UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT
____________
No. 97-50215
____________
H E BUTT GROCERY COMPANY,
Plaintiff - Appellant,
versus
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA,
Defendant - Appellee.
Appeal from the United States District Court
For the Western District of Texas
August 26, 1998
Before WIENER, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
H.E. Butt Grocery Company (“HEB”) brought suit against
National Union Fire Insurance Company (“National Union”) seeking a
declaratory judgment to determine its rights and responsibilities
under a comprehensive general liability insurance policy that
National Union issued to HEB. The district court granted summary
judgment in favor of National Union. We affirm.
I
This insurance coverage dispute arises from an HEB employee’s
sexual abuse of two children in an HEB grocery store. While both
children have been compensated for the sexual assaults, this
dispute concerns how the loss will be allocated between HEB and
National Union. Under the terms of its insurance policy, HEB is
its own primary insurer))it must pay a self-insured retention
(“SIR”) limit of $1,000,000 per “occurrence” as that term is
defined in the policy. National Union is then responsible for the
payment of damages after HEB has satisfied its SIR limit for each
occurrence. The question for this Court is how many “occurrences”
arise from the two sexual assaults.
The relevant facts for this appeal are not disputed. In 1994,
an HEB employee sexually assaulted two different children on
different days in the restroom of an HEB store. The two sexual
assaults took place approximately one week apart and involved the
same employee and the same store. The family of each child filed
claims against HEB in unrelated suits in Texas state court. Each
suit alleged that HEB was negligent in several respects, including
failing to provide adequate security, failing to warn, failing to
adequately supervise its employees, and in hiring and retaining
employees when it knew or should have known that its employees were
unable to provide a safe environment in its store. The lawsuits
also alleged that HEB knew that the same employee had committed an
act of “untoward sexual conduct” in the past with a different child
at another store and that the sole corrective action taken was to
transfer the employee to another store location. HEB eventually
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settled each lawsuit for $1,000,000, the amount of its SIR limit
per occurrence under the insurance policy.
HEB then brought suit against National Union in state court
seeking a declaratory judgment that its payment of $1,000,000 to
settle the first lawsuit satisfied its SIR obligation for both
suits because they arose from the same “occurrence”))i.e., its
negligence in overseeing its pedophilic employee. National Union
removed the case to federal court on diversity grounds and sought
summary judgment, arguing that the two separate instances of sexual
abuse constituted two occurrences under the policy. The district
court agreed and granted summary judgment in favor of National
Union. HEB now appeals the grant of summary judgment.
II
We review the district court’s grant of summary judgment de
novo, taking the facts in the light most favorable to the non-
moving party. See New York Life Ins. Co. v. Travelers Ins. Co., 92
F.3d 336, 338 (5th Cir. 1996). We will affirm a summary judgment
ruling if we are “convinced, after an independent review of the
record that there is no genuine issue of material fact and that the
moving party is entitled to a judgment as a matter of law.” Yeager
v. City of McGregor, 980 F.2d 337, 339 (5th Cir. 1993); see also
FED. R. CIV. P. 56(c). Here, both parties agreed below that the
only question to be decided was whether two unrelated molestations
of different children on two separate dates were one or two
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“occurrences” under the terms of the policy.1
Because this case comes before us through diversity
jurisdiction, we apply Texas law. See Erie R.R. Co. v. Tompkins,
304 U.S. 64, 78-79, 58 S. Ct. 817, 822, 82 L.Ed. 518 (1938). A
contract of insurance is generally subject to the same rules of
construction as other contracts. See National Union Fire Ins. Co.
v. Hudson Energy Co., 811 S.W.2d 552, 554 (Tex. 1991). The court’s
primary concern is to give effect to the written expression of the
parties’ intent. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d
132, 133 (Tex. 1994). If the written contract is worded so that it
can be given a definite or certain legal meaning, it is not
ambiguous and will be enforced as written. See National Union Fire
Ins. Co. v. CBI Indus., Inc. 907 S.W.2d 517, 520 (Tex. 1995).
If the court is uncertain as to which of two or more meanings
was intended, a provision is ambiguous. See Butler & Binion v.
1
On appeal, National Union raises a question of fact as to
whether the sexual abuse was “expected” by HEB. If the injury was
“expected” from the standpoint of the insured (i.e., HEB), there is
no “occurrence” under the terms of the insurance policy. See
Diocese of Winona v. Interstate Fire & Cas. Co., 89 F.3d 1386,
1395-96 (8th Cir. 1996) (holding that sexual abuse was expected by
Diocese, and thus, no occurrence under identical policy language).
National Union, however, failed to raise this issue in the district
court below, and we will not address it. See Yeager v. City of
McGregor, 980 F.2d 337, 339 (5th Cir. 1993) (“We may affirm a
summary judgment on a ground not utilized by the district court if
it was raised below and has proper support in the record.”); see
also Cullen/Frost Bank v. Commonwealth Lloyd’s Ins. Co., 852 S.W.2d
252 (Tex. App. 1993, writ denied) (rejecting insurer’s claim that
damages were “expected” by insured because claim was not raised in
the trial court on insurer’s motion for summary judgment).
