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The Law

Insurer Must Defend Company After Claims of Sex Assault, Negligence

After a worker is accused of sexual abuse, his employer's insurer must cover defense against claims of negligence.
By: | September 14, 2018 • 2 min read

What happens when a third party sues an employer for the negligent hiring of an employee who intentionally injured that third party? Is the lawsuit considered an “occurrence” under the employer’s general liability policy? Should the insurer be on the hook? One California court had to decide.

Ledesma & Meyer Construction Company, Inc., (L&M) had a contract with the San Bernardino Unified School District. L&M was tasked with a construction update at a San Bernardino middle school and hired Darold Hecht as the project’s assistant superintendent.

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A young girl, age 13, filed a lawsuit against Hecht, alleging sexual abuse. Jane Doe also brought a claim against L&M for negligently hiring, retaining and supervising Hecht in the first place.

L&M turned to its commercial general liability insurer, Liberty Surplus Insurance Corporation and Liberty Insurance Underwriters Inc., for defense. The insurer, in return, agreed to defend L&M under a reservation of rights. However, it also sought declaratory relief, because it did not believe it had any obligation to defend or indemnify L&M in the underlying suit.

Insurance policies may provide coverage for negligent hiring claims, unless there is an express exclusion for such claims. Without these exclusions, insurers might be required to defend malevolent deeds.

In court, Liberty argued its commercial general liability policy only “applies to ‘bodily injury’ and ‘property damages’ only if … the ‘bodily injury’ is caused by an ‘occurrence,’ ” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

L&M was tasked with defining Hecht’s actions as an accident.

The company argued its retention of Hecht was not the injury-causing act; Hecht’s decision to act inappropriately was in no way a foreseeable event, L&M said, and therefore an accident in the eyes of the company.

“California law … recognizes the cause of action even when the employee acted intentionally,” the court opinion read.

“The requirements for liability of this kind are not easily met, but they are well established. Absent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.”

It ruled in favor of L&M; Liberty would have to pay for the underlying suit.

Scorecard: Liberty can’t deny coverage for the negligent hiring underlying suit. Instead, it must insure L&M for damages under its general liability policy.

Takeaway: Insurance policies may provide coverage for negligent hiring claims, unless there is an express exclusion for such claims. Without these exclusions, insurers might be required to defend malevolent deeds. &

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]