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American Family Mutual Insurance Co. v. Enright

November 1, 2002

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
ROBERTA ENRIGHT, INDIV. AND AS MOTHER AND NEXT FRIEND OF JANE DOE, A MINOR; NORTH SHORE ULTRASOUND, INC.; ACE PROPERTY AND CASUALTY INSURANCE COMPANY, F/K/A CIGNA INSURANCE COMPANY, DEFENDANTS-APPELLEES (MATTHEW S. BURNETT AND MIDWESTERN REGIONAL MEDICAL CENTER, INC., DEFENDANTS).
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, PLAINTIFF AND COUNTERDEFENDANT-APPELLEE,
v.
ACE AMERICAN INSURANCE COMPANY, F/K/A CIGNA INSURANCE COMPANY, DEFENDANT AND COUNTERPLAINTIFF-APPELLANT (ROBERTA ENRIGHT, INDIV. AND AS MOTHER AND NEXT FRIEND OF JANE DOE, A MINOR; AND NORTH SHORE ULTRASOUND, INC., DEFENDANTS AND COUNTERDEFENDANTS-APPELLEES (MIDWESTERN REGIONAL MEDICAL CENTER, INC., AND MATTHEW C. BURNETT, DEFENDANTS AND COUNTERDEFENDANTS)).



Appeal from the Circuit Court of Lake County. No. 00-MR-251 Honorable John R. Goshgarian, Judge, Presiding.

The opinion of the court was delivered by: Justice Byrne

These consolidated appeals involve multiple declaratory judgment actions arising from an underlying complaint in which Roberta Enright, as mother and next friend of the minor, Jane Doe, sued Matthew C. Burnett and his employer, North Shore Ultrasound, Inc. (NSU), alleging that Burnett sexually assaulted Jane Doe while performing an ultrasound procedure. The trial court found that both American Family Insurance Company (American) and Ace American Insurance Company (Ace) owe a duty to defend NSU, but American's policy is primary, and that Ace owes a duty to defend Burnett. Midwestern Regional Medical Center, Inc. (Midwestern), and Burnett are not parties to the appeals. We affirm in part and reverse in part.

FACTS

NSU provides technical support for the performance of ultrasound procedures by furnishing agents and employees to facilities, including Midwestern. Burnett was employed by NSU as a licensed ultrasound technician. On July 11, 1998, while performing ultrasound procedures on Jane Doe, Burnett sexually assaulted Jane Doe by placing his finger in her vagina against her will.

Enright filed a five-count complaint against NSU, Midwestern, and Burnett on December 2, 1999, for injuries incurred by Jane Doe. Count I alleges a cause of action for negligent hiring against NSU; counts II, III, and IV are directed against NSU and Midwestern and are not at issue on appeal; and count V alleges a cause of action for battery against Burnett. On June 30, 1999, Burnett pleaded guilty to aggravated criminal sexual abuse and thereafter was sentenced.

NSU tendered the defense of the lawsuit to its insurance companies. American issued to NSU a business owner's policy that provides general exposure liability coverage for business practices or activities of the firm. The Ace policy essentially provides coverage for professional malpractice claims. Both insurers denied coverage and filed declaratory judgment actions seeking a determination as to whether they owed a duty to defend NSU or Burnett. The insurers also filed several motions for summary judgment. Enright and NSU also filed motions for summary judgment.

After considering the summary judgment motions, the trial court found that American owes no duty to defend or indemnify Burnett; that American and Ace owe a duty to defend NSU, but American's policy is primary and Ace's policy is excess; and that Ace owes a duty to defend Burnett. Both American and Ace filed separate appeals from the trial court's judgments against them. We consolidated their appeals.

ANALYSIS

The standard of review on appeal from the entry of summary judgment is de novo. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390 (1993). The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court and appropriate subjects for disposition by summary judgment. Crum & Forster, 156 Ill. 2d at 391.

In determining whether an insurer has a duty to defend its insured in an underlying lawsuit, the court must look to the allegations in the underlying complaint and compare these allegations to the relevant coverage provisions of the insurance policy. Crum & Forster, 156 Ill. 2d at 393. If the facts alleged in the underlying complaint fall within, or potentially within, the policy's coverage provisions, then the insurer has a duty to defend the insured in the underlying action. Crum & Forster, 156 Ill. 2d at 393. If the insurer owes no duty to defend, then it owes no duty to indemnify because the duty to defend is broader than the duty to indemnify. Crum & Forster, 156 Ill. 2d at 398. Where the language of an insurance policy is clear and unambiguous, it must be given its plain and ordinary meaning. State Farm Fire & Casualty Co. v. Hatherly, 250 Ill. App. 3d 333, 337 (1993).

