Ninth Circuit Affirms Abuse Exclusion Precludes Coverage for Failure to Prevent or Stop Abuse in Arizona
American Family Mut. Ins. Co. v. Verdugo, 2017 WL 2211275 (9th Cir. 2017)
Memorandum Decision, a coverage case arising from a homeowners policy, the Ninth Circuit Court of Appeals affirmed an Arizona District Court’s holding that an Abuse Exclusion precluded coverage for derivative negligence claims against Insured’s who allegedly failed to prevent or report abuse.
Insurance Case Overview
In Verdugo,the abuse victim was a minor, the underlying plaintiff was the abuse victim’s mother, the mother’s boyfriend was the abuser, and the underlying defendants/Insured’s were a physician and his wife. The abuse victim died as a result of the abuse. The underlying plaintiff obtained a jury verdict against the Insured’s. The decision did not explain how or when the Insured’s failed to prevent or stop the abuse. The Insured’s sought personal liability coverage under their homeowners policy from the Insurer.
Arizona Abuse Exclusion
The Abuse Exclusion stated the homeowners policy precluded coverage for “bodily injury…arising out of or resulting from any actual or alleged: a. sexual molestation or contact; b. corporal punishment; or c. physical or mental abuse of a person.”
Although Arizona has not addressed this issue, the Ninth Circuit held the Arizona District Court correctly predicted Arizona would rule the Abuse Exclusion precluded coverage for the derivative failure to report or prevent abuse claims, because Arizona has addressed the application of similar exclusions to derivative negligence claims and rejected the argument that such claims are separate and distinct torts not barred by the exclusions. Rather, Arizona considers claims such as negligent entrustment or supervision as claims that “cannot exist apart from the excluded conduct.”
Accordingly, the Ninth Circuit stated, “the district court correctly held that the abuse exclusion barred coverage here, because [the underlying plaintiff’s] claims against the [Insured’s] were for bodily injury arising from physical abuse. The [underlying plaintiff’s] claims necessarily included [abuse], and cannot exist apart from that excluded physical abuse.”
The Ninth Circuit also affirmed the Arizona District Court’s ruling that:
- the Abuse Exclusion is not ambiguous; rather, it “plainly and unambiguously bars coverage for bodily injury arising out of physical abuse”; and
- the District Court “correctly held that application of the[Abuse Exclusion] was not contrary to the [Insured’s’] reasonable expectations of coverage.”
What is the primary takeaway for Insurers in Arizona?
Arizona interprets exclusions to preclude coverage for derivative negligence claims, such as negligent entrustment, negligent supervision, and failure to supervise, report, or prevent the underlying excluded conduct.