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Insurers must cover builder in student-molestation incident

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Insurers must cover builder in student-molestation incident

Liberty Mutual Insurance Co. units are obligated to provide coverage to a construction company in a case filed by a middle school student who was allegedly sexually abused by one of its employees, says a federal appeals court.

The ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Liberty Surplus Insurance Corp. et al. v. Ledesma & Meyer Construction Co., which overturned a lower court ruling, is in response to a ruling in June by the California Supreme Court, which had considered the case at the 9th Circuit’s request. 

The case involves a 13-year old student’s alleged abuse by an assistant superintendent for Cucamonga, California-based L&M, which had contracted with California’s San Bernardino Unified School District to manage a construction project at a middle school, according to court papers in the case.

The student sued the construction company in state court, charging it with negligent hiring, retention and supervision of the employee.

L&M’s insurers, Liberty Surplus Insurance Corp. and Liberty Insurance Underwriters Inc., which are units of Boston-based Liberty Mutual Insurance, defended L&M under a reservation of rights but sought declaratory relief in federal court, contending they had no obligation to defend or indemnify L&M.

The insurers also refused to defend the school district on the basis it was not insured under the general policy.

The U.S. District Court in Los Angeles ruled in the insurers’ favor, holding that L&M’s negligent, hiring, retention and supervision of the assistant supervisor was “too attenuated” from the injury-causing conduct he committed to constitute an “occurrence” under the general policy.

When the ruling was appealed, the 9th Circuit asked the California Supreme Court to consider whether an occurrence under the policy had occurred. The Supreme Court ruled it had.

In light of that ruling, a three-judge appeals court panel reversed the District Court ruling and held the construction company was entitled to coverage.

“As explained by the California Supreme Court,” when the student was molested, “from L&M’s point of view the event could have been an ‘unexpected, unforeseen, or undesigned happening or consequence of its hiring, retention or supervision’” of the assistant superintendent.

“This was true despite the fact that (the assistant superintendent’s) conduct in perpetrating the assault was willful,” said the panel, in reversing the lower court’s ruling and holding the construction company was entitled to coverage in the case.

The ruling adds, however, that neither the District Court nor the California Supreme Court have addressed whether the school district was an additional insured “or otherwise covered” under L&M’s insurance policies, which is now up to the District Court to decide.

 

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