Liberty University, Inc. v. Citizens Insurance Co. of America

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2254
LIBERTY UNIVERSITY, INC.,
Plaintiff – Appellee,
v.
CITIZENS INSURANCE COMPANY OF AMERICA; HANOVER AMERICAN
INSURANCE COMPANY; HANOVER INSURANCE COMPANY,
Defendants – Appellants.
Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:13-cv-00033-NKM-RSB)
Argued: May 13, 2015 Decided: July 10, 2015
Before NIEMEYER, DUNCAN, and THACKER, Circuit Judges.
Vacated and remanded by published opinion. Judge Thacker wrote
the opinion, in which Judge Niemeyer and Judge Duncan joined.
ARGUED: John Peter Malloy, ROBINSON & COLE LLP, Hartford,
Connecticut, for Appellants. Harold Edward Johnson, WILLIAMS
MULLEN, Richmond, Virginia, for Appellee. ON BRIEF: Thomas S.
Garrett, HARMAN CLAYTOR CORRIGAN & WELLMAN, Richmond, Virginia;
Wystan M. Ackerman, ROBINSON & COLE LLP, Hartford, Connecticut,
for Appellants. Calvin W. Fowler, Jr., WILLIAMS MULLEN,
Richmond, Virginia, for Appellee.
THACKER, Circuit Judge:
In November 2012, Janet Jenkins sued Liberty
University, Inc. (“Appellee”), alleging that the school
participated -- both directly and vicariously -- in a scheme to
kidnap Jenkins’s daughter in order to disrupt the parent-child
relationship. In her complaint (“Jenkins Complaint”), Jenkins
alleged that Appellee and its agents helped Lisa Miller, the
child’s biological mother and Jenkins’ former partner in a same-
sex civil union, to defy state court visitation orders and to
abscond with the child to Nicaragua.
The district court ruled that Citizens Insurance
Company of America (“Appellant”), Appellee’s liability insurance
carrier, has a duty to defend Appellee. Under the insurance
policy at issue, Appellant must defend Appellee against suits
alleging certain harms that arise from an “occurrence” -- an
unexpected accident, which does not fall under any of the
coverage exclusions. The policy also contains a “Separation of
Insureds” provision, which requires the court to evaluate a
claim by each named insured individually. 1 Concluding that this
1 In addition to Appellee, the Jenkins Complaint names
Victoria Hyden, who was a “student worker” at Liberty University
School of Law, as a defendant. J.A. 44. The Jenkins Complaint
alleges that Hyden acted as Appellee’s agent when she “aided and
abetted” the kidnapping. Id. at 49 (internal quotation marks
omitted). Although the Jenkins Complaint names many other
(Continued)
2
Separation of Insureds provision is ambiguous and should be
interpreted in Appellee’s favor, the district court refused to
consider the intent of Appellee’s agents when determining if the
complaint alleged an accidental “occurrence” and whether the
policy’s exclusions applied. The district court also decided
that, even if the Separation of Insureds provision would not
prevent imputing the intent of Appellee’s agents to Appellee,
the Jenkins Complaint failed to “sufficiently allege” Appellee’s
vicarious liability. Thus, the district court granted summary
judgment and awarded defense costs to Appellee.
We conclude otherwise. Because the Jenkins Complaint
does not allege an “occurrence,” and because it triggers the
policy’s coverage exclusions, Appellant has no duty to defend.
I.
We review a grant of summary judgment de novo. See
CACI Int’l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d
150, 155 (4th Cir. 2009).
defendants, they are not named insureds under the policy and are
not essential to resolving this appeal.
Citations to the “J.A.” refer to the Joint Appendix
filed by the parties in this appeal.
3
II.
A.
The Jenkins Complaint
The child at the core of this dispute was born to Lisa
Miller and Janet Jenkins in 2002 while the two women were joined
in a Vermont same-sex civil union. Miller is the biological
mother and a legal parent to the child. Jenkins is also the
child’s legal parent, pursuant to a 2004 Vermont state court
ruling. Miller subsequently converted to Christianity; moved to
Virginia; and believing that homosexuality was sinful, sought to
prevent Jenkins from having contact with her daughter. For
several years, Miller defied visitation orders issued by Vermont
and Virginia courts. In 2009, facing the possibility that
Vermont or Virginia would transfer custody to Jenkins, Miller
absconded to Nicaragua with the child. Jenkins has not seen her
daughter since.
Jenkins brought a lawsuit in Vermont district court on
her own behalf and on behalf of her daughter in November 2012.
Appellee and Victoria Hyden, a student worker at Liberty
University, were among the named defendants. The Jenkins
Complaint alleges that Appellee assisted Miller by withholding
the child from Jenkins and by taking the child out of the
country. As a result, Jenkins claims Appellee was directly
liable for conspiring to “commit the intentional tort of
4
kidnapping,” which is “chargeable as a criminal offense under
Vermont law,” and conspiring “through [a] pattern of
racketeering” to kidnap the child and to “assure her continued
detention” in Nicaragua in violation of the Racketeer Influence
and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(d). 2 J.A.
49, 51. The Jenkins Complaint also asserts that Appellee was
vicariously liable for the role Hyden played in the kidnapping,
for its agents’ racketeering, and for its agents’ participation
in a conspiracy to violate Jenkins’s and the child’s “rights to
a parent-child relationship.” Id. at 46, 49.
In particular, the Jenkins Complaint charges that
Miller retained the dean of Liberty University School of Law,
Mathew Staver, and one of the school’s professors, Rena
Lindevaldsen, as her attorneys. As alleged, Staver and
Lindevaldsen encouraged and assisted Miller in violating state
court orders, established social media forums soliciting
2 Pursuant to 18 U.S.C. § 1962,
It shall be unlawful for any person employed
by or associated with any enterprise engaged
in, or the activities of which affect,
interstate or foreign commerce, to conduct
or participate, directly or indirectly, in
the conduct of such enterprise’s affairs
through a pattern of racketeering
activity . . . .
18 U.S.C. § 1962(c). Section 1962(d) criminalizes conspiring to
violate § 1962(c).
5
donations to groups that aimed to “prevent court ordered
contact” between Jenkins and her daughter, and planned with
other co-conspirators to kidnap the child. J.A. 42. The
Jenkins Complaint further accuses Victoria Hyden, an employee of
the law school, of calling Miller’s father to help transport
Miller and the child to a parking lot in Lynchburg, Virginia,
where Philip Zodhiates -- who is Hyden’s father and was one of
Staver’s acquaintances -- picked them up and drove them to the
Canadian border. Staver allegedly aided the kidnapping by using
telephone lines registered to Liberty University to speak to
Zodhiates as he drove back from the Canadian border. Therefore,
“[w]ith the assistance of . . . Philip Zodhiates and Victoria
[Hyden] . . . as agents of . . . Liberty University . . . Miller
was able to leave the United States” with the child. Id. at 46.
The Jenkins Complaint also alleges that Appellee and
its agents “enable[d] [Miller] to remain outside the country.”
J.A. 44. For example, Lindevaldsen allegedly founded a Facebook
group to solicit donations for Miller while Miller was hiding
with the child in Nicaragua. The Jenkins Complaint also asserts
that Hyden emailed “her co-workers at the law school requesting
donations for supplies to send to . . . Miller to enable her to
remain outside the country.” Id. at 44. The Jenkins Complaint
further alleges that Staver and Lindevaldsen “routinely
instructed their Law School students that the correct course of
6
action for a person in . . . Miller’s situation would be to
engage in ‘civil disobedience’ and defy court orders.” Id. at
45. As such, “Liberty University encouraged its agents to
disregard state laws governing parental rights . . . of same-sex
families.” Id. at 45-46.
Based on these facts, the Jenkins Complaint alleges
that Appellee was directly liable for its involvement in the
kidnapping scheme and, at the same time, vicariously liable
because it “promoted, condoned and explicitly ratified its
agent[s’] tortious, racketeering activity.” J.A. 46. The
Jenkins Complaint sought damages for these injuries.
B.
The Policy
The policy at issue was effective from February 2009
to February 2010 and contains two coverage forms: (1) Commercial
General Liability coverage (“CGL”) and (2) School and Educators
Legal Liability coverage (“SELL”). 3
3Technically, there are four insurance policies at issue.
But two of these are umbrella policies that the parties agree
have essentially the same terms as the CGL and the SELL.
7
1.
CGL Coverage
The CGL itself provides two subsidiary coverage forms:
Coverage A and Coverage B.
a.
Coverage A
Under Coverage A, Appellant must defend suits seeking
damages for “bodily injury” and “property damage” arising from
an “occurrence.” J.A. 68. Consistent with Virginia law, the
policy defines the terms “occurrence and accident . . .
synonymous[ly] [as] refer[ing] to an incident that was
unexpected from the viewpoint of the insured.” AES Corp. v.
Steadfast Ins. Co., 725 S.E.2d 532, 536 (Va. 2012) (internal
quotation marks omitted); J.A. 81. According to the Supreme
Court of Virginia:
For coverage to be precluded under a CGL
policy because there was no occurrence, it
must be alleged that the result of an
insured’s intentional act was more than a
possibility; it must be alleged that the
insured subjectively intended or anticipated
the result of its intentional act or that
objectively, the result was a natural or
probable consequence of the intentional act.
. . . .
. . . Where the harmful consequences of an
act are alleged to have been not just
possible, but the natural and probable
consequences of an intentional act, choosing
to perform the act deliberately, even if in
ignorance of that fact, does not make the
resulting injury an ‘accident’ . . . .
8
AES, 725 S.E.2d at 536, 538 (internal quotation marks omitted).
Accordingly, a suit alleging only intentional torts does not
state an “occurrence.” See Travelers Indem. Co. v. Obenshain,
245 S.E.2d 247, 249 (Va. 1978). Even if the insured
demonstrates that the suit alleges “bodily injury” or “property
damage” arising from an “occurrence,” Coverage A’s “Expected
Injury Exclusion” excludes “‘[b]odily injury’ or ‘property
damage’ expected or intended from the standpoint of the
insured.” J.A. 69.
b.
Coverage B
Coverage B insures against suits alleging “personal
and advertising injury,” the definition of which includes
“[f]alse arrest, detention or imprisonment.” J.A. 81. The
policy defines “wrongful act” as:
any breach of duty . . . committed by an
insured:
a. In the lawful discharge of the
duties that are characteristic of,
distinctive or inherent to the
operation and functioning of an
educational institution; and
b. While acting within the course and
scope of their duties for the named
insured.
Id. at 130. But Coverage B’s “Criminal Acts Exclusion” excludes
any “‘[p]ersonal and advertising injury’ arising out of a
9
criminal act committed by or at the direction of the insured.”
Id. at 73. And Coverage B’s “Knowing Violation Exclusion”
excludes any “‘[p]ersonal and advertising injury’ caused by or
at the direction of the insured with the knowledge that the act
would violate the rights of another and would inflict ‘personal
and advertising injury’” (“Knowing Violation Exclusion”). Id.
2.
SELL Coverage
Under the SELL, Appellant has the duty to defend
against any claim “[a]lleging injury arising out of a wrongful
act . . . and seeking loss because of such injury.” J.A. 116
(internal quotation marks omitted). The SELL policy contains an
“Intentional and Criminal Acts Exclusion,” which excludes
coverage for:
[a]ny “claim” arising out of any
intentional, dishonest, fraudulent,
criminal, or malicious act or omission or
any willful violation of law by the insured
. . . .
. . . .
This exclusion precludes coverage for
all insured persons under the policy
regardless whether the person seeking
coverage participated in any way in the
intentional or criminal acts or omissions.
Id. at 116.
10
3.
Separation of Insureds
The insurance policy includes a Separation of Insureds
provision, which states:
Except with respect to the Limits of
Insurance, and any rights or duties
specifically assigned in this Coverage part
to the first Named Insured, this insurance
applies:
a. As if each Named Insured were the
only Named Insured; and
b. Separately to each insured against
whom claim is made or “suit” is
brought.
J.A. 159.
When multiple named insureds claim the right to a
defense against the same suit, a separation of insureds clause
requires the insurer to evaluate the claims against each named
insured individually. The insurer treats each insured as if he
or she has separate insurance coverage, so that excluded conduct
by one insured does not preclude claims brought by other
insureds. See W. Am. Ins. Co. v. AV&S, 145 F.3d 1224, 1227-29
(10th Cir. 1998); see, e.g., Commercial Standard Ins. Co. v. Am.
Gen. Ins. Co., 455 S.W.2d 714, 721 (Tex. 1970) (construing a
severability of interests clause, which “refer[s] to each
insured as a separate and distinct individual apart from any and
every other person who may be entitled to coverage thereunder”
11
(internal quotation marks omitted)). The policy designates
Appellee’s “employees,” “volunteer workers,” “student groups,”
and “executive officers” as additional named insureds. J.A. 62,
75-76 (internal quotation marks omitted).
C.
Underlying Litigation
Faced with the Jenkins Complaint, Appellee turned to
Appellant, seeking to have Appellant defend the lawsuit on its
behalf. When Appellant refused, Appellee filed a complaint in
district court, requesting a declaration of its right to a
defense and an award of damages for costs and fees it had
already incurred defending against the Jenkins Complaint. The
parties filed cross-motions for summary judgment. The district
court granted summary judgment in favor of Appellee, holding
Appellant had a duty to defend and awarding defense costs.
The district court began its analysis with the CGL.
Regarding Coverage A, the court determined that the Jenkins
Complaint did not allege “bodily injury” but that it sought
damages for “property damage” allegedly caused by Appellee and
its agents. It determined that, under Virginia law, Appellee
could become liable for physical injury to the plaintiffs’
tangible property because the Jenkins Complaint alleged that the
“[p]laintiffs suffered injury to their . . . property, including
. . . deprivation of personal property.” J.A. 51; see Liberty
12
Univ., Inc. v. Citizens Ins. Co. of Am., 16 F. Supp. 3d 636,
653-54 (W.D. Va. 2014).
The district court then turned to whether the alleged
“property damage” arose from an “occurrence,” as defined by the
policy. It recognized that the “Jenkins Complaint made claims
for only intentional torts” and that, if the intent of
Appellee’s agents was imputed to Appellee, Appellee “should have
reasonably anticipated or foreseen the incident of [the child]’s
abduction.” Liberty, 16 F. Supp. 3d at 655, 659-60. But the
district court nonetheless concluded that the Jenkins Complaint
alleges an “occurrence” for two reasons.
