When an Intentional Act Results in Injury or Damage, it is not an Accident within the Meaning of an Insurance Policy Even When the Insured did not Intend to Cause the Injury or Damage

Gary L. LaHendro | Haight Brown & Bonesteel

In Maryam Ghukasian v. Aegis Security Insurance Company (No. B311310, filed April 14, 2022, and certified for publication on May 5, 2022), the Court of Appeal of the State of California, Second Appellate District held that Maryam Ghukasian’s insurer, Aegis Security Insurance Company (“Aegis”), had no duty to defend her in an underlying lawsuit alleging she cleared land and cut trees on her neighbors’ property without their consent. The appellate court explained Ms. Ghukasian’s acts of intentionally cutting the trees and clearing the land were not accidental for purposes of insurance coverage, even if she acted on the good faith but mistaken belief the trees were on her property.

Ms. Ghukasian owns a home in Glendale, California. She purchased a homeowner’s insurance policy from Aegis for the policy period of June 13, 2018 to June 13, 2019 (the “Aegis Policy”). In August 2018, Ms. Ghukasian hired a contractor to clear and cut trees she believed were on her property. However, the trees were on the property of her neighbors, Vrej and George Aintablian.

In February 2019, the Aintablians filed a lawsuit against Ms. Ghukasian, alleging causes of action for negligence and trespass. Both causes of action were based on Ms. Ghukasian’s cutting and clearing of the trees on the Aintablians’ property without their consent.

Ms. Ghukasian tendered the lawsuit to Aegis for defense and indemnity coverage. The Aegis Policy provides coverage for a suit “brought against [Ms. Ghukasian] for damages because of…property damage caused by an occurrence to which this coverage applies.” “Occurrence” is defined under the Aegis Policy in relevant part as an accident that results in property damage during the policy period. Aegis denied coverage for the Aintablians’ lawsuit on the basis their Complaint alleges intentional conduct by Ms. Ghukasian.

In response to Aegis’ denial of coverage, Ms. Ghukasian sued Aegis for declaratory relief, breach of the insurance contract and bad faith. Aegis moved for summary judgment, arguing it had no duty to defend Ms. Ghukasian in the Aintablians’ lawsuit because their Complaint did not allege an “occurrence” or accident.

The trial court held that Ms. Ghukasian’s mistaken belief as to the boundaries of her property does not transform her intentional act of hiring a contractor to cut trees and clear land into an accident for purposes of insurance coverage. Ms. Ghukasian appealed the trial court’s judgment in favor of Aegis to the Court of Appeal of the State of California.

The appellate court relied on Albert v. Mid-Century Ins. Co., 236 Cal.App.4th 1281 (2015) and Fire Ins. Exchange v. Superior Court, 181 Cal.App.4th 388 (2010) in reaching its decision. In Albert, an insurer denied coverage for a lawsuit filed against an insured by her neighbor for damages caused by the insured in pruning trees on the neighbor’s property. Albert held “it is completely irrelevant that plaintiff did not intend to damage the trees, because she intended for them to be pruned.”

The appellate court noted that Albert relied on Fire Exchange for the proposition that “[w]hen an insured intends the acts resulting in the injury or damage, it is not an accident ‘merely because the insured did not intend to cause injury.’ The insured’s subjective intent is irrelevant.” Albert, supra at 1291, quoting Fire Exchange, supra at 392.

Here, the appellate court found the Aintablians’ Complaint alleges harm from Ms. Ghukasian’s intentional conduct, as she specifically instructed her contractor to clear the land and cut the trees. According to the appellate court, Ms. Ghukasian’s mistaken belief about the boundaries of her property is irrelevant in determining whether the conduct itself – leveling land and cutting trees – was intentional.

As part of her appeal, Ms. Ghukasian argued that the California Supreme Court overruled Albert and Fire Exchange in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., 5 Cal.5th 216 (2018). However, in reaching its decision, the appellate court distinguished Ms. Ghukasian’s case from Liberty Surplus, which addressed the issue of “when a third party sues an employer for the negligent hiring, retention, and supervision of an employee who intentionally injured that third party, does the suit allege an ‘occurrence’ under the employer’s commercial general liability policy.” Liberty Surplus concluded it can, absent an applicable exclusion.

The appellate court noted that Liberty Surplus found the employer’s alleged negligent hiring constituted an “occurrence” (i.e., accident) under the insurance policy because the causal sequence of events that led to the alleged injury began with the employer’s negligence in hiring the employee. The appellate court also noted Liberty Surplus‘ explanation that the employee’s molestation of the third party “may be deemed an unexpected consequence of [the employer’s] independently tortious acts of negligence.” By contrast, the appellate court found Ms. Ghukasian’s intentional conduct (i.e., leveling and cutting trees) was the immediate cause of the injury and that there was no independent act that produced the damage.

