UNITED STATES COURT OF APPEALS FILED
FOR THE NINTH CIRCUIT JUN 10 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
HOLLY BAYES, No. 17-56035
Plaintiff-Appellee, D.C. No.
2:16-cv-03525-RGK-AGR
v.
STATE FARM GENERAL INSURANCE
COMPANY, an Illinois Corporation, MEMORANDUM*
Defendant-Appellant.
Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
Argued and Submitted December 6, 2018
Pasadena, California
Before: RAWLINSON and BEA, Circuit Judges, and RICE, ** Chief District
Judge.
Appellee Holly Bayes 1 is the mother of a child molested by Cooper Potter.
Cooper’s mother, Susan Potter, operated a small child-care facility in her Ventura,
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Thomas O. Rice, Chief United States District Judge
for the Eastern District of Washington, sitting by designation.
1
Acting in the capacity as guardian ad litem and mother of Jane Doe.
1
California rental home where she and her son lived. Ms. Potter, however, would
periodically leave her home, leaving the children unsupervised and alone with her
adult son Cooper. Cooper went to prison; Susan has closed her business.
Susan and Cooper Potter were insured under a Renters Policy issued by
Appellant State Farm. Susan purchased a Child Care Liability Endorsement that
extended to cover “bodily injury, property damage, and medical expense coverages
arising out of child care services” provided by an insured from the premises. The
Endorsement included a “Sexual Molestation Exclusion” which stated:
Sexual Molestation Exclusion. We do not cover bodily injury,
property damage, or medical expense arising out of or resulting from
the actual, alleged or threatened sexual molestation of a minor by:
a. any insured;
* * *
We have no duty to defend or settle any sexual molestation claim or
suit against any insured. . .
Holly Bayes filed a civil complaint against Cooper and Susan Potter in state
court. The complaint alleged only a single cause of action against Susan on the
theory that Susan’s negligent supervision proximately caused the sexual assault.
Susan Potter tendered defense of the suit to State Farm. Given the Sexual
Molestation Exclusion, inter alia, State Farm determined there was no coverage
and denied the tender. Susan Potter then entered into a settlement with Holly
Bayes, conceded liability and assigned her claims against State Farm to Holly
2
Bayes. In exchange, Holly Bayes agreed to refrain from collecting the settlement
amount from Susan Potter.
Holly Bayes then filed suit in federal court against State Farm alleging
breach of contract, breach of the implied duty of good faith and fair dealing and
also sought punitive damages. The district court granted summary judgment to
State Farm on all claims except the breach of contract claim. The district court
determined there was an “interpretive ambiguity” created by the California
Supreme Court in Minkler v. Safeco Insurance Co. of America, 232 P.3d 612 (Cal.
2010), which prevented summary judgment for State Farm. The parties then
entered into a stipulated judgment on the breach of contract claim to avoid the
expense of trial and to allow an immediate appeal by State Farm on this single
issue.
The resolution of this case turns on the California Supreme Court’s decision
in Minkler, so a brief explanation of that case is in order. Scott Minkler (Scott)
sued David Schwartz (David) and David’s mother, Betty Schwartz (Betty),
alleging that David, an adult, sexually molested Scott, then a minor. The
complaint alleged, among other things, that some of the acts of molestation
occurred in Betty’s home, and as a result of Betty’s negligent supervision.
Betty was the named insured under a series of homeowners policies issued
by Safeco Insurance Company of America, and David was an additional insured.
3
The policies’ liability coverage provisions promised to defend and indemnify,
within policy limits, “an” insured for personal injury or property damage arising
from a covered “occurrence,” but they specifically excluded coverage for injury
that was “expected or intended” by “an” insured, or was the foreseeable result of
“an” insured’s intentional act. The California Supreme Court explained that absent
contrary evidence, in a policy with multiple insureds, exclusions from coverage
described with reference to the acts of “an” or “any,” as opposed to “the,” insured
are deemed under California law to apply collectively, so that if one insured has
committed acts for which coverage is excluded, the exclusion applies to all
insureds with respect to the same occurrence. Id. at 614. A wrinkle occurred with
this legal analysis because the policies contained a severability-of-interests or
“separate insurance” clause providing that “[t]his insurance applies separately to
each insured.” Thus, the California Supreme Court formulated the question to be
answered as follows: “Where a contract of liability insurance covering multiple
insureds contains a severability clause, does an exclusion barring coverage for
injuries arising out of the intentional acts of ‘an insured’ bar coverage for claims
that one insured negligently failed to prevent the intentional acts of another
insured?” Id. at 616-17.
The Court held that because the severability clause stated that “[t]his
insurance” was “separately” applicable to “each insured,” each person the policies
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covered would be treated, for all policy purposes, as if he or she were the sole
person covered, i.e., that in effect, each insured had an individual policy whose
terms applied only to him or her. Thus, the California Supreme Court held that
Betty would reasonably have expected the policies “to cover her separately for her
independent acts or omissions causing such injury or damage, so long as her
conduct did not fall within the policies’ intentional acts exclusion, even if the acts
of another insured contributing to the same injury or damage were intentional.” Id.
at 618 (emphasis in original). Significantly, the California Supreme Court
observed that because “Betty’s policies did not contain a specific exclusion for
claims arising from sexual molestation . . . nothing we hold in this case concerns
how an exclusion framed in those terms should be construed.” Id. at 619.
