Can an insurance company deny coverage to a homeowner who did nothing intentional because another insured under the policy committed a crime or intentional tort? The California Supreme Court heard argument on this issue last week in Minkler v. Safeco Insurance Co. of America, which involved allegations that a homeowner, Betty Schwartz, negligently failed to stop her adult son, David, who was Minkler’s baseball coach and lived with Betty, from sexually molesting Minkler when he was a teenager. The parties argued the following issue, which was certified by the Ninth Circuit to the California Supreme Court:
Where a contract of liability insurance covering multiple insureds contains a severability-of-interests clause in the “Conditions” section of the policy, does an exclusion barring coverage for injuries arising out of the intentional acts of “an insured” bar coverage for claims that one insured negligently failed to prevent the intentional acts of another insured.
It is well-settled under California law that an exclusion that bars coverage for the acts of "an" insured is effective to bar coverage for all insureds under the policy if any insured engaged in the excluded conduct. It has not been decided in California, however, whether this rule applies when the policy also includes a severability provision.
At oral argument, Minkler and Safeco focused on different parts of the policy. Minkler focused almost exclusively on the severability of interests clause, which states: “This insurance applies separately to each insured.” Minkler argued that this provision is a separate promise to each insured which requires the policy to be interpreted as though he or she were the only insured. Although the California Supreme Court has not yet decided this issue, Minkler’s argument is supported by Justice Baxter’s 2001 concurring opinion in another case involving Safeco, Safeco Ins. Co. v. Robert S.
In contrast, Safeco focused on an exclusion in the policy which says that liability coverage does not apply to harm “which is expected or intended by an insured or which is the foreseeable result of an act or omission intended by the insured.” According to Safeco, this language excludes all coverage for any harm resulting from an intentional act. Because Minkler’s claim arose from David’s intentional acts, no insured is entitled to coverage. Even if Betty’s interest was analyzed separately under the severability provision, Safeco’s position was that there is still no coverage since, under the intentional acts exclusion, it does not matter which insured acts intentionally as long as one insured did.
Safeco’s argument was met with skepticism by the Court. Justice Corrigan did not buy into the idea that this was the only reasonable interpretation of the policy. To the contrary, she directly asked whether it would be reasonable to interpret the policy to mean that, if you are an insured and did nothing intentional, you are entitled to coverage. Justice Baxter similarly recognized that Safeco’s interpretation would create a harsh result, noting that it seemed unusual that Betty was losing coverage for a negligence claim simply because of the actions of her son. Other justices focused on the fact that Betty did not have a choice in the matter since her son was automatically added to the policy as an insured, further implying that it would be unfair to deny Betty coverage on these facts. Based on these and similar comments and questions, it looks like a strong possibility that the court will find that the intentional acts exclusion will not bar coverage for the claims that Betty acted negligently by failing to prevent David’s intentional acts against Minkler. The court will publish its opinion within 90 days of May 5, 2010.