The Definitive Article Fails to Exempt Insurance Company from Duty

Northern Security Insurance, Inc. v. Stanhope, 2010 VT 92

The Court affirmed the Washington Superior Court’s decision finding that Northern Security Insurance Company owes a duty of coverage to the insureds.

This dispute is the result of events that occurred at Rose Perron’s day care business in the early 1990s. During the time that Rose Perron had homeowner’s insurance through Northern, her son Kyle, age 8 to 11, repeatedly sexually abused two children who attended the day care. After initial lawsuits were filed, two additional claims were made by other families who also claimed Kyle sexually abused their children. Northern refused to provide coverage for the Perron family, alleging that Rose falsely stated on the policy application that she was not conducting business on the premises, and the injuries were intended and/or expected. The Washington Superior Court disagreed.

The first issue of contention was whether or not Rose Perron’s misrepresentation voided the coverage for the rest of the insured. The lower court found that the policy was void as to Rose, but there was no evidence that that Kyle or Rose’s husband Steven had any knowledge of the misrepresentation. As a result, the “innocent co-insured” doctrine provided that Kyle and Steven were owed coverage by Northern. Northern disputed this finding, suggesting that the language in their policy differed from precedent because the word “the” was used instead of “an.” The Court spent little time wrapping its brain around that one, as Northern forgot to raise this issue at the trial court, and as such, did not preserve it for review.

Northern also disputed that they had the burden to prove the injuries caused by Kyle were intended or expected, and that this should be reviewed by a subjective rather than an objective standard. The Court agreed with the lower court, citing precedent which stated that once the insured has made out a “prima facie case for coverage by producing evidence of the harm,” the insurer then has the burden to prove that the harm was “intended or expected.”

Northern also lost on its argument that the jury instructions should have incorporated an objective rather than a subject standard, i.e., that Kyle knew or had a reason to know that his actions would cause harm. The Court had plenty of precedent, both in-state and from other jurisdictions, to shoot this argument down. At the heart of the cited precedent is the reasoning that a subjective standard would “deny coverage for injuries negligently or foreseeably caused, rather than intended, and thereby defeat the very risk for which the insured contracted.” As such, it was up to the jury to decide, based on circumstantial evidence, whether Kyle knew that his actions would cause harm. However, had Kyle been an adult during these incidents, intent would be inferred.

Finally, Northern disputed the lower court’s ruling to sustain the defense counsel’s objections to a statement by Northern’s attorney during rebuttal argument. The objectionable mini-tirade included statements such as, “[t]his is an eleven year old boy who is sexually mature, who’s got sexual experience. He knows what he’s doing,” and “let’s talk about common sense if an eleven year old boy is vaginally penetrating a four year girl. Are we saying that’s not harmful? That’s not injurious?” Northern argued that this ruling prevented them from arguing that harm could be inferred from the circumstantial evidence, but the Court found that Northern made this argument repeatedly during trial and provided ample evidence on this front. As the Court stated, “if the jury was ultimately unpersuaded by the argument, it was not the result of trial court error.”

—Christine Mathias