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Obtaining Coverage for Innocent Co-Insured

Obtaining Coverage for Innocent Co-InsuredThe language of the liability policy covering the defendants will be critical to your case and your client’s ability to obtain a recovery.

After being released from a brief stint in jail, Crackhead Craig decided to move in with his friend, Speedball Bobby. Speedball Bobby owned a house in San Diego which was insured under a homeowners policy issued by Allsnake. While Speedball was at work, Crackhead Craig invited a local teenage girl, Sweet Mary, to his house to watch the Olympics on Speedball’s big screen TV. Shortly after Sweet Mary arrived, Crackhead Craig gave her some brownies that were laced with marijuana. When Sweet Mary was unconscious, Crackhead Craig molested her. During the molestation, Sweet Mary came to, realized what was occurring and ran from the home.

Sweet Mary reported the molestation to the police and Sweet Mary’s parents retained you to represent her. You file suit for sexual assault, assault and battery and negligence against Crackhead Craig and a claim for negligent supervision against Speedball Bobby. Speedball Bobby tenders the defense of the action on behalf of himself and Crackhead Craig to Allsnake Insurance Company. Allsnake refuses to defend on the basis that the conduct of Crackhead Craig was intentional conduct which precludes coverage under Insurance Code §533 as well as under the intentional acts exclusion of Allsnake’s homeowners policy. Following Allsnake’s refusal to defend or indemnify either Crackhead Craig or Speedball Bobby, Speedball and Crackhead agree to a settlement with Sweet Mary to stipulate to the entry of a judgment for $500,000 against themselves and assign their rights against Allsnake to Sweet Mary in exchange for a covenant not to execute.

You file a second action against Allsnake for various bad faith theories as well as to have the court declare that Allsnake is required to pay the judgment on the basis that it had wrongfully refused to defend and indemnify Crackhead Craig and Speedball Bobby. The primary issue for the trial judge is whether there was a potential for coverage under the policy which required Allsnake to defend and indemnify one or both of its insureds.

Exclusions for Intentional Acts

Most Commercial General Liability (“CGL”) and homeowners policies are occurrence-based policies. Occurrence is generally defined in liability policies as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term accident in the definition of occurrence is frequently undefined in most policies. However, courts have generally given it a common sense interpretation which is “an unexpected, unforeseen, or undesigned happening or consequence from either a known or unknown cause.” Delgado v. Interinsurance Exch. of Auto Club of So. Calif. (2009) 47 Cal.4th 302, 308.

The common law interpretation of accident becomes part of the policy and precludes any argument that the term is ambiguous. Id. at 308. The word accident refers to the conduct of the insured for which liability is sought to be imposed upon the insured and not by whether the insured party expected the harm. Delgado, supra, at 308-309. Consequently, the definition of occurrence serves as a limitation on the insuring clause to preclude coverage for intentional conduct. Whether or not the conduct by Crackhead Craig or Speedball Bobby constituted an occurrence will be saved for another time. As it turns out, Allsnake did not raise in its coverage denial the issue of whether or not the conduct of Crackhead Craig or Speedball Bobby constituted an occurrence. Instead, Allsnake denied coverage on the basis that coverage was excluded under Insurance Code §533 and the intentional acts exclusion contained in the policy.

You contend that the exclusions do not preclude coverage in this instance. Insurance Code §533 provides “An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.” Insurance Code §533 is deemed included in every contract of insurance and is considered “an implied exclusionary clause which by statute is to be read into all insurance policies.” JC Penney Cas. Ins. Co. v. MK (1991) 52 Cal.3d 1009, 1019. In general, Insurance Code §533 does not apply to an insured’s vicarious liability for the wilful acts of another. Arenson v. National Auto & Cas. Ins. Co. (1955) 45 Cal.2d 81, 84 [parents’ liability insurance covered their vicarious liability for the damage caused by their children].) Insurance Code §533 codified the general rule that an insurance policy which indemnifies the insured against liability due to his own wilful wrongdoing is void as against public policy. City Products Corp. v. Globe Indemnity Co. (1979) 88 Cal.App.3d 31, 38.

However, Insurance Code §533 has no application to a situation in which the insured is not personally at fault. Id. Consequently, it has been held that when a partnership is held liable for the willful acts of one partner, Insurance Code §533 would exclude coverage to the partner who engaged in the willful misconduct, but not to the innocent partner. American States Ins. Co. v. Borbor by Borbor (9th Cir. 1987) 826 F.2d 888. Therefore, you point out that an innocent insured who is accused of negligence, which contributed to a child sexual molestation committed by a co-insured, is covered under a policy clause which excluded coverage for sexual misconduct by the insured. National Union Fire Ins. Co. v. Lynette C. (1991) 228 Cal.App.3d 1073. Allsnake realizes that it will be unsuccessful in asserting Insurance Code §533 as the basis to deny coverage. Consequently, Allsnake turns to its second coverage argument to justify the denial of coverage which is the intentional acts exclusion provision set forth in the homeowners policy. At the time the claim was tendered, a new policy year had started and Allsnake erroneously used that policy to base its decision to deny coverage. The policy provided “This insurance does not apply to ‘bodily injury’ or ‘property damage’ expected or intended from the standpoint of any insured.”