First, the district court opined that, although no
Virginia court had interpreted a separation of insureds clause,
relevant case law forbade the court from imputing to Appellee
the intent of its agents -- even though the Jenkins Complaint
unequivocally alleged Appellee’s liability in respondeat
superior for its agents’ acts. See Liberty, 16 F. Supp. 3d at
655-60. Noting that separation of insureds clauses generally
direct “courts [to] consider each insured separately under the
contract in determining whether provisions excluding the insured
from coverage apply to that particular insured,” the district
court believed the Separation of Insureds provision in this case
required it to “separate the intent [and expectations] of
Liberty’s agents and employees from Liberty’s own.” Liberty, 16
13
F. Supp. 3d at 659, 660 (internal quotation marks omitted).
Therefore, the district court reasoned that, although Appellee
was allegedly responsible for the kidnapping through its
employee Hyden -- who was also a named insured -- Appellee could
not become liable for causing damage that arose from an
“occurrence” because the Jenkins Complaint does not allege that
Appellee individually expected or intended the alleged
kidnapping. The district court held in the alternative that,
even if the Separation of Insureds provision did not
unambiguously require it to separate the intent of Appellee’s
agents, the provision at least “create[d] an ambiguity in the
contract” as to “whether the expectations of Liberty’s
agents . . . would be imputed to Liberty” -- an ambiguity that
“must [be] construe[d] in favor of . . . the insured.” Id. at
659.
Second, the district court concluded that Appellee
could not be held liable for damages arising from an
“occurrence” because the Jenkins Complaint did not “sufficiently
allege” Appellee’s vicarious liability. The district court
opined that, because the complaint supplied “only conclusory
allegations that tie Liberty to the actions of its alleged
agents and employees” and “provide[d] no facts to support
allegations of vicarious liability,” there could be no
14
“imputation of [its] tortfeasor employees’ expectations.”
Liberty, 16 F. Supp. 3d at 660-61.
Turning to CGL Coverage B, the district court
determined that the Jenkins Complaint alleged “personal and
advertising injury,” but, based on essentially the same
reasoning for its decision that the complaint did not plead an
“occurrence” under Coverage A, the court concluded that neither
the Knowing Violation Exclusion nor the Criminal Acts Exclusion
applied.
The district court’s analysis of the SELL coverage was
similar. That is, the court concluded that the Jenkins
Complaint pled an injury arising from a “wrongful act,” because
its “factual allegations [supported an inference] that Liberty
was essentially negligent in urging civil disobedience of court
orders” without implicating the Intentional and Criminal Acts
Exclusion. Liberty, 16 F. Supp. 3d at 672.
III.
A.
Virginia Insurance Law
Because our jurisdiction rests in diversity, we apply
the law of Virginia and its choice of law rules. See Erie R.R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938); see also Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941); Res.
Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 635
15
(4th Cir. 2005). Virginia substantive insurance law applies to
policies that are delivered to insureds in Virginia. See CACI
Int’l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150,
154 (4th Cir. 2009); Res. Bankshares Corp., 407 F.3d at 635-36.
It is undisputed that the policy was delivered to Appellee, a
Virginia-based university. If we are presented with an issue
that Virginia’s highest court has not directly or indirectly
addressed, we must anticipate how it would rule. See Ellis v.
Grant Thornton LLP, 530 F.3d 280, 287 (4th Cir. 2008).
Virginia applies the “Eight Corners Rule” to determine
if an insurer has a duty to defend a lawsuit against the
insured. See AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532,
535 (Va. 2012). Under the Eight Corners Rule, we “compar[e] the
‘four corners’ of the underlying complaint with the ‘four
corners’ of the policy[] to determine whether the allegations in
the underlying complaint come within the coverage provided by
the policy.” Id.The insured has the initial burden to establish a duty
to defend, but this burden is not onerous because “[p]rinciples
of insurance law in Virginia . . . are solicitous of insureds.”
CACI, 566 F.3d at 155. The duty to defend is much broader than
the duty to indemnify because, “while . . . the duty to
indemnify relies on litigated facts,” id. at 154, the duty to
defend arises “whenever the [underlying] complaint alleges facts
16
and circumstances, some of which would, if proved, fall within
the risk covered by the policy,” AES, 725 S.E.2d at 535
(internal quotation marks omitted).
Indeed, when a complaint’s allegations could support
alternative theories of liability (e.g., claims for both
intentional torts and negligence) and one theory falls within
the coverage agreement, the insurer has a duty to defend the
insured against all claims. Parker v. Hartford Fire Ins. Co.,
278 S.E.2d 803, 804 (Va. 1981) (holding that an exclusion for
intentional injury did not preclude coverage, even though
complaint alleged intentional trespass, because under Virginia
law a claim for intentional trespass could also “support[] a
judgment of unintentional trespass” without amendment (internal
quotation marks omitted)). 4 “On the other hand, if it appears
clearly that the insurer would not be liable under its contract
for any judgment based upon the allegations, it has no duty even
to defend.” AES, 725 S.E.2d at 536-38; see, e.g., Premier Pet
Prods., LLC v. Travelers Prop. Cas. Co. of Am., 678 F. Supp. 2d
409, 418-19 (E.D. Va. 2010).