The appellate court also rejected Ms. Ghukasian’s contention that because the Aintablians’ Complaint includes a cause of action for negligence, it alleges an “occurrence.” The appellate court explained, “[t]he scope of the duty [to defend] does not depend on the labels given to the causes of action; instead it rests on whether the alleged facts or known extrinsic facts reveal a possibility that the claim may be covered by the policy.” (citing with emphasis Cunningham v. Universal Underwriters, 98 Cal.App.4th 1141, 1148 (2002)). The appellate court found that although the Aintablians allege a cause of action for negligence, the factual allegations reflect that Ms. Ghukasian committed intentional acts (i.e., leveling and cutting trees without consent).

Based on the foregoing, the appellate court held that the trial court did not err in granting Aegis’ motion for summary judgment.

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Sixth Circuit Decision Is a Reminder of Difficulty in Prevailing on “Dishonest Acts” Exclusion

Jason Taylor | Traub Lieberman Straus & Shrewsberry | October 22, 2019

The Sixth Circuit Court of Appeals’ Decision in Evanston Ins. Co. v. Certified Steel Stud Association, 2019 WL 4674072 (6th Cir. Sept. 25, 2019) is another reminder to insurers of the difficulty in prevailing on a “dishonest acts” exclusion to bar coverage. The decision, however, does provide some useful insight and a framework for analyzing “dishonest acts” or “intentional acts” exclusions which are common in most insurance policies.

In Certified Steel, ClarkDietrich, a producer of steel products, sued CSSA, a trade association composed of three competitors to ClarkDietrich, in Ohio state court alleging they disseminated false statements about ClarkDietrich and its products. ClarkDietrich claimed that CSSA and its members: (1) violated the Ohio Deceptive Trade Practices Act (ODTPA), (2) engaged in unfair competition, and committed (3) defamation and (4) commercial disparagement. ClarkDietrich also claimed that CSSA and its members committed the unlawful acts as part of a civil conspiracy.

CSSA tendered the suit to its insurer, Evanston, which provided coverage for claims resulting from acts, errors, or omissions committed by the insured arising out of the conduct of association business or publishers’ liability. Evanston agreed to defend CSSA, but reserved the right to deny coverage under the policy’s “Dishonest Acts” exclusion. The “Dishonest Acts” exclusion barred coverage for “any claim based upon or arising out of any dishonest, deliberately fraudulent or criminal act, error, omission, personal injury or publishers’ liability committed by or at the direction of the Insured [.]”

CSSA refused to settle, and the case was submitted to a jury who returned a verdict against CSSA on all counts. Evanston filed a coverage action in the Southern District of Ohio seeking a declaratory judgment that it had no obligation to indemnify CSSA for the damages it owed ClarkDietrich. Evanston then moved for summary judgment, asserting that it had no coverage obligation because, among other reasons, the policy excluded coverage for claims based on dishonest conduct, and, in finding against CSSA the jury found that it had acted dishonestly. The district court granted Evanston’s motion for summary judgment reasoning that the Policy’s “Dishonest Acts” exclusion barred coverage because CSSA committed the unlawful acts in furtherance of a conspiracy, and therefore, the jury necessarily found that “CSSA’s publication was intentionally false” and involved a dishonest act. The Sixth Circuit disagreed.

The Evanston policy did not define the term “dishonest act.” In giving the term its ordinary meaning, the Sixth Circuit held that a “dishonest act” is synonymous with a “lie,” and further that one cannot lie—i.e., “make an untrue statement with intent to deceive,”—without knowing the truth. Critically, the Sixth Circuit examined the elements of the underlying claims submitted to the jury, finding that the jury did not have to find that CSSA acted dishonestly (i.e. “lie”) when it violated the ODTPA or when it committed defamation and commercial disparagement. In other words the plaintiff did not need to prove intent or willfulness to establish a violation of these claims. The jury instructions on the ODTPA claim, for example, only required the jury to decide whether CSSA “made one or more false … statements”— not whether CSSA published statements that it knew to be false. The jury interrogatories also failed to establish that the jury found CSSA published statements that it knew to be false. Similarly, the appeals court reasoned that the jury could have held CSSA liable for defamation and disparagement by concluding that CSSA entertained serious doubts as to the truth of its statements, not necessarily that it knew the statements were false. As such, the Sixth Circuit concluded that none of the unlawful substantive acts standing alone included or required an element of dishonesty.