In this case, Susan and Cooper Potter’s Renters Policy expressly excluded
injury or damage “arising out of or resulting from the actual, alleged or threatened
sexual molestation of a minor by [] any insured . . .We have no duty to defend or
settle any sexual molestation claim or suit against any insured . . .” Applying the
severability-of-interests or “separate insurance” clause to each, Susan and Cooper
Potter, alongside the Sexual Molestation Exclusion does not result in any
ambiguity. State Farm expressly excluded coverage for this type of damage or
injury, regardless of the theory for liability.
REVERSED AND REMANDED for Judgment in favor of State Farm.
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FILED
JUN 10 2019
Bayes v. State Farm General Insurance, No. 17-56035
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
BEA, Circuit Judge, dissenting.
Were we deciding this case on a blank slate, I would likely agree with my
colleagues that the State Farm Policy’s Sexual Molestation Exclusion
unambiguously excludes Susan Potter from coverage for claims arising from acts
of sexual molestation committed by her adult son Cooper. But this case does not
come to us on a blank slate. In my view, notwithstanding the California Supreme
Court’s attempt to limit its holding in Minkler v. Safeco Insurance Co., 232 P.3d
612 (Cal. 2010), Minkler’s reasoning forecloses the facile conclusion the majority
reaches today. Rather than simply apply Minkler, however, I would certify the
question presented to the California Supreme Court.
State Farm’s insurance contract includes a severability clause stating that
“[t]his insurance” is “separately” applicable to “each insured.” In light of the
severability clause, must the Policy’s exclusions be applied separately to each
insured, i.e., “as if he or she were the only insured” under the Policy? See Minkler,
232 P.3d at 618 (emphasis added). If so, Susan Potter cannot be barred from
coverage under the Sexual Molestation Exclusion for Cooper’s acts. Treated “as
if . . . she were the only insured,” Susan’s conduct does not implicate the exclusion
barring coverage for claims arising from “sexual molestation of a minor by . . . any
insured.”
1
The insurance contract in Minkler contained an identical severability clause.
And Minkler held that the severability clause requires courts to apply “all
provisions of the policies”—including Policy exclusions—to each insured “as if he
or she were the only insured.” Id. Accordingly, on virtually identical facts to the
present action, the California Supreme Court held that a coverage exclusion for
intentional acts did not bar coverage to one insured for claims arising out of acts of
sexual molestation committed by another insured. A faithful application of
Minkler’s reasoning would seem to compel the same conclusion here.
Now, Minkler did purport to limit its holding to its “specific
circumstances,” id. at 621 n.5, and to say “nothing” about how a case involving a
sexual molestation (rather than an intentional acts) exclusion should be decided.
But limitation language may well not produce law. “[T]he rationale that carries the
force of precedent is that ‘without which the judgment in the case could not have
been given’”—not what the court happens to say. BRYAN GARNER ET AL., THE LAW
OF JUDICIAL PRECEDENT 84 (2016). And Minkler’s reasoning turned not on the
wording of the relevant exclusion, but on its conclusion that the phrase “[t]his
insurance” in an identically-worded severability clause covers “all provisions of
the policies,” including exclusions. On the majority’s view, when an insurance
contract includes an intentional acts exclusion, the phrase “this insurance” in a
severability clause means all policy provisions. See Minkler, 232 P.3d at 618. Yet
2
when the contract includes a sexual molestation exclusion, the phrase “this
insurance” magically takes on a different meaning—and, apparently, no longer
applies to the contract’s exclusions. That cannot be right.
I recognize it would be odd to reach a result seemingly compelled by the
reasoning of a case that carefully stated it was saying “nothing” about this very
circumstance. But neither the majority nor any other court to consider the same
question has explained how a contrary result can be squared with Minkler’s basic
premise: A severability clause requires us to apply the Policy’s exclusions to each
insured as if she were the only insured. See, e.g., Maj. Op. at 4-5 (declaring
contract unambiguous without explanation); RLI Insurance Co. v. Romero, 10
2017 WL 3579549, C.D. Cal. (July 10, 2017) (same); Safeco Insurance Co. v.
Thomas, 11 2013 WL 12123852, S.D. Cal. (Nov. 26, 2013) (same).
In the face of conflicting federal district court decisions and a quandary
caused by the California Supreme Court’s opinion, I would have certified the
question to the state court to clear it up. If Minkler is merely, as it purports to be, a
“restricted railroad ticket, good for this day and train only,” County of Washington
v. Gunther, 452 U.S. 161, 182 (1981) (Rehnquist, J., dissenting), then it has done
little to clarify this commonly litigated area of law. Because I think certification
the more prudent course, I respectfully dissent.
3