BMB v. State Farm Fire and Cas. Co.

• Decision Date: 10 July 2003
• Docket Number: No. C3-03-92.,C3-03-92.
• Parties: B.M.B., Plaintiff, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
• Court: Minnesota Supreme Court

664 N.W.2d 817

B.M.B., Plaintiff, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

No. C3-03-92.

Supreme Court of Minnesota.

July 10, 2003.

Robert J. Hennessey and Mark H. Zitzewitz, Lindquist & Vennum, PLLP, Minneapolis, MN, for Plaintiff.

C. Todd Koebele and William L. Moran, Murnane, Conlin, White and Brandt, P.A., St. Paul, MN, for Defendant.

Mary B. Mahler, Quinlivan & Hughes P.A., St. Cloud, MN, Amicus Curiae.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, RUSSELL A., Justice.

Plaintiff B.M.B. obtained a judgment, in state district court, against Ronald K. Halliday for compensatory and punitive damages resulting from Halliday's nonconsensual sexual contact with B.M.B. Halliday's insurer, defendant State Farm Fire and Casualty Company (State Farm), denied coverage. Halliday then assigned his State Farm policy rights to B.M.B., who commenced suit for breach of insurance contract in federal district court against State Farm. The federal district court denied State Farm's motion for summary judgment on grounds that the policy's intentional act exclusion precluded coverage, but at State Farm's request, has asked us the following certified question:

Where insurance coverage is being or has been sought for personal injury or bodily harm resulting from an insured's nonconsensual sexual contact with another, can the trial court submit to a jury the question of whether the insured's acts were "unintentional" because of mental illness as set forth in the holding of State Farm Fire & Casualty Co. v. Wicka, 474 N.W.2d 324 (Minn. 1991), and therefore outside the scope of an insurance policy's intentional act exclusion, or must the court infer the insured's intent to cause injury as a matter of law?

We answer and hold that where insurance coverage is being or has been sought for personal injury or bodily harm resulting from an insured's nonconsensual sexual contact with another, and where there is a genuine issue of material fact as to whether the insured's acts were "unintentional" because of mental illness, as set forth in the holding of State Farm Fire & Cas. Co. v. Wicka, 474 N.W.2d 324 (Minn.1991), and therefore outside the scope of an insurance policy's intentional act exclusion, the trial court shall submit the issue to the jury and is not, as a matter of law, to infer the insured's intent to cause injury.

I.

B.M.B. was 10 years old in June 1992, when she visited her uncle Ronald K. Halliday, a practicing anesthesiologist, and his family in Faribault, Minnesota. During the visit, Halliday sexually abused B.M.B. At the time B.M.B. was abused by Halliday, he was a named insured under a personal liability umbrella policy issued by defendant State Farm.

In June 1995, B.M.B's parents commenced a civil lawsuit in Rice County District Court against Halliday.¹ Halliday sought coverage from State Farm. State Farm declined to provide coverage, questioning, among other things, whether the incidents were "expected or intended" by Halliday or were the result of Halliday's "willful and malicious" acts, and denied it had any duty to defend or indemnify Halliday.² The jury returned a verdict against Halliday and awarded B.M.B. $100,000 in compensatory damages, reduced by the court to $95,000, and $1,500,000 in punitive damages.

In June 1999, Halliday assigned to B.M.B.'s parents his rights, if any, to proceeds under his State Farm umbrella policy. B.M.B.'s attorney sent a demand letter to State Farm asserting that Halliday suffered from a mental illness at the time he abused B.M.B. in 1992 and claiming that, therefore, the policy's exclusion for expected or intended acts did not apply. State Farm did not alter its position that coverage did not exist, and B.M.B. brought this action against State Farm in federal district court, alleging that State Farm breached its duty to defend and indemnify Halliday in the underlying civil sexual abuse litigation in Rice County.

B.M.B. presented expert testimony from Dr. Thomas Gratzer, a psychiatrist, who concluded that Halliday had psychiatric disorders at the time of the abuse that prevented him from controlling his actions:

[S]exual offenders represent a diverse group of individuals. Paraphilias³ [sic] represent a small subset of sex offenders who meet the diagnostic criteria for a * * * sexual disorder. In my opinion, Mr. Halliday's aberrant sexual behaviors are a function of his sexual disorders. He shows a multiplicity of sexual disorders including pedophilia, voyeurism, paraphilic disorder n.o.s.,⁴ and sexual disorder n.o.s. Mr. Halliday's offense pattern * * * is consistent with his paraphilic disorders and indicates a substantial lack of control.⁵

(Footnotes added.)

