In a 4-3 decision, the Wisconsin Supreme Court recently held in Talley v. Mustafa, No. 2015AP2356, 2018 WI 47 (May 11, 2018) that an employer's business-owners liability policy does not cover a negligent supervision claim arising out of an employee's intentional act of physically punching a customer in the face. The court reasoned, “When the negligent supervision claim pled rests solely on an employee’s intentional and unlawful act without any separate basis for a negligence claim against the employer, no coverage exists.”
The case stems from an altercation at a liquor store. A customer claimed that he was punched in the face by a security guard while he was in the store. The customer filed suit against the security guard, the store owner, and the store owner's liability insurer, Auto-Owners. The customer alleged the store owner was negligent in training and supervising the security guard.
Auto-Owners defended the store owner under a reservation of rights and sought a declaratory judgment as to insurance coverage. The circuit court held that no coverage existed for the customer's negligent supervision claim. The store owner appealed, and the court of appeals reversed in a split decision. The court of appeals held that a reasonable insured would expect coverage for the negligent supervision claim. The supreme court granted further review and reversed, reinstating the circuit court's decision in favor of Auto-Owners.
The supreme court began its analysis by reiterating that under Wisconsin law “it is the act that caused the harm that is important in determining whether the insurance policy provides coverage. If the act that caused the harm was not an accident, then there was no occurrence to trigger coverage.” The court then went on to state that when “analyzing whether a claim of negligent supervision is covered under an insurance policy, courts must compare the specific facts alleged against the employer with the language of the insurance policy to ascertain whether the incident or injury that gave rise to the claim satisfies the definition of occurrence.” Since no specific separate acts by the store owner were alleged to have cause the customer's injuries, the court held that the customer's allegations against the store owner did not trigger coverage under the store owner's liability policy.
The supreme court summed up its decision as follows:
We reverse the decision of the court of appeals and hold that there is no coverage under the Auto-Owners insurance policy. This policy applies only to bodily injury caused by an “occurrence,” which is defined as an accident. Intentionally punching someone in the face two times is not an accident under any definition. Accordingly, the negligent supervision claim against [the store owner] can qualify as an occurrence only if facts exist showing that [the store owner's] own conduct accidentally caused [the customer's] injuries. Because there are no facts in [the customer's] complaint (or in any extrinsic evidence) alleging any specific separate acts by [the store owner] that caused [the customer's] injuries, there is no occurrence triggering coverage for the negligent supervision claim. The only specific assertion [the customer] made in this regard is that [the store owner] should have trained [the security guard] not to hit people. We hold that when a negligent supervision claim is based entirely on an allegation that an employer should have trained an employee not to intentionally punch a customer in the face, no coverage exists.
The supreme court did recognize that coverage may exist for a negligent supervision claim if a plaintiff alleges facts independent from the intentional act giving rise to the injury. As an example of a case in which such a claim may trigger insurance coverage, the court cited Vandenberg v. Cont’l Ins. Co., 2001 WI 85, 244 Wis. 2d 802, 628 N.W.2d 876, a case in which the court held that coverage existed for a daycare provider’s negligent supervision of her child, who placed pillows on top of a sleeping infant that caused infant to suffocate. The court also cited QBE Ins. Corp. v. M & S Landis Corp., 915 A.2d 1222 (Pa. Super. 2007), a case in which the court held that an insurer had a duty to defend a nightclub against a claim that the night club negligently trained its bouncer employees on how to safely evict unruly patrons and render first aid. Admittedly, the facts of these cases, and particularly the QBE Ins. case, are not as easily distinguishable from the facts of Talley as the supreme court's holding seems to suggest.
As a collateral issue, the store owner apparently agreed with Auto-Owners' coverage assessment, and Auto-Owners' argued that neither the customer nor the court should be able to contest that agreement. The supreme court rejected Auto-Owners' position and declined to adopt a bright line rule that when the insured and insurer agree that an insurance policy does not provide coverage, their agreement controls the coverage determination.
Three Justices dissented and would have held that Auto-Owners' policy provided coverage for the customer's negligent supervision claim against the store owner. In two dissents, the three Justices in the minority challenge the majority's opinion in two respects. First, they contend that the majority improperly analyzed the case from the standpoint of the security guard rather than the store owner, the insured. In other words, the court should have instead focused on the store owner's alleged negligent failure to properly supervise and train its security guard.
Second, they contend that the majority impermissibly relied on the perceived weakness of the customer's negligent supervision claim to determine that the store owner's insurance policy did not provide coverage for that claim. They contend that the court should have instead focused on whether coverage was required by the language of the policy, assuming the customer's claims were successful.
While notable, the significance of the Talley may be limited by its facts. The majority clearly took issue with the customer's attempt to creatively plead a covered claim against the store owner and based its decision principally on deficiencies in the customer's complaint. As a result, the case might have come out differently had the customer alleged specific facts separate from the assault and battery in support of its claim against the store owner.
If you have questions regarding the Wisconsin Supreme Court's decision or any other insurance-coverage issues, please contact Dale O. Thornsjo, Lance D. Meyer, or one of the other members of our Firm's Insurance Coverage Practice Group at (952.831.6544).