Farmer ex rel. Hansen v. Allstate Ins. Co.

• Decision Date: 05 February 2004
• Docket Number: No. CV 03-05764-SVW.,CV 03-05764-SVW.
• Citation: 311 F.Supp.2d 884
• Court: U.S. District Court — Central District of California
• Parties: Ashley L. FARMER, a Minor, by and through her Guardian ad Litem, Andrea HANSEN, Plaintiff, v. ALLSTATE INSURANCE COMPANY, an Illinois Corporation, Defendant.

Page 884

311 F.Supp.2d 884

Ashley L. FARMER, a Minor, by and through her Guardian ad Litem, Andrea HANSEN, Plaintiff, v. ALLSTATE INSURANCE COMPANY, an Illinois Corporation, Defendant.

No. CV 03-05764-SVW.

United States District Court, C.D. California.

February 5, 2004.

Luce, Forward, Hamilton & Scripps LLP by Peter H. Klee and Joseph E. Foss, San Diego, CA, for Defendant Allstate Insurance Company.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT.

WILSON, District Judge.

I. Introduction

On August 14, 2003, Plaintiff Ashley L. Farmer ("Plaintiff"), by and through her Guardian ad Litem Andrea Hansen, brought this action for enforcement of a judgment pursuant to Cal. Ins.Code § 11580 and for breach of contract against Defendant Allstate Insurance Co. ("Defendant"). Plaintiff seeks damages against Defendant in the amount of $100,000, plus interest thereon, in satisfaction of a judgment rendered in an underlying lawsuit.¹

Now before the Court are the parties' cross-motions for summary judgment, which each present the question whether as a matter of law Defendant had the duty to defend or indemnify its insured in an underlying lawsuit brought by Plaintiff.

II. Background

A. Facts²

During the period of time relevant to this action, Nadine Varela ("Mrs. Varela") operated a state licensed child day care business out of the home in which lived with her husband Carlos Varela ("Mr. Varela"). At such time, the Varelas were insured under an Allstate Deluxe Homeowners Policy (the "Varela Policy"), which included an endorsement for home day care coverage.

Between September 1996 and August 1998, Mr. Varela sexually molested Plaintiff³ on numerous occasions while she attended the day care service and was, thereby, in the care custody and control of Mrs. Varela. In September 1998, Mr. Varela was convicted under Cal.Penal Code § 288.5 and sentenced to six years in prison for sexually molesting Plaintiff.

On October 30, 1998, Andrea Hansen, on behalf of Plaintiff, filed a personal injury action in Los Angeles County Superior Court against Mrs. Varela, individually and dba Varela Family Care, and against Mr. Varela (the "underlying action"). The underlying action included causes of action for assault and battery against Mr. Varela and for intentional infliction of emotional distress, negligent infliction of emotional distress, negligence, and premise liability against both Mr. and Mrs. Varela. Among the allegations in the complaint was that the incidents of molestation occurred because Mrs. Varela negligently supervised Plaintiff.

Mrs. Varela subsequently tendered her defense of the underlying action to Defendant. In a letter dated December 29, 1998, Defendant informed Mrs. Varela of its decision not to defend or indemnify her in the underlying action because (1) there was no "occurrence" to trigger coverage; (2) coverage was barred by Cal. Ins.Code § 533⁴; (3) coverage was barred by the Varela Policy's intentional/criminal acts exclusion; and (4) coverage was barred by the Home Day Care Coverage Endorsement's exclusion for sexual molestation.

The underlying action proceeded to trial in April 2000. On April 26, 2000, the Superior Court rendered a Statement of Decision, setting forth its statement of factual findings and legal conclusions. The trial court found that Mr. Varela "touched [Plaintiff] in a sexually offensive manner, on no less than three occasions" and, therefore, that Mr. Varela had "sexually battered" Plaintiff. (JSUF, Ex. 4).

As to Mrs. Varela, the trial court's findings included a determination that "[a]t all times while [Plaintiff] was on the Premises, she was within the care, custody and control of Nadine Varela." (JSUF, Ex. 4). The trial court also found that Plaintiff "sustained physical and emotional injury while within the care, custody and control of Nadine Varela." (JSUF, Ex. 4). The trial court listed the "legal basis" for its decision as follows:

A. Nadine Varela negligently failed to use ordinary care or skill in the management of Ashley L. Farmer and as a result thereof, Ashley L. Farmer was injured.

B. Nadine Varela negligently permitted a dangerous condition to exist on her Premises and as a result thereof, Ashley L. Farmer was injured.

