King v. Dallas Fire: Occurrence From Another Angle

On August 29, 2002, the Texas Supreme Court issued its revised opinion in King v. Dallas Fire Insurance Company (No. 00-1152, Tex. Sup. Ct., Aug. 29, 2002), withdrawing and replacing its previous opinion of May 30, 2002, with minor modifications.

At issue in King was whether an “occurrence” existed, and whether an employer was entitled to coverage under a liability policy for injuries caused by the intentional conduct of an employee. The underlying suit involved a physical altercation between one of King’s employees and an employee of another contractor working on the same job site. The claimant, Jankowiak, claimed that Lopez, King’s employee, assaulted him. According to the petition, Jankowiak confronted Lopez about some missing and damaged wiring, and Lopez then attacked him, kicking him in the face and causing serious injury. Jankowiak sued King, alleging that King was liable on the basis of respondeat superior, but was also liable based upon independent negligence in hiring, training, and supervising Lopez. An amended petition specifically alleged that King was negligent in failing to run a criminal background check, and in failing to determine whether Lopez had a propensity for violence, and failing to provide training to employees on how to peaceably and responsibly handle work-generated construction “situations.”

Dallas Fire, King’s insurer, initially denied a defense based upon its conclusion that the petition did not allege an “occurrence” within the meaning of the general liability policy. King brought a declaratory judgment action, but both the trial court and appellate court concluded that Dallas Fire did not owe a duty to defend, as the alleged damages were based on intentional conduct, and were not the result of an “occurrence.”

The Texas Supreme Court accepted the case on petition for review and used the opportunity to revisit the question of what constitutes an “occurrence.” The Dallas Fire policy included the standard definition of an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Dallas Fire contended that the conduct of Lopez, the employee, was undeniably intentional, and therefore, regardless of whether King intended the injury, the liability did not arise out of an
accident or occurrence. King, on the other hand, alleged that the incident should be viewed purely from King’s standpoint, and that King did not intend the injury. If King was liable, it was for negligent hiring, training, or supervising Lopez, and not for any intentional conduct.

The Supreme Court noted that one of the issues before it was the question of whose standpoint determined whether there was an occurrence: the insured’s, the victim’s or the actor’s. The court reasoned that the policy language, the case law, the history of the policy, all supported the conclusion that an “occurrence” should be viewed from the insured’s standpoint. In this context, the court noted the separation of insureds’ provision, which requires that “except with respect to the limits of insurance, and any rights or duties specifically assigned in this Coverage Part to the first named insured, this insurance applies: a. as if each named insured were the only named insureds; and b. separately to each insured against whom a claim is made or ‘suit’ is brought.”

Other insurers, filing amicus curiae briefs, argued that the separation of insureds’ provision should only be used to interpret exclusions, but not the insuring agreement. The Supreme Court rejected this argument, noting that other policy provisions, including the limits of insurance, were excepted from the separation of insureds’ provision, but the insuring agreement was not.

The court reviewed its own analysis of “occurrence” in recent cases, and concluded that its conclusion in King was consistent with its conclusion in Trinity Univ. Ins. Co. v. Cowan, 945 S.W.2d 819 (Tex. 1997). In Cowan, the court held there was no coverage, and no occurrence, where the insured made copies of revealing photographs and showed them to his friends. Despite the insured’s insistence that he did not intend for the plaintiff to find out about the copies, and did not intend the consequent emotional distress, the court held that conduct was not accidental because the insured’s own conduct was purposeful and the injuries were the reasonably foreseeable result of that intentional conduct. In Cowan, however, the “actor” was the insured.

The court also distinguished opinions from the Fifth Circuit, holding that there is no “occurrence” when the employer’s liability is intertwined with the employee’s intentional conduct. The court acknowledged the reasoning of these cases—that where the damages are the result of the employee’s intentional conduct, there would be no cause of action against the employer “but for” the employee’s intentional conduct, and therefore there is no “occurrence.” The court disapproved these cases, concluding that the Fifth Circuit rule improperly imputed the actor’s intent to the insured.

Finally, the court looked to the drafting history of the Commercial General Liability policy. The court noted the evolution of the policy language, from a definition of occurrence that included language now found in Exclusion a., requiring that the bodily injury or property damage be neither expected nor intended from the standpoint of the insured. It also noted that the subsequent change, moving the “expected or intended” language to an exclusion and out of the definition of occurrence, was to create an express exclusion for intentional acts, which is also to be determined from the standpoint of the insured.

Additionally, the court noted that Dallas Fire’s interpretation would obviate the need for other specific exclusions, such as those covering assault and battery or sexual misconduct, as no damages resulting from intentional conduct would ever fall within the general scope of coverage.

The Dallas Fire opinion should come as a great relief to small business owners, who face extraordinary exposure from the unexpected conduct of employees, such as Lopez. It also increases insurers’ exposure, however, as claimants will seek to name additional defendants, to invoke the separation of insureds’ provision and create coverage for one or another entity.

The opinion does raise questions about coverage in related contexts. The court specifically noted that it was not addressing the question of coverage for vicarious liability, which was not before it. Arguably, vicarious liability should be treated differently, as intent is actually imputed to the employer. Issues may also arise where a contractor is an additional insured on the subcontractor’s policy. The reasoning in King, if expanded, could create coverage for a general contractor, where the subcontractor has none. In recent opinions, the Texas appellate courts have limited coverage for construction failures, holding there is no “occurrence” where the damages are the foreseeable and expected result of faulty workmanship. This analysis, however, is conducted from the standpoint of the subcontractor. Arguably, the general contractor, who retains the subcontractor, but does not actually perform the work, does not intend or expect the same results. In this context, the issue is further clouded by the language of most additional insured provisions, which provide coverage only for damages arising out of the work of the named insured—the same conduct which does not constitute an “occurrence.”

Of course, there are also potential solutions to many of the issues raised by King. Insurers seeking to exclude this liability can attach assault and battery exclusions to their policies, or require that their insureds check the criminal history of all employees.

As counsel for King argued, the coverage issues also beg the question of what is reasonably foreseeable, and what level of precaution should be required of an employer. Is it reasonable to require a background check for every employee on a construction site? When, and under what circumstances, is violence in a workplace foreseeable? For the present, however, employers can take comfort in the knowledge that, while the liability for an employee’s intentional tort may be unexpected, coverage should be expected.

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