Oregon Court of Appeals questions application of Intentional Acts Exclusion
January, 2006
In August 2005, the Court of Appeals issued its opinion in the case of Holloway v. Republic Indem. Co. of America, 201 Or App 376, 119 P3d 239 (2005).
In Holloway, a young female restaurant employee brought claims for sexual harassment, constructive discharge and intentional infliction of emotional distress (IIED) against her employer regarding the conduct of plaintiff's co-worker, Zullig. According to plaintiff's complaint, after he was hired, Zullig immediately began directing "lewd and vulgar comments" and "unwelcome sexual advances and physical contact" at the plaintiff. Zullig also "obtained plaintiff's home telephone number from her employment files…and began harassing her at home." Zullig entered "plaintiff's house in a drunken state on more than one occasion, refused to leave when asked, kissed [plaintiff] against her will and told her he intended to have sexual intercourse with her whether she wanted to or not."
Plaintiff reported Zullig's actions to the insured restaurant on more than one occasion, but the harassment did not cease. According to plaintiff's underlying complaint, Zullig's acts "were known to, authorized and ratified by" the insured. After approximately one month of working with Zullig, plaintiff was allegedly forced to quit because her "working environment became intolerable…and she feared for her safety."
The insured restaurant tendered the matter to its insurer, which refused to defend or indemnify the restaurant on the grounds that there was no coverage for any of the claims stated in plaintiff's complaint, as they were excluded by either the intentional acts exclusion or an exclusion for injury or damages arising out of harassment and termination.
Following Marleau v. Truck Ins. Exchange, 333 Or 82, 91, 37 P3d 148 (2001), the court held that, although the harassment exclusion did apply to all three of plaintiff's stated claims, the "inquiry as to whether [the insurer] had a duty to defend its insured is not limited to analyzing the identified claims." The Court of Appeals went on to hold that "if allegations in the complaint state a covered claim, even if the claim stated by those allegations is not correctly identified or stated separately," then there is a duty to defend.
Finding that plaintiff's factual allegations could support an unstated claim for battery, the court held that such a claim would be covered under the policy and, therefore, the insurer had a duty to defend. The court concluded that the intentional acts exclusion did not apply because Zullig and the insured restaurant did not intend to cause bodily harm by way of Zullig's actions, and that they knew that bodily harm would result was not sufficient to trigger the exclusion.
The court also found that the anti-assignment provision in the liability policy was ambiguous, because it did not specify whether it prohibited assignment of pre- or post-loss rights. The anti-assignment provision at issue stated that the "rights or duties under this policy may not be transferred without [the insurer's] written consent." The Court of Appeals held that, on the one hand, such a provision could mean that an insurer was prohibiting assignment of pre-loss rights or duties to protect itself against "increased risks of loss resulting from an assignment of coverage to a new insured." Id. at 382. However, the anti-assignment provision could also be interpreted as an attempt to insulate against exposure to claims "for indemnification from third-party claimants after a loss has occurred." Ultimately the court held that the anti-assignment provision was ambiguous. It was, therefore, construed against the insurer and the court held that the insureds' assignment to the plaintiff was valid.