You own a business and one of your employees has just assaulted a patron. The patron has filed a lawsuit against your business and the employee. Is there coverage? Or, take the example of workplace horseplay and someone gets hurt. Is that a covered act?
A company's business insurance plan must try and limit risk and account for as many potential risks as possible. Frequently, business owners ask whether damage or injuries caused by an employee's intentional act or crime are covered by their commercial general liability policy.
Unfortunately, there is no easy answer. As recently as 2002 an insured approached the New York Department of Insurance to ask this question directly and the answer is not what business owners want to hear: "whether the harm caused by an alleged intentional act is covered by a policy constitutes a valid contract issue for a court of law to decide." I will try an provide a background answer, but ultimately your state's contract, insurance, and case law will decide the issue. The business owner must seek the advice of properly experienced insurance counsel.
Common Law Principle - No Coverage For Intentional Acts
As a matter of public policy, the law will not allow a business owner to insure against intentional acts or crimes. The reason is because it is assumed that if this is allowed, then businesses will not take steps to stop such actions or will engage in such acts because the acts are insured. The law presumes business owners will treat this as a cost of doing business rather than taking steps to stop the event from occurring. In fact, most states allow insurance only for fortuitous events - events that are "accidents."
Occurrences and The Intentional Act Exclusion
In order to follow the law, insurers include what is called the intentional acts exclusion in business liability policies. Further, the policy will define a covered event or "occurrence" as a fortuitous event. The intentional act exclusion will exclude coverage to those events that are "expected or intended" to cause property damage or bodily harm. Problems arise because many events in the workplace that result in injury often can be viewed as an act intended to cause damage or injury. But, the initial analysis is generally the same. First, was the event an occurrence and, if so, is coverage denied because of the intentional acts exclusion?
"Expected or Intended"
These two words are perhaps the most litigated words in insurance law. States and courts interpret these words differently. Generally, if an action is expected or intended to cause bodily harm or injury, from the standpoint of the insured, there is no coverage. There is no better way to illustrate except by example:
- A disgruntled employee purposefully brings a gun to work and shoots his manager. Here, the potential insured employee "expected or intended" the resulting damage. Generally, no coverage.
- An employee fails to follow a safety rule and injury results. Here, an outside observer may be able to predict potential injury (that is why the safety rule exists), but the employee did not intend to injure anyone. Generally, coverage.
- The last example is the gray area. For years the company knew of employee hazing at the company. Older employees would require new guys to work without fall protection on a roof. The employees and employer allowed this to go on even though there were injuries in the past. A new guy falls to the ground and is seriously injured. Here, the insurer will argue such an injury was expected or intended. Coverage? Depends on the state and case law.
Two more points about "expected or intended." First, courts and state law will usually presume or infer that harm was intended from certain criminal acts regardless of the subjective intent of the insured. Sexual assaults and molestation are two examples. Second, the law will recognize that certain acts do result in damage or bodily harm and are allowed to be insured. This is frequently the case with security guards, bouncers, and demolition contractors as some examples. Check with your insurance professional about such coverage.
Employer Coverage for Employee Actions
When an employee is sued the employer is frequently sued along with the employee under any number of theories. The most prevalent theory is a legal doctrine known as respondeat superior. This doctrine dictates that the employer as the "superior" may be held liable for the acts of the employee. If both an employee and employer are named in a law suit, then the standard commercial liability policy treats them as two separate insureds.
Because there are two separate insureds the analysis noted above must be applied to each individually. In the case of an employee committing a criminal act, there is usually no coverage for the employee, but since the act cannot be expected or intended by the employer there may be coverage for the employer. Courts differ widely on this point. This is a fact specific determination. For example, the employer could be encouraging the activity that led to the injury either by a failure to act or omission. But, the point is that coverage is not automatically excluded and should be sought for the employer under an analysis separate from that applying to the employee.
Insurance coverage for employee crimes and intentional acts is generally excluded. This is because the intentional acts exclusion specifically excludes coverage or the event is not recognized as an occurrence under the policy. However, each state applies different standards to the policy terms and the business owner should seek the advice of an insurance attorney as soon as practicable after such an event.