10.4 Sexual Misconduct

• Jurisdiction: Arizona

Significant legal battles have been fought recently over whether insurance policies provide coverage for sexual misconduct in the home and workplace. In the homeowner context, sexual misconduct claims initially were rejected by insurance companies on two grounds: (1) the sexual misconduct was not accidental and, therefore, did not constitute an occurrence triggering coverage; and (2) the sexual misconduct caused bodily injury that was either expected or intended and, therefore, the policy's standard intentional act exclusion was applicable to defeat coverage. More recently, insurance companies have incorporated into the typical homeowner's policy a specific exclusion for sexual misconduct. Current homeowner policies typically exclude coverage for bodily injury claims that arise out of sexual molestation. These policies do not usually define "sexual molestation."

The Arizona courts have not addressed the issue of whether a claim for sexual harassment at work is covered under a homeowner's policy. It appears, however, that the majority of courts that have considered this issue have found that such coverage is not available.^[73] These courts have denied coverage based on four grounds: (1) where a claim for sexual harassment did not allege any physical manifestations of alleged mental injuries, there was no bodily injury within the mean of the policy; (2) where the alleged injuries arose from intentional rather than accidental acts, there was no occurrence within the meaning of the policy; (3) where the alleged injury was expected or intended from the standpoint of the insured, the policy's intentional act exclusion applied; and (4) where the alleged injuries arose from a business pursuit of the insured, coverage was precluded by the policy's exclusion for bodily injury or property damage arising out of business pursuits of the insured.^[74]

In the commercial context, sexual misconduct claims are rejected on several grounds: (1) the sexual misconduct was not accidental and, therefore, did not constitute an occurrence triggering coverage; (2) only employees acting within the course and scope of their employment are covered by the policy, and sexual misconduct is outside the scope of employment;^[75] (3) the policy's intentional act exclusion is applicable; (4) the policy's workers' compensation exclusion is applicable to sexual misconduct involving employees;^[76] and (5) the employer's liability exclusion is applicable to employee claims involving sexual misconduct where a co-employee is the injured party.^[77]

The Arizona courts have consistently held that in child molestation cases, the basic intent to injure will be inferred and the policy's intentional act exclusion will be applicable. This is the majority view within the country.^[78]

In Twin City Fire Insurance Co. v. Doe,^[79] a father allegedly committed acts of molestation upon his minor children. The victims' representatives and the insured asserted that the father did not intend to cause harm to the children.^[80] Twin City's policy excluded bodily injury that was expected or intended by the insured. The issue before the court was whether the intentional act exclusion was applicable in a situation where the insured had a psychological condition that prevented him from forming an intent to harm his children during his acts of sexual molestation. The insureds contended that the policy exclusion-to be valid and enforceable-required a subjective intent on the father's part, and that the intent to injure could not be inferred from the acts of the insured given his psychiatric condition, i.e., pedophilia.^[81] The court concluded that the sexual acts alleged not only constituted the intentional tort of assault and battery, but they also constituted a crime.^[82] No privilege was involved in any of the alleged misdeeds, nor were the acts of the insured father done under a claim of right recognized by law. Under those circumstances, the Twin City court concluded that public policy did not mandate coverage and, instead, mandated an opposite result, that is, no coverage.^[83]

The court held that "when the intentional tort of child molestation is committed, the basic intent to injure will be presumed and the intentional act exclusion of the homeowner's policy will apply."^[84] The court's holding in Twin City was followed by the court in State Farm Fire & Casualty Co. v. Doe.^[85]

The court in United Services Automobile Ass'n v. DeValencia,^[86] addressed the application of the rebuttable presumption of intent to cause harm in child molestation cases where the perpetrator was another minor child. The court held that the presumption is rebuttable at least with respect to minors fourteen years of age or younger. The court stated:

When an adult commits an act of child molestation, it is irrebuttably presumed in resolving questions of insurance coverage that the adult acted with a subjective intent to harm. We consider whether the same irrebuttable presumption of injurious intent applies to minors. We hold that it does not.^[87]

