COURT REJECTS 'TRANSPARENT' BID TO TRIGGER INSURANCE COVERAGE

February 10, 2004

Steven P. Garmisa
Hoey & Farina Attorney

Attempting to trigger insurance coverage for minors who are alleged victims of sexual abuse, the attorney representing the children filed a negligence claim against the wife of the alleged attacker. Westfield National Insurance Co. v. Continental Community Bank and Trust Co., 2003 WL 23018766 (2d Dist., Dec. 23).

Jill Wood Valdez is the aunt of two children who allegedly were sexually abused by her husband, Librado Valdez. The complaint against the aunt claimed that she was liable for the alleged abuse based on various acts and omissions, including creating or maintaining a sexually charged atmosphere in her home, failing to monitor the children and her husband and failing to act on evidence of the alleged abuse.

Based on the inferred-intent rule, discussed in Monday's Trial Notebook, there would have been no insurance coverage for a "negligence" claim against the husband. The key questions on appeal involved application of the innocent- spouse and inferred-intent rules to a negligence claim against the aunt.
Affirming a ruling in favor of Westfield National Insurance Co., Justice Susan Fayette Hutchinson explained (with various omissions):

"In this case, for the reasons articulated below, we hold that the intentional-acts exclusion of the policies applies and precludes Westfield from owing a duty to defend or indemnify the aunt for the injuries she allegedly inflicted upon the minors.

"Although no other Illinois court has addressed this particular issue, we note that several reviewing courts have considered whether one spouse-insured may have a right to recover under an insurance policy separate from that of the other spouse-insured who committed an intentional act, the first being Economy Fire & Casualty Co. v. Warren, 71 Ill.App.3d 625 (1979).

"In Warren, after a couple's claim for fire damages had been paid by the insurer, the wife admitted setting the fire that caused the loss. The insurer sought restitution of the proceeds paid to the husband and wife.

"The husband denied any wrongdoing and sought to keep his share of the proceeds received under the insurance policy. The trial court found that the settlement and payment were procured by fraud.

"On appeal, after considering rulings from other states, the reviewing court declined to impute the intentional act of the wife to the husband. Instead, the reviewing court identified the husband as an 'innocent' insured and allowed the husband to recover one-half of the insurance proceeds. The reviewing court further explained that had the insurer intended that the wrongdoing of one insured be imputed to another insured, it should have expressed those terms in the policy.

"Since Warren was decided," Hutchinson recounted, "other reviewing courts have similarly held that absent an insurance provision to the contrary, the wrongdoing of one insured cannot be imputed to another insured.

"In the present case, the minors filed suit against the aunt seeking damages based on the aunt's allegedly negligent conduct, which purportedly led to Valdez's molestation of the minors. The inferred-intent rule clearly precludes any duty to defend or indemnify Valdez, as his intent to cause bodily harm to the minors is inferred as a matter of law by his conduct.

"Based upon the principles articulated in the Warren line of cases, we decline to impute the intent of Valdez to the aunt and will instead focus on the provisions of the policy and the allegations of the underlying complaint in determining whether the intentional-acts exclusion applies to preclude Westfield from having a duty to defend or indemnify the aunt."

"Liability insurance is intended to protect insureds from losses and to provide a source of funds to compensate victims," Hutchinson continued. "The liability portion of a typical homeowner's insurance policy generally provides liability coverage for many claims against insureds sounding in negligence but excludes coverage for claims of liability arising from intentional acts of insureds.

"Here, the intended-acts exclusion of the policy at issue excluded from coverage bodily injury or property damage 'which is expected or intended by the insured.'

"In construing a policy exclusion for bodily injury 'which is expected or intended by the insured,' courts have explained that coverage is precluded if the insured's acts were intentional and the insured had the specific intent to injure. Our Supreme Court stated that these clauses require a specific intent or expectation that the bodily injury will occur. Bay State Insurance Co. v. Wilson, 96 Ill.2d 487, 492-94 (1983). Therefore, an intentional act causing an unexpected or unintended result may be covered.

"However, the Wilson court further stated that whether an injury was 'expected' is a subjective question, but it can be inferred from objective evidence that the injury was the natural and probable result of the act. The terms 'intended' and 'expected' are not synonymous, and a greater degree of proof is required to establish 'intent' than to establish 'expectation.'

"Injury is 'expected' where the damages are not accomplished by design or plan, i.e., not 'intended,' but are of such a nature that they should have been reasonably anticipated (expected) by the insured.

"Accordingly, injuries that should have been reasonably anticipated by the insured will be found to have been subjectively 'expected' within the meaning of an insurance policy."

Reviewing the allegations against the aunt -- that she created or maintained a sexually charged atmosphere in her home, failed to monitor the children and her husband and ignored evidence of the alleged abuse -- Hutchinson and her colleagues concluded:

"We believe that each of these allegations establishes that the aunt should have been cognizant of her own conduct toward the minors and vis-a-vis her husband, Valdez. We further believe that the aunt reasonably should have anticipated or 'expected' the injuries, which were a natural and probable result of her enabling acts, regardless of whether she could anticipate the precise injury the minors would actually suffer.

"Despite the phraseology used in the underlying complaint, the minors have alleged intentional conduct on the part of the aunt, and the minors' cause of action based on negligence is 'a transparent attempt to trigger insurance coverage.'

"The allegations presented in the underlying complaint are entirely dissimilar to the circumstances presented in Warren, in which the reviewing court identified a right to recover applied to an 'innocent' spouse. Finding that the allegations in the present case established that the aunt was an 'innocent' spouse or interpreting the allegations as nothing more than mere negligence would require us to ignore the facts alleged.

"We also find support for our conclusion that the instant complaint alleges conduct of an intentional nature from decisions of other jurisdictions addressing similar circumstances. A wife's indifference to her husband's criminal conduct may be characterized as an affirmative act.

"In the present case, we conclude that the allegations in the underlying complaint are affirmative acts couched in terms of negligence. We therefore find that the exclusion provision that bars coverage for bodily injury that is 'expected or intended' from the standpoint of the aunt applies and that Westfield has no duty to defend or indemnify the aunt under the allegations of the underlying complaint.

"We are not persuaded by the minors' attempt to recast as negligence the expected or intended acts of an insured in an attempt to defeat the intended- acts exclusion of Westfield's policies...

"Where the factual allegations in a civil case compel a conclusion, as a matter of law, that an insured's act was expected or intended, a summary judgment is properly entered in favor of the insurer whose policy excludes coverage for expected or intended acts.

"Because the duty to defend is broader than the duty to indemnify, if an insurer owes no duty to defend, it owes no duty to indemnify. Because the underlying complaint seeks recovery from the aunt for her participatory conduct resulting in the sexual abuse of the minors, we conclude that the trial court properly held that Westfield had no duty to defend or, therefore, to indemnify the aunt in the underlying suit."

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