LIBERTY SURPLUS INSURANCE v. LEDESMA AND MEYER CONSTRUCTIONUnited States Court of Appeals for the Ninth Circuit’s Request to Answer Question of State LawCal.August 23, 2016Se36765. SUPREME COURT FILED FOR PUBLICATION UNITED STATES COURTOF APPEALS? 2 # 2016 FOR THE NINTH CIRCUIT LIBERTY SURPLUS INSURANCE CORPORATION,a New Hampshire corporation; LIBERTY INSURANCE UNDERWRITERS,INC., Plaintiffs-Appellees, Vv. LEDESMA AND MEYER CONSTRUCTION COMPANY, INC., a California corporation; JOSEPH LEDESMA,an individual; KRIS MEYER,an individual, Defendants-Appellants. Frank A. McGuire Clerk Deputy No. 14-56120 D.C. No. 2:12-cv-00900- RGK-SP ORDER CERTIFYING QUESTION TO THE SUPREME COURT OF CALIFORNIA Filed August 22, 2016 Before: Thomas I. Vanaskie,” Mary H. Murguia, _ and PaulJ. Watford, Circuit Judges. * The Honorable ThomasI. Vanaskie, United States Circuit J udge for the U.S. Court of Appeals for the Third Circuit, sitting by design ation. vt y 2 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. _ SUMMARY™ Certification to Supreme Courtof California The panelcertified the following question of law to the Supreme Court of California pursuant to Rule 8.548 of the California Rules of Court: Whether there is an “occurrence” under an employer’s commercial general liability policy when an injured third party brings claims against the employerfor the negligent hiring, retention, and supervision of the employee who intentionally injured the third party. * This summary constitutes no part of the opinion ofthe court. It has been prepared by court staff for the convenience ofthe reader. LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. _3 ORDER Werespectfully request that the Supreme Court of California exercise its discretion to decide the certified question set forth in Part II of this order. I Caption and Counsel A. The caption ofthe caseis: No. 14-56120 LIBERTY SURPLUS INSURANCE CORPORATION,a New Hampshire corporation; LIBERTY INSURANCE UNDERWRITERS,INC., Plaintiffs-Appellees, v. LEDESMAANDMEYERCONSTRUCTION COMPANY, INC., a California corporation; JOSEPH LEDESMA, an individual; KRIS MEYER,anindividual, Defendants-Appellants. B. The namesand addresses of counsel for the partiesare: For Plaintiffs-Appellees: 4 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. Patrick Peter Fredette and Christopher M. Ryan, McCormickBarstow LLP, 312 WalnutStreet, Scripps Center, Cincinnati, OH 45202 For Defendants-Appellants: Michael Bidart, Matthew William Clark, Ricardo Echeverria, and Steven Schuetze, Shernoff Bidart Echeverria Bentley, LLP, 600 S. Indian Hill Blvd., Claremont, CA 91711-5498 C. Designation of party to be deemed petitioner: Defendants-Appellants I Question Certified Pursuant to Rule 8.548 of the California Rules of Court, a panel of the United States Court of Appeals for the Ninth Circuit, before which this appeal is pending, respectfully requests that the Supreme Court of California answer the question presented below. This court will accept the decision of the Supreme Court of California on this question. Our phrasing of the question is not intended to restrict the California Supreme Court’s consideration of the case. The question certified is as follows: ' Whether there is an “occurrence” under an employer’s commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 5 employee whointentionally injured the third party? The answer to this question is of exceptional importance to injured parties, employers, and insurance companies doing business in California. Ii Statementof Facts In April of 2002, Ledesma & Meyer Construction Company, Inc., Joseph Ledesma, and Kris Meyer (collectively “L&M”) entered into a Construction Management Contract with the San Bernardino County Unified School District to complete construction work atthe Cesar E. Chavez Middle School(the “Project”). In relevant part, the Construction Contract specified that L&M would defend and indemnify “the Owner,its officers, employees, and agents” from all claims resulting from L&M’s negligence, errors, acts, or omissions. The Project began in June of2003, and continuedinto the 2006-2007 school year. In 2003, L&M hired Darold Hecht and assigned him to the Project as an Assistant Superintendent. On January 12, 2010, L&M receivednotice that a tort claim had been filed against the SchoolDistrict, arising out of allegations that Hecht sexually abused a 13-year old student at the Middle School beginning in October of 2006. The School District tendered the defense and indemnification of the claim to L&M pursuant to the Construction Contract. In Mayof 2010, Jane JS Doe,filed a complaintin state court (the “Underlying Action”), naming as defendants, 6 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. L&M, the School District, Hecht, Joseph Ledesma, Kris Meyer, and others. Doe amendedthe complaint twice. The operative complaint in the underlying action alleged claims for Negligence; Negligent Hiring/Retention and Supervision; Violation of the California Education Code; Violation of California Civil and Penal Codes; Intentional Infliction of Emotional Distress; Violation of 42 U.S.C. § 1983; and Battery.’ Liberty Surplus Insurance Co. had issued L&M a commercial generalliability policy (“General Policy”) for the relevant time period. The GeneralPolicy between the parties provided,in pertinentpart: SECTION I - COVERAGES COVERAGEA. BODILY INJURY AND PROPERTY DAMAGELIABILITY 1. Insuring Agreement a. We will pay those sums that the insured becomeslegally obligated to pay as damages because of “bodily injury” . . . to which this insurance applies. We will have the right and ' Specifically, Jane Doe’s Complaint alleged that L&M “hired owner Joseph Ledesma’s. . . brother-in-law, Darold Hecht,” with “kno wledge that  Hecht wasa registered sex offender who waspreviously convi cted on twodifferent occasion[s] of sexually abusing younggirls... .” (ER 130 at] 18.) The Complaintfurther alleged that L&M “turned this se xual predator loose on all of the schoolchildren attending [the school], including Jane Doe, andfurtherfailed to monitor  Hecht’s conduct orhis interaction with the schoolchildren.” (/d.) = , = LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” . .. to which this insurance does not apply. ... b. This insurance applies to “bodily injury” and “property damages” only if: (1) The “bodily injury” . . . is caused by an “occurrence” that takes place in the “coverageterritory”; %* ok Ok SECTION V — DEFINITIONS 13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. , (ER 267-68, 289.) 7 na hh 8 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. Pursuant to the General Policy, and other insurance policies,’ both L&M and the School District tendered their defense in the Underlying Action to Liberty Surplus Insurance Corporation and Liberty Insurance Underwriters, Inc. (collectively “Liberty”). Liberty defended L&M under a reservation of rights and denied a defense to the School District on the groundthat the SchoolDistrict was not insured under the General Policy. Because Liberty denied a defense to the School District, L&M paid expenses incurred by the SchoolDistrict to defend againstJane Doe’s claims, pursuant to the terms of the Construction Contract. Liberty commencedthe current action in the UnitedStates District Court for the Central District of California, seeking a declaration that, among other things, it was under no obligation to defend or indemnifyL&M or the SchoolDistrict in the Underlying Action. L&M filed a counterclaim, arguing, among other things, that the insurance policies at issue required Liberty to defend or indemnify L&M and the School District in relation to the Underlying Action. After the parties filed cross-motions for summary judgment, the district court entered summaryjudgment in favorofLiberty. Relying on Delgado v. Interinsurance Exchange of Automobile Club ofSouthern California, 211 P.3d 1083 (Cal. 2009), the district court found that L&M’s negligent hiring, retention, and supervision of Hecht wastoo attenuated from the injury-causing conduct committed by Hechtto constitute ? In addition to Liberty Surplus InsuranceCo.’s General Policy, Liberty Insurance Underwriters, Inc. had issued L&M a commercial umbrella policy (“Umbrella Policy”). Crosby Insurance Inc., L&M’s insurance broker, issued Certificates ofInsurancestating that the School District was an additional insured. The Certificates of Insurance were issued for informational purposes only, with no authority to change the coverage provided bythe policies. at e LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. 9 an “occurrence’”—defined as an accident—underthe General Policy. IV Explanation of Our Request Weseekthe California Supreme Court’s determination as to the proper interpretation ofliability insurancepolicies that provide coverage for injuries sustained as a result of an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (ER 289.) The answer to the certified question will not only determine the outcome of L&M’s appeal ofthedistrict court’s order granting Liberty’s motion for summaryjudgment, but also resolve an unsettled matter ofinsurance law in California. The certified question is of considerable importance to employers, insurers, and third parties injured by the willful acts of employees. Moreover, we note that the resolution of this question will extend beyond the employment context, affecting many insured entities and persons, and the third parties that are injured by the willful acts ofthose individuals supervised by the insured. Given the ubiquity of insurance policies that cover “occurrences” in California, this certified question presents an issueofsignificant precedential and public policy importance. The Supreme Court of California has yet to address this issue of exceptional importance. Nonetheless, in Minklerv. Safeco Insurance Co. ofAmerica, when answering a question certified by this Court in the context of a claim for coverage for damagescausedby the sexual molestation ofa minor, the California Supreme Court signaledthe unsettled nature ofthe 10 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. question of whether such intentional abuse constitutes an “occurrence” under a liability policy that defined “occurrence” as an “accident.” 