Selective Insurance Company of America v. Community Living Options Inc.

Background

Selective Insurance Company of America insured Community Living Options Inc. (CLO), a facility providing in-home foster-care services for adults with behavioral, cognitive, and medical challenges. Alexis A. O’Brien and Erin M. Lundblad worked for CLO as caretakers.

The Minnesota state-court lawsuit underlying this dispute arose from events involving Nathaniel Luke Chambers, who was placed in one of CