“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?” The California Supreme Court answered “no” to the question presented by the U.S. Court of Appeals for the Ninth Circuit, in Minkler v. Safeco Insurance Company of America, 49 Cal.4th 315 (2010). Specifically, the Court held that a clause stating that “[t]his insurance applies separately to each insured” in a homeowners insurance policy, read together with an exclusion for injuries arising from the intentional acts of “an” insured, creates an ambiguity, which must be construed in favor of coverage that a layperson would reasonably expect.
Scott Minkler sued Betty Schwartz and her adult son, David, alleging that David, Scott’s baseball coach, sexually molested Scott, a minor. In addition to asserting claims against David for sexual battery, intentional infliction of emotional distress, negligence and negligence per se, the complaint also alleged that some of the acts of molestation occurred in Betty’s home as a result of Betty’s negligent supervision.
Betty was the named insured under homeowner’s policies issued by Safeco Insurance Company of America. The policies defined “an insured” to include both the named insured and any relative resident of the named insured’s household. Under this definition, David was an insured under the policies. The policies’ liability provisions provided that Safeco will defend and indemnify “an” insured for injuries arising from a covered “occurrence.” The policies excluded coverage for injuries that were “expected or intended” by “an” insured or were the foreseeable result of “an” insured’s intentional act. The policies also contained a severability clause providing that “[t]his insurance applies separately to each insured.” Safeco denied the tender as to both David and Betty, citing the intentional acts exclusion.
California decisions have uniformly held that, viewed in isolation, a clause excluding coverage for particular conduct by “an” or “any” insured, as opposed to “the” insured, means that such conduct by one insured will bar coverage for all other insureds under the same policy on claims arising from the same occurrence. See, e.g., Fire Ins. Exchange v. Altieri, 235 Cal.App.3d 1352, 1360-61 (1991). This rule applies even when the insureds seeking coverage did not themselves participate in the act for which coverage is excluded, and even when their liability is premised on their own independent acts or omissions that would otherwise be covered. Thus, the issue in Minkler was whether the severability clause created an exception to this rule so that Betty would not be barred from coverage unless her own conduct in relation to David’s molestation of Scott fell within the policies’ exclusion for intentional acts.
Under California law, if the terms and conditions of a policy are ambiguous, then the ambiguity is interpreted in a way that protects the “objectively reasonable expectations of the insured.” The Court stated that even though an exclusion for injury arising from the specified acts of “an” insured would normally mean that the excludable conduct of one insured bars coverage for all, “a provision stating that ‘[t]his insurance applies separately to each insured’ reasonably implies a contrary result, at least in certain circumstances.” The Court posited that because of the severability or “separate insurance” clause, Betty would have reasonably expected Safeco’s policies, the general purpose of which was to provide coverage for each insured’s legal liability for injury to others, to cover her separately for her independent acts or omissions so long as her own conduct did not fall within the policies’ intentional acts exclusion, even if the intentional acts of another insured contributed to the same injury.
The Court stated that Betty “had no reason to expect that David’s residence in her home, and his consequent status as an additional insured on her homeowners policies, would narrow her own coverage, and the protection of her separate assets, against claims arising from his intentional acts.” In light of the severability provision, Safeco’s intent was deemed not clearly expressed, and the ambiguity was resolved in Betty’s favor.
Accordingly, the Court held that because of the severability clause, the exclusion for injuries arising from “an” insured’s intentional acts did not preclude coverage for Betty’s liability based solely on the fact that David’s alleged molestation of Scott fell within the exclusion. Rather, the Court held, coverage as to her must be analyzed based on whether she herself committed intentional acts within the meaning of the exclusion.