4See also Minn. Lawyers Mut. Ins. Co. v. Antonelli, Terry,
Stout & Kraus, LLP, 472 F. App’x 219, 225 (4th Cir. 2012)
(unpublished) (noting that Parker v. Hartford Fire Insurance Co.
does not hold that a duty to defend lies when a complaint would
support “any conceivable cause of action” and still requires
“that the complaint actually asserts the claim” (emphasis
omitted)).
17
If the insured demonstrates that the complaint alleges
a covered injury, the burden shifts to the insurer to show that
the policy’s “exclusionary language . . . clearly and
unambiguously bring[s] the particular [alleged] act or omission
within its scope.” Floyd v. N. Neck Ins. Co., 427 S.E.2d 193,
196 (Va. 1993); see also Fuisz v. Selective Ins. Co. of Am., 61
F.3d 238, 244-45 (4th Cir. 1995). However, ambiguities in an
insurance policy are construed against the insurer, who
presumably drafted the contract and “could have written it more
clearly.” CACI, 566 F.3d at 155.
B.
Analysis
We conclude that the district court erroneously
interpreted the Jenkins Complaint, the Separation of Insureds
provision, and Virginia law.
1.
CGL Coverage A
a.
“Occurrence” and Respondeat Superior Liability
As to CGL Coverage A, we hold that the Jenkins
Complaint, which only alleges Appellee’s liability for
intentional conduct, does not plead an “occurrence,”
notwithstanding the Separation of Insureds provision.
18
In the first place, we conclude that Virginia’s
highest court would hold that an allegation of a principal’s
liability under the theory of respondeat superior for the
intentional acts of an agent does not state an “occurrence.” In
Rockingham Mutual Insurance Co. v. Davis, an employee sued her
employer claiming it was vicariously liable for the intentional
tort of another employee. See 58 Va. Cir. 466, 467 (2002). The
employer’s insurer sought a declaration that it had no duty to
defend because the underlying complaint did not state an
“occurrence.” The Circuit Court of Rockingham County, Virginia
agreed, concluding that an intentional tort “cannot be
considered unexpected, even when viewed from the standpoint of
the employer, and does not become an ‘occurrence’ . . . simply
by operation of respondeat superior.” Id. at 473-74 (emphasis
supplied). This is because Virginia holds that an agent’s state
of mind is ordinarily imputed to the principal. See Fulwiler v.
Peters, 20 S.E.2d 500, 503 (Va. 1942) (“The general rule is that
knowledge of the agent is imputed to the principal . . . .”);
Atl. Envtl. Constr. Co. v. Malveaux, 762 S.E.2d 409, 412 (Va.
Ct. App. 2014); Magco of Md., Inc. v. Barr, 531 S.E.2d 614, 617
(Va. Ct. App. 2000) (“Indeed, it is a longstanding principle in
the Commonwealth that a foreman’s knowledge of facts or events
on a worksite is imputed to his employer.”); Rockingham, 58 Va.
19Cir. at 473 (“The doctrine of respondeat superior attributes the
bad intentions of the employee to the employer . . . .”). 5
Federal district courts sitting in Virginia --
including the district court below -- have also applied this
rule. See, e.g., Liberty Univ., Inc. v. Citizens Ins. Co. of
Am., 16 F. Supp. 3d 636, 656 (W.D. Va. 2014) (“[A]n insurance
company would have no duty to defend an employer for claims
based on the intentional torts of its employees.”); State Farm
Fire & Cas. Co. v. Frank, No. 4:10-cv-99, 2011 WL 1883987, at
*10 (E.D. Va. Apr. 20, 2011); Am. & Foreign Ins. Co. v. Church
Sch. in Diocese of Va., 645 F. Supp. 628, 633 (E.D. Va. 1986)
(concluding that under an occurrence-based insurance policy,
allegations of respondeat superior liability for agents’
intentional torts “are not covered and impose no duty to
defend”).
Therefore, in this case the pivotal issue is whether
the Separation of Insureds provision alters Virginia’s rule that
the expectations and bad intentions of Appellee’s agents are
5 Likewise, in an unpublished disposition we observed that
under Virginia law “claims of agency liability [and] respondeat
superior . . . for the intentional acts of an agent do not
impose a duty to defend,” even if viewed from the perspective of
the insured. Nat’l Fruit Prod. Co. v. Fireman’s Fund Ins. Co.,
No. 98-1471, 1999 WL 270033, at *3 (4th Cir. May 4, 1999)
(unpublished).
20
imputed to Appellee. The district court concluded the provision
alters Virginia’s rule. We disagree.