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Hartford Lloyd’s Ins. Co., 957 S.W.2d 566, 570 (Tex. App. 1995,
writ denied). An ambiguity in a contract is either “patent” or
“latent.” See CBI Indus., Inc. 907 S.W.2d at 520. “A patent
ambiguity is evident on the face of the contract. A latent
ambiguity arises when a contract which is unambiguous on its face
is applied to the subject matter with which it deals and an
ambiguity appears by reason of some collateral matter.” Id.
(citation omitted). Only after a court has determined a contract
is ambiguous can it consider the parties’ interpretations. See
id. at 520. When a contract is not ambiguous, the court will
construe the contract as a matter of law. See Coker v. Coker, 650
S.W.2d 391, 393-94 (Tex. 1983).
III
The outcome of this case depends on the meaning of
“occurrence” under the policy. HEB argues that “occurrence” is
ambiguous and that its interpretation is a reasonable construction
of the term. Whether a provision is ambiguous is a question of law
for the court to decide. See CBI Indus., Inc. 907 S.W.2d at 520.
HEB does not specify whether it believes that the definition of
“occurrence” is “patently” or “latently” ambiguous; consequently,
we will consider each proposition in turn.
The policy defines “occurrence” as follows:
‘Occurrence’ means an event, including continuous or
repeated exposure to conditions, which result[s] in
Personal Injury or Property Damage during the policy
period, neither expected nor intended from the standpoint
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of the Insured. All Personal Injury or Property Damage
arising out of the continuous or repeated exposure to
substantially the same general conditions shall be
considered as arising out of one occurrence.
This definition of “occurrence” is virtually identical to the
definition contained in standard-form commercial liability
policies. See American Physicians Ins. Exch. v. Garcia, 876 S.W.2d
842, 854 n.21 (Tex. 1994). Texas courts have routinely applied the
term without concluding that it is patently ambiguous. See, e.g.,
Foust v. Ranger Ins. Co., No. 04-97-00714-CV, 1998 WL 82793, *3-4
(Tex. App. Feb. 27, 1998, n.w.h.); Transport Ins. Co. v. Lee Way
Motor Freight, Inc., 487 F. Supp. 1325, 1327 (N.D. Tex. 1980)
(applying Texas law). Not surprisingly, HEB cannot cite a single
Texas case that has found a patent ambiguity in the definition of
“occurrence.” We conclude that the definition of “occurrence” in
the policy is not ambiguous on its face. See Foust, 1998 WL 82793,
at *5 (concluding that virtually identical definition of
“occurrence” was “clearly define[d]” and not ambiguous).
Although no Texas court has interpreted “occurrence” in the
context of a pedophilic employee and the sexual abuse of two
different children, we must make an Erie guess as to how the Texas
Supreme Court would decide the issue. See Farm Credit Bank v.
Guidry, 110 F.3d 1147, 1149 (5th Cir. 1997) (when state law is
silent, court must make "Erie guess" as to how state supreme court
would rule). A latent ambiguity does not arise simply because the
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parties advance conflicting interpretations of the term; an
ambiguity exists only when the term cannot be given a definite and
certain legal meaning and more than one reasonable interpretation
exists. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd.,
940 S.W.2d 587, 589 (Tex. 1996). Thus, we must decide whether
Texas law prescribes a definite legal meaning to “occurrence” under
the circumstances in this case.
Texas courts agree that the proper focus in interpreting
“occurrence” is on the events that cause the injuries and give rise
to the insured’s liability, rather than on the number of injurious
effects. See, e.g., Maurice Pincoffs Co. v. St. Paul Fire & Marine
Ins. Co., 447 F.2d 204, 206 (5th Cir. 1971) (applying Texas law and
holding that the events giving rise to liability constitute the
“occurrence”); Goose Creek Consol. I.S.D. v. Continental Cas. Co.,
658 S.W.2d 338, 339 (Tex. App. 1983, no writ) (explaining that a
majority of courts apply a “cause” analysis to determine whether a
set of facts involve only one or several occurrences); Lee Way
Motor Freight, 487 F. Supp. at 1330 (explaining that “[t]he great
majority of courts have adopted a ‘cause’ analysis”). The question
under Texas law becomes whether HEB’s negligent employment
relationship with its pedophilic employee, rather than the two acts
of sexual abuse, “caused” the injuries to the two children and gave
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rise to HEB’s liability.2
HEB’s argument))that we can ignore the immediate cause of each
child’s injuries and look only to the underlying negligent
supervision))is similar to one rejected by the Texas courts in
Burlington Insurance Co. v. Mexican American Unity Council, Inc.,
905 S.W.2d 359, 362 (Tex. App. 1995, no writ). In Burlington, a
resident of a youth home sued the youth home, alleging that it
negligently allowed her to leave its premises unsupervised and that
she was assaulted by an unknown person as a result. At issue in
the coverage dispute between the youth home and the insurance
2
In his concurring opinion, Judge Benavides suggests that
examining the “cause” of the injuries and examining the events
“giving rise” to liability are mutually exclusive tests for
determining the number of “occurrences.” I disagree, and contrary
to Judge Benavides’s characterization of this opinion, I do not
reject one in favor of the other. Indeed, both common sense and
legal parlance suggest that these approaches are related aspects of
the same test or principle. See Appalachian Ins. Co. v. Liberty
Mutual Ins. Co., 676 F.2d 56, 60-61 (3d Cir. 1982) (considering the
cause of the injuries in conjunction with the events giving rise to
liability to determine the number of “occurrences”). To the extent
that Judge Benavides rejects a test that examines the “cause” of
the injuries for determining the number of “occurrences,” the case
law rests squarely against him. See, e.g., Goose Creek Consol.
I.S.D. v. Continental Cas. Co., 658 S.W.2d 338, 340 (Tex. App.
1983, no writ) (“Courts in federal and foreign jurisdictions have
applied either a ‘cause’ or effect’ analysis in determining whether
a set of facts involved only one or several occurrences.”); see
also Michigan Chem. Corp. v. American Home Assurance Co., 728 F.2d
374, 379-80 (6th Cir. 1984) (noting that “[t]he vast majority of
courts . . . have concluded that . . . the number of occurrences
for purposes of applying coverage limitations is determined by
referring to the cause or causes of damage and not to the number of
injuries or claims.”); Appalachian Ins. Co., 676 F.2d at 60
(“Liberty acknowledges that the determination of whether an
occurrence is single or multiple properly depends on whether there
is a single cause or multiple causes for the losses sustained.”).
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company was the policy’s assault and battery exclusion, and whether
the insurance company had a duty to defend the youth home in the
suit brought by the injured child. The youth home argued that its
negligent supervision was an independent “cause” of the child’s
injuries, and therefore, that the policy exclusion for assault and
battery did not apply. The youth home argued “that there is
concurrent causation in this case: (1) the negligence of [the youth
home] in allowing Zertuche to leave the premises; and (2) the
assault by an unknown assailant.” The court rejected this
argument, concluding that because the child’s injuries arose out of
the assault and battery, the claim was excluded from coverage under
the policy. The court explained that the “cause” of the damages
for purposes of the insurance policy was the actual assault and
battery. “Without the underlying assault and battery, there would
have been no injury and no basis for suit against [the youth home]
for negligence. . . . [T]he origin of [the injured child’s] damages
is the assault and battery.” Id. at 363.
We reached a similar conclusion under Texas law in Commercial
Union Insurance Co. v. Roberts, 7 F.3d 86, 88-89 (5th Cir. 1993).
In Roberts, two children who were sexually molested by a doctor
brought suit against the doctor alleging that he was negligent for,
among other things, failing to obtain treatment for his pedophilia
and failing to have adequate supervision while he taught young
children at Sunday School. Again, the issue before the court was
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the “cause” of the children’s damages, and similar to HEB’s
argument here, the children “attempt[ed] to avoid the inescapable
fact that the sexual molestation caused the injuries.” Id. at 89.
We explained that “[e]ach and every allegation arises out of the
alleged acts of sexual molestation. The claims of negligence are
not independent causes-in-fact of the injuries.” We concluded that
“[w]ithout the underlying sexual molestation there would have been
no injury and obviously, no basis for a suit against [the doctor]
for negligence.” Id. at 89-90; see also Johnson v. Sawyer, 47 F.3d
716, 730-31 (5th Cir. 1995) (en banc) (holding that the negligent
supervision tort “came into Texas law by way of analogy to
negligent entrustment” which requires that liability be predicated
on the tortious conduct of the person to whom the vehicle was
entrusted).
HEB argues that the above-mentioned decisions are not relevant
here because they do not concern the construction of the policy
term “occurrence.” This argument misses the point; the principle
underlying Burlington, Roberts, and Johnson indicates that when the
underlying basis for liability is negligent supervision, yet the
damage is caused by an intervening intentional tort, the court
cannot look past the immediate cause of the damage for purposes of
the insurance policy. Thus, the two independent acts of sexual
abuse “caused” the two children’s injuries and gave rise to HEB’s
separate and distinct liability in each case. See Johnson, 47 F.3d
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at 731 (“[I]n negligent hiring or supervision cases, the general
rule is clearly that ‘liability . . . must be predicated upon the
wrongful act or omission of the employee . . . .”) (interpreting
Texas law).
Further undercutting HEB’s argument is the fact that there are
insurance policies available with a sexual misconduct endorsement
that would treat both incidents of sexual abuse as one occurrence
under the circumstances. In Preferred Risk Mutual Insurance Co. v.
Watson, 937 S.W.2d 148, 149 (Tex. App. 1997, writ denied), the
insured purchased an endorsement which stated that: “All acts of
sexual misconduct by one person, or two or more persons acting
together, or any breach of duty causing or contributing to such
acts will be considered one occurrence in determining our liability
under this section.” HEB did not purchase such an endorsement,
however, and chose instead to purchase the standard liability
policy which defines “occurrence” by the cause of the injuries.
Cf. Lee v. Interstate Fire & Cas. Co., 86 F.3d 101, 104 (7th Cir.
