Liberty Surplus Co. Corp. v. Ledesma & Meyer Construction Co., 2018 Cal. LEXIS 4063 (Cal. June 4, 2018)
Ledesma & Meyer Construction Company (L&M) contracted with the school district to manage a construction project at a middle school. L&M hired Darold Hecht as an assistant superintendent on the project. In 2010, Jane Doe, a 13-year-old student at the school, sued alleging that Hecht had sexually abused her. Doe’s claims included a cause of action against L&M for negligent hiring, retaining, and supervising Hecht.
L&M tendered the defense to Liberty, who defended under a reservation of rights. Liberty also filed suit in federal court, seeking a declaratory judgment that it had no duty to defend or indemnify L&M. The district court granted summary judgment to Liberty on the cause of action for negligent hiring, retention, and supervision. The district court reasoned that while negligent hiring set in motion and created the potential for injury, this was too attenuated from the injury-causing conduct.
L&M appealed. The Ninth Circuit sought the Supreme Court’s opinion.
The Supreme Court noted that under California law, the word “accident” in the coverage clause of a liability policy referred to the conduct of the insured for which liability is sought to be imposed. It was undisputed that Hecht’s intentional conduct did not preclude potential conduct for L&M. The allegedly negligent hiring, retention, and supervision were independently tortious, which formed the basis of L&M's claim against Liberty for coverage.
Even though the hiring, retention, and supervision of Hecht may have been “deliberate acts” by L&M, the molestation of Doe could be considered an unexpected, independent, and unforeseen happening that created the damage. Therefore, absent an applicable exclusion, employers could expect coverage for such claims under a CGL policy.