Although the Separation of Insureds provision requires
the coverage claims of each named insured to be evaluated
“[s]eparately to each insured against whom claim is made or
‘suit’ is brought,” J.A. 159, it does not displace Virginia’s
rule that an agent’s intentionally tortious act cannot be
“unexpected” by the principal who is vicariously liable for the
act. See State Farm, 2011 WL 1883987, at *10; Church Sch., 645
F. Supp. at 633; Rockingham, 58 Va. Cir. at 467. Because she
was either an “employee” or a “volunteer worker” under the terms
of the policy, Hyden would qualify as a named insured. J.A. 76.
The Jenkins Complaint names Hyden as a defendant, so we must
analyze Appellee’s coverage claim separately. 6 But even if we
imagine that Appellee was the only party sued in this case and
the only insured requesting a defense under the policy, the
Jenkins Complaint still frames Appellee’s liability in terms of
respondeat superior. Therefore, we have ample reason to
anticipate that Virginia courts would impute the intent of
Appellee’s agents accordingly.
6
Although Staver and Lindevaldsen are named insureds, the
Jenkins Complaint does not name them as defendants.
21
Our decision in IFCO Systems of North America, Inc. v.
American Home Assurance Co., 502 F. App’x 342 (4th Cir. 2013)
(unpublished), and other cases cited by the district court, are
inapposite. The district court below viewed the issue in IFCO
Systems as “whether an insurance company had a duty to defend an
employer for intentional tort claims against its employees.”
Liberty, 16 F. Supp. 3d at 659. This is an incorrect view
because, in IFCO Systems, the underlying complaint asserted
claims against the insured for, inter alia, negligent
supervision and hiring and conversion under a theory of
vicarious liability -- all arising from thefts committed by the
insured’s employees. See IFCO, 502 F. App’x at 343-44. The
policy provided occurrence-based coverage and contained a
separation of insureds provision. Analyzing whether there was a
duty to defend, we distinguished allegations of a principal’s
vicarious liability for its agent’s intentional torts -- which
would not constitute an “occurrence,” despite the separation of
insureds provision -- from assertions that the principal was
liable for the agent’s intentional act due to its negligent
failure to supervise. See id. at 345, 347 (observing that “none
of the . . . cases cited by the district court [were] directly
on point” because “none of the cases involved a situation where
the court was asked to determine whether an employee’s
intentional conduct could be treated as an ‘accident’ in a
22
subsequent negligence action against the employer” (emphasis in
original)). Because negligent hiring or supervision actions
depend on whether the alleged harm was reasonably foreseeable,
we concluded the separation of insureds clause may have
“require[d] us to approach the question of coverage solely from
IFCO’s perspective.” Id. at 347. Therefore, we certified the
question of whether, “[i]n a negligent hiring and supervision
action against an insured-employer, . . . the intentional
conduct of an employee of the insured constitute[d] a covered
‘occurrence.’” Id. at 343. Notably, we did not certify a
similar question regarding the complaint’s allegation that the
insured was vicariously liable for its employees’ conversion.
When a complaint alleges the liability of a principal
for the intentional acts of an agent under a negligent
supervision theory, a separation of insureds clause may
implicate the duty to defend. There are several reasons why
this result may occur. First, a negligent supervision action is
not particularly concerned with the agent’s intent or
expectations -- the claim is predicated on whether the harm was
foreseeable. See Interim Pers. of Cent. Va., Inc. v. Messer,
559 S.E.2d 704, 707 (Va. 2002). Second, because a negligent
supervision claim alleges the principal’s direct liability, a
separation of insureds clause may require the court to look at
whether the harm was foreseeable solely from the principal’s
23
perspective. See IFCO, 502 F. App’x at 347. And, in the
context of an occurrence-based policy, Virginia’s potentiality
rule holds that insurers must defend an entire suit if any of
the complaint’s allegations could support a judgment that the
principal did not expect, intend, or foresee the agent’s
intentional tort. See Travelers Indem. Co. v. Obenshain, 245
S.E.2d 247, 249 (Va. 1978) (“If the allegations state a case
which may be covered by the policy, Travelers has a duty to
defend . . . .”).
The cases the district court cited merely demonstrate
these propositions. See Pac. Ins. Co. v. Catholic Bishop of
Spokane, 450 F. Supp. 2d 1186, 1202 (E.D. Wash. 2006) (rejecting
insurer’s argument that the alleged sexual abuse was not a
covered “accident” because insurer “disregard[ed] the fact that
the claims against the diocese [were] based upon alleged
negligent hiring, supervision, and retention, not an intentional
wrong of direct sexual abuse”); King, 85 S.W.3d at 185, 188-92
(finding duty to defend because insured was sued for intentional
torts under a theory of respondeat superior and for negligence
and the policy contained a separation of insureds provision and
because the “employer’s alleged negligent hiring, training, and
supervision constitute[d] an ‘occurrence’ under the terms of the
insurance policy although the injury was directly caused by the
employee’s intentional conduct’”); Unigard Mut. Ins. Co. v.