I. American's Duty To Defend NSU

We first address American's contention that the trial court erred in determining that American owes a duty to defend the underlying claim brought against NSU for negligent hiring. The Enright complaint alleges that NSU has a duty to exercise reasonable care in the hiring and retention of Burnett. It further alleges that NSU breached that duty in that it (1) failed to investigate and inquire about Burnett's prior criminal history; (2) knew or should have known at the time of hiring Burnett that he had pleaded guilty to the offense of disorderly conduct and had an active warrant for his arrest; (3) knew or should have known that Burnett was unfit for the position of sonographer because it allowed for unsupervised contact with minors; and (4) failed to adopt administrative review and to conduct adequate preemployment screening and reference verification before hiring Burnett.

The business owner's package policy issued by American to NSU states, in pertinent part, that American "will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies." The policy excludes coverage for intentional injury "(1) expected or intended from the standpoint of the insured" or "(2) arising out of sexual molestation *** inflicted upon any person by or at the direction of an insured." The policy also excludes coverage for the following:

"PROFESSIONAL LIABILITY. We will not pay for damages due to bodily injury or property damage arising out of the rendering of or the failure to render professional services by any insured, who is a(an):

(4) nurse or X-ray or medical technician;

(5) health care practitioner of any kind."

American argues that the act of hiring Burnett was intentional and therefore was not an "occurrence" within the meaning of the policy so as to provide coverage. "Occurrence" is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." American relies on Erie Insurance Co. v. American Painting Co., 678 N.E.2d 844, 846 (Ind. App. 1997), in support of its argument that, in the context of insurance coverage, the act of the employer in negligently hiring the employee is intentional, not accidental, and therefore there is no coverage. We disagree with this argument for several reasons.

First, the premise that the act of hiring is intentional is inconsistent with Illinois law, which holds that negligent hiring is a tort separate from the employee's intentional conduct. See, e.g., State Security Insurance Co. v. Globe Auto Recycling Corp., 141 Ill. App. 3d 133, 136 (1986)(intentional tort of employer not covered; negligent hiring potentially covered).

Second, Illinois courts have focused on whether the injury is expected in determining whether an occurrence is an "accident." Country Mutual Insurance Co. v. Hagan, 298 Ill. App. 3d 495, 507 (1998). "[A]n occurrence which is defined as an accident involves the consideration of whether the injury was expected or intended from the standpoint of the insured." (Emphasis added.) State Farm Fire & Casualty Co. v. Watters, 268 Ill. App. 3d 501, 506 (1994). In Illinois, therefore, if an injury is not expected or intended by the insured, it is considered an accident. Hagan, 298 Ill. App. 3d at 508. There are no allegations in the underlying complaint that NSU intended to injure Jane Doe. Rather, Enright alleges that NSU was negligent in not adopting proper preemployment screening, reference investigating, and administrative review. American seems to focus on the employer's final decision to hire an individual, an act that is intentional, rather than on the processes involved before and after the individual is hired, acts that could be handled negligently.

Third, American also predicates its argument on the assumption that Burnett's intentional act is not a separate and distinct act from NSU's alleged negligent act. We find the case of United States Fidelity & Guaranty Co. v. Open Sesame Child Care Center, 819 F. Supp. 756 (N.D. Ill. 1993), instructive here. In Open Sesame, the insurer brought a declaratory judgment action seeking to determine whether, under the special multiperil policy, it owed a duty to defend the insured daycare center in an action brought by the mother of a child allegedly abused by the daycare's employee. The insurer promised to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of *** bodily injury or *** property damage to which this insurance applies." Open Sesame, 819 F. Supp. at 757.

The court acknowledged those cases from other jurisdictions in which the courts refused to separate the employer's alleged negligence from the abuser's intentional conduct. Open Sesame, 819 F. Supp. at 759. However, the court believed that refusing to separate the employer's alleged negligence from the employee's intentional conduct would disregard the clear language of the insurance policy. "The policy excludes bodily injury or property damage expected or intended from the standpoint of the insured. In other words, only the insured's intentional conduct falls outside the ambit of the policy." (Emphasis omitted.) Open Sesame, 819 F. Supp. at 760. The court believed that the other opinions also discounted the employer's independent acts that gave rise to the underlying alleged tort. The court reasoned that, in holding that the employee's intentional conduct places the insured's negligence outside the definition of "occurrence," the exclusion is read too broadly. Because the predominant purpose of an insurance contract is to provide coverage to the insured, the court concluded that the allegation of negligent hiring in the underlying complaint is an "occurrence" despite the employee's intentional conduct. Open Sesame, 819 F. Supp. at 760; see also Montgomery v. Petty Management Corp., 323 Ill. App. 3d 514, 519 (2001)(under a theory of negligent hiring, the proximate cause of plaintiff's injuries is the employer's negligence in hiring the employee, rather than the employee's wrongful act); Doe v. Shaffer, 90 Ohio St. 3d 388 ...


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