United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 98-1509MN

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American Employers Insurance Co., *

*

Appellee, *

* On Appeal from the United

v. * States District Court

* for the District of

* Minnesota.

John Doe 3B, *

*

Appellant. *

___________

Submitted: October 21, 1998

Filed: February 1, 1999 

___________

Before BOWMAN, Chief Judge, BRIGHT and RICHARD S. ARNOLD, Circuit

Judges.

___________

RICHARD S. ARNOLD, Circuit Judge.

This case involves the interpretation of an insurance contract under Minnesota

law. The issue on appeal is whether American Employers Insurance Co. (AEIC) has

a duty to indemnify its insureds, the Diocese of New Ulm and the Church of St.

Joseph, in an action for the negligent employment and supervision of a priest who is

alleged to have sexually molested John Doe 3B over an extended period of time. AEIC

claims that the policies it issued do not provide coverage, because Doe's alleged

injuries were not caused by an "occurrence," as that term is defined in the policies.

The District
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Court, relying upon this Court's opinion in Allstate Ins. Co. v. Steele, 74 F.3d 878 (8th

Cir. 1996), agreed, and granted AEIC's motion for summary judgment. After the

District Court's ruling, the Minnesota Court of Appeals filed a decision in Mork Clinic

v. Fireman's Fund Ins. Co., 575 N.W.2d 598 (Minn. App. 1998). Because we believe

Mork is a persuasive statement of Minnesota law, we reverse and remand.

I.

We summarize briefly the events that led to this lawsuit. AEIC issued four

identical comprehensive general liability insurance policies to the two named insureds,

which we shall call collectively the Diocese, covering consecutive time periods from

January 1, 1980, to July 1, 1984. The policies contained a "Bodily Injury Liability"

section that provided that AEIC would "pay on behalf of the insured all sums which

the insured shall become legally obligated to pay as damages because of bodily injury

or property damage to which this insurance applies, caused by an occurrence . . .." In

the definitions section of the policies, "occurrence" is defined as "an accident,

including continuous or repeated exposure to conditions, which results in bodily injury

or property damage neither expected nor intended from the standpoint of the insured."

In addition, the policies provided that "[t]he insurance afforded applies separately to

each insured against whom claim is made or suit is brought, except with respect to the

limits of the company's liability."

In early 1994, Doe filed suit against the Diocese, alleging that he had been

"regularly and repeatedly sexually molested" by a priest who had been employed by

the Diocese. The abuse allegedly began in 1976, when Doe was six years old, and

ended in 1989, shortly before the priest's death. According to Doe's complaint, the

Diocese "knew or should reasonably have known of [the priest's] dangerous and

exploitive propensities as a child sexual abuser," and, despite such knowledge, the

Diocese negligently employed and failed to supervise the priest properly, and failed to

provide adequate warning to Doe and his family.
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In 1997, Doe, the Diocese, and two other insurers which had provided liability

coverage for the Diocese entered into a settlement agreement. AEIC did not participate

in the settlement. The two insurers each paid Doe $50,000 for injuries he allegedly

sustained during the period of time during which their policies were in effect. The

parties agreed that, in addition to this payment of $100,000, a judgment of an

additional $50,000 would be entered against the Diocese for the period of time during

which the AEIC policies were in effect; that the Diocese would assign its rights against

AEIC to Doe; and that Doe would pursue collection of the remaining judgment only

against AEIC.

Earlier, in 1996, AEIC had commenced a declaratory-judgment action seeking

a declaration of its rights and obligations under its policies. Following the settlement

agreement, AEIC filed a motion for summary judgment. AEIC alleged, first, that it

had no duty to indemnify the Diocese because Doe did not sustain a "bodily injury" as

defined by the policies, and, second, that any injuries sustained by Doe were not

caused by an "occurrence," as that term is defined by the policies. The District Court,

viewing the evidence and drawing all justifiable inferences in Doe's favor, held that the

physical pain suffered by Doe during certain instances of the alleged sexual abuse did,

in fact, constitute "bodily injury." The Court agreed with AEIC, however, that, under

Minnesota law, "the intentional acts of [the priest], not the negligence of the Diocese,

resulted in [Doe's] injury," and that it therefore cannot be said that "an accident" caused

Doe's injury, as required by the policies' definition of "occurrence." In addition, the

Court held that the policies' separability clause did not create coverage, because that

clause "merely requires that the acts of the Diocese be viewed independently of the acts

of [its employee]," and that, under Minnesota law, it is the intentional tort, not the

alleged negligent supervision, that causes an injury.
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II.