24
Argonaut Ins. Co., 579 P.2d 1015, 1018 (Wash. Ct. App. 1978)
(separating claims against a child for his intentional act of
burning a school, which precluded the duty to defend, from
claims against the child’s parents for negligent supervision,
which was not an excluded intentional act).
Critically, unlike the underlying complaints
considered in the cases cited by the district court, the Jenkins
Complaint does not allege that Appellee was responsible for its
agents’ intentional acts because it was negligent. Rather, the
Jenkins Complaint alleges that Appellee is directly liable for
harm arising from its intentional participation in conspiracies
and vicariously liable for the intentional acts of its agents.
For these reasons, the Separation of Insureds provision
unambiguously would not displace the ordinary rule in Virginia
that a complaint alleging a principal’s liability solely in
respondeat superior for the acts of its agent does not state an
“occurrence.”
Furthermore, even if the Separation of Insureds
provision was ambiguous, the district court’s interpretation
contradicts the clearly-stated intent of the parties. Under
Virginia law, courts must interpret insurance policies
consistent with the parties’ intent. See Transit Cas. Co. v.
Hartman’s, Inc., 239 S.E.2d 894, 897 (Va. 1978); see also Safeco
Ins. Co. of Am. v. Merrimack Mut. Fire Ins. Co., 785 F.2d 480,
25
482 (4th Cir. 1986). Ambiguities in the instrument must be
construed in favor of the insured. But we do not entertain an
absurd result -- one that would “enlarge the obligations
undertaken originally by the insurer, and would permit a
windfall to [the insured].” Transit Cas. Co., 239 S.E.2d at
897.
While Virginia law provides that an agent’s intent is
imputed to the principal for the purpose of determining whether
an injury was an “occurrence” (i.e., expected from the
principal’s perspective) the district court would impose a duty
to defend even though the policy clearly states that any harm
that was “expected or intended from the standpoint of the
insured” is excluded from coverage. J.A. 69; see also Nw. G.F.
Mut. Ins. Co. v. Norgard, 518 N.W.2d 179, 184 (N.D. 1994)
(stating that “the purpose of severability clauses is to spread
protection, to the limits of coverage, among all of
the . . . insureds. The purpose is not to negate bargained-for
exclusions which are plainly worded” (alteration in original)
(internal quotation marks omitted)).
The district court’s interpretation enlarges
Appellant’s obligation beyond what it anticipated. And because
Virginia recognizes that a corporation, like Appellee, “can act
only through its officers and agents,” Pulliam v. Coastal
Emergency Servs. of Richmond, Inc., 509 S.E.2d 307, 320 (Va.
26
1999), the district court’s construction of the Separation of
Insureds provision would nullify the Expected Injury Exclusion
for allegations of vicarious liability against organizational or
corporate insureds, creating a windfall to Appellee. Cf.
Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612, 621 (Cal. 2010)
(holding that to permit a severability of insurance clause to
prevail over a plainly worded exclusion for intentional acts
“would effectively nullify a policy exclusion in the case of
married coinsureds, since one coinsured spouse could always
demand coverage for the excluded tortious act of the other on
the mere basis of derivative community property liability”).
For the foregoing reasons, we conclude the Separation
of Insureds provision does not displace Virginia’s rule that an
insurer has no duty to defend against a suit alleging the
insured is liable for the intentional acts of its agents under a
theory of respondeat superior. Because the Jenkins Complaint
alleges only intentional acts, we hold that it does not allege
Appellee’s liability for damage arising from an “occurrence.”
b.
“Sufficient” Allegations of Respondeat Superior
We now turn to the district court’s alternative basis
for holding that the Jenkins Complaint does not state an
“occurrence.” In this section of its opinion, the district
court reasoned that, even if the Separation of Insureds
27
provision did not preclude ascribing to Appellee its agents’
expectations, the Jenkins Complaint “did not state a plausible
claim that Liberty is liable for intentional torts,” offered
“only conclusory allegations that tie Liberty to the actions of
its alleged agents and employees,” and “provide[d] no facts to
support allegations of vicarious liability.” Liberty, 16 F.
Supp. 3d at 660, 661, 663. Significantly, when determining
whether insurance coverage exists, Virginia courts do not ask if
a complaint “sufficiently” alleges facts in support of a claim
such that it would survive a motion to dismiss. Instead, they
determine whether the complaint alleges facts and circumstances
that fall within the four corners of the policy. The claim’s
probability of success is inconsequential. See Fuisz, 61 F.3d
at 244-45; Church Sch., 645 F. Supp. at 633; AES, 725 S.E.2d at
535 (“[I]t is a well-established principle, consistently applied
in this Commonwealth, that only the allegations in the complaint
and the provisions of the insurance policy are to be considered
in deciding whether there is a duty on the part of the insurer
to defend and indemnify the insured.”); cf. CACI Int’l, Inc. v.
