Insurance. Intentional act by “an insured” precludes coverage for innocent co-insured.

Co-operative Insurance Companies v. Woodward, 2012 VT 22  (Reiber, C.J.)

Father appeals the trial court’s declaration of no coverage for the claims made in the lawsuit filed against homeowner for negligent supervision and damages arising out of the abduction, assault, and death of his daughter. Homeowner was formerly married to uncle who is alleged to have kidnapped, sexually assaulted, and murdered  daughter. Homeowner’s insurer brought a declaratory judgment action asking the trial court to hold that its policy does not cover these claims.  The trial court decided the case on summary judgment, holding that the insurance policy excludes intentional acts by uncle, who was “an insured.” The court rejected father’s argument that the separate insureds, or severability, clause provides coverage for homeowner.  We affirm.

The policy exclusion states, the “ policy does not apply to:  …’bodily injury’ or ‘property damage’...  that is the result of an intentional and malicious act by or at the direction of an ‘insured’." A policy exclusion for intentional acts by “an insured” generally bars coverage for claims made by any insured under the same policy.  N. Sec. Ins. Co. v. Perron, 172 Vt. 204, 220 (2001).  If the exclusion precludes coverage for certain acts by “the insured,” however, noncoverage of one insured does not affect coverage for claims against other insureds.  Id. at 221-22. The alleged acts are inherently harmful and so certain to cause injury that we must conclude as a matter of law that uncle had intent to harm.  Therefore homeowner is barred from coverage because the policy at issue uses the collective term “an insured.”

Despite this result, father contends that the policy contains a severability clause which would allow homeowner to be covered since uncle, not homeowner, committed the intentional act.  We assume without deciding that the provision at issue is a severability clause. Because exclusions for “an insured” serve to collectively bar all insureds, and because of the weight of decisional authority, we conclude that the clause at issue does not create ambiguity and  has no effect on—and cannot override—the intentional-acts exclusion for certain acts committed by “an insured.”

Insurance coverage for sexual abuse by minor at a day care center, unless subjective intent to harm.

Northern Security Insurance Company, Inc. v. Stanhope et al. (2009-078) (08-Oct-2010) 2010 VT 92 (Burgess, J.)    

Northern Security Insurance Company (Northern), appeals from a superior court judgment that it owes a duty of coverage to Rose, Steven, and Kyle Perron, its insureds under a homeowner’s policy. We affirm.

The first appeal, Northern Sec. Ins. Co. v. Perron, 172 Vt. 204, 777 A.2d 151 (2001) (Northern I) held that the inferred intent rule was inapplicable to minors.  Id. at 226, 777 A.2d at 167.  The Court remanded the case to the trial court for a factual determination on whether Kyle intended or expected injury to occur, as well as a ruling on Northern’s additional claim that coverage was voided by Rose Perron’s alleged misrepresentations in her policy application

Northern first contends the trial court erred in applying the innocent co-insured doctrine to hold that Rose Perron’s misrepresentation did not void coverage for Steven or Kyle.  The court found that our decision in Fireman’s Fund Ins. Co. v. Knutsen, 132 Vt. 383, 324 A.2d 223 (1974) was controlling. We conclude that the trial court did not err in applying the innocent co-insured doctrine to preserve coverage for Steven and Kyle.

Northern next contends the trial court erred in declining to allocate to defendants the initial burden of proving an occurrence, defined under the policy as “an accident” neither expected or intended.  We considered and rejected the same claim in State v. CNA Ins. Cos., 172 Vt. 318, 331, 779 A.2d 662, 672 (2001). Accordingly, we find no error in the trial court’s decision to place the burden of proof on Northern to establish that the harm was “intended or expected”.

Northern finally claims that the trial court erred in rejecting its request for an instruction on the intentional-harm exclusion that would have incorporated an objective rather than a subjective standard.  The trial court had propounded an instruction explaining that “[w]hen we say expected in this context, what we mean is this:  Did Kyle know . . . that his sexual actions would harm Jesse and/or Gus.”  Northern proposed modifying the instruction to state as follows: “Did Kyle know or have reason to know that his actions” would cause harm.  (Emphasis added).  The trial court’s rejection of this request was correct.  An insured expects an injury if he or she is subjectively aware that injury is substantially certain to result.

This ruling did not prevent Northern from arguing that intent to harm could be inferred from all of the surrounding facts and circumstances, including evidence that Kyle knew the assaults were harmful and non-consensual.

Our  conclusion that a subjective standard governs whether a minor in these circumstances intended or expected harm to result has no impact on our earlier decisions holding that, when the perpetrator of the sexual assault or harassment is an adult, such intent must be inferred.