California Supreme Court: Negligent Hiring is an Occurrence

In a decision that may have wide ranging effect on California employers, the California Supreme Court last week ruled that negligent hiring can be considered an occurrence.

The coverage case made its way to the state’s highest court when the Ninth Circuit Court of Appeals asked it to certify a question because the law in California was not settled on the issue.

The question:

When a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an “occurrence” under the employer’s commercial general liability policy?

The Supreme Court found that “the answer turns on whether the injury can be considered “accidental” and found that it can.

The decision, said Caroline Hurtado Ford, an Orange County-based lawyer in the litigation practice group at Haynes & Boone, has significant ramifications for California employers.

According to details provided within the opinion, the San Bernardino Unified School District contracted with the appellants Ledesma & Meyer Construction Company, Inc. and its principals, Joseph Ledesma and Kris Meyer (referred to collectively as L&M) to manage a construction project at a middle school.

L&M hired Darold Hecht in 2003 as an assistant superintendent assigned to the project. In 2010, a 13-year-old-student at the school, known as Jane Doe because of her age, sued L&M in state court alleging Hecht sexually abused her. The allegations against L&M include negligent hiring, retention and supervision of Hecht. L&M tendered defense of the case to its insurer, Liberty Surplus Insurance Corporation and Liberty Insurance Underwriters, Inc. (Liberty). Liberty defended L&M under a reservation of rights and filed a declaratory action in federal court. The insurer argued it had no obligation to defend or indemnify L&M because it claimed the sexual abuse was intentional and thus not an occurrence. The district court agreed and granted summary judgment to Liberty on the cause of action for negligent hiring, retention and supervision. The court opined that the alleged negligent hiring, retention and supervision occurred prior to the “injury-causing conduct committed by Hecht” and that they were too attenuated from the act committed by Hecht.

L&M appealed and argued that the district court misapplied California law.

According to the high court, “the cause of action for negligent hiring, retention or supervision seeks to impose liability on the employer, not the employee.” The court found that the district court’s coverage analysis focused properly on “the alleged negligence of L&M as the insured employer.” Thus, the court found that, “Hecht’s intentional conduct does not preclude potential coverage for L&M.”

The court stated, “Liberty’s arguments, if accepted, would leave employers without coverage for claims of negligent hiring, retention, or supervision whenever the employee’s conduct is deliberate. Such a result would be inconsistent with California law, which recognizes the cause of action even when the employee acted intentionally. The requirements for liability of this kind are not easily met, but they are well established. Absent an applicable exclusion, employers may legitimately expect coverage for such claims under comprehensive general liability insurance policies, just as they do for other claims of negligence.”

While this decision emphasizes that employers need to be mindful of how they supervise their employees, Hurtado Ford said it could also pose implications in other states where coverage law on the issue hasn’t been developed. She added that the court “methodically went through California law” and the decision could have broader implications than just in the employer/employee context. For example, she said the decision could be applied to cases being brought against pharmaceutical companies for the way they distributed and marketed opioids.

The case, Liberty Surplus Insurance Corporation v. Ledesma & Meyer Construction Company, Inc. S236765, will be returned to the Ninth Circuit for further adjudication.

Read the opinion.