Opinion ID: 1161049
Heading Depth: 1
Heading Rank: 2

Heading: Claims of Negligent Hiring, Retention, or Supervision.

Text: State Farm contends that even if the settlement agreement does not bar the plaintiffs' claims for negligent hiring, retention, or supervision, such claims are excluded by the express terms of the contractor's insurance policy. State Farm argues that the contractor's policy specifically excludes coverage for bodily injury or property damage arising from the use or entrustment of an automobile. Resolution of this issue necessarily involves the interpretation of an exclusion in the contractor's insurance policy issued by State Farm. Generally, exceptions, limitations, and exclusions to insurance policies require narrow construction on the theory that the insurer, having affirmatively expressed coverage through broad promises, assumes the duty to define any limitations on that coverage in clear and explicit terms. Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 695, 840 P.2d 456 (1992). If an insurer intends to restrict or limit coverage, it must use clear and unambiguous language in doing so, otherwise the insurance policy will be liberally construed in favor of the insured. Farm Bureau Mut. Ins. Co. v. Old Hickory Cas. Ins. Co., 248 Kan. 657, 659, 810 P.2d 283 (1991). The burden is on the insurer to prove facts which bring a case within the specified exception. Upland Mutual Insurance, Inc. v. Noel, 214 Kan. 145, 150, 519 P.2d 737 (1974). By way of background, we look to the decision made by the trial court in this regard. The trial court was faced with determining whether either the homeowner's policy or the contractor's policy provided coverage for negligent hiring, retention, or supervision. In addressing this question, the trial court reviewed both policies and concluded that the contractor's policy did provide coverage. The provisions of the homeowner's policy provided the following exclusions: Coverage L and Coverage M do not apply to: .... e. Bodily injury or property damage arising out of the ownership, maintenance, use, loading or unloading of: .... (2) a motor vehicle owned or operated by or rented or loaned to any insured; or .... f. bodily injury or property damage arising out of: (1) the entrustment by any insured to any person; (2) the supervision by any insured of any person; (3) any liability statutorily imposed on any insured; or (4) any liability assumed through an unwritten or written agreement by an insured; with regard to ownership, maintenance or use of any aircraft, watercraft, or motor vehicle (or any other motorized land conveyance) which is not covered under Section II of this policy. The exclusion contained in the contractor's policy upon which State Farm relies provides under coverage L that the coverage does not apply 7. to bodily injury or property damage arising out of the ownership, maintenance, use or entrustment of others of any aircraft, auto, or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and loading or unloading. After reviewing both policies, the trial court construed the exclusion under the homeowner's policy to bar coverage for negligent supervision, hiring, or retention. The language of the homeowner's policy so provides. However, in reviewing the policy provisions of the contractor's policy, the court found that the exclusion, unlike that contained in the homeowner's policy, fails to clearly and unambiguously exclude coverage for negligent supervision, hiring, or retention and, thus, such claims were covered. State Farm, in its homeowner's policy, clearly and unambiguously excluded negligent supervision, hiring, or retention. State Farm did not clearly and unambiguously exclude negligent supervision, hiring, or retention in its contractor's policy. Nevertheless, State Farm argues that the general exclusion in a contractor's policy, covering the use or entrustment to others of an automobile owned or operated by any insured, excludes a claim for negligent supervision, hiring, or retention because the claims arose out of the use of an automobile owned by the insured. In Upland Mutual Insurance, Inc. v. Noel, 214 Kan. 145, we held that a homeowner's policy exclusion for bodily injury or property damage arising from the ownership, maintenance, operation, use, loading, and unloading of automobiles did not exclude coverage for the insured's liability for negligent entrustment of an automobile to another. [E]ven though the immediate cause of the injury ... was ... operation of the automobile, the legal theory of liability, which was well recognized under Kansas law, was not excluded by the policy. 214 Kan. at 150. Thus, the rule taken from Upland is that the theory of liability rather than the cause of the accident governs coverage. Where a policy seeks to exclude coverage for an accident arising out of the use of an automobile, coverage will still be found if the theory of liability establishes negligence independent of the use of the automobile, which negligence is covered under the policy. Although Upland was a negligent entrustment case, its rule applies to claims based on negligent hiring, retention, or supervision. In this case, State Farm's contractor's policy excludes coverage for accidents arising from the use or negligent entrustment of an automobile, but does not exclude coverage for the negligent hiring, retention, or supervision of an employee. Under Upland, it makes no difference that the accident was causally related to the use of an automobile because the theory of liability is negligent hiring, retention, or supervision based on the independent negligence of Sharon Auck. Upland is the rule in Kansas. The negligence alleged in this case is that of negligent supervision, hiring, or retention, which is negligence separate and distinct from negligence of the driver whose action caused the injury. Negligent supervision, hiring, or retention is a recognized cause of action under Kansas law; its focus is upon the actions of someone other than the person whose negligence caused the injury. In Upland, where the insured's liability was premised upon a legal theory separate and distinct from the liability excluded by the policy, the policy provided coverage for that claim. Thus, under Upland, we recognized that the policy provisions excluded coverage for negligent claims against the driver but it did not exclude coverage for the distinct and separate liability theory of negligent entrustment. State Farm contends that our decision in Upland should be limited and has been limited by the Court of Appeals and federal district court in cases which were decided after Upland. See U. S. Fidelity & Guar. Co. v. Heltsley, 733 F. Supp. 1418 (D. Kan. 1990); State Farm Mut. Auto. Ins. Co. v. Cummings, 13 Kan. App.2d 630, 778 P.2d 370 (1989). Upland is a minority rule in its recognition that policy provisions excluding coverage for the use of an automobile owned or operated by any insured do not necessarily exclude coverage for the