Liberty Surplus Insurance Corp v. Ledesma and Meyer Construction , 834 F.3d 998 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
LIBERTY SURPLUS INSURANCE No. 14-56120
CORPORATION, a New
Hampshire corporation; D.C. No.
LIBERTY INSURANCE 2:12-cv-00900-
UNDERWRITERS, INC., RGK-SP
Plaintiffs-Appellees,
v. ORDER
CERTIFYING
LEDESMA AND MEYER QUESTION TO
CONSTRUCTION COMPANY, THE SUPREME
INC., a California corporation; COURT OF
JOSEPH LEDESMA, an CALIFORNIA
individual; KRIS MEYER, an
individual,
Defendants-Appellants.
Filed August 22, 2016
Before: Thomas I. Vanaskie,* Mary H. Murguia,
and Paul J. Watford, Circuit Judges.
*
The Honorable Thomas I. Vanaskie, United States Circuit Judge for the
U.S. Court of Appeals for the Third Circuit, sitting by designation.
2 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
SUMMARY**
Certification to Supreme Court of California
The panel certified the following question of law to the
Supreme Court of California pursuant to Rule 8.548 of the
California Rules of Court:
Whether there is an “occurrence” under an
employer’s commercial general liability
policy when an injured third party brings
claims against the employer for the negligent
hiring, retention, and supervision of the
employee who intentionally injured the third
party.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 3
ORDER
We respectfully request that the Supreme Court of
California exercise its discretion to decide the certified
question set forth in Part II of this order.
I
Caption and Counsel
A. The caption of the case is:
No. 14-56120
LIBERTY SURPLUS INSURANCE CORPORATION, a
New Hampshire corporation; LIBERTY INSURANCE
UNDERWRITERS, INC.,
Plaintiffs-Appellees,
v.
LEDESMA AND MEYER CONSTRUCTION COMPANY,
INC., a California corporation; JOSEPH LEDESMA, an
individual; KRIS MEYER, an individual,
Defendants-Appellants.
B. The names and addresses of counsel for the parties are:
For Plaintiffs-Appellees:
4 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
Patrick Peter Fredette and Christopher M. Ryan,
McCormick Barstow LLP, 312 Walnut Street, Scripps
Center, Cincinnati, OH 45202
For Defendants-Appellants:
Michael Bidart, Matthew William Clark, Ricardo
Echeverria, and Steven Schuetze, Shernoff Bidart
Echeverria Bentley, LLP, 600 S. Indian Hill Blvd.,
Claremont, CA 91711-5498
C. Designation of party to be deemed petitioner:
Defendants-Appellants
II
Question Certified
Pursuant to Rule 8.548 of the California Rules of Court,
a panel of the United States Court of Appeals for the Ninth
Circuit, before which this appeal is pending, respectfully
requests that the Supreme Court of California answer the
question presented below. This court will accept the decision
of the Supreme Court of California on this question. Our
phrasing of the question is not intended to restrict the
California Supreme Court’s consideration of the case. The
question certified is as follows:
Whether there is an “occurrence” under an
employer’s commercial general liability
policy when an injured third party brings
claims against the employer for the negligent
hiring, retention, and supervision of the
LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 5
employee who intentionally injured the third
party?
The answer to this question is of exceptional importance to
injured parties, employers, and insurance companies doing
business in California.
III
Statement of Facts
In April of 2002, Ledesma & Meyer Construction
Company, Inc., Joseph Ledesma, and Kris Meyer
(collectively “L&M”) entered into a Construction
Management Contract with the San Bernardino County
Unified School District to complete construction work at the
Cesar E. Chavez Middle School (the “Project”). In relevant
part, the Construction Contract specified that L&M would
defend and indemnify “the Owner, its officers, employees,
and agents” from all claims resulting from L&M’s
negligence, errors, acts, or omissions. The Project began in
June of 2003, and continued into the 2006–2007 school year.
In 2003, L&M hired Darold Hecht and assigned him to
the Project as an Assistant Superintendent. On January 12,
2010, L&M received notice that a tort claim had been filed
against the School District, arising out of allegations that
Hecht sexually abused a 13-year old student at the Middle
School beginning in October of 2006. The School District
tendered the defense and indemnification of the claim to
L&M pursuant to the Construction Contract.