1996) (explaining that “‘continuous or repeated exposure to
conditions’ sounds like language designed to deal with asbestos
fibers in the air, or lead-based paint on the walls, rather than
with priests and choirboys”).
In addition, where insurance provisions are identical across
jurisdictional borders, as they are here, Texas courts strive to
interpret the provisions uniformly. See CBI Indus., Inc. 907
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S.W.2d at 522; see also Dickson v. State Farm Lloyds, 944 S.W.2d
666, 668 (Tex. App. 1997, n.w.h.). While the decisions of other
courts are not binding precedent under Texas law, most courts that
have considered the question have concluded that the sexual
molestation of different children constitutes separate occurrences.
See, e.g., Lee, 86 F.3d at 104-05 (Rhode Island law) (explaining
that the insurance company conceded the issue); Society of the
Roman Catholic Church of the Diocese of Lafayette and Lake Charles,
Inc. v. Interstate Fire & Cas. Co., 26 F.3d 1359, 1364-65 (5th Cir.
1994) (Louisiana law) (“Catholic Church”) (holding that the
molestation of different children constitutes separate
occurrences); Interstate Fire & Cas. Co. v. Archdiocese of
Portland, 747 F. Supp. 618, 624 (D. Or. 1990) (Oregon law) (“Each
time this negligent supervision presented Father Laughlin with the
opportunity to molest a different child, the Archdiocese was
exposed to new liability.”), rev’d on other grounds, 35 F.3d 1325
(9th Cir. 1994); S.F. v. West Am. Ins. Co., 463 S.E.2d 450, 452
(Va. 1995) (Virginia law) (holding that the molestation of
different children constitutes separate occurrences); State Farm
Fire & Cas. Co. v. Elizabeth N., 12 Cal. Rptr. 2d 327 (Cal. Ct.
App. 1992) (California law) (“[W]e conclude that the insured’s
liability to each child was one occurrence[.]”). These decisions
support our conclusion that two independent molestations of two
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children equals two occurrences.3
HEB attempts to distinguish this Court’s conclusion in
Catholic Church by arguing that our holding was based on a finding
that “occurrence” was ambiguous, and that we must similarly find an
ambiguity under the circumstances of this case. In addition to the
fact that Catholic Church applied Louisiana, rather than Texas law,
we disagree with HEB’s conclusion that Catholic Church found
“occurrence” to be ambiguous as to the molestation of different
children. In Catholic Church, we were faced with an insurance
coverage dispute between the Diocese of Lafayette and its insurers
which arose from two miscreant priests’ repeated molestation of 31
different children. Similar to the case at hand, the dispute
centered around the meaning of “occurrence” under the policy; we
considered the identical question to the one before us
here))namely, whether the priests’ molestation of 31 children
constituted 31 separate occurrences.4 The insurance policy’s
3
We recognize that some of the opinions that find separate
occurrences for the molestation of each different child discuss the
issue only in dicta. Because we are interpreting Texas law,
however, we are interested only in the courts’ reasoning and their
analytical approach. We do not consider the cases to be binding
precedent.
4
In addition, we were faced with a second, more
complicated question as to whether the repeated molestation of a
single child over time constituted one on-going occurrence or
separate occurrences for each subsequent act of molestation. As to
this question, we concluded that the repeated molestation of the
same child was one on-going occurrence for each policy period in
which a molestation occurred. See Catholic Church, 26 F.3d at
1365-66.
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definition of “occurrence” was almost identical, and the policy
contained a self-insured retention provision requiring the Diocese
to pay a deductible on a per-occurrence basis (just as HEB’s policy
does). Moreover, Louisiana law, like Texas, requires that when a
term in an insurance policy has uncertain application, the policy
be interpreted in favor of the insured. See Catholic Church, 26
F.3d at 1364. Because of the self-insured retention limit, the
interpretation favorable to the Diocese of Lafayette was that all
of the sexual abuse arose from one occurrence))its negligent
supervision of the priests.
After noting the interpretation favorable to the Diocese, we
nonetheless held that the priest’s molestation of each child was a
separate “occurrence” under the policy (i.e., 31 occurrences). See
id. We came to this conclusion even though it was not the
conclusion favorable to the Diocese because Louisiana law made it
clear that the damage to each child was a separate occurrence. In
short, we could not have concluded that the definition of
“occurrence” had an uncertain application under Louisiana law.5
5
A recent Texas decision discussing our opinion in
Catholic Church misunderstands our holding in that case. See
Preferred Risk Mut. Ins. Co. v. Watson, 937 S.W.2d 148, 150 (Tex.
App. 1997, writ denied). Although the Texas court found Catholic
Church to be “inapposite” because the insurance policy at issue had
a sexual misconduct endorsement, see supra at 10, the court stated
that we interpreted the insurance policy in favor of the insured in
Catholic Church. We disagree with the Texas court’s interpretation
of our holding. While there is dicta in Catholic Church stating
that the definition of occurrence “affords little assistance” and
is “malleable” and “perplexing,” we did not interpret the policy in
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Instead, at least with respect to the molestation of different
children, “occurrence” had a clear and definite meaning: the
molestation of each child constituted a separate occurrence. See
Catholic Church, 26 F.3d at 1364 (“Following Lombard, ‘the damage
to each [child] is a separate occurrence.’”) (quoting Lombard v.
