Coverage — continued from Previous Page
Based on the logic and policy articu-
lated in the relevant case law, the [c]ourt finds that the prohibition against recovery for punitive damages . . . contains narrow exceptions involving vicarious liability. . . . [T]he [c]ourt finds that California does permit a party to obtain insurance coverage for punitive damages when those damages arise solely from vicarious liability.
(Id. at 32-33.) In Gemstar-TV Guide International, Inc.
v. National Union Fire Insurance Co. of Pittsburgh, PA, No. CV 06-5183-GW (JLTx) (C.D. Cal. Jan. 29, 2008), the insurer argued that section 533 precluded the insured from obtaining indemnity under a directors and officers liability policy for amounts that it had paid in the defense and settlement of claims against an officer that had acted intentionally. The court dis- agreed, holding that section 533 will not preclude coverage where the insured’s lia- bility is premised merely on vicarious liabil- ity due to illegal conduct of an employee. The courts’ decisions are supported
by the insurance industry’s intent. The drafters of the 1966 standard form gener- al liability policy clearly intended that coverage would be barred under the
“expected or intended” clause of the “occurrence” definition only if high, poli- cy-making levels of management intended to cause the injury. For example, George Katz of Aetna
Casualty & Surety Co., one of the princi- pal drafters of the 1966 standard form Commercial General Liability policy, explained the insurance industry’s intent. Katz wrote in a 1966 letter: In order to deny the corporation cov-
erage on the ground that it expected or intended the injury which gave rise to the claim, we would have to show that the level of management responsible for making policy with regard to the act or omission causing the occurrence expected or intended that injury would result. [W]e do not intend any cutback with respect to claims for assault and battery by employees who are not insured, unless committed at the direc- tion of the insured. We also intend to cover other kinds of injury resulting from intentional acts of employees unless such acts are known to and con- doned by or directed by those officials of the corporation responsible for the action of the employee that gave rise to the injury or damage.
(Letter from George Katz to Robert F. Bauer (Aug. 31, 1966), Trial Ex. No. 1136, In re Asbestos Ins. Coverage Cases, California Judicial Council Coordinated Proceeding No. 1072 (known on appeal as Armstrong World Industries Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1 [52 Cal.Rptr.2d 690]).) Thus, when liability for intentional
conduct is premised on a vicarious basis, as it often is for corporations, partner- ships, and other entities, coverage for the entity itself should not be affected by the wrongful acts of the individual. Even if an officer or employee acted intentionally or expected injury and the entity itself is found liable based on that conduct, the entity still should be entitled to coverage, unless its senior management specifically intended to cause injury or authorized the conduct with the expectation that injury was substantially certain to result.
Kirk A. Pasich and Cassandra S.
Franklin are partners in the Los Angeles office of Dickstein Shapiro LLP. They represent insureds in complex coverage matters. Mr. Pasich is the leader, and Ms. Franklin is a deputy leader, of the firm’s insurance coverage group.
80— The Advocate Magazine JUNE 2011
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