Allsnake points out that when the intentional acts exclusion contains language that excludes coverage for bodily injury expected or intended by “an insured” or “any insured, ” the exclusion has been interpreted by the courts as denying coverage to all insureds with respect to the same occurrence. Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 318.

Allsnake’s coverage attorney is feeling good about himself until you point out that the Allsnake insurance policy that was actually in effect at the time of the molestation contained an intentional acts exclusion that provided “This insurance does not apply to ‘bodily injury’ or ‘property damage’ expected or intended from the standpoint of the insured....” You explain to the court that whether an innocent or negligent insured is entitled to coverage for vicarious liability for the intentional acts of another insured or for the negligent supervision of the innocent insured depends entirely upon the semantic distinctions between the indefinite article “a” or “any” and the definite article “the.” You concede that if the intentional act exclusion contains the words an or any insured, it excludes coverage for all claims arising from the intentional acts of any one insured and coverage is not available. Allstate Ins. Co. v. Gilbert (9th Cir. 1988) 852 F.2d 449. However, you point out that if the policy’s intentional act exclusion applies only to acts of the insured, coverage is available to the innocent coinsured even when the innocent coinsured knew of the culpable insured’s propensity to cause harm. You then point out that the policy in effect at the
time of the molestation excluded coverage for intentional acts of the insured.

The trial court agrees with you. The language of the exclusion contained in the policy in effect at the time of the molestation referred to the insured and not to any insured. In addition, the trial court properly points out that even if Allsnake’s subsequent policy had applied, the severability clause created an ambiguity that would make the intentional acts exclusion ambiguous when applied to the innocent insured, Speedball Bobby. The trial court pointed out that liability policies (like Allsnake’s) frequently contain a “severability” clause in the General Conditions section stating, “This insurance applies...separately to each insured against whom...suit is brought.” (Emphasis added.) The “severability” clause makes a policy covering multiple insureds ambiguous as to whether the intentional acts exclusion for “an” or “any” insured’s intentional acts extends to other insureds. The severability clause creates “a reasonable expectation that each insured’s coverage will be analyzed separately and not affected by exclusions based upon a co-insured’s intentional conduct, and that the insureds must not all ‘sink or swim together’.” Minkler v. Safeco Ins. Co. of America, supra, 49 Cal.4th 315, 322-323. Consequently, even if Allsnake’s subsequent policy was the applicable policy, the trial court would have interpreted the ambiguity by construing the policy in accordance with Speedball Bobby’s objectively reasonable coverage expectations that the intentional acts exclusion applied only to the particular insured (Crackhead Craig) who personally engaged in the excluded conduct. Ibid. at 323.

Therefore, the trial court finds that Allsnake wrongfully refused to defend and indemnify Speedball Bobby, but properly denied coverage to Crackhead Craig. The court also finds that Allsnake is responsible to pay for the entire judgment as a result of its wrongful refusal to defend and indemnify Speedball Bobby.


There are many subtle distinctions that can trigger or deny coverage when you are dealing with intentional or willful conduct. If you find that you are involved in such a case, it is wise to consult with or be cocounsel with someone who is experienced in insurance coverage matters. You should speak to the personal attorney for the insured about these issues and attempt to delay any recorded statements of the insureds until the coverage issues can be analyzed. Carriers frequently take recorded statements and use leading questions to establish a factual record to justify the denial of coverage.

You will want to have the coverage issues fully analyzed before you begin taking depositions of the insureds in order to establish your record that the facts give rise to coverage for the innocent co-insured. Your complaint should include claims against the innocent co-insured that are independent of the claims against the insured who performed the willful or intentional act and avoid limiting your causes of action against the innocent co-insured to claims based solely upon vicarious liability.

The language of the liability policy covering the defendants will be critical to your case and your client’s ability to obtain a recovery. You should attempt to obtain a copy of the policy voluntarily from the defendant or his personal attorney. If that request is refused, you should obtain the policy as soon as possible during the course of discovery. You are entitled to a complete copy of the entire policy and not simply the declaration page. See, Irvington-Moore, Inc. v. Superior Court (1993) 14 Cal.App.4th 733, 741. Remember, just because one person may have acted intentionally, does not mean that everyone else who is legally responsible for your client’s injuries and damages also acted intentionally. Coverage is frequently available for the innocent co-insured.

This article was also published in the Trial Bar News. The APA citation for the Trial Bar News article is as follows:

Copley, R. K. (2012). Obtaining coverage for innocent co-insured. Trial Bar News, 35(8), 27-28,38.

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