Sewerage & Water Bd., 284 So. 2d 905, 915-16 (La. 1973)).
HEB further argues that the final sentence of the definition
of “occurrence”))all injury “arising out of the continuous or
repeated exposure to substantially the same conditions shall be
considered as arising out of one occurrence”))indicates that two
sexual assaults on two different children is only one “occurrence”
when they are predicated on an employer’s negligence. HEB confuses
the circumstances of its case (i.e., two independent acts of sexual
abuse on two different children) with the second question we
considered in Catholic Church, which was whether multiple acts of
sexual abuse on the same child constituted one or multiple
occurrences. See supra note 4. We concluded in Catholic Church
that multiple molestations of the same child was one occurrence per
policy period. See Catholic Church, 26 F.3d at 1365-66 (“When a
favor of the insured with regard to the molestation of each
different child. As this opinion notes, our conclusion in Catholic
Church))that the molestation of each child was a different
occurrence))was directly contrary to the interpretation favorable
to the insured Diocese in that case. Our holding therefore
indicates that Louisiana law did not find the question uncertain or
subject to more than one interpretation. See Catholic Church, 26
F.3d at 1364.
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priest molested a child during a policy year, there was both bodily
injury and an occurrence, triggering policy coverage. All further
molestation of that child during the policy period arose out of the
same occurrence.”). As the opinion in Catholic Church itself makes
clear, the conclusion that multiple molestations of the same child
is only one occurrence is easily distinguishable from the
conclusion regarding separate acts of molestation of different
children. Where an employee repeatedly molests the same child,
each new act of abuse does not necessarily give rise to new
liability for the employer. In the case at hand, however, HEB is
exposed to new liability for each separate and independent act of
molestation on a new child.
HEB’s argument “depicts a pedophilic [employee] as similar to
hazardous waste: living next to a church from which oil has seeped
into the ground is one ‘occurrence’ no matter how long the
conditions exist.” See Lee, 86 F.3d at 103. In response to a
similar argument, the Seventh Circuit explained that “[a] priest is
not a ‘condition’ but a sentient being, and of course the victim
was never ‘exposed’ to the Diocese’s negligent supervision.” Lee,
86 F.3d at 104. Here, each child was “exposed” to the pedophilic
employee, not to HEB’s negligent employment practices. “[T]he
occurrence is not the Archdiocese’s negligent supervision of Father
Laughlin as such, but the ‘exposure’ of the boy to the negligently
supervised priest[.]” Archdiocese of Portland, 35 F.3d at 1329.
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Although the Seventh Circuit recently questioned our analysis
in Catholic Church relating to the repeated molestation of the same
child, see Lee, 86 F.3d at 104-05 (“Following the fifth and ninth
circuits, both [parties] assume that every child abuse case
produces either one ‘occurrence’ or many according to the number of
victims and policy years involved. We do not think that Rhode
Island would find either end of this continuum attractive.”), the
court appeared to agree that the molestation of different children
would constitute separate occurrences:
At oral argument, counsel for Lloyd’s conceded that if
[the priest] had abused two boys in a single policy year,
that would be two ‘occurrences.’ Presumably two priests
abusing four boys would be four occurrences. From the
victim’s perspective, this makes sense. Each loss is
independent, and this understanding affords both the
victim and the insured Diocese one full ‘occurrence’
worth of coverage.
Lee, 86 F.3d at 104. The court noted that “a single negligent act
undoubtedly can produce multiple ‘occurrences’ if the injuries are
independent.” Id.
This is the same type of “cause” analysis undertaken by other
courts. While “a single occurrence may result in multiple injuries
to multiple parties over a period of time . . .[,] if one cause is
interrupted and replaced by another intervening cause, the chain of
causation is broken and more than one occurrence has taken place.”
Home Indem. Co. v. City of Mobile, 749 F.2d 659, 662 (11th Cir.
1988); see also Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676
F.2d 56, 61 (3d Cir. 1982) (holding that to determine the number of
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occurrences “the court asks if ‘[t]here was but one proximate,
uninterrupted, and continuing cause which resulted in all of the
injuries and damage’”) (quoting Bartholomew v. Insurance Co. of N.
America, 502 F. Supp. 246, 251 (D. R.I. 1980), aff’d, 655 F.2d 27
(1st Cir. 1981)). Here, it is clear that each child’s injuries are
independent and caused by the separate acts of sexual abuse. We
agree with the Ninth Circuit that “the terms of the policy make
clear that negligent supervision alone, whether ongoing or not,
would not trigger any obligation on the part of the insurers.
Rather it is the [] ‘exposure’ of the boy to the negligently
supervised priest, resulting in injury, that provides the basis for
indemnification.” Archdiocese of Portland, 35 F.3d at 1329.
