On January 9, 2018, the Northern District of California held that the Nonprofits Insurance Alliance of California owed defense coverage to a pair of Scientology-based drug and alcohol rehabilitation centers for two lawsuits filed in Georgia and Oklahoma alleging that staff members had provided drugs and alcohol to patients, which resulted in injury and death. In Western World Ins. Co. v. Nonprofits Ins. Alliance of California, No. 14-cv-04466-EJD (N.D. Cal. Jan. 9, 2018), the court confirmed the broad scope of an insurer’s duty to defend under California law and rejected the insurer’s attempt to unreasonably expand the application of a “professional services” exclusion to avoid coverage.

The underlying Georgia lawsuit alleged that Patrick Desmond, a patient in Narconon’s Georgia facility, was given alcohol by staff members, and then left the premises to purchase heroin and died from a resulting overdose. The underlying Oklahoma lawsuit alleged that Heather Landmeier, a patient in Narconon’s Oklahoma facility, was given drugs and alcohol by staff and engaged in sexual relationships with staff members. She was discharged from the facility even though she had relapsed, and immediately thereafter overdosed on heroin and oxycontin, resulting in her paralysis.

NIAC refused to defend the two underlying lawsuits on the basis that coverage was barred because the suits did not allege an “occurrence”—defined as an “accident”—and because coverage was barred under the exclusion for injuries “due to the rendering of or failure to render any professional service.” NIAC also argued that it owed no defense because its specialized “Improper Sexual Conduct Coverage” was excess to the primary general liability policies issued by Western World.

The Northern District of California held that NIAC had a duty to defend the underlying lawsuits. The court held that the allegations that the facility failed to provide reasonable and adequate security and supervision qualified as an “occurrence” or “accident.” With respect to the “professional services” exclusion, the court held that the exclusion does not bar coverage for acts that are distinct from the rendering of or failure to render drug rehabilitation services, and rejected NIAC’s attempt to characterize the staff members’ provision of alcohol as a “professional services injury” exemplifying a “departure from treatment protocols.” Finally, the court held that, under California law, when two policies provide overlapping coverage as Western Worlds’ and NIAC’s policies do, both insurers must contribute coverage on a pro rata basis.

In addition to demonstrating the exceedingly broad scope of an insurer’s duty to defend under California law, the Western World decision is a significant rejection of a common tactic used by insurers to expand the application of a “professional services” exclusion. The decision shows that a “professional services” exclusion—like most exclusions—must be construed narrowly against the insurer under California law and should not be used to bar coverage for any and all activity relating to the workplace.