Unanimous California Supreme Court Decision in Minkler v. Safeco
Insurance Industry Takes a Blow
By Laura Ernde, Daily Journal Staff Writer
The California Supreme Court ruled against the insurance industry Thursday in a case closely watched by insurance lawyers.
Safeco Insurance Co. argued that its policy didn’t cover homeowner Betty Schwartz for liability stemming from a sexual molestation committed by her son David. The company argued that the policy excluded coverage for intentional acts of “an insured” and her son was an insured since he lived in her house.
But a unanimous Supreme Court said the policy was unclear because it also contained a severability-of-interests clause that provided “separate insurance” to each insured. Under California law, ambiguous insurance contract terms must be interpreted in favor of what a policyholder would reasonably expect.
“(Betty Schwartz) had no reason to expect that David’s residence in her home, and his consequent status as an additional insured on her homeowners policies, would narrow her own coverage, and the protection of her separate assets, against claims arising from his intentional acts,” Justice Marvin R. Baxter wrote. Minkler v. Safeco Insurance Co., 2010 DJDAR 9113.
The issue came before the court on a question from the 9th U.S. Circuit Court of Appeals.
The underlying legal issue has divided courts across the country and many courts have gone the other way, said Jeffrey I. Ehrlich of The Ehrlich Law Firm in Claremont, who argued the case on behalf of victim Scott Minkler, who sued the insurance company. Minkler had obtained a default judgment against Schwartz, and as part of the settlement she assigned her right to sue the insurance company to Minkler.
Ehrlich said Thursday’s ruling is consistent with California’s rules on interpretation of insurance policies.
“I think it’s a terrific decision,” Ehrlich said. “The burden is on the insurer to make it clear what their policy covers and what it doesn’t cover.”
Safeco lawyers had urged the court to reject coverage because it would encourage parties to collude in order to shift payment to the insurer.
But Sherman Oaks attorney Steven W. Murray, who submitted a friend-of-the-court brief on behalf of the plaintiff, said insurance companies can rewrite their policies if they don’t like the ruling.
The insurance company’s law firm, Sedgwick, Detert, Moran & Arnold, referred calls to its client. Liberty Mutual Insurance Co., which acquired Safeco Insurance, declined to comment citing the pending litigation.
The case now goes to the 9th U.S. Circuit Court of Appeals, which will likely send the case back to a district court judge for further proceedings.
Safeco will argue for the lawsuit to be thrown out on the theory that Betty Schwartz should not be covered because she allegedly witnessed the molestation. The California Supreme Court declined to address that issue Thursday because it was beyond the scope of the 9th Circuit’s question.