We recognize that courts have not been uniform in their
interpretation of “occurrence” under similar circumstances. The
Virginia Supreme Court, without much analysis, found that
“occurrence” was ambiguous with regard to the molestation of
multiple children, but then concluded that the molestation of each
child was a separate occurrence because that was the interpretation
favorable to the insured in that case. See S.F. v. West Am. Ins.
Co., 463 S.E.2d 450, 452 (Va. 1995). The Nevada Supreme Court
recently reached the opposite conclusion: it did not find
“occurrence” to be ambiguous, yet the court concluded that the
molestation of different children constituted only one occurrence
when premised on the county’s underlying negligence. See Washoe
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County v. Transcontinental Ins. Co., 878 P.2d 306, 308-10 (Nev.
1994). Even though the court recognized that “the actions of the
individual wrongdoers are the most direct causes of harm for the
victims,” it “conclude[d] that the County’s negligence in the
licensing process and in its attendant duties to investigate and
monitor [the day-care center] constitutes a single occurrence for
purposes of liability.” Id. We find, however, that the Nevada
court’s approach conflicts with the greater weight of authority and
“attempt[s] to avoid the inescapable fact that the sexual
molestation caused the injuries.” Roberts, 7 F.3d at 88-90.
Moreover, under Texas law, even where courts from different
jurisdictions are split as to the interpretation of a particular
insurance provision, “[n]either conflicting views of coverage, nor
disputation is sufficient to create an ambiguity.” Union Pac.
Resources v. Aetna Cas. & Sur., 894 S.W.2d 401, 401 (Tex. App.
1994, writ denied) (emphasis in original).
HEB fails to recognize that the interpretation of “occurrence”
favorable to the insured in this case will not necessarily be the
interpretation favorable to the insured in the next case. Because
HEB serves as its own primary insurer (because of its SIR limit),
it wants to call the separate molestations one “occurrence” to
limit the number of self-insured retentions that it must pay. See,
e.g., Catholic Church, 26 F.3d at 1363 (“[T]he larger the number of
‘occurrences,’ the greater the loss borne by the primary insurers
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. . . .”). The Seventh Circuit noted, however, that “[w]inners and
losers will change with the circumstances. . . . [I]f tomorrow the
victim’s loss exceeds the maximum coverage for a single occurrence,
the roles will be reversed. The [insurance company] would want to
call the sexual abuse a single occurrence to cap its own exposure,
while the Diocese would favor multiple occurrences in order to
maximize its insurance coverage.” Lee, 86 F.3d at 104; see also
Elizabeth N., 12 Cal. Rptr. 2d at 328-29 (demonstrating that where
insurance company’s liability was capped at $200,000 per
occurrence, it argues that multiple acts of sexual abuse constitute
only one occurrence).
The Virginia Supreme Court’s decision in West American
Insurance Co. is a perfect case in point. The insured-employer in
that case argued that the molestation of each child was a separate
“occurrence” under an identical policy definition, while the
insurance company argued that the employer’s negligence in hiring,
supervising and retaining its pedophilic employee constituted only
one occurrence. See West Am. Ins. Co., 463 S.E.2d at 452. The
court ultimately construed “occurrence” in favor of the insured and
concluded that the molestation of each child was a separate
occurrence))giving the insured full coverage for each molestation
up to the policy’s per-occurrence maximum (instead of coverage for
only one “occurrence”). See id. Thus, the cases make clear that
whether the definition of “occurrence” is favorable to the insured
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depends on whether the parties are arguing over the maximum
coverage per occurrence or the number of self-insured retentions
that must be paid. While this opinion rejects HEB’s interpretation
of “occurrence,” the definition of “occurrence” remains a mixed
blessing to both insurers and insured.
IV
We recognize that the financial burden of settling the sexual
abuse lawsuits will fall heavily on HEB under the terms of its
policy; “[h]owever unfortunate such a result would be from the
perspective of [the insured], it is dictated by the terms of the
policies [it] purchased.” Archdiocese of Portland, 35 F.3d at
1331. HEB chose to purchase an insurance policy that provided for
a self-insured retention limit of $1,000,000 per occurrence. Cf.
Diocese of Winona, 89 F.3d at 1390 (SIR limit of $100,000); Lee, 86
F.3d at 102 (SIR limit of $100,000); Archdiocese of Portland, 35
F.3d at 1327-28 (SIR limit ranging from $75,000-$100,000); Catholic
Church, 26 F.3d at 1362 (SIR limit of $100,000); Washoe County, 878
P.2d at 307 (SIR limit of $50,000). It is this high SIR limit that
requires HEB to bear the entire burden of settling the children’s
two lawsuits for $1,000,000 each.
HEB cannot successfully argue that the two separate acts of
sexual abuse on two different children constitute only one
“occurrence” under the policy. Neither Texas law nor the policy
language allow this result. We reach this conclusion not by
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looking to the number of injuries or the number of victims,6 but
rather by looking to the two independent events that gave rise to
HEB’s liability and caused the injuries. HEB’s argument that it
should not have to bear the $1,000,000 burden for each act of
sexual abuse is without merit. We conclude that the insurance
policy is not ambiguous under the circumstances of this case; under
Texas law, two independent acts of sexual abuse injuring two
children are two occurrences. The summary judgment in favor of
National Union is AFFIRMED.7
WIENER, Circuit Judge, concurs in the judgment only.
