Kirk A. Pasich
Cassandra S. Franklin Insurance coverage for intentional conduct?
Coverage may be available to innocent individual and corporate co-insureds when another insured engages in intentional misconduct
Insurance carriers frequently seek to
deny coverage for insureds on the ground that the insured acted intentionally. They rely on policy exclusions for “expected or intended” injury or “intentional conduct.” They also rely on California Insurance Code section 533, which states that a carrier “is not liable for a loss caused by the willful act of the insured.” However, insurance carriers often
overreach in taking positions regarding when the intentional conduct of one per- son may deprive another of coverage. The reality is that even if the language of a policy states that the intentional conduct of “any” insured may bar coverage for all insureds, that often is not, as a matter of law, the case. Furthermore, even if a cor- poration is found liable for the intention- al conduct of one of its employees or officers, it, too, may still be covered.
Coverage for innocent individual co-insureds
It has long been understood that,
“when a policy covers multiple insureds and the insurer asserts that an exclusion precludes coverage, the fact the exclusion might apply to bar coverage for one of the insureds does not automatically pre- clude coverage for the other insureds.” (Smith Kandal Real Estate v. Cont’l Casualty Co. (1998) 67 Cal.App.4th 406, 416 [79 Cal.Rptr.2d 52].) For example, in Arenson v. National Automobile & Casualty Insurance Co. (1955) 45 Cal.2d 81 [286 P.2d 816], a father sought liability coverage after his son started a fire that damaged school property. The father’s policy covered both the father as named insured and the son as an additional insured relative residing in the father’s household. The insurer contended that an exclusion for damage “caused intentionally by . . . the insured” referenced every insured covered by the policy. The insurer then reasoned that any injury caused intentionally by one
insured logically barred coverage for all insureds. The court disagreed, conclud- ing that a policy covering multiple insureds extends multiple obligations, and the exclusion must thus be applied separately to each insured. Because the father had not intentionally caused any damage, the exclusion did not apply to him. The court further held that section 533 of the California Insurance Code, “which codifies the general rule that an insurance policy indemnifying the insured against liability due to his own willful wrong is void as against public poli- cy, has no application to a situation where the plaintiff is not personally at fault.” Thus, neither the policy’s intentional acts exclusion nor section 533 applied to bar coverage for the innocent insured father. In American States Ins. Co. v. Borbor
(1987) 826 F.2d 888, the Ninth Circuit similarly concluded that section 533 did not preclude coverage for an innocent insured. The husband and wife insureds in American States ran a nursery school. The husband was convicted of molesting children who attended the school. Following his conviction, a number of the
children and their parents sued both the husband and his wife in a civil lawsuit. While the husband’s acts were alleged to have been willful and intentional, the wife’s involvement was premised on her partnership with her husband and thus she was alleged to be vicariously liable for her husband’s conduct. She was also potentially liable for negligent supervision of, or failure to investigate, her husband’s activities. The Ninth Circuit concluded that “neither [the wife’s] negligence, if any, nor her vicarious liability for James’ wilful acts, precludes insurance coverage under California Insurance Code section 533.” (Id. at 894.) The court reasoned: The public policy underlying section
533 is to prevent encouragement of wil- ful torts. Section 533 is “a codification of the jurisprudential maxim that no man shall profit from his own wrong.” To conclude that [the wife] may be indemnified under the American States policy does no violence to this public policy. She did not encourage, aid, or abet her husband’s wilful, tortious activ- ities. She did not ratify his acts. (Id., citation omitted).)
JUNE 2011 The Advocate Magazine — 75
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