Because the jury did not find that CSSA acted dishonestly when it committed the unlawful acts, the Sixth Circuit next considered whether the jury’s finding that CSSA committed each unlawful act in furtherance of a civil conspiracy necessarily meant that CSSA acted dishonestly. Under Ohio law, “[t]he tort of civil conspiracy is a malicious combination of two or more persons to injure another in person or property, in a way not competent for one alone, resulting in actual damages.” Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 700 N.E.2d 859, 868 (1998) (citations and internal quotations omitted). Because civil conspiracy is a derivative tort, “an underlying unlawful act” is required before a civil conspiracy claim can succeed. Id. Further, “[t]he malice involved in the tort is that state of mind under which a person does a wrongful act purposely, without a reasonable or lawful excuse, to the injury of another.” Id.

The district court reasoned that because the jury found “in favor of ClarkDietrich on its civil conspiracy claim, the jury necessarily determined that CSSA committed [the] unlawful acts ‘intentionally’” and that, therefore, “CSSA’s publication was intentionally false…” and within the “Dishonest Acts” Exclusion. According to the Sixth Circuit, the district court imputed the element of “intent” from the civil conspiracy claim onto the other unlawful acts. Because CSSA acted intentionally, the district court reasoned, CSSA published statements that were intentionally false and therefore dishonest.

The Sixth Circuit disagreed with this logic. Instead, the appeals court reasoned that because the jury instructions allowed the jury to find against CSSA on the civil conspiracy claim by finding that CSSA intentionally published false statements, the jury did not necessarily determine that CSSA published intentionally false statements. In other words, the jury could have found that CSSA intentionally published false statements rather than that CSSA published intentionally false statements. A finding that CSSA intentionally published statements that happened to be false was not equivalent to a finding that CSSA acted dishonestly. Consequently, the Sixth Circuit concluded that the jury did not necessarily find that CSSA acted dishonestly.

Some form of the “Dishonest Acts” or “Intentional Acts” exclusion is common in most insurance policies. The Sixth Circuit’s reasoning and decision provides valuable insight into how some courts view “Dishonest Acts” or similar exclusions that require some form of deliberate, intentional, or fraudulent conduct by the insured. Certified Steel provides a useful reminder of difficulty in prevailing on these exclusions even where the underlying conduct appears from the complaint to be intentional. Carriers and courts should closely review the underlying elements of a claim to determine whether and what type of “intent” is necessary to establish the underlying claim. Jury instructions should also be considered as should jury interrogatories or the potential need to intervene to obtain a necessary finding as to intent.

California Supreme Court Rights the “Occurrence” Ship: Unintended Harm Resulting from Intentional Conduct Triggers Coverage Under Liability Insurance Policy

Scott S. Thomas | Payne & Fears | June 6, 2018

SUMMARY

In a ruling that bodes well for policyholders, the California Supreme Court provides much-needed clarity on the question of when a so-called “intentional act” may give rise to insurance coverage under a liability insurance policy. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., Case No. S23765 (Cal. June 4, 2018), the Court holds that an employer’s potential liability for negligent hiring, after its employee allegedly abused a 13-year old student, is the result of an “occurrence” and is thus covered under the employer’s liability insurance policy.

COURT OPINION

The court’s opinion dispels the misguided notion that an intentional act resulting in unintended harm is never an “occurrence” and can never trigger coverage. What matters, according to the Court, is that, from the insured’s point of view, the consequences of its conduct are “unexpected, unforeseen, or undesigned” – even if the conduct is intentional. And in a concurring opinion, Justice Liu rightfully questions the legitimacy of the notion that intentional conduct cannot trigger coverage, even when it produces an unintended result, unless, in the words of a 1989 appellate court decision, some “additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” As Justice Liu explains, this intervening “happening” may be something as simple as the insured’s mistaken belief that he was acting in self-defense, or that the victim had consented to the insured’s conduct. This much-needed clarification restores vitality to the fundamental principle that injuries are “accidental” when they are “unexpected, unforeseen, or undesigned,” regardless of their cause.

KEY TAKEAWAYS

This ruling will apply in many contexts: For example, contractors who “intentionally” build things; competitors who “intentionally” disparage another’s product; employers who “intentionally” hire employees who do bad things. The Court’s decision restores the law’s fidelity to fundamental principles enunciated in the seminal California “occurrence” case: Gray v. Zurich, 65 Cal. 2d 263 (1966). And it ought to dampen insurers’ enthusiasm for denying claims on the spurious ground that the insured’s conduct – even though it resulted in bodily injury or property damage that the insured did not expect or intend to cause – was “intentional.”