distinct and separate liability theory of negligent entrustment. Perhaps the case which best expresses the majority rule and reasoning, and one relied upon by State Farm, is Oakley Transport v. Zurich Insurance Co., 271 Ill. App.3d 716, 648 N.E.2d 1099 (1995). In Oakley, the court interpreted an exclusion similar to the one we now consider in this case. It noted that the employer's negligent supervision could not be divorced from its employee's negligent driving of the vehicle and, thus, coverage was excluded: In legal terms, the negligent use of the vehicle, which is directly excluded under the policy [as it is in State Farm's contractor's policy] is the nexus between the supervisor and the supervisee. Because the claim for negligent supervision is not independent of, but inextricably intertwined with, the employee's use of the truck, any breach by the employer to supervise such use is necessarily deemed to have arisen therefrom. The majority of decisions from other jurisdictions which have considered the identical issues in factually analogous situations have likewise held that the `auto' exclusion precludes coverage. [Citations omitted.] Accordingly, the claims of negligent supervision against Oakley are excluded from coverage under the `auto' exclusion. 271 Ill. App.3d at 727. In arriving at its decision, the court distinguished between the various different policies and purpose: Standard commercial liability policies are issued to cover all hazards incident to the operation of a business with the exception of certain excluded risks, including those involved in the ownership, maintenance, use or entrustment of an `auto.' The premium charged by the CGL insurer reflects the underwriting objective of placing automobile accidents beyond the scope of coverage. These latter risks involve unique hazards to which the general business of the insured is not subject. For that reason, they are generally covered as a special class by an automobile liability policy or, as in this case, a trucker's liability policy. 271 Ill. App.3d at 726. See Standard Mutual Ins. Co. v. Bailey, 868 F.2d 893 (7th Cir. 1989), for a lengthy discussion of the rationale of the majority rule. We acknowledge that Kansas remains in a minority position with reference to this exclusion. However, as late as 1992, this court had an opportunity to revisit Upland in Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689. We recognized again in Catholic Diocese of Dodge City that the coverage for parents' liability for negligent supervision of their child was sufficient to invoke coverage even though the intentional act of the child in causing damage to a school was excluded from coverage. We held that even though the intentional acts exclusion would exclude coverage of the child's liability, the policy did not exclude coverage for the separate and distinct theory of negligent supervision liability of the parents. In affirming Upland, we held that unlike other states, Kansas does not look to the underlying cause of the injury to determine coverage, but to the specific theory of liability. 251 Kan. at 697. While the contractor's policy in this case specifically included negligent entrustment of an automobile, it did not exclude the well recognized theory of liability on which coverage is premised in this case. Kansas law recognizes negligent supervision as a separate and distinct theory in addition to theories of negligent hiring and negligent retention. Anspach v. Tomkins Industries, Inc., 817 F. Supp. 1499, 1519-20 (D. Kan. 1993); Kansas State Bank & Tr. Co. v. Specialized Transportation Services, Inc., 249 Kan. 348, 819 P.2d 587 (1981). Negligent supervision includes not only the failure to supervise but also the failure to control persons with whom the defendant has a special relationship, including the defendant's employees or persons with dangerous propensities. See Nero v. Kansas State University, 253 Kan. 567, 861 P.2d 768 (1993); J. W. v. State, 253 Kan. 1, 853 P.2d 4 (1993). The principle expressed in Nero applies with equal force in this case. Theories of negligent supervision or control and negligent hiring or negligent retention of employees are separate and distinct from theories of liability of negligent entrustment. Negligent entrustment occurs when an owner of an automobile allows a third party to drive it while knowing the driver to be incompetent, careless, or reckless. McCart v. Muir, 230 Kan. 618, Syl. ¶ 1, 641 P.2d 384 (1982). At the time the insurance contract was entered into by the parties, the law of Kansas was clearly established. State Farm specifically excluded negligent supervision in its homeowner's policy but did not specifically exclude negligent supervision in the contractor's policy. We agree with the conclusion of the trial court that coverage was owed. This conclusion is supported by our decisions in Upland and Catholic Diocese of Dodge City. Statute of Limitations, Estoppel, and Laches State Farm also argues that if neither the agreement or the policy is held to bar the plaintiffs' claim for negligent hiring, retention, or supervision, the claim should be barred by the statute of limitations. According to State Farm, since no claim was filed against Sharon Auck in the petition, and the 2-year statute of limitations found in K.S.A. 60-513 has expired, any claim for negligent hiring, retention, or supervision is barred. The argument is without merit. Even though the plaintiffs' petition did not state a cause of action for negligent entrustment, Sharon Auck was a proper defendant on a respondeat superior theory. Amendments to the pleadings which would have related back to the date of the original pleading were available to the plaintiffs. See K.S.A. 60-215. More importantly, however, this matter is not a tort action but one sounding in contract based on the settlement agreement. The parties agreed to submit the issues to the district court for a decision on whether coverage existed. We have determined that the settlement agreement allowed the plaintiffs to assert claims of negligent hiring, retention, or supervision. The statute of limitations affirmative defense has been waived by the settlement agreement. State Farm also contends that the plaintiffs' assertion of a claim for negligent hiring, retention, or supervision is barred by equity. State Farm argues that both laches and estoppel should operate to bar such an assertion. According to its argument, because the plaintiffs did not mention claims for negligent hiring, retention, or supervision, plaintiffs should not now be able to do so, as a matter of fairness. However, the question is not one of fairness but rather involves a question of law involving the interpretation of the agreement entered into by the parties. Under the contract agreement, the parties removed the facts from the case and agreed to pay in the event the court determined that coverage was owed under either policy. Estoppel, laches, or other equitable considerations are not involved.