St. Paul Fire & Marine Ins. Co. v. F.H., 93-35746

• Decision Date: 26 May 1995
• Docket Number: No. 93-35746,93-35746
• Citation: 55 F.3d 1420
• Parties: ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota corporation, Plaintiff-Appellee, v. F.H.; K.W., * Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1420

55 F.3d 1420

ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota corporation, Plaintiff-Appellee, v. F.H.; K.W., ^* Defendants-Appellants.

No. 93-35746.

United States Court of Appeals Ninth Circuit.

Argued and Submitted August 1, 1994.

Decided May 26, 1995.

Sanford M. Gibbs, Anchorage, AK, for plaintiff-appellee.

Michael J. Schneider, Christopher W. Rose, Law Offices of Michael J. Schneider, Anchorage, AK, for defendants-appellants.

Appeal from the United States District Court for the District of Alaska.

Before: PREGERSON, CANBY and BOOCHEVER, Circuit Judges.

CANBY, Circuit Judge:

I

F.H. and her son K.W. appeal a district court order granting St. Paul Fire and Marine Insurance Company summary judgment in this declaratory judgment action. The district court held that an insurance policy St. Paul issued to Big Brothers and Big Sisters of Alaska (BB/BS) does not provide coverage to BB/BS executive director Kenneth McQuade for damages arising out of McQuade's sexual abuse of K.W. We reverse and remand for further proceedings.

II

From 1979 until late summer or early fall of 1984, McQuade was executive director of Big Brothers/Big Sisters in Juneau. His duties included supervision of the program in which volunteer "Big Brothers" and "Big Sisters" acted, as their name implies, as advisors, role models and confidants of boys and girls who qualified as "Little Brothers" or "Little Sisters." McQuade's duties included: interviewing volunteers and children and their parents to determine whether the volunteers and children met the requirements of the program; matching Big and Little Brothers and Sisters; supervising those matches; and interpreting the general program to the community. McQuade first came into contact with K.W. because K.W.'s siblings were in the program, and he later matched himself to K.W. as K.W.'s Big Brother. Beginning before that match, and continuing until his arrest in 1986, McQuade sexually abused K.W.

In 1986, F.H. brought a civil action in Alaska Superior Court against BB/BS and McQuade, seeking damages for various compensable injuries sustained by F.H. and K.W. Both BB/BS and McQuade tendered defense of the action to BB/BS's insurance carrier, St. Paul. St. Paul accepted BB/BS's tender, but rejected McQuade's. In 1987, the Alaska Superior Court granted BB/BS's motion for partial summary judgment on the ground that it was not liable under the doctrine of respondeat superior for McQuade's acts of sexual abuse. Subsequently, F.H. settled her claims against BB/BS and dismissed BB/BS from the litigation.

F.H. later entered into a settlement agreement with McQuade. Under this agreement, McQuade entered confessed judgments of $969,721.25 and $157,650.13 in favor of K.W. and F.H., respectively, and assigned to them any rights he might have had against St. Paul as a result of his sexual abuse liability. In exchange, K.W. and F.H. agreed not to execute against McQuade on the confessed judgments. ¹ Following F.H. and K.W.'s settlement with McQuade, St. Paul filed this declaratory judgment action against F.H. and K.W. in the United States District Court, seeking a declaration that McQuade was not an insured under any St. Paul policy, that St. Paul did not provide coverage to McQuade for acts of sexual abuse, that St. Paul did not owe a duty of defense to McQuade, and that no rights that McQuade transferred to F.H. and K.W. were enforceable against St. Paul. F.H. and K.W. filed a counterclaim seeking a declaration that McQuade's acts of sexual abuse were covered by St. Paul's insurance policies and seeking damages from St. Paul. St. Paul then moved for summary judgment, and F.H. and K.W. filed a cross-motion for summary judgment.

The district court granted summary judgment in favor of St. Paul, reasoning (1) that it is against Alaska's public policy to permit a person to be insured against a claim of sexual abuse, and (2) that although the policy permitted coverage of executive employees where the claim was for a violation of law, the policy did not protect executive employees for non-accidental injuries, particularly where their intentional act causes the injury.

F.H. and K.W. appeal the district court's judgment. They contend that they are entitled to a declaration that St. Paul had a duty to defend and indemnify McQuade under the professional liability policy it sold to BB/BS.

