written by Rebecca Gomez
General Liability Insurance serves to protect an organization (insured) from third-party claims involving bodily injury and property damage arising out its operations or premises. Most, if not all, organizations need to carry general liability insurance, which also covers medical expenses and attorney’s fees arising from the damages caused by the organization’s operations, products, or services. Under a “standard” general liability policy, coverage does not cover employee injuries, punitive damages, or intentional acts. However, many carriers will endorse other liability coverages, such as professional or abuse coverage.
The broad definition of general liability has been subject to interpretation and recently, the California Supreme Court held that an employer’s general liability insurance coverage for accidents includes those for claims of negligent employment practices unless the policy includes language that specifically excludes employment practice negligence. In Liberty Surplus Insurance Corp v Ledesma & Meyer Construction, Co., the construction company was retained to manage construction project at a school where an employee was accused of sexually abusing a student. The insurance carrier, Liberty Mutual, denied the claim asserting it did not have a duty to defend or indemnify its insured in that circumstance.
The California Supreme Court disagreed and found there was a duty to defend the student’s injury. The Court’s analysis centered on whether the “occurrence” under an employer’s general liability policy covers a claim for negligent hiring, retention, and supervision for an employee’s intentional act against a third party? And whether the injury can be deemed “accidental”? California Law defines “accident” in a liability insurance policy as an “unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown cause” The Court noted that the term “Accident” is comprehensive and includes negligence. In other words, a liability policy which provides coverage for “bodily injury caused by an accident,” also provides coverage for the insured’s negligent acts.
In this case, even though the employee’s intentional act was the direct cause of injury to the student, the more relevant inquiry for the purposes of insurance coverage is to consider the employer’s conduct since the insurance policy is a contract between the insurance company and the employer. The policy should, therefore, be read from the point of view of the insured not the injured party. In applying this principle, the insured’s negligence in hiring, retaining, or supervising that employee could be considered an indirect cause of injury. The Court emphasized, just as employers can expect coverage for other claims of negligence under their general liability policy, they can legitimately expect coverage for negligent employment practices unless there is a specific exclusion expressed in the policy.
The main take away from California’s Supreme Court analysis of this case is to carefully and thoroughly read your insurance policies. It is important to review, with your attorney, the terms, conditions, and exclusions of your insurance policies to clearly understand your organization’s liability exposure. Many general liability carriers have added the Employment Practice Exclusion on to their policies. It is best practice to review the terms, conditions, and exclusions of your policy at renewal because your insurance carrier may add or remove exclusions from the policy that may pertain to your organization’s operations.
Let us know if you have any questions regarding General Liability insurance or if you would like us to provide you with a quote. We are here to help.