Most third-party liability insurance policies contain an intentional acts exclusion that bars coverage for claims arising out of the intentional acts of an insured. Some policies also contain “assault and battery” and/or “sexual molestation” exclusions. Such exclusions have been upheld on the basis that it is against public policy for an insurer to indemnify an insured for the civil consequences of the insured’s intentional or criminal wrongdoing. Thus, an insurer typically has no duty to defend or indemnify its insured if the insured wrongfully and intentionally caused injury to a third party.
In order to get around application of intentional acts exclusions, an injured party typically will allege, in the alternative, that the insured acted negligently. In addition, the injured party may seek recovery from someone other than the insured, claiming that the third party negligently hired, retained, trained, or supervised the insured. Such “negligence” claims generally will not fall within an intentional acts exclusion unless the exclusion expressly so provides.
In P.D. v. Germantown Insurance Company, 2014 WL 10102329 (N.J. App. Div. July 20, 2015) the New Jersey Appellate Division had occasion to consider application of a sexual molestation exclusion in a homeowner’s insurance policy. There, it was alleged that “Matthew,” a high school student, sexually assaulted “Ann,” a classmate of his, on two occasions. The first incident took place on school property and the second incident took place at Matthew’s home. Ann later commenced an action against Matthew, asserting claims based on negligent and intentional sexual assault. Ann also sued Matthew’s parents, asserting a negligent supervision claim.
At the time of the first incident, Matthew and his parents were covered under a homeowner’s policy of insurance issued by Germantown Insurance Company. The policy contained an exclusion for bodily injury or property damage that “is expected or intended by an ‘insured,’” even if the injury “[i]s of a different kind, quality or degree than initially expected or intended.” Id. at *5. The policy also contained a “sexual molestation” exclusion, which provided that there was no coverage for:
“Bodily injury” or “property damage” arising out of sexual molestation, corporal punishment or physical or mental abuse[.]
Id. The insurance company denied coverage based on those two exclusions. The insureds then commenced a declaratory judgment action against the insurer, seeking coverage under their policy.
The insureds moved for summary judgment seeking a determination that the insurer was obligated to pay Matthew’s attorney’s fees. While the motion was pending, the insureds settled with Ann and assigned their right to proceed against their insurance company to her. The insurer then cross-moved for summary judgment seeking dismissal of the complaint in its entirety. Ann then moved for summary judgment seeking complete indemnification.
The trial court granted summary judgment in favor of the insurer in connection with the claims asserted by Matthew, finding that coverage was barred based on the sexual molestation exclusion. With respect to the claim against the parents, the court likewise held that the insurer had no duty to indemnify the parents because “[t]he negligent supervision claim only rises in the context of the . . . sexual molestation claim [and] therefore there can be no coverage . . . .” Id. at *6.
Despite finding that coverage did not exist, the court nonetheless held that the insurer owed a duty to defend the parents against Ann’s claims. The court’s ruling was based on its conclusion that the insurer “was ‘quick on the draw’ to deny coverage and should have conducted some investigation before they came to the conclusion that the sexual molestation and the negligent supervision are in essence one claim.” Id. In other words, even though it found that there clearly was no coverage for the claims under the policy, the court imposed a duty to defend on the insurer because it was not happy with the insurer’s handling of the claim.
Both parties appealed the trial judge’s decision.
On appeal, Matthew argued that the insurer owed him a duty to provide him with a defense because Ann alleged that he “negligently . . . sexually molest[ed her].” Id. at *2. The court rejected that argument outright, noting:
Regardless of the label a plaintiff attaches to its theory of liability, the facts relied on by Ann to support her claims against Matthew describe intentional acts constituting a sexual assault. Affixing the label of “negligence” to otherwise clear allegations of intentional conduct is nothing more than a transparent attempt to trigger coverage under plaintiffs’ homeowner’s insurance policy.
Id. at *9. Thus, the Appellate Division affirmed the trial court’s ruling with respect to Matthew.
As to the claims against Matthew’s parents, the Appellate Division reversed the trial court’s holding that the insurer had a duty to provide them with a defense. The court reasoned as follows:
On its face, the underlying complaint against plaintiffs alleging negligent supervision arises out of the exclusion for sexual molestation. The underlying cause of action seeks compensatory damages from plaintiffs because they negligently performed their duty as parents to supervise Matthew and prevent him from sexually molesting or assaulting Ann. This leaves no ambiguity. The negligent supervision claim arises from a clear exclusion in the policy. Defendant is not contractually obligated to defend plaintiffs in connection with this claim.
Id. at *10.
Key to the court’s conclusion was the fact that sexual molestation exclusion barred coverage for claims “arising out of” sexual molestation. The phrase “arising out of” has been interpreted broadly by the New Jersey Supreme Court to bar coverage for all claims that “originate in,” “grow out of,” or have a “substantial nexus to” the excluded conduct. See Flomerfelt v. Cardiello, 202 N.J. 432, 456 (2010). Thus, although the exclusion made no reference to negligent supervision claims, the court nonetheless held that such claims were barred.
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