6
We express no opinion as to the number of “occurrences”
that would arise if an employee molested two children at the same
time in the same incident. That question is not before us and
remains for another day.
7
National Union’s Motion to Certify Questions of Law is
denied as moot.
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BENAVIDES, J., concurring.
Although I agree that Texas courts would focus on the events
giving rise to liability to determine the number of occurrences, I
do not agree that the question under Texas law is “whether HEB’s
negligent employment relationship with its pedophilic employee,
rather than the two acts of sexual abuse, ‘caused’ the injuries to
the two children and gave rise to HEB’s liability.” ___ F.3d at
___. I would hold that the appropriate test for counting
occurrences under Texas law is a “liability-triggering event” test
rather than the “immediate cause” test applied by Judge Garza.
Applying a liability-triggering event test yields the same result
reached by Judge Garza. There were two occurrences: the employee’s
molestation of each child.
Both Goose Creek Consol. ISD v. Continental Cas. Co., 658
S.W.2d 338, 339 (Tex. App.— Houston [1st Dist.] 1983, no writ) and
Maurice Pincoffs Co. v. St. Paul Fire & Marine Insurance Co., 447
F.2d 204 (5th Cir. 1971), are best understood as applying a
“liability-triggering event” test, rather than the “immediate
cause” test adopted in the majority opinion.8 In Goose Creek, the
8
See Dow Chem. Co. v. Associated Indem. Corp., 727 F. Supp.
1524, 1528 (E.D. Mich. 1989); Comment, Tung Yin, Nailing Jello to
a Wall: A Uniform Approach for Adjudicating Insurance Coverage
Disputes in Products Liability Cases with Delayed Manifestation
Injuries and Damages, 83 CAL. L. REV. 1243, 1254 (1995). I
court focused on the particular language of the policy at issue in
that case, which defined occurrence in terms of a “single event,”
and concluded that each of two fires was a separate event and thus
that there were two occurrences under the policy. 658 S.W.2d at
339. Although the court noted that a majority of states had
adopted a “cause” test for occurrence, the court did not in fact
apply a cause test, but rather relied on its understanding of the
term “single event” in determining how many occurrences there were.
Id. at 340.
This circuit’s approach was similar in Pincoffs. The Pincoffs
court viewed the occurrence as the “event” giving rise to liability
from the insured’s point of view. Pincoffs involved the sale by
Pincoffs of contaminated bird seed to dealers who in turn sold the
seed to bird owners, whose birds then died. The liability-
triggering event, from Pincoffs’s point of view, was Pincoffs’s
sale of contaminated seed rather than the original contamination of
the seed (apparently by a third party) or the subsequent sales by
the dealers. This holding was not based on a conclusion that the
contamination of the seed or subsequent sales did not cause the
bird owner’s injuries or that the sale was an “immediate” or
“intervening” cause, but rather on the idea that the sales were
recognize that there is room for disagreement on this point. See
Michael J. Murphy & Robert E. Wilder, The "Event" Debate in
Asbestos-Related Excess of Loss Reinsurance Disputes, 31 Tort &
Ins. L.J. 687, 702 (1996).
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“the events or incidents for which Pincoffs is liable.” 447 F.2d
at 206. Indeed, the court clearly acknowledged that “the damage to
the birds resulted from the contamination of the bird seed.” Id.
at 207.
Similarly, in this case, the children’s injuries resulted from
HEB’s negligent hiring of the pedophilic employee and from the
employee’s acts. But the events that gave rise to liability, even
from HEB’s point of view, were the employee’s molestations of each
child. Notably, however, applying the “immediate cause” test to
the facts in Pincoffs would produce a different result: the
immediate cause of the bird owner’s injuries was not Pincoffs’s
sale to the dealers but the dealers’ sale to the bird owners (or
even more particularly, the feeding of the birds). Nonetheless,
the liability-triggering event from Pincoffs’s point of view was
its sale of the seed to the dealers. Thus, Pincoffs supports the
result that Judge Garza reaches here, but in my view is
inconsistent with the test he would adopt.
Moreover, the cause test set forth by the district court in
Transport Insurance Co. v. Lee Way Motor Freight, Inc., 487 F.
Supp. 1325, 1237 (N.D. Tex. 1980), cited by Judge Garza, is
inconsistent with the result reached in this case. Lee Way
involved a company-wide racially discriminatory policy. The court
held that the occurrence was not each individual instance of
discrimination that resulted from the discriminatory policy, but
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rather the adoption of the policy itself. By analogy, the
occurrence in this case would be the negligent hiring and
supervision of a pedophilic employee instead of the two instances
in which that pedophilic employee harmed the children of customers.
Indeed, the Nevada Supreme Court in Washoe County v.
