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Hiring a sexual offender who causes harm is an insured ‘accident’ (US)

30 July 2018 Patrick Bracher, Norton Rose Fulbright

The California Supreme Court held that the negligent hiring, retention and supervision of an employee who sexually abused a 13-year old at a school where he was working was an ‘accident’ for the purposes of a general liability policy.

In Californian law an accident is ‘an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause’.

The focus was not on the deliberate act of the employee but the negligence of the employer.

Negligent hiring, retention or supervision may be a substantial factor in a sexual molestation perpetrated by an employee.

In this case the perpetrator was a previous sexual offender. Because liability insurance is a contract between insurer and insured and the policy is read in light of the parties’ expectations, the relevant viewpoint whether it is an accident is that of the insured rather than the injured party. Any given event is always the result of many causes. The law looks to those causes which are so closely connected with the result and of such significance that the law is justified in imposing liability.

Although the negligent hiring, retaining and supervising was an indirect cause of the injury, there was a sufficient causal connection between the two and the negligent hiring, retaining and supervising occurrence resulted in the injury.

Any claim alleging negligent hiring by an employer will be based in part on events predating the employee’s unlawful conduct. In the absence of an applicable exclusion, the insured employer may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.

This stretches the concept of ‘accident’ further than most cases have done, but it is a consequence of the broad liability wording. One is more inclined to agree with the overturned lower court’s finding that the alleged negligent hiring, retention and supervision were acts that were too attenuated from the injury-causing conduct for liability. But broad-form liability can be broad indeed.

The case is Liberty Surplus Insurance Corp. v Ledesma & Meyer Construction Co.

First published by Financial Institutions Legal Snapshot.

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