SDV Insights

The California Supreme Court recently heard oral arguments over whether an insurer is required to cover allegations that a builder negligently failed to supervise an employee who sexually assaulted a middle school student while working at the student’s school. The question was originally certified to the California Supreme Court by the Ninth Circuit in 2016, but nothing happened until the court heard arguments on March 6, 2018.

The case is Liberty Surplus Ins. Co. v. Ledesma & Meyer Construction Co., docket no. S236765.  Ledesma & Meyer Construction (“L&M”) contracted with the San Bernadino County School District to complete work on a middle school. Allegations arose that a project assistant, who is also a registered sex offender, molested a 13-year-old girl at the school. The victim prevailed on claims against L&M, including negligent hiring and supervision. L&M tendered the claim to Liberty, which denied the claim contending that there was no occurrence under the policy.

While the Ledesma & Meyer case addresses an important coverage question on its own, the court has indicated that it may have even broader consequences. Also before the California Supreme Court is the review of a California Appellate Court ruling that a pharmaceutical company’s misleading marketing of opioid painkillers, allegedly leading to the nation’s opioid epidemic, was intentional and, therefore, not an occurrence. Travelers Property Cas. Co. of America v. Actavis, Inc., docket no. S245867. The Supreme Court indicated that it will take up the appeal of the Appellate Court’s ruling but issued a hold on briefing in the case pending resolution of the Ledesma & Meyer matter.

The common thread between Ledesma & Meyer and Actavis appears to be the question of whether intentional conduct by a policyholder that leads to unintentional consequences constitutes an occurrence in a liability policy. This issue has broad consequences for any policyholder with the potential for a coverage dispute in California. SDV will monitor these cases and issue additional updates when the rulings are issued.