In May of 2010, Jane JS Doe, filed a complaint in state
court (the “Underlying Action”), naming as defendants,
6 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
L&M, the School District, Hecht, Joseph Ledesma, Kris
Meyer, and others. Doe amended the complaint twice. The
operative complaint in the underlying action alleged claims
for Negligence; Negligent Hiring/Retention and Supervision;
Violation of the California Education Code; Violation of
California Civil and Penal Codes; Intentional Infliction of
Emotional Distress; Violation of 42 U.S.C. § 1983; and
Battery.1
Liberty Surplus Insurance Co. had issued L&M a
commercial general liability policy (“General Policy”) for the
relevant time period. The General Policy between the parties
provided, in pertinent part:
SECTION I – COVERAGES
COVERAGE A. BODILY INJURY AND
PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the
insured becomes legally obligated to
pay as damages because of “bodily
injury” . . . to which this insurance
applies. We will have the right and
1
Specifically, Jane Doe’s Complaint alleged that L&M “hired owner
Joseph Ledesma’s . . . brother-in-law, Darold Hecht,” with “knowledge
that [] Hecht was a registered sex offender who was previously convicted
on two different occasion[s] of sexually abusing young girls . . . .” (ER
130 at ¶ 18.) The Complaint further alleged that L&M “turned this sexual
predator loose on all of the schoolchildren attending [the school],
including Jane Doe, and further failed to monitor [] Hecht’s conduct or his
interaction with the schoolchildren.” (Id.)
LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 7
duty to defend the insured against any
“suit” seeking those damages.
However, we will have no duty to
defend the insured against any “suit”
seeking damages for “bodily injury”
. . . to which this insurance does not
apply. . . .
b. This insurance applies to “bodily
injury” and “property damages” only
if:
(1) The “bodily injury” . . . is caused
by an “occurrence” that takes
place in the “coverage territory”;
***
SECTION V – DEFINITIONS
...
13. “Occurrence” means an accident,
including continuous or repeated exposure to
substantially the same general harmful
conditions.
(ER 267–68, 289.)
8 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
Pursuant to the General Policy, and other insurance
policies,2 both L&M and the School District tendered their
defense in the Underlying Action to Liberty Surplus
Insurance Corporation and Liberty Insurance Underwriters,
Inc. (collectively “Liberty”). Liberty defended L&M under
a reservation of rights and denied a defense to the School
District on the ground that the School District was not insured
under the General Policy. Because Liberty denied a defense
to the School District, L&M paid expenses incurred by the
School District to defend against Jane Doe’s claims, pursuant
to the terms of the Construction Contract.
Liberty commenced the current action in the United States
District Court for the Central District of California, seeking
a declaration that, among other things, it was under no
obligation to defend or indemnify L&M or the School District
in the Underlying Action. L&M filed a counterclaim,
arguing, among other things, that the insurance policies at
issue required Liberty to defend or indemnify L&M and the
School District in relation to the Underlying Action. After
the parties filed cross-motions for summary judgment, the
district court entered summary judgment in favor of Liberty.
Relying on Delgado v. Interinsurance Exchange of
Automobile Club of Southern California, 211 P.3d 1083 (Cal.
2009), the district court found that L&M’s negligent hiring,
retention, and supervision of Hecht was too attenuated from
the injury-causing conduct committed by Hecht to constitute
2
In addition to Liberty Surplus Insurance Co.’s General Policy, Liberty
Insurance Underwriters, Inc. had issued L&M a commercial umbrella
policy (“Umbrella Policy”). Crosby Insurance Inc., L&M’s insurance
broker, issued Certificates of Insurance stating that the School District was
an additional insured. The Certificates of Insurance were issued for
informational purposes only, with no authority to change the coverage
provided by the policies.
LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 9
an “occurrence”—defined as an accident—under the General
Policy.
IV
Explanation of Our Request
We seek the California Supreme Court’s determination as
to the proper interpretation of liability insurance policies that
provide coverage for injuries sustained as a result of an
“occurrence,” which is defined as “an accident, including
continuous or repeated exposure to substantially the same
general harmful conditions.” (ER 289.) The answer to the
certified question will not only determine the outcome of
L&M’s appeal of the district court’s order granting Liberty’s
motion for summary judgment, but also resolve an unsettled
matter of insurance law in California. The certified question
is of considerable importance to employers, insurers, and
third parties injured by the willful acts of employees.
Moreover, we note that the resolution of this question will
extend beyond the employment context, affecting many
insured entities and persons, and the third parties that are
injured by the willful acts of those individuals supervised by
the insured. Given the ubiquity of insurance policies that
cover “occurrences” in California, this certified question
presents an issue of significant precedential and public policy
importance.
The Supreme Court of California has yet to address this
issue of exceptional importance. Nonetheless, in Minkler v.
Safeco Insurance Co. of America, when answering a question
certified by this Court in the context of a claim for coverage
for damages caused by the sexual molestation of a minor, the
California Supreme Court signaled the unsettled nature of the
10 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
question of whether such intentional abuse constitutes an
“occurrence” under a liability policy that defined
“occurrence” as an “accident.” 232 P.3d 612, 617 n.3 (Cal.