In Allstate Ins. Co. v. Steele, 74 F.3d 878 (8th Cir. 1996), this Court,

interpreting Minnesota law, held that a negligent-supervision claim arising from a

sexual assault did not trigger coverage because the injury to the victim would not have

occurred in the absence of the intentional misconduct, which was not covered by the

policy. In that case, a twelve-year-old was raped by her sixteen-year-old stepbrother

while she was visiting her father and stepmother. The victim's mother sued the

stepbrother, the father, and the stepmother, as well as the stepbrother's father. As

against the adult defendants, the victim's mother alleged negligent supervision,

negligent failure to protect, and negligent infliction of emotional harm. The insurance

company sought a declaratory judgment that none of its policies covered damages

resulting from the stepbrother's sexual misconduct, and the District Court held that the

policies covered accidents, not intentional sexual misconduct. The District Court also

held that the policies' "joint obligations" clause, which provided that the

"responsibilities, acts and failures to act of a person defined as an insured person will

be binding upon another [insured]," barred coverage on the negligence claim. Id. at

880-81 (citing Allstate Ins. Co. v. Steele, 885 F. Supp. 189, 192-93 (D. Minn. 1995)).

(This clause stands in contrast to the separability clause contained in the policies at

issue in the present case, stating that coverage "applies separately to each insured.")

On appeal, this Court agreed, and affirmed the grant of summary judgment. We

noted that the policy in effect at the time of the rape specifically excluded coverage for

injuries "resulting from" acts that are "intended or expected to cause bodily injury,"

and, accordingly, held that the policy did not cover the negligent-supervision claims,

since the victim's injuries "resulted from" conduct that was excluded under the policy.

(The policies in this case have no such express exclusion for intentional acts.) The

Court relied upon two decisions of the Minnesota courts regarding negligent

supervision and entrustment, Fillmore v. Iowa Nat'l Mutual Ins., 344 N.W.2d 875

(Minn. App. 1984), and Faber v. Roelofs, 250 N.W.2d 817 (Minn. 1977). In those
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cases, claims for coverage were barred because the injuries were either "the result of"

or "arose out of" conduct that was expressly excluded from coverage. We held that,

even assuming the adult defendants were negligent in their supervision of the

stepbrother, the injury would not have occurred absent his misconduct, and that,

therefore, the harm "resulted from" the intentional act. According to the Court, the

plaintiff could not circumvent the policy's intentional-conduct exclusion by suing on

a theory of negligent supervision.

Although the Supreme Court of Minnesota has not addressed the central issue

presented in this case, that state's Court of Appeals has done so, and it is that decision,

Mork Clinic v. Fireman's Fund Ins. Co., 575 N.W.2d 598 (Minn. App. 1998), that we

find persuasive as to state law. In Mork, a physician was accused of having sexually

abused several patients during medical examinations. The patients sued the physician,

the clinic, and the clinic's general liability carrier, Fireman's Fund Ins. Co. Fireman's

Fund participated in settlement agreements with two of the patients, and then refused

to defend further or to indemnify the clinic. The clinic, against which claims of

negligent hiring and supervision and of respondeat superior were made, settled with

the remaining plaintiffs. The clinic then brought a declaratory-judgment action against

Fireman's Fund to determine the insurance company's responsibility for indemnity,

defense costs, attorney fees, and interest. 

The trial court granted summary judgment in the clinic's favor, and the Court of

Appeals affirmed. The policy being construed provided coverage for claims of bodily

injuries "caused by" an "occurrence," which was defined as "an accident, including

continuous or harmful repeated exposure to substantially the same harmful condition."

On appeal, Fireman's Fund argued that the injuries sustained by the patients were

caused by the physician's intentional sexual abuse, which, it said, was not a covered

"accident" or "occurrence." That claim was rejected by the appellate court. The Court

wrote that "the immediate cause of the victims' injuries is not the only cause, and the

victims had a legitimate cause of action against the employer if they could establish,

as
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they claimed, that [the clinic] was negligent in the hiring, supervision, or retention of

their employee." Mork, 575 N.W.2d at 600. Although the merits of the underlying

negligence claim were not before the Court (only the question of whether the claim

was covered by the insurance policy), it noted that "[t]he injuries would not have

occurred if [the clinic] had not hired the employee and offered him as its agent to

provide professional medical services to the victims." Id.

The Court distinguished our opinion in Steele, as well as the opinions in other

cases controlled by Minnesota law, including Fillmore and Faber, supra at 4. The

Court found that those cases focused primarily on the "breadth of exclusions for

injuries 'arising out of' or 'resulting from' certain conduct" and that the cases "have no

bearing on the coverage question of whether prior, independent acts of negligence are

causative of injuries." Mork, 575 N.W.2d at 601. In addition, the Court noted that it

had previously distinguished Steele, in Redeemer Covenant Church of Brooklyn Park

v. Church Mut. Ins. Co., 567 N.W.2d 71, 77-78 (Minn. App. 1997), as dependent on

the specific provisions of the policies involved in that case, including the "joint

obligations" clause, which provided that each insured was bound by the acts of others.

Mork, 575 N.W.2d at 601. Further, in Mork, as in this case, the policy contained a

separability clause, and the Court held that the clause supported the conclusion that the

employer's negligence was a "causative occurrence." Id. at 602.

III.

For the foregoing reasons, Mork is persuasive. Accordingly, we hold that, under

Minnesota law, the Diocese is entitled to indemnification under the AEIC policies. On

remand, AEIC may assert any other defenses to which it believes it is entitled,

including defenses related to the reasonableness of the settlement agreement.

Reversed and remanded for proceedings consistent with this opinion.
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It is so ordered.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.