We review de novo a district court's grant of summary judgment. Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). Viewing the evidence in the light most favorable to the non-moving party, we must determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Botefur v. City of Eagle Point, 7 F.3d 152, 154 (9th Cir.1993).

III

During the relevant period, St. Paul insured BB/BS under two policies, a general liability policy and a professional liability policy. It is the professional liability policy that is in issue here. That policy contained a section entitled "Who's Protected Under This Agreement." It stated, in pertinent part:

The named insured shall include any individual or organization named in the Coverage Summary [i.e., BB/BS]. It also includes any partner, executive officer, director, stockholder or employee working for you within the scope of their duties.

This policy also includes each volunteer big brother and big sister individually as additional insureds for claims arising from accidental events that were neither expected nor intended by the individual volunteer big brother or big sister and occurring as a result of their activities as volunteer big brothers and big sisters. There is no coverage for the individual big brother and big sister if the event is in violation of any Federal, State, or Local law. This specific exclusion does not apply to the other insureds named in this agreement.

(Emphasis added).

St. Paul contends that these provisions are unambiguously intended to exclude coverage of volunteer Big Brothers and Sisters for criminal acts, but to protect BB/BS and its directors and employees from any liability that might accrue to them because of the criminal acts of volunteers. These provisions may indeed have that effect, but they do not in terms limit themselves to that application. They do not say that employees are protected from liability for criminal acts of others. They say that the exclusion for criminal acts does not apply to employees of BB/BS like McQuade. And in this case, unlike the example that forms the basis of St. Paul's argument, McQuade was an employee when he met K.W., interviewed and matched him, and for most of the time that he was K.W.'s Big Brother. By its plain language, the exclusion for criminal acts simply does not apply to McQuade as an employee of BB/BS.

There is no question what kind of criminal acts the parties had in mind when they entered the professional liability insurance agreement. The policy was marketed as part of a special package designed for Big Brother/Big Sister organizations by St. Paul and marketed through its agent Jack L. Kirby. In his memorandum describing the policy, Kirby stated:

Most of you are aware of the growing number of lawsuits alleging child molesting being brought against the Big Brother/Big Sister agencies and their officers and directors....

* * * * * * Professional liability insurance with general liability insurance is the only certain method of insuring against child molesting claims. Regardless of how the suit is filed and what allegations are made, the combination of those two policies will ensure proper coverage.

The insureds in the general liability and professional liability policy are:

1. The agency.

2. The officers and directors.

3. The employees of the agency.

4. The Big Brother/Big Sister volunteer, but they are not covered for illegal acts. The other insureds do have coverage for illegal acts.

* * * * * *

(Emphasis in original).

In interpreting the policy, we must look both to the policy's language and to Kirby's representations of the policy coverage. INA Life Ins. Co. v. Brundin, 533 P.2d 236, 242 (Alaska 1975). From the terms of the policy and the description in Kirby's marketing memorandum, an employee in McQuade's position had every right to expect that he was not excluded from coverage for criminal acts. See Serradell v. Hartford Accident & Indem. Co., 843 P.2d 639, 641 (Alaska 1992) (policy covers if a lay person in a lay interpretation would have reasonably expected it to provide coverage). The policy and the memorandum say as much. There is no exclusion, as there was in Allstate Ins. Co. v. Roelfs, 698 F.Supp. 815, 820 (D.Alaska 1987), for liability arising from intentional acts. Quite the contrary, employees are explicitly not excluded from coverage for illegal acts, and it is clear that sexual abuse was the illegal act primarily in contemplation of the parties. Even if there were doubt, the most that could be said is that the policy terms were ambiguous. In that case, they must be construed against the insurer. U.S. Fire Ins. Co. v. Colver, 600 P.2d 1, 3 (Alaska 1979); Bering Strait School Dist. v. RLI Ins. Co., 873 P.2d 1292, 1295 (Alaska 1994).

IV

The district court's order was also based on the court's belief that Alaska's public policy would not allow McQuade to be insured for a claim of sexual molestation. In support of this proposition, the court cited Allstate Ins. Co. v. Roelfs, 698 F.Supp. at 820-21, n. 6. However, Roelfs supports only the proposition that, under Alaska law, where an insurance policy contains an explicit exclusion for bodily injury intentionally caused by an insured, intent to cause injury can be inferred as a matter of law from an act of sexual assault. Id. at 820. St. Paul's policy does not contain an exclusion for bodily injury intentionally caused by an insured, and thus Roelfs does not apply.

It is true, as St. Paul argues, that Alaska recognizes a...