Transcontinental Insurance Co., 878 P.2d 306 (Nev. 1994), applied
the causal analysis employed in Lee Way and reached a conclusion
contrary to that reached by Judge Garza. The Nevada court held
that even though multiple children had been molested by an employee
negligently hired by the county, there was only one occurrence from
the county’s point of view (the county’s negligent hiring). See
id. at 308. The Washoe County court actually cites Lee Way in
support of its conclusion that there was a single occurrence. See
id. The Lee Way/Washoe County approach bears little resemblance to
the approach taken in Pincoffs and Goose Creek.
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In addition to being more consistent with Pincoffs and Goose
Creek, a liability-triggering event test would also be more
consistent with the specific policy language in this case, which
defines “occurrence” in terms of an “event.” The liability-
triggering event test also has the virtue of avoiding the
acrobatics required to conclude that the molester’s actions rather
than HEB’s negligence caused the injuries to the molested children.
Judge Garza relies on Burlington v. Mexican Am. Unity Council, 905
S.W.2d 359 (Tex. App.—San Antonio 1995, no writ), and Commercial
Union Ins. Co v. Roberts, 7 F.3d 86 (5th Cir. 1993), for the
proposition that occurrences should be counted with reference to
the immediate cause of the injuries. Both Burlington and Roberts,
however, involved the applicability of intentional tort policy
exclusions (in Burlington, an exclusion for assault and battery; in
Roberts, for intentional torts generally). These cases, which deal
with what happens when the covered cause of harm is not independent
of the excluded cause of harm, do not shed any light on counting
the number of occurrences under an insurance policy. Suppose, for
example, in Pincoffs, that the bird seed dealer’s insurance policy
had contained coverage for its liability arising out of sales to
pet store owners, but excluded coverage for the death of livestock
resulting from the ingestion of contaminated food. Under
Burlington and Roberts, there would have been no coverage for the
birds’ deaths under the policy because the ingestion of
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contaminated food (the immediate, but excluded cause) and the sales
to pet store owners (the covered cause) were not independent causes
of the birds’ deaths. That does not mean, however, that, absent
the exclusion, the number of occurrences would be based on each
bird’s ingestion of the contaminated seed rather than the sales as
the Pincoffs court held. In other words, whether coverage is
negated because the immediate cause of harm is excluded from
coverage (and the covered cause is not independent of the excluded
cause) has no necessary connection to the way occurrences should be
counted under the policy.
Finally, I disagree with Judge Garza’s conclusion that this
circuit in Society of the Roman Catholic Church v. Interstate Fire
& Cas. Co., 26 F.3d 1359 (5th Cir. 1994), found that the term
“occurrence” was not ambiguous. ___ F.3d ___ n.4 (criticizing
Preferred Risk Mut. Ins. Co. v. Watson, 937 S.W.2d 148, 150 (Tex.
App.—Fort Worth 1997, writ denied)). To the extent, as Judge Garza
suggests, that the Catholic Church panel held that the definition
of occurrence unambiguously requires that occurrences be counted
from the injured party’s point of view, Judge Garza’s opinion here
conflicts with Catholic Church. The definition of occurrence he
would adopt (keyed to “immediate cause”) is inconsistent with the
Catholic Church panel’s effects test. This inconsistency can be
demonstrated by applying the two definitions to the facts in Anchor
Casualty Co. v. McCaleb, 178 F.2d 322 (5th Cir. 1949). In McCaleb,
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an oil well exploded, injuring the property of four people who
brought suit. Like the Catholic Church court, the McCaleb court
adopted an “effects” test for counting the number of occurrences
under Texas law, holding that number of occurrences must be
determined based on the property damage suffered by each individual
property owner as a result of the explosion. See McCaleb, 178 F.2d
at 325. Applying the test adopted by Catholic Church and McCaleb
and examining the claim from the point of view of the injured
parties, there were four occurrences in McCaleb. Under Judge
Garza’s definition, however, there was only one occurrence because
there was only one immediate cause of the injuries (the oil well
explosion). Thus, Judge Garza cannot simultaneously conclude that
the Catholic Church case found the definition of occurrence to be
unambiguous.
Applying the liability-triggering event test to the facts of
McCaleb also leads to a finding that there was but one occurrence.
Unlike Judge Garza, however, I would conclude that the panel in the
Catholic Church case did in fact believe that the definition of
occurrence was subject to more than one interpretation. The court
noted that the meaning of the phrases “a continuous or repeated
exposure to conditions” and “substantially the same general
conditions” is “malleable” and that the meaning of “occurrence”
“can be perplexing in application.” Id. at 1364. The court
further explained:
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An “occurrence” could be the church’s continuous
negligent supervision of a priest, the negligent
supervision of a priest with respect to each child, the
negligent supervision of a priest with respect to each
molestation, or each time the Diocese became aware of a
fact which should have led it to intervene, just to name
a few possibilities.
Id. Nevertheless, the panel was bound by the Louisiana Supreme
Court’s decision in Lombard v. Sewerage & Water Bd. of New Orleans,
284 So.2d 905 (La. 1973), in which the court held that the number
of occurrences under Louisiana law must be determined from the
point of view of the injured parties (i.e., applied an “effects”
test).
In sum, because the liability-triggering event test is more
consistent with Texas law and with the language of policy in this
case and is more easily applied, I respectfully concur.
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