On September 30, 2002, the federal district court denied State Farm's summary judgment motion. State Farm alleged that it had no duty under the policy to defend or indemnify Halliday because: (1) the policy contained an intentional act exclusion precluding coverage for personal injury that was "either expected or intended by [Halliday]," and (2) in Minnesota, the requisite intent for purposes of an intentional act exclusion is inferred as a matter of law in cases of nonconsensual sexual contact. In deciding the motion, the court considered Wicka, 474 N.W.2d 324 (Minn.1991), which held that

for the purposes of applying an intentional act exclusion contained in a homeowner's insurance policy, an insured's acts are deemed unintentional where, because of mental illness or defect, the insured does not know the nature or wrongfulness of an act, or where, because of mental illness or defect, the insured is deprived of the ability to control his conduct regardless of any understanding of the nature of the act or its wrongfulness.

Id. at 331. The court denied summary judgment, concluding that Wicka applied under the facts of the case and there was a genuine issue of material fact as to whether Halliday's acts could be deemed "unintentional" because of mental illness, precluding the applicability of the policy's intentional act exclusion.

State Farm moved to certify two questions. The district court, granting the motion in part, certified the following question to this court

Where insurance coverage is being or has been sought for personal injury or bodily harm resulting from an insured's nonconsensual sexual contact with another, can the trial court submit to a jury the question of whether the insured's acts were "unintentional" because of mental illness as set forth in the holding of State Farm Fire & Casualty Co. v. Wicka, 474 N.W.2d 324 (Minn. 1991), and therefore outside the scope of an insurance policy's intentional act exclusion, or must the court infer the insured's intent to cause injury as a matter of law?

II.

A certified question is a question of law which we review de novo. Conwed Corp. v. Union Carbide Chems. & Plastics Co., 634 N.W.2d 401, 406 (Minn.2001); Dohney v. Allstate Ins. Co., 632 N.W.2d 598, 600 (Minn.2001). Construction of an insurance contract, the underlying issue, is also a legal issue subject to de novo review. Dohney, 632 N.W.2d at 600.

We begin our analysis with a brief overview of applicable insurance law principles. Where a comprehensive general liability policy contains an intentional act exclusion, there is no coverage for injury where the insured acts with the specific intent to cause bodily injury. 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 201:18, at 201-41 (3d ed.1999); Woida v. North Star Mut. Ins. Co., 306 N.W.2d 570, 573 (Minn.1981); see also Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 612 (Minn.2001)

(quoting Tower Ins. Co. v. Judge, 840 F.Supp. 679, 690 (D.Minn.1993) ("[T]he question whether [the victim's] death was an `accident' and the question whether the intentional act exclusions apply are, for all practical purposes, identical issues.")). The specific intent to cause injury requires "that the insured intended the harm itself, not that the insured intended to act." Wicka, 474 N.W.2d at 329; accord Caspersen v. Webber, 298 Minn. 93, 98-99, 213 N.W.2d 327, 330 (1973); see, e.g., Walser, 628 N.W.2d at 613 (agreeing with the district court finding that Walser acted intentionally but not with the specific intent to cause injury). Under this subjective standard, the intent to injure may be established: (1) by proof of an actual intent to injure, or (2) by inferring intent as a matter of law. Wicka, 474 N.W.2d at 329; Woida, 306 N.W.2d at 573. Whether proven directly or inferred, intent to cause injury "reflects the insured's state of mind about the desired harmful consequences of an action by the insured." Wicka, 474 N.W.2d at 329.

The general rule is that intent is inferred as a matter of law "when the nature and circumstances of the insured's act [are] such that harm [is] substantially certain to result." R.W. v. T.F., 528 N.W.2d 869, 872 (Minn.1995); see also Am. Family Mut. Ins. Co. v. Peterson, 405 N.W.2d 418, 420 (Minn.1987)

. In such cases, the court holds as a matter of law that the insured's conduct comes within the intentional act exclusion of a liability policy. Id. at 421.

In Woida, for example, the court inferred intent to cause injury where the insured made a plan with others to fire shots at a truck he knew to be occupied and fired several shots at the truck from a high-powered rifle. 306 N.W.2d at 571, 573-74. In Iowa Kemper Insurance Co. v. Stone, the court affirmed the trial court's determination that the insured demonstrated intent to cause injury where, after agreeing to settle a dispute by fighting, the insured wrapped his fist with his belt and struck another, causing injury. 269 N.W.2d 885, 886-87 (Minn.1978). In Continental Western Insurance Co. v. Toal, the court concluded that intent to cause bodily injury could be inferred where the insureds had planned an armed robbery at a bowling alley and knew that their weapons were loaded and that someone might be harmed or killed, even though they...