2010). Because the parties had not addressed this issue, the
California Supreme Court declined to do so. Although
declining to address the issue, the Court in Minkler cited
Delgado and Hogan v. Midland National Insurance Co.,
476 P.2d 825 (Cal. 1970). Delgado held that an assault and
battery committed by the insured did not constitute an
“accident” under the liability policy at issue there. 211 P.3d
at 1092. Hogan, in pertinent part, held that damages caused
by a decision to cut lumber wider than had been specified in
order to compensate for a defect in the saw were not the result
of an “accident” within the meaning of the liability policy.
476 P.2d at 827.
Delgado and Hogan thus provide general guidance on the
question of whether deliberate conduct constitutes an
“accident” under a liability policy. Neither case, however,
addresses the question of whether claims of negligence in
hiring, retaining and supervising an employee who commits
a sexual assault fall within a policy’s coverage for an
“occurrence,” which is defined as an “accident.”
The California Courts of Appeal have also not provided
clear guidance on this issue. In L.A. Checker Cab Co-op.,
Inc. v. First Specialty Insurance Co., 112 Cal. Rptr. 3d 335,
336 (Cal. Ct. App. 2010), ordered not to be officially
published (Oct. 27, 2010), the Court ruled that the alleged
negligent supervision of a cab driver who intentionally shot
a passenger did not constitute an occurrence under the
insurance policy. But the case was ordered not to be
published. In the absence of a controlling decision on this
LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 11
question, a deep division of the federal district courts of
California persists.3
Because the Supreme Court of California has not yet
directly addressed this issue, and California law is unsettled
in this area, certification seems particularly appropriate to
determine this consequential matter of state law. See Lehman
Bros. v. Schein, 416 U.S. 386, 391 (1974) (noting that federal
certification of state law questions “helps build a cooperative
judicial federalism,” and is “particularly appropriate” for
novel or unsettled questions of state law); see also Pino v.
United States, 507 F.3d 1233, 1236 (10th Cir. 2007) (noting
that “the federal character of our judicial system” recognizes
that matters of state law should first be decided by state
courts when possible, not federal courts) (citations omitted).
Accordingly, we respectfully request that your Court accept
this important certified question.
3
Compare Fireman’s Fund Ins. Co. v. Nat’l Bank for Coops., 849 F.
Supp. 1347, 1367–68 (N.D. Cal. 1994) (finding liability under a policy
that provided coverage for damages resulting from an “occurrence” where
the plaintiff asserted a claim of negligent supervision of an employee who
committed fraud), and Westfield Ins. Co. v. TWT, Inc., 723 F. Supp. 492,
495 (N.D. Cal. 1989) (negligent supervision may constitute an
“occurrence” under the insurance policy), with Farmer ex rel. Hansen v.
Allstate Ins. Co., 311 F. Supp. 2d 884, 893 (C.D. Cal. 2004) (negligent
supervision of child molester did not qualify as an “occurrence” for
purposes of insurance coverage), aff’d sub nom. Farmer v. Allstate Ins.
Co., 171 F. App’x 111 (9th Cir. 2006), and Am. Empire Surplus Lines Ins.
Co. v. Bay Area Cab Lease, Inc., 756 F. Supp. 1287, 1290 (N.D. Cal.
1991) (negligent hiring of cab driver who sexually molested a child did
not constitute an “accident” for purposes of insurance coverage).
12 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR.
V
Accompanying Materials
In accordance with California Rule of Court 8.548, the
Clerk of this Court is hereby directed to file in the Supreme
Court of California, under official seal of the Ninth Circuit,
copies of all relevant briefs and excerpts of record, and an
original and ten copies of the request with a certification of
service on the parties.
Further proceedings before us are stayed pending the
Supreme Court of California’s decision regarding
certification and, in the event the certification is accepted, our
receipt of the answer to the question certified.
This case is withdrawn from submission, but we retain
jurisdiction over further proceedings after the Supreme Court
of California renders a decision or declines to answer the
certified question. The parties shall notify the Clerk of this
Court within one week after the Supreme Court of California
accepts or rejects certification.
If the Supreme Court of California denies the request for
certification, this case will be automatically resubmitted upon
notice of that denial. If the Supreme Court of California
accepts the certified question, the case will be automatically
resubmitted upon receipt of the Supreme Court of
California’s answer to the certified question. Additionally, if
our request for certification is accepted, the parties shall file
a joint status report with our Court every six months.
IT IS SO ORDERED.