October 17, 2011
In
Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., ___ N.E.2d ___ (Ind. Ct. App. 2011), Cause No. 33A01-1103-CT-104, the Indiana Court of Appeals addressed an issue related to insurance coverage that is recurrent: is a claim that an employer negligently hired and supervised an employee who committed an intentional criminal act covered by the commercial general liability policy of the employer? In this case, the Court's answer is, "It might."
less..
The employer in this case owned a Holiday Inn in New Castle and one of its employees molested a 15-year-old guest staying at the hotel. The hotel was insured by a policy that covered damages caused by an "occurrence," which was defined as an accident, and contained an intentional acts exclusion. It also provided that each insured under the policy was separately entitled to the policy's protections. The child filed a complaint for negligent hiring, retention, and/or supervision and the hotel made a claim under the policy. The hotel made a claim under the policy and the insurer filed a declaratory action, seeking a determination that the policy did not cover the child's claims. The trial court granted the insurer's motion for summary judgment and the hotel appealed.
On appeal, the insurer argued that there was no coverage because the hiring and supervision of an employee cannot be an accident. The Court disagreed.
First, that a separation of insureds provision allows the finding of an "occurrence" regarding Holiday Hospitality's action even if Forshey's actions do not amount to an accident. Second, without further specificity in the language of the policy, ambiguity exists depending on how we characterize the event that may or may not have been an accident, and ambiguities in insurance policies are strictly construed against the insurance company pursuant to Indiana law. Third, one such phrasing could reasonably be whether an employer's negligent hiring, supervision, and/or retention of an employee who later commits sexual misconduct is an accident. Without evidence that the employer intended or expected the sexual misconduct to result, this cannot reasonably be deemed intentional, but rather, it is accidental. In light of our policy construing ambiguous insurance policies against insurance companies, we conclude that in these circumstances an "occurrence" has taken place triggering AMCO's coverage of Holiday Hospitality.
The Court concluded that there was an "occurrence" under the terms of the policy and reversed the trial court's decision.
The Court's decision in this case will allow more employers to obtain coverage for the intentional torts of their employees. However, it should be noted that an important provision in the policy that led to this result was the provision providing separate coverage to the various insureds. If this provision was not present, then it is unlikely that the Court would have reached the same result.
Lessons:
- If an insurance policy provides for a separation of insureds, then one insured's intentional act may not be a basis for denying coverage to another insured.
- Negligent hiring and supervision is an "occurrence" under the terms of an insurance policy.
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