St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 155-56 (4th Cir.
2009) (acknowledging differences between a Rule 12(b)(6)
analysis and a duty-to-defend analysis). The Jenkins Complaint
clearly alleges facts and circumstances demonstrating that
28
Appellee is liable in respondeat superior for kidnapping and
racketeering through its agent Hyden.
Therefore, we conclude Appellant has no duty to defend
Appellee under CGL Coverage A.
2.
CGL Coverage B
We also hold that Appellant has no duty to defend
pursuant to CGL Coverage B because, assuming the Jenkins
Complaint alleged “personal and advertising injury,” the
Criminal Acts Exclusion clearly applies.
The district court concluded that CGL Coverage B’s
exclusion for criminal acts did not apply because the Jenkins
Complaint’s “allegations insufficiently tie Liberty to any
criminal acts either directly or vicariously.” Liberty, 16 F.
Supp. 2d at 669. But the Criminal Acts Exclusion applies to
injuries “arising out of a criminal act committed by or at the
direction of the insured.” J.A. 73.
In the context of homeowner’s insurance, the Circuit
Court of Warren County, Virginia has observed that an injury
arises out of an event “when there is apparent to the rational
mind upon consideration of all of the circumstances, a causal
connection between” the event and the injury. Erie Ins. Exch.
v. Young, 69 Va. Cir. 34, 41 (2005) (internal quotation marks
omitted). Notably, The Supreme Court of Virginia has quoted
29
this definition of “arising out of” “many times with approval”
Lucas v. Lucas, 186 S.E.2d 63, 64 (Va. 1972) (internal quotation
marks omitted). Against this backdrop, we conclude that the
criminal acts exclusion applies for two reasons. First, the
Jenkins Complaint clearly and unambiguously alleges that
Appellee and its agents committed criminal acts – namely,
kidnapping and conspiracy to commit racketeering, which is a
federal crime pursuant to 18 U.S.C. § 1962(d). The Jenkins
Complaint also specifically alleges Appellee’s role in these
crimes. For example, the Jenkins Complaint contends that Staver
used Liberty University’s phone lines to speak with Philip
Zodhiates after Zodhiates deposited Miller and the child near
the Canadian border and that other Liberty University employees
assisted Miller while she was in Nicaragua. Second, the Jenkins
Complaint unambiguously claims that Appellee is liable for
injuries arising from those criminal acts. With respect to the
kidnapping claim, the Jenkins Complaint asserts that Jenkins and
the child suffered injuries as a result of the kidnapping. J.A.
52. The Jenkins Complaint also alleges injuries as a “direct
and proximate result of Defendants’ [RICO] violation.” Id. at
51. These statements allege a causal connection between
Appellee’s alleged criminal acts and the claimed injuries.
Therefore, Appellant has no duty to defend pursuant to
CGL Coverage B.
30
3.
SELL Coverage
The district court concluded that the SELL’s Intentional and
Criminal Acts Exclusion did not apply because “the Jenkins
Complaint insufficiently implicated Liberty in . . . excluded
conduct because it insufficiently alleged direct or vicarious
liability and facts to support those links.” Liberty, 16 F.
Supp. 3d at 673. However, the Intentional and Criminal Acts
Exclusion embraces claims “arising out of any intentional,
dishonest, fraudulent, criminal, or malicious act or omission or
any willful violation of law by the insured” and “precludes
coverage for all insured persons under the policy regardless
whether the person seeking coverage participated in any way in
the intentional or criminal acts or omissions.” J.A. 116. As
we have emphasized, the Jenkins Complaint alleges Appellee’s
liability for injuries arising from its direct involvement in
conspiracies to commit kidnapping and racketeering, which carry
criminal penalties. We conclude these claims clearly and
unambiguously trigger the Intentional and Criminal Acts
Exclusion. 7
7
Appellee argues that the Criminal Acts Exclusion and the
definition of “personal and advertising injury” are in conflict,
which is impermissible under Virginia law because an insurer
cannot “‘give coverage with the right hand and then take away
with the left.’” Appellee’s Resp. Br. 40 (alteration omitted)
(Continued)
31
IV.
For the foregoing reasons, we hold that Appellant had
no duty to defend Appellee against the Jenkins Complaint. We
therefore reverse the district court’s grant of summary
judgment, vacate its award of fees and costs, and remand for
further proceedings.
VACATED AND REMANDED
(quoting Fuisz, 61 F.3d at 243). Appellee’s argument relies on
the definition a “personal and advertising injury” as one
arising out of seven enumerated “offenses.” J.A. 81 (emphasis
supplied). Appellee equates “offenses” with “crimes.” But that
reading of “offense” is not supported by the policy. The
examples of “offenses” it provides are noncriminal acts -- torts
and copyright offenses. Therefore, read together, there is no
conflict between the policy’s definition of “personal and
advertising injury” and the Criminal Acts Exclusion.
32