(JSUF, Ex. 4 at 2).

Accordingly, the trial court entered judgment for Plaintiff. Judgment was entered severally against Mr. Varela for $400,000, plus costs and post-judgment interest, and severally against Mrs. Varela for $100,000 plus costs and post-judgment interest.

On January 15, 2003, Plaintiff obtained an assignment from Mrs. Varela of all her rights against Defendant under the Varela Policy. Plaintiff, through her Guardian ad Litem, then brought this action on August 14, 2003 to enforce the $100,000 judgment against Mrs. Varela, none of which amount has paid to date.

B. The Varela Policy

The Varela Policy was issued by Defendant on or about May 17, 1996. Nadine Varela and Carlos Varela are named as the insured persons under the Varela Policy.

The Varela Policy provides that it covers an "insured person" for liability arising from an "occurrence":

Subject to the terms, conditions and limitations of this policy, Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.

(JSUF, Ex. 2 at 27).

In turn, the Varela Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage." (JSUF, Ex. 2 at 4).

In addition to offering the standard coverages of a homeowners' policy, the Varela Policy affords coverage to Mrs. Varela's day care business through its "Home Day Care Coverage Endorsement." The Endorsement extends coverage of the Varela Policy "to apply to the home day care business conducted by an insured person at the residence premises." (JSUF, Endorsement at 1). Pursuant to the Endorsement, the Varela Policy limit for Mrs. Varela's home day care coverage is $100,000.

The Endorsement covers "bodily injury and property damage arising out of the operation of a home day care business by an inured person at the residence premises for which the insured person receives monetary or other compensation." (JSUF, Endorsement at 2). However, the Endorsement expressly precludes coverage for injury or damage arising out of sexual molestation, stating: "We do not cover bodily injury or property damage arising out of sexual molestation, corporal punishment or physical or mental abuse inflicted upon any person by or at the direction of an insured person, an employee of an insured person or any other person involved in any capacity in the home day care business." (JSUF, Endorsement at 2).

The Varela Policy contains three other provisions relevant to this action. First, the policy excludes coverage for intentional or criminal acts:

We do not cover any bodily injury or property damage intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of, any insured person.... This exclusion applies regardless of whether or not such insured person is actually charged with, or convicted of a crime.

(JSUF, Ex. 2 at 27).

Additionally, the Varela Policy contains a "Joint Obligations" provision: "The terms of this policy impose joint obligations on persons defined as an insured person. This means that the responsibilities, acts and failures to act of a person defined as insured person will be binding upon another person defined as an insured person." (JSUF, Ex. 2 at 5).

Finally, the Varela Policy obligates Defendant to defend a suit for covered damages "We may investigate or settle any claim or suit for covered damages against an insured person. If an insured person is sued for these damages, we will provide a defense with counsel of our choice, even in the allegations are groundless, false or fraudulent." (JSUF, Ex. 2 at 27).

C. Cross-Motions Before the Court

Plaintiff states that the issue now before the Court is whether, in declining to defend Mrs. Varela in the underlying action and indemnify her for the judgment rendered against her, Defendant breached its contractual obligation to Mrs. Varela. In making this determination, Plaintiff states that the Court must answer three questions of law: (1) Whether the Varela Policy and the Home Day Care Coverage Endorsement (the "Endorsement") covered Mrs. Varela's negligent supervision of Plaintiff or the negligent allowance of a dangerous premises condition at issue in the underlying action; (2) Whether because of Defendant's refusal to defend Mrs. Varela in the underlying civil action, Defendant is bound by the factual determinations made by the trial court; and (3) Whether Plaintiff is entitled to judgment as a matter of law.

Defendant argues that Plaintiff's claims fail as a matter of law and that there was no potential for coverage for four reasons. First, because Mr. Varela's conduct was not an "accident," there was no injury-causing "occurrence" to trigger coverage. Second, the Varela Policy states where an insured person sexually molests someone, there is no coverage for any insured. Third, an intentional or criminal act by any insured bars coverage under the Varela Policy for all insureds. Fourth, the Varela Policy's "joint obligations" provision expressly imputes Mr. Varela's non-accidental, uncovered conduct to Mrs. Varela and, therefore, Mr. Varela's conduct precludes coverage for the actions of both Mr. and Mrs. Varela.

III. Discussion

A. Legal Standard

Rule 56(c) requires summary judgment for the moving party when the evidence, viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue as to any material fact, and that the moving party is...