In State Farm Fire & Casualty v. Brown,^[88] the issue before the court was whether Brown, the perpetrator who sexually molested a six-year-old, was deprived of the mental capacity to "intend" his actions under the test adopted by the Arizona court in Globe American Casualty Co. v. Lyons.^[89]

At trial the evidence revealed that Brown became acquainted with the victim through her mother. Over a period of years, he developed a relationship with mother and daughter that permitted him to spend time alone with the child. He took the child swimming and horseback riding, occasionally asked her to give him a back rub, and sometimes played a guessing game about the color of his or her underwear. In private, Brown fondled the child, digitally penetrated her vagina, and had her masturbate him. He made the child promise to keep these activities secret.

On the question of Brown's intent, the insurance company presented testimony from a psychologist, who diagnosed Brown as a regressed pedophile who was sexually attracted to the child victims. This expert testified that Brown lacked sexual intimacy with his wife, had his wife wear clothing during sex, and desired to "play games . . . [and] act like a small child" as a prelude to sexual activity. From this evidence, the insurance company's expert concluded that Brown had an interest in children "going back quite some time." Based on this record, the insurance company's expert concluded that the molestations were intentional, rather than impulsive or opportunistic. The expert further observed that the secrecy pacts between Brown and the child indicated how Brown might rationalize the acts to himself, and that he knew that his actions would be perceived by others as harmful.

Claimants' expert acknowledged that Brown did not suffer from any psychosis or organic brain disorder. Nevertheless, claimants' expert testified that while Brown was molesting the child, he suffered from a "derangement of the intellect in a generalized anxiety disorder," which contributed to an incapacity to govern his conduct with reason, and led him to act on an irrational impulse, thus satisfying the Globe test. Based on this testimony, the trial court found that a generalized anxiety disorder caused Brown to become a regressed child molester, lacking the capacity to act rationally. The court concluded that the intentional acts exclusion of the policy did not apply and State Farm's policy covered the molestations. The court of appeals reversed the trial court.

The court of appeals in Brown found that the testimony of claimants' psychological expert did not establish incapacity under the Globe test. The court noted that the claimants' expert had equated "impaired" with "deprived." This expert had testified that Brown's reasoning capacity was highly impaired, but he could not say to what degree, and he testified that during the molestation Brown "was not in complete charge of his faculties and his reason,"^[90] which suggested that Brown had some degree of control. Moreover, evidence had been presented suggesting that Brown's actions were rational and goal-oriented. They occurred over a nine-month period, beginning with "pre-seduction familiarization" and ingratiation, progressed to desensitizing behavior, and required Brown both to find opportunities for privacy with his victim and to form a relationship that would minimize the chance of discovery. This behavior suggested cunning and manipulation, and indicated a purposeful intent to commit the acts, and militated against the conclusion that Brown acted on an irresistible impulse. The court stated:

For all of the reasons stated above, it is our opinion that no reasonable trier of fact could conclude from the evidence that Brown's mental state "so over-mastered his will as to disable him from acting rationally." [Citation omitted.] Therefore, State Farm is entitled to judgment in its favor.

Dr. Mazen's [claimants' expert] testimony was simply insufficient to demonstrate that Brown suffered a derangement of the intellect in accordance with reason. Although Dr. Mazen thought that Brown's mental condition was "highly impaired" and considered the terms "deprived" and "impaired" to be synonymous, this is insufficient to meet the Globe standard; there must be credible evidence that the insured was truly deprived of the ability to govern his or her actions in a rational manner. . . . [Citation omitted.] No such evidence was presented in this case.^[91]

The Arizona courts have been reluctant to find coverage for claims of sexual misconduct between adults, viewing this type of misconduct as being certain to cause some form of injury, so that the policy's intentional act exclusion is applicable, notwithstanding the claims of perpetrators that they did not subjectively intend or expect injury.

In Continental Insurance Co. v. McDaniel,^[92] the court upheld an intentional act exclusion where the insured sexually...