Court Opinion

ID: 4405238
Source: CourtListenerOpinion
Date Created: 2019-06-10 20:00:42.016701+00
Date Added: 2024-06-11T14:52:35.472212
License: Public Domain

UNITED STATES COURT OF APPEALS                     FILED
                             FOR THE NINTH CIRCUIT                        JUN 10 2019
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS

HOLLY BAYES,                                     No.    17-56035

               Plaintiff-Appellee,               D.C. No.
                                                 2:16-cv-03525-RGK-AGR
    v.

STATE FARM GENERAL INSURANCE
COMPANY, an Illinois Corporation,                MEMORANDUM*

               Defendant-Appellant.

                     Appeal from the United States District Court
                        for the Central District of California
                     R. Gary Klausner, District Judge, Presiding

                       Argued and Submitted December 6, 2018
                                Pasadena, California

Before: RAWLINSON and BEA, Circuit Judges, and RICE, ** Chief District
Judge.
         Appellee Holly Bayes 1 is the mother of a child molested by Cooper Potter.

Cooper’s mother, Susan Potter, operated a small child-care facility in her Ventura,

         *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.

         **
             The Honorable Thomas O. Rice, Chief United States District Judge
for the Eastern District of Washington, sitting by designation.
1
         Acting in the capacity as guardian ad litem and mother of Jane Doe.
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California rental home where she and her son lived. Ms. Potter, however, would

periodically leave her home, leaving the children unsupervised and alone with her

adult son Cooper. Cooper went to prison; Susan has closed her business.

      Susan and Cooper Potter were insured under a Renters Policy issued by

Appellant State Farm. Susan purchased a Child Care Liability Endorsement that

extended to cover “bodily injury, property damage, and medical expense coverages

arising out of child care services” provided by an insured from the premises. The

Endorsement included a “Sexual Molestation Exclusion” which stated:

      Sexual Molestation Exclusion. We do not cover bodily injury,
      property damage, or medical expense arising out of or resulting from
      the actual, alleged or threatened sexual molestation of a minor by:
         a. any insured;

                                             * * *

      We have no duty to defend or settle any sexual molestation claim or
      suit against any insured. . .

      Holly Bayes filed a civil complaint against Cooper and Susan Potter in state

court. The complaint alleged only a single cause of action against Susan on the

theory that Susan’s negligent supervision proximately caused the sexual assault.

Susan Potter tendered defense of the suit to State Farm. Given the Sexual

Molestation Exclusion, inter alia, State Farm determined there was no coverage

and denied the tender. Susan Potter then entered into a settlement with Holly

Bayes, conceded liability and assigned her claims against State Farm to Holly
                                         2
Bayes. In exchange, Holly Bayes agreed to refrain from collecting the settlement

amount from Susan Potter.

         Holly Bayes then filed suit in federal court against State Farm alleging

breach of contract, breach of the implied duty of good faith and fair dealing and

also sought punitive damages. The district court granted summary judgment to

State Farm on all claims except the breach of contract claim. The district court

determined there was an “interpretive ambiguity” created by the California

Supreme Court in Minkler v. Safeco Insurance Co. of America, 232 P.3d 612 (Cal.

2010), which prevented summary judgment for State Farm. The parties then

entered into a stipulated judgment on the breach of contract claim to avoid the

expense of trial and to allow an immediate appeal by State Farm on this single

issue.

         The resolution of this case turns on the California Supreme Court’s decision

in Minkler, so a brief explanation of that case is in order. Scott Minkler (Scott)

sued David Schwartz (David) and David’s mother, Betty Schwartz (Betty),

alleging that David, an adult, sexually molested Scott, then a minor. The

complaint alleged, among other things, that some of the acts of molestation

occurred in Betty’s home, and as a result of Betty’s negligent supervision.

         Betty was the named insured under a series of homeowners policies issued

by Safeco Insurance Company of America, and David was an additional insured.

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The policies’ liability coverage provisions promised to defend and indemnify,

within policy limits, “an” insured for personal injury or property damage arising

from a covered “occurrence,” but they specifically excluded coverage for injury

that was “expected or intended” by “an” insured, or was the foreseeable result of

“an” insured’s intentional act. The California Supreme Court explained that absent

contrary evidence, in a policy with multiple insureds, exclusions from coverage

described with reference to the acts of “an” or “any,” as opposed to “the,” insured

are deemed under California law to apply collectively, so that if one insured has

committed acts for which coverage is excluded, the exclusion applies to all

insureds with respect to the same occurrence. Id. at 614. A wrinkle occurred with

this legal analysis because the policies contained a severability-of-interests or

“separate insurance” clause providing that “[t]his insurance applies separately to

each insured.” Thus, the California Supreme Court formulated the question to be

answered as follows: “Where a contract of liability insurance covering multiple

insureds contains a severability clause, does an exclusion barring coverage for

injuries arising out of the intentional acts of ‘an insured’ bar coverage for claims

that one insured negligently failed to prevent the intentional acts of another

insured?” Id. at 616-17.