232 P.3d 612, 617 n.3 (Cal. 2010). Because the parties had not addressedthis issue, the California Supreme Court declined to do so. Although declining to address the issue, the Court in Minkler cited Delgado and Hogan v. Midland National Insurance Co., 476 P.2d 825 (Cal. 1970). Delgado held that an assault and battery committed by the insured did not constitute an “accident” undertheliability policy at issue there. 211 P.3d at 1092. Hogan, in pertinentpart, held that damages caused by a decision to cut lumber wider than had beenspecified in order to compensate for a defect in the saw werenottheresult of an “accident” within the meaningoftheliability policy. 476 P.2d at 827. Delgado and Hoganthus provide general guidance on the question of whether deliberate conduct constitutes an “accident” undera liability policy. Neither case, however, addresses the question of whether claims of negligence in hiring, retaining and supervising an employee who commits a sexual assault fall within a policy’s coverage for an “occurrence,” which is defined as an “accident.” The California Courts of Appeal have also not provided clear guidance on this issue. In L.A. Checker Cab Co-op., Inc. v. First Specialty Insurance Co., 112 Cal. Rptr. 3d 335, 336 (Cal. Ct. App. 2010), ordered not to be officially published (Oct. 27, 2010), the Court ruled that the alleged negligent supervision of a cab driver whointentionally shot a passenger did not constitute an occurrence under the insurance policy. But the case was ordered not to be published. In the absence of a controlling decision on this o t e LIBERTY SURPLUS v. LEDESMA & MEYER C ONSTR. _11 question, a deep division of the federal district cour ts of California persists.’ Because the Supreme Court of California has not ye t directly addressedthis issue, and California law is uns ettled in this area, certification seems particularly appropriat e to determinethis consequential matter ofstate law. SeeLeh man Bros. v. Schein, 416 U.S. 386, 391 (1974) (noting that fed eral certification ofstate law questions “helpsbuild a coopera tive judicial federalism,” and is “particularly appropriate” for novel or unsettled questions of state law); see also P inov. United States, 507 F.3d 1233, 1236 (10th Cir. 2007) ( noting that “the federal character of our judicial system” recogn izes that matters of state law should first be decided bys tate courts whenpossible, not federal courts) (citations omitt ed). Accordingly, we respectfully request that your Court ac cept this important certified question. 3 Compare Fireman's Fund Ins. Co. v. Nat'l Bankfo r Coops., 849.F. Supp. 1347, 1367-68 (N.D. Cal. 1994)(finding liabi lity under a policy that provided coverage for damages resulting from an “ occurrence”where the plaintiffasserted a claim ofnegligent supervision o fan employee who committed fraud), and Westfield Ins. Co. v. TWT, Inc. , 723 F. Supp. 492, 495 (N.D. Cal. 1989) (negligent supervision m ay constitute an “occurrence” underthe insurancepolicy), with Farmer ex rel. Hansenv. Allstate Ins. Co., 311 F. Supp. 2d 884, 893 (C.D. Cal . 2004) (negligent supervision of child molester did not qualify as an “ occurrence” for purposesof insurance coverage), aff'd sub nom. Farm erv. Allstate Ins. Co., 171 F. App’x 111 (9th Cir. 2006), andAm. Empire S urplus Lines Ins. Co. v. Bay Area Cab Lease, Inc., 756 F. Supp. 1287, 1290 (N.D.Cal. 1991) (negligent hiring of cab driver who sexually mo lested a child did notconstitute an “accident” for purposes of insuranc e coverage). vt y 12 LIBERTY SURPLUS V. LEDESMA & MEYER CONSTR. Vv Accompanying Materials In accordance with California Rule of Court 8.548, the Clerk of this Court is hereby directedto file in the Supreme Court of California, underofficial seal of the Ninth Circuit, copies ofall relevant briefs and excerpts of record, and an original and ten copiesof the request with a certification of service on the parties. Further proceedings before us are stayed pending the Supreme Court of California’s decision regarding certification and,in the eventthe certification is accepted,our receipt of the answerto the question certified. This case is withdrawn from submission, but we retain jurisdiction overfurther proceedingsafter the Supreme Court of California renders a decision or declines to answer the certified question. The parties shall notify the Clerk ofthis Court within one week after the Supreme Court ofCalifornia acceptsorrejects certification. If the Supreme Court of California denies the request for certification,this case will be automatically resubmitted upon notice of that denial. If the Supreme Court of California accepts the certified question, the case will be automatically resubmitted upon receipt of the Supreme Court of California’s answerto the certified question. Additionally,if our requestfor certification is accepted, the parties shallfile a joint status report with our Court every six months. . ITIS SO ORDERED.