Sena v. Travelers Ins. Co.

• Decision Date: 11 June 1992
• Docket Number: No. 91-1075-M Civil.,91-1075-M Civil.
• Parties: Flora SENA, as next friend of Lee Sena, a minor, Plaintiff, v. TRAVELERS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of New Mexico

801 F. Supp. 471

Flora SENA, as next friend of Lee Sena, a minor, Plaintiff, v. TRAVELERS INSURANCE COMPANY, Defendant.

No. 91-1075-M Civil.

United States District Court, D. New Mexico.

June 11, 1992.

Narciso Garcia, Jr., Garcia Law Offices, Albuquerque, N.M., for plaintiff.

P. Scott Eaton, Keleher & McLeod, Albuquerque, N.M., for defendant.

MEMORANDUM OPINION AND ORDER

MECHEM, Senior District Judge.

This matter came on for consideration on the motion for summary judgment brought by defendant Travelers Insurance Company (hereinafter "Travelers"). Having considered the motion, response, and reply, and being otherwise fully advised in the premises, I find that defendant's motion is well taken and is hereby granted. Plaintiff's complaint against insured Edward Urioste does not allege facts tending to show an occurrence covered by Mr. Urioste's policy with Travelers. I find no triable fact issues as to breach of contract, breach of the covenant of good faith and fair dealing, or violation of the New Mexico Insurance Code. Travelers' refusal to defend plaintiff's suit against Mr. Urioste was reasonable and in good faith. Summary judgment is appropriate here.

BACKGROUND

Travelers is a Connecticut corporation with its principal place of business in Connecticut. In 1988, a subsidiary of Travelers, also a Connecticut corporation, issued a general liability insurance policy to Edward Urioste's M & M Cafe in Albuquerque.

Plaintiff Lee Sena is a minor residing in Bernalillo County, New Mexico. Ms. Sena was employed as a bus girl at Urioste's M & M Cafe. In 1989, Ms. Sena sued Mr. Urioste in state court, alleging that Mr. Urioste made sexual overtures to her. Plaintiff charged Mr. Urioste with negligent touching, battery, intentional infliction of emotional distress, and negligent infliction of emotional distress.

The liability policy was in effect at the time, but Travelers denied Mr. Urioste's demand to defend the lawsuit on his behalf. On May 26, 1989, a settlement was entered against Mr. Urioste in the amount of $40,000.00 in compensatory damages and $20,000.00 in punitive damages. Mr. Urioste subsequently filed a petition for bankruptcy.

As a term of the settlement, Mr. Urioste assigned to Ms. Sena his rights and claims as against Travelers. Ms. Sena sued Travelers in state court for breach of contract, breach of the covenant of good faith and fair dealing and violations of the New Mexico Insurance Code. Defendant removed the action to this court, alleging diversity of citizenship and an amount in controversy of at least $60,000.00. Travelers filed a motion for summary judgment, arguing that Mr. Urioste's conduct was intentional and therefore not an occurrence under the policy, that plaintiff did not suffer bodily injury covered by the policy, and that the contractual exclusion for injury to employees also bars relief.

DISCUSSION

A motion for summary judgment is properly granted only when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). In this case, defendant bears the burden to prove the absence of a fact issue for trial. See id. at 157, 90 S.Ct. at 1608. The facts must be construed in plaintiff's favor, and the court must draw all inferences in favor of finding triable issues. See Luckett v. Bethlehem Steel Corp., 618 F.2d 1373, 1377 (10th Cir.1980).

New Mexico's substantive insurance law governs in this diversity action. See Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Farmers Alliance Mut. Ins. Co. v. Bakke, 619 F.2d 885 (10th Cir.1980). Unfortunately, there is no New Mexico Supreme Court case addressing whether sexual assault is the kind of intentional act to which liability insurance does not apply. Therefore, I must examine the "decisions of other states, New Mexico and federal decisions, and the general weight and trend of authority" to predict how the New Mexico Supreme Court would rule under these facts. Bakke, supra at 888.

Most of the published decisions in this area involve child molestation. Some involve adult women encountering sexual harassment at work. See e.g., Continental Ins. Co. v. McDaniel, 160 Ariz. 183, 772 P.2d 6, 7 (App.1988) (coverage under comprehensive business policy for sexual harassment of a female employee); Seminole Point Hosp. Corp. v. Aetna Cas. & Sur. Co., 675 F.Supp. 44 (D.N.H.1987) (coverage for sexual advances by company president against female employees). Given that the analysis varies little, and that Ms. Sena was a minor at the time of these incidents, I will examine both types of cases.

