Insurance companies have not missed the fact that sexual misconduct claims are becoming increasingly common. They have aggressively asserted that sexual harassment and sexual misconduct lawsuits are not within ordinary insurance coverage, such as provided by homeowners or Commercial General Liability (CGL) policies that are commonly issued to businesses. Most often, the insurers have relied upon policy exclusions for “intentional acts” by the policyholder. Some insurers have asserted that sexual harassment and sexual misconduct is necessarily an “intentional act” that could never be within the potential coverage of an insurance policy. While insurers have, on occasion, convinced some courts that particular facts involved in some sexual harassment and sexual misconduct claims do necessarily involve intentional acts excluded under their insurance coverage, this is not a foregone conclusion. In fact, California courts have held that lawsuits alleging sexual harassment, sexual discrimination and sexual misconduct may include claims that are potentially within insurance coverage, and therefore at least require insurance companies to pay for defense of the insured company or employee.
Recently, a California Court of Appeal sitting in Los Angeles observed that actions involving sexual misconduct or sexual harassment are not automatically excluded as claims of “intentional acts” under insurance policies. In David Kleis, Inc. v. Superior Court , the court observed that claims of sexual harassment are often bundled with a number of other potentially covered claims, regardless of whether they are expressly alleged by the plaintiff. For example, plaintiffs frequently assert that the employer “negligently supervised” the employee who engaged in the sexual harassment or other misconduct; such “negligent supervision” claims do not involve intentional conduct and are frequently within potential coverage of an insurance policy. As well, specific claims of actions that are characterized by the plaintiff as sexual harassment, such as being “trapped in a room” by the offending defendant, might ultimately be found by a judge or jury to constitute ” false imprisonment ,” which is a type of claim potentially covered under many homeowners and CGL insurance policies. Finally, in California, the defendants’ belief that they had “done nothing wrong” may well involve a potential defense of consent or mistaken belief in the right to engage in the conduct, “thus negating any intent to sexually harass or discriminate against the victim, and preventing the insurer from denying policy benefits on the basis of the `intentional acts’ policy exclusion.” California courts have long held that, where allegedly intentional acts may be found at trial to have been only negligent acts, an insurance company cannot avoid its obligation to pay for the defense of the insureds by invoking the “intentional acts” exclusion of its policy.
The lesson in California is that sexual harassment, sexual discrimination and sexual misconduct claims can be potentially within the coverage of common insurance policies, such as homeowners and Commercial General Liability (CGL) business policies. Employees and employers faced with the unfortunate circumstance of having to defend sexual harassment, sexual misconduct and sexual discrimination claims should consult with an attorney experienced with applicable insurance law as soon as possible, and take the steps necessary to obtain the full benefits of the insurance policy.