Policy's Severability Clause Renders Intentional Acts Exclusion That Applied to "An" Insured Ambiguous
The California Supreme Court had before it the following certified question from the Ninth Circuit:
Where a contract of liability insurance covering multiple insureds contains a severability clause, 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?
Prior to this decision, there was not clarity in California as to how the courts would rule on this issue and, as that court notes in its opinion, there is divergent positions on this issue around the country.
In Minkler v. Safeco Ins. Co., __ F.3d __ (9th Cir. 2010) (10 CDOS 7612), the court found, in the specific context before it, that the intentional acts exclusion was ambiguous in light of the policy’s severability-of-interests clause. This particular severability clause provided that: “This insurance applies separately to each insured. This condition will not increase our limit of liability for any one occurrence.” The court read the clause to pertain to all “insurance” and not just the policy’s limits.
The context was that Betty Schwartz, the insured, and her son David Schwartz, also an insured as a relative resident of the policyholder's household under Betty’s homeowners’ policy, were sued by Scott Minkler. Minkler alleged David, Minkler’s little league coach, sexually molested David over several years. Minkler asserted multiple causes of action against David, including sexual battery, intentional infliction of emotional distress, negligence, and negligence per se. Minkler also asserted a single cause of action for negligent supervision against Betty. Minkler alleged David molested Minkler in Betty's home, Betty knew her son was molesting Minkler, but Betty nonetheless failed to take reasonable steps to stop her son from doing so.
The homeowners’ policies over the pertinent years contained an intentional acts exclusion that provided: “Personal Liability [coverage] ... do[es] not apply to bodily injury or property damage: (a) which is expected or intended by an insured or which is the foreseeable result of an act or omission intended by an insured... .” (There was no sexual molestation exclusion in the policies.) The court noted that “an” insured means more than the insured seeking coverage. However, Minkler contended the severability clause rendered the intentional acts exclusion ineffective where there was a claim one particular insured was liable for negligent supervision of another insured, and not just variously or derivatively liable for that other insured’s conduct.
Because the court found the severability clause applied to the entire policy and not just the limits of liability, the court found the intentional acts exclusion ambiguous. Under California law, if the terms and conditions of a policy are ambiguous, then the ambiguity must be resolved in a way that preserves the insured’s reasonable expectations. Here, the court concluded Betty’s reasonable expectation was that the policy would cover her separately for her independent acts or omissions as long as her own conduct did not fall within the intentional acts exclusion. Therefore, coverage was not excluded by the intentional acts exclusion.
The court noted the majority of other states have found similar severability clauses apply only to policy limits. The court also “stressed” that their reasoning and conclusion was based on the specific circumstances and policy language before the court.
