No Fortuity No Coverage

Sexual Abuse of a Child is, by Definition, an Intentional Act

Gustavo Beltran, Alma Beltran, and child A.B. appealed the district court's pretrial adjudication of their counterclaims against Farmers Insurance Exchange (Farmers).

In. A.B., Gustavo Beltran, and Alma Beltran v. Agave Health, Inc.; et. al.; Farmers Insurance Exchange, et al., No. A-1-CA-39620, Court of Appeals of New Mexico (August 1, 2023) the Court of Appeals resolved the dispute by considering whether the acts alleged were fortuitous.

BACKGROUND

The Appellants sued Manuel and Delfina Preciado (the Preciados) alleging that Manuel sexually abused A.B. and that Delfina negligently failed to supervise A.B. while he was in the Preciados' foster care service. The Preciados stipulated to the entry of money judgments, and Farmers- which insured the Preciados with a homeowner's insurance policy-filed a complaint in intervention for declaratory judgment seeking a determination of no indemnity coverage under the policy for the claims against the Preciados.

The district court granted the summary judgment motion, finding that the insurance policy did not cover the claims based on Manuel's intentional conduct.

DISCUSSION

The district court granted Farmers' motion to dismiss for failure to state a claim pursuant to the finding that Appellants lacked standing to bring their countercomplaint against Farmers and that the acts complained of were intentional.

The Court of Appeal concluded that Farmers had a right to refuse the insurance claim without exposure to a bad faith claim because it successfully challenged the coverage of Appellants' claim in its motion for summary judgment. In the order granting summary judgment, the district court found that the policy at issue was "an occurrence policy, which applies, for coverage purposes, only to accident and non-intentional behavior."

The insurance policy had an unambiguous exclusion to the insurance policy. The exclusion stated that the policy does not cover "bodily injury, property damage, or personal injury arising from, during the course of or in connection with the actual, alleged, or threatened molestation, abuse or corporal punishment of any person by anyone, including . . . any insured."

Any injuries or damages arising from Delfina's negligent supervision stemmed  from the uninsured risk of sexual misconduct, and thus there was no duty to defend a claim for negligent supervision.

The district court properly found that the policy's unambiguous exclusion precluded coverage for claims against the Preciados, including for the acts of Manuel and the negligent supervision against Delfina, thus Farmers had the right to refuse to settle the claim without exposure to a bad faith claim.

ZALMA OPINION

Liability insurance is, by definition, a contract of indemnity for unintentional and fortuitous acts. Allowing coverage for intentional conduct, like the abuse of a child, would encourage people to commit such evil conduct because there would be no financial effect to the abuser.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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