J. C. Penney Casualty Ins. Co. v. M. K.

• Decision Date: 05 February 1991
• Docket Number: No. S010524,S010524
• Citation: 278 Cal.Rptr. 64,804 P.2d 689,52 Cal.3d 1009
• Court: California Supreme Court
• Parties: , 804 P.2d 689 J.C. PENNEY CASUALTY INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. M.K., a Minor, etc., Defendant, Cross-complainant and Appellant; S.K. et al., Defendants, Cross-complainants and Respondents.

Page 64

278 Cal.Rptr. 64

52 Cal.3d 1009, 804 P.2d 689

J.C. PENNEY CASUALTY INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. M.K., a Minor, etc., Defendant, Cross-complainant and Appellant S.K. et al., Defendants, Cross-complainants and Respondents.

No. S010524.

Supreme Court of California In Bank.

Feb. 5, 1991.

Handelman & Bacon, Lawrence K. Handelman, Palo Alto, Kenneth E. Bacon, Sacramento, Henry K. Gaus, Walnut Creek, and Susan H. Handelman, Atherton, for plaintiff, cross-defendant and appellant J.C. Penney.

Horvitz & Levy, Peter Abrahams, Barry R. Levy, David M. Axelrad, Mitchel C. Tilner, Fred J. Hiestand, McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, Jeffrey T. Hammerschmidt Monaghan & Metz, Monaghan & Strauss, David P. Strauss, Elizabeth E. Kline, Linda G. Workman, Michael H. Crosby and Brian D. Monaghan, San Diego, for defendant, cross-complainant and appellant M.K.

[804 P.2d 690] Wasserman, Comden & Casselman, Chris Bennington, Glenn A. Brown, Jr., Richard D. Lester, Paul Kujawsky, Sonnenschein, Carlin, Nath & Rosenthal, Paul E.B. Glad, Alan M. Posner, and Michael J. Hassen, amicus curiae, on behalf of plaintiff, cross-defendant and appellant.

Ann Haralambie, Harry R. Levine, Douglas DeVries, Leonard Sacks, Bruce Broillett, Ian Herzog, Robert Steinberg, Roland Wrinkle, Judith A. Rowland, Linda Hughes, Robert C. Fellmeth, Terry A. Coble, and Mark McWilliams, amicus curiae, on behalf of defendant, cross-complainant and appellant.

Lance C. Schaeffer, San Diego, for defendants, cross-complainants and respondents.

EAGLESON, Associate Justice, Assigned. ^*

A 39-year-old man sexually molested a 5-year-old girl on 20 to 25 separate occasions over a period of approximately 9 months. The man admitted that he intended to molest the girl and that none of his sexual acts with her were accidents. He pleaded guilty to criminal charges (Pen.Code, § 288, subd. (a)) and was sentenced to prison. In a subsequent civil action, he was ordered to pay $500,000 to the child and her mother.

The narrow issue before us is whether the insurer that issued a homeowner's policy to the molester is obligated under the policy to pay the amount of that judgment. The insurer contends the homeowner's policy and Insurance Code section 533 exclude coverage for intentional acts and that sexual molestation of a child is intentional. The child and her mother contend the molestations were not intentional because the molester meant no harm and his repeated debauchery of the child was merely a misguided attempt to show love and affection for her.

We hold that insurers are not required to indemnify their insureds for damages caused by an insured's sexual molestation of a child. Insurance Code section 533 precludes coverage. This result is also consistent with near unanimous precedent in this state and others.

FACTS

In September 1984, M.K., then a five-year-old girl, told her mother, S.K., that the girl had been sexually molested by an adult male neighbor, R.H. ¹ He was a friend of the mother and had often babysat the girl. R.H. was charged with eight counts of willfully committing lewd or lascivious acts with a child under the age of fourteen years in violation of Penal Code section 288, subdivision (a). ² R.H. pled guilty to one count in a plea bargain that dismissed the other seven counts. He was sentenced to prison for six years.

Before the molestations, J.C. Penney Casualty Insurance Company (hereafter J.C. Penney) had issued to R.H. a comprehensive homeowner's policy that provided liability insurance. In December 1984, J.C. Penney sent R.H. a letter reserving J.C. Penney's rights on the issue of insurance coverage for any civil liability that might be imposed on R.H. The letter stated in The reservation-of-rights letter also stated J.C. Penney would appoint at its expense legal counsel to represent R.H. in the anticipated civil action against him by the molested child and her mother. J.C. Penney explained, however, that it intended to file a declaratory relief action against R.H. for the purpose of contesting coverage under the homeowner's policy. In January 1985, J.C. Penney filed a declaratory relief action against R.H. and the mother and child based on the policy exclusion for damages "either expected or intended from the standpoint of the insured." J.C. Penney also relied on Insurance Code section 533's provision that "[a]n insurer is not liable for a loss caused by the wilful act of the insured...." R.H., individually, and the mother and child, jointly, filed cross-complaints against J.C. Penney for declaratory relief.

[804 P.2d 691] pertinent part: "Under your J.C. Penney Casualty Insurance Company Homeowner's Policy No. 0956449-3, coverage is excluded, under Exclusion 1(f) of Section II of the policy, with respect 'to bodily injury or property damage which is either expected or intended from the standpoint of the insured.' ... Accordingly, J.C. Penney Casualty Insurance Company reserves its right to deny or disclaim coverage on the grounds set forth above or on any other grounds allowd [sic] by law or set forth in the text of your policy."

The mother and child filed an action for damages against R.H. in June 1985, alleging causes of action in negligence and intentional tort. R.H. admitted to fondling the girl's genitals with his hands, holding the girl over his head with his thumb inserted into her vagina, and orally copulating her. A medical examination confirmed vaginal penetration, which caused a ruptured hymen, and possible anal penetration.

Before trial the mother and child dismissed all causes of action for intentional tort and proceeded to trial only on theories of negligence and negligent infliction of emotional distress. At the start of the plaintiffs' case, R.H. stipulated that he had been negligent as to the child. Based on that stipulation, the court entered a directed verdict in the child's action that R.H. was negligent. The issue of R.H.'s negligence as to the mother was submitted to the jury, which in special verdicts found that R.H. was negligent and that his negligence was a legal cause of damage to the mother. The jury awarded $400,000 to the child and $100,000 to the mother. ³

J.C. Penney's declaratory relief action was tried in May 1987. The trial court received evidence as to R.H.'s state of mind when he molested the child. More specifically, R.H. testified in deposition, admitting the following: "Question: You intended to do what you did, correct? Answer: Yes.... Question: And you knew at the time you were doing these things that they were wrong; Isn't that correct? ... Answer: Yes, I knew it was wrong.... Question: And after most of these incidents, you would generally go to the bathroom to relieve yourself? Answer: Generally, yes. Question: Sexually? Answer: Yes. Question: Because you were aroused by what had happened? Answer: Yes." R.H. also testified, however, that he did not intend to harm the child, and a psychologist testified likewise as to R.H.'s intent.

The trial court did not base its decision on the evidence as to R.H.'s state of mind. Rather, the court found that J.C. Penney was bound by the jury's determination in the underlying action that R.H. had been negligent as to the mother because that issue had been fully litigated. In the child's action, however, the court concluded that, because R.H.'s negligence had been stipulated rather than litigated, there was merely a presumption of negligence that J.C. Penney was entitled to overcome by proper proof. The court further concluded that a violation of Penal Code section 288, including R.H.'s acts of child molestation, is a willful act as a matter of law within the meaning of Insurance Code section 533 and thereby precludes liability insurance coverage.

Both J.C. Penney and the child appealed. The Court of Appeal reversed the judgment in its entirety. The court unanimously held that J.C. Penney is not collaterally estopped from denying coverage as to either the child or mother because J.C. Penney defended the underlying action pursuant to a timely and adequate reservation of rights to deny or disclaim coverage. By a divided vote, the Court of Appeal also held that insurance coverage for R.H.'s liability to the child is not precluded as a matter of law. According to the majority, the intentional-act exclusion in the policy and in Insurance Code section 533 does not bar coverage unless the insured acts with a dual intent: (1) the intent to commit the act itself and (2) a preconceived intent to injure. The majority held that R.H.'s admission of his intent to sexually molest a five-year-old child does not necessarily establish that he also had a preconceived intent to harm the child.

J.C. Penney petitioned this court for review of the Court of Appeal's decision that insurance coverage for child molestation is not precluded as a matter of law. In their answers to the petition (Cal.Rules of Court, rule 28(e)(5)), the child and mother raised the additional issue of whether J.C. Penney is collaterally estopped by the underlying judgment against R.H. from litigating the issue of whether his conduct was intentional.

DISCUSSION

I. Effect of the underlying judgment against the insured

J.C. Penney defended the underlying action against R.H. pursuant to a reservation of the right "to deny or disclaim coverage." Defendants in the present action (the mother and child) do not dispute that the reservation of rights was timely and adequate to preserve the issue of whether coverage is precluded under the intentional acts exclusions of Insurance Code section 533 and the homeowner's policy issued to R.H. The Court of Appeal correctly held that J.C. Penney is not collaterally estopped by the underlying judgment from asserting that R.H.'s conduct was intentional rather than negligent.

"[I]f the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the...