California Supreme Court Rights the “Occurrence” Ship: Unintended Harm Resulting from Intentional Conduct Triggers Coverage Under Liability Insurance Policy
In a ruling that bodes well for policyholders, the California Supreme Court provides much-needed clarity on the question of when a so-called “intentional act” may give rise to insurance coverage under a liability insurance policy. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., Case No. S23765 (Cal. June 4, 2018), the Court holds that an employer’s potential liability for negligent hiring, after its employee allegedly abused a 13-year old student, is the result of an “occurrence” and is thus covered under the employer’s liability insurance policy.
The court’s opinion dispels the misguided notion that an intentional act resulting in unintended harm is never an “occurrence” and can never trigger coverage. What matters, according to the Court, is that, from the insured’s point of view, the consequences of its conduct are “unexpected, unforeseen, or undesigned” – even if the conduct is intentional. And in a concurring opinion, Justice Liu rightfully questions the legitimacy of the notion that intentional conduct cannot trigger coverage, even when it produces an unintended result, unless, in the words of a 1989 appellate court decision, some “additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” As Justice Liu explains, this intervening “happening” may be something as simple as the insured’s mistaken belief that he was acting in self-defense, or that the victim had consented to the insured’s conduct. This much-needed clarification restores vitality to the fundamental principle that injuries are “accidental” when they are “unexpected, unforeseen, or undesigned,” regardless of their cause.
This ruling will apply in many contexts: For example, contractors who “intentionally” build things; competitors who “intentionally” disparage another’s product; employers who “intentionally” hire employees who do bad things. The Court’s decision restores the law’s fidelity to fundamental principles enunciated in the seminal California “occurrence” case: Gray v. Zurich, 65 Cal. 2d 263 (1966). And it ought to dampen insurers’ enthusiasm for denying claims on the spurious ground that the insured’s conduct – even though it resulted in bodily injury or property damage that the insured did not expect or intend to cause – was “intentional.”