      The Court held that because the severability clause stated that “[t]his

insurance” was “separately” applicable to “each insured,” each person the policies

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covered would be treated, for all policy purposes, as if he or she were the sole

person covered, i.e., that in effect, each insured had an individual policy whose

terms applied only to him or her. Thus, the California Supreme Court held that

Betty would reasonably have expected the policies “to cover her separately for her

independent acts or omissions causing such injury or damage, so long as her

conduct did not fall within the policies’ intentional acts exclusion, even if the acts

of another insured contributing to the same injury or damage were intentional.” Id.

at 618 (emphasis in original). Significantly, the California Supreme Court

observed that because “Betty’s policies did not contain a specific exclusion for

claims arising from sexual molestation . . . nothing we hold in this case concerns

how an exclusion framed in those terms should be construed.” Id. at 619.

      In this case, Susan and Cooper Potter’s Renters Policy expressly excluded

injury or damage “arising out of or resulting from the actual, alleged or threatened

sexual molestation of a minor by [] any insured . . .We have no duty to defend or

settle any sexual molestation claim or suit against any insured . . .” Applying the

severability-of-interests or “separate insurance” clause to each, Susan and Cooper

Potter, alongside the Sexual Molestation Exclusion does not result in any

ambiguity. State Farm expressly excluded coverage for this type of damage or

injury, regardless of the theory for liability.

      REVERSED AND REMANDED for Judgment in favor of State Farm.

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                                                                            FILED
                                                                             JUN 10 2019
Bayes v. State Farm General Insurance, No. 17-56035
                                                                        MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS
BEA, Circuit Judge, dissenting.

      Were we deciding this case on a blank slate, I would likely agree with my

colleagues that the State Farm Policy’s Sexual Molestation Exclusion

unambiguously excludes Susan Potter from coverage for claims arising from acts

of sexual molestation committed by her adult son Cooper. But this case does not

come to us on a blank slate. In my view, notwithstanding the California Supreme

Court’s attempt to limit its holding in Minkler v. Safeco Insurance Co., 232 P.3d
612 (Cal. 2010), Minkler’s reasoning forecloses the facile conclusion the majority

reaches today. Rather than simply apply Minkler, however, I would certify the

question presented to the California Supreme Court.

      State Farm’s insurance contract includes a severability clause stating that

“[t]his insurance” is “separately” applicable to “each insured.” In light of the

severability clause, must the Policy’s exclusions be applied separately to each

insured, i.e., “as if he or she were the only insured” under the Policy? See Minkler,
232 P.3d at 618 (emphasis added). If so, Susan Potter cannot be barred from

coverage under the Sexual Molestation Exclusion for Cooper’s acts. Treated “as

if . . . she were the only insured,” Susan’s conduct does not implicate the exclusion

barring coverage for claims arising from “sexual molestation of a minor by . . . any

insured.”

                                          1
      The insurance contract in Minkler contained an identical severability clause.

And Minkler held that the severability clause requires courts to apply “all

provisions of the policies”—including Policy exclusions—to each insured “as if he

or she were the only insured.” Id. Accordingly, on virtually identical facts to the

present action, the California Supreme Court held that a coverage exclusion for

intentional acts did not bar coverage to one insured for claims arising out of acts of

sexual molestation committed by another insured. A faithful application of

Minkler’s reasoning would seem to compel the same conclusion here.

       Now, Minkler did purport to limit its holding to its “specific

circumstances,” id. at 621 n.5, and to say “nothing” about how a case involving a

sexual molestation (rather than an intentional acts) exclusion should be decided.

But limitation language may well not produce law. “[T]he rationale that carries the

force of precedent is that ‘without which the judgment in the case could not have

been given’”—not what the court happens to say. BRYAN GARNER ET AL., THE LAW

OF JUDICIAL PRECEDENT 84 (2016).    And Minkler’s reasoning turned not on the

wording of the relevant exclusion, but on its conclusion that the phrase “[t]his

insurance” in an identically-worded severability clause covers “all provisions of

the policies,” including exclusions. On the majority’s view, when an insurance

contract includes an intentional acts exclusion, the phrase “this insurance” in a

severability clause means all policy provisions. See Minkler, 232 P.3d at 618. Yet

                                          2
when the contract includes a sexual molestation exclusion, the phrase “this

insurance” magically takes on a different meaning—and, apparently, no longer

applies to the contract’s exclusions. That cannot be right.

      I recognize it would be odd to reach a result seemingly compelled by the

reasoning of a case that carefully stated it was saying “nothing” about this very

circumstance. But neither the majority nor any other court to consider the same

question has explained how a contrary result can be squared with Minkler’s basic

premise: A severability clause requires us to apply the Policy’s exclusions to each

insured as if she were the only insured. See, e.g., Maj. Op. at 4-5 (declaring

contract unambiguous without explanation); RLI Insurance Co. v. Romero, 10

2017 WL 3579549, C.D. Cal. (July 10, 2017) (same); Safeco Insurance Co. v.

Thomas, 11 2013 WL 12123852, S.D. Cal. (Nov. 26, 2013) (same).

       In the face of conflicting federal district court decisions and a quandary

caused by the California Supreme Court’s opinion, I would have certified the

question to the state court to clear it up. If Minkler is merely, as it purports to be, a

“restricted railroad ticket, good for this day and train only,” County of Washington

v. Gunther, 452 U.S. 161, 182 (1981) (Rehnquist, J., dissenting), then it has done

little to clarify this commonly litigated area of law. Because I think certification

the more prudent course, I respectfully dissent.

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