1. Duty to Defend

Under New Mexico law, an insurance company has a duty to defend when the complaint filed against the insured alleges facts potentially within the coverage of the policy. State Farm Fire and Cas. Co. v. Price, 101 N.M. 438, 442, 684 P.2d 524, 528 (Ct.App.1984), cert. denied, 101 N.M. 362, 683 P.2d 44 (1984). This contract provides that the insurer "shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent ..." Defendant's Exhibit B, Special Comprehensive General Liability Form at 1.

The duty to defend is not determined by "the ultimate liability of the insurance company, but is based solely on the allegations of the complaint. Only where the allegations are completely outside policy coverage may the insurer justifiably refuse to defend." Price, supra 101 N.M. at 442, 684 P.2d at 528 (citations omitted).

Any doubt about whether the allegations are within policy coverage is to be resolved in the insured's favor. Id. Even if the complaint fails to allege facts with sufficient clarity to make a determination of coverage from the face of the complaint, the insurer will have a duty to defend if the facts which are alleged simply tend to show an occurrence within the coverage. Foundation Reserve Ins. Co. v. Mullenix, 97 N.M. 618, 619-20, 642 P.2d 604, 605-606 (1982); American Emp. Ins. Co. v. Continental Cas. Co., 85 N.M. 346, 348, 512 P.2d 674, 676 (1973). Thus, to prevail on summary judgment, defendant must prove as a matter of law that Ms. Sena's complaint neither shows nor even tends to show an occurrence within the coverage of Mr. Urioste's liability insurance policy.

Defendant raises three arguments in support of its motion. First, Travelers argues that Mr. Urioste's sexual overtures to the plaintiff were intentional acts, and not accidents within the scope of the policy. Second, Travelers asserts that the contractual definition of "bodily injury" does not encompass the kind of emotional harm suffered by Ms. Sena. Third, defendant argues that this contract excludes claims for "bodily injury to any employee of the insured arising out of and in the course of their employment by the insured for which the insured may be held liable as an employer or in any other capacity." Liability Form, supra at 2, Exclusion (j).

I agree that plaintiff alleges intentional, rather than accidental acts. Summary judgment is granted on that basis. I do not reach the questions of whether emotional distress amounts to bodily injury under the contract or whether Ms. Sena's injuries arose out of and in the course of her employment at Urioste's M & M Cafe.

2. Scope of this Policy

This is a policy for general liability and property insurance. The Named Insured is Urioste's M & M Cafe, however, the policy is designated as "individual", meaning that Mr. and Mrs. Urioste are insured persons with respect to the conduct of the business. Defendant's Exhibit B at 1; Liability Form, supra at 5.

The policy provides that "the Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of Coverage A — bodily injury or Coverage B — property damage to which this insurance applies, caused by an occurrence...." Liability Form, supra at 1. An "`occurrence' means an accident, including continued or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured...." Liability Form, supra at 11.

To decide if an injury was an accident, New Mexico courts will examine the accidental or intentional quality of the precise event or act causing injury. See e.g., Sanford v. Presto Mfg. Co., 92 N.M. 746, 748, 594 P.2d 1202, 1204 (Ct.App.1979) (workers compensation). "The element of unexpectedness, inherent in the word `accident' is sufficiently supplied either if the incident itself is unusual, the act or conditions encountered abnormal, or if, though the act is usual and the conditions normal, it causes" unforeseen and unexpected harm. O'Rourke v. New Amsterdam Cas. Co., 68 N.M. 409, 413, 362 P.2d 790, 794 (1961) (quoting Stevenson v. Lee Moor Contracting Co., 45 N.M. 354, 115 P.2d 342, 350 (1941)); see also Vihstadt v. Travelers Ins. Co., 103 N.M. 465, 709 P.2d 187 (1985); Scott v. New Empire Ins. Co., 75 N.M. 81, 83-85, 400 P.2d 953, 955-57 (1965).

The definition also refers to injuries neither expected nor intended "from the standpoint of the insured." Liability Form, supra at 11. Some contracts apply a reasonableness test, for example, excluding "damage which may reasonably be expected to result" from an intentional act. See e.g., Allstate Ins. Co. v. Foster, 693 F.Supp. 886, 887 (D.Nev.1988). However, this contract seems to exclude only those injuries which were actually intended or expected by the insured.

Plaintiff suggests that "the insured" means Urioste's M & M Cafe and Mrs. Urioste, as well as Mr. Urioste. Her argument is that even if Mr. Urioste expected or intended this harm, it was accidental, unexpected and unintended from the perspective of Mrs. Urioste and Urioste's M & M Cafe.

The policy and...