When an employer negligently supervises an employee who commits separate acts of sexual harassment against three different co-workers on separate occasions, how many “occurrences” are there under a standard commercial general liability policy? The Northern District of Ohio, Eastern Division, considered this question in Scott Fetzer Co. v. Zurich Am. Ins. Co., No. 16 CV 1570 (N.D. Ohio Dec. 18, 2017), and concluded that the answer is three.
Three Times the Harassment
In 2015, three women filed suit against the policyholder, the Scott Fetzer Company (“Fetzer”) in Missouri state court alleging they were subjected to sexual harassment and assault by a male co-worker, John Field (“Field”), while working for Fetzer as door-to-door vacuum salespersons. The three plaintiffs in the Missouri case alleged that their injuries were the direct and proximate result of conduct by Fetzer. Their first claim, for fraudulent misrepresentation, alleged that Fetzer was vicariously liable for Field’s false promises in inducing the plaintiffs to work with him. Their second claim, for fraudulent concealment, alleged theories of direct and vicarious liability; the direct liability allegations were that the Fetzer defendants failed to inform the plaintiffs of Field’s criminal history, sexually deviant propensities, and sexually deviant activities with other employees, and that he was forbidden from selling vacuums door-to-door without supervision because he was a sex offender. Their third claim, for negligence, alleged that Fetzer negligently hired, retained, and supervised Field.
Fetzer was insured under two policies providing general liability insurance issued by Zurich American Insurance Company (“Zurich”), with identical material terms (collectively, “Policies”). Policy 1 covered the time period January 1, 2012 to January 1, 2013. Policy 2 covered the time period January 1, 2013 to January 1, 2014. Zurich accepted coverage under the Policies for the Missouri case, which ultimately resulted in settlement. Zurich treated each plaintiff’s claim as a separate occurrence, applying a new deductible to each of the three settlements reached in the Missouri case. Only one of the settlements met or exceeded the deductible, and Zurich paid a portion of that settlement. Zurich did not reimburse Fetzer for amounts Fetzer paid toward the other two settlements.
Equals Three Occurrences
In the district court litigation that followed, Fetzer claimed Zurich’s application of three deductibles, instead of one deductible, to the settlements reached with the plaintiffs in the Missouri case was in breach of the Policies. The district court disagreed.
The Policies defined “occurrence” as:
an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
The deductible endorsement defined “occurrence” as follows:
For any coverage described in the Schedule to which the each “occurrence” basis applies, to all sums payable for other than “ALAE” as the result of an accident, including continuous or repeated exposure to substantially the same harmful conditions, regardless of the number of persons or organizations who sustain damages or to whom sums are payable because of that “occurrence.”
Fetzer argued, unsuccessfully, that the Missouri lawsuit and settlements represented a single “occurrence” of purported negligence by it in connection with the hiring, retention, and supervision of Fields. The district court concluded there was no single “occurrence” that was the proximate cause of all of the Missouri case plaintiffs’ injuries. Rather, the claims in the Missouri case showed that the negligence of Fetzer with respect to each plaintiff constitutes three separate occurrences under the Policies. The Missouri plaintiffs contended that because of Fetzer’s acts of negligence, each plaintiff was assaulted under different circumstances, at different locations, at different times, and sometimes in different policy years.
The district court granted summary judgment in Zurich’s favor based on Ohio case law that provides:
When a liability insurance policy defines an ‘occurrence’ as an ‘accident,’ a negligent act committed by an insured that is predicated on the commission of an intentional tort by another person, e.g., negligent hiring or negligent supervision, qualifies as an ‘occurrence.’
Safeco Ins. Co. of Am. v. White, 913 N.E. 2d 426 (Ohio 2009). The court reasoned that the intentional torts the Missouri plaintiffs alleged Fields committed against them were the result of Fetzer’s negligence, and were accidental from Fetzer’s viewpoint. Thus, the “occurrence(s)” at issue under the Policies were the negligent acts of Fetzer. The court found that no single “occurrence” was the proximate cause of all of the plaintiffs’ injuries. Rather, Fetzer was alleged to have been negligent in supervising Fields’ conduct with respect to each separate plaintiff. The plaintiffs alleged that because of Fetzer’s negligence, they were assaulted under different circumstances, at different times, and at different locations.
Fetzer has appealed the district court’s decision to the Sixth Circuit (Case No. 18-3057, Jan. 17, 2018).
The analysis may differ state to state – the district court in this case looked to Ohio case law – but on these facts an insured may be hard pressed to argue Fetzer’s position. As the Seventh Circuit stated in Lee v. Interstate Fire & Cas. Co., 86 F.3d 101, 104-105 (7th Cir. 1996), declining to hold that a Roman Catholic diocese’s negligent supervision of a priest was one occurrence:
[N]egligent supervision is not invariably one ‘occurrence’ . . . . the same kind of negligent act can occur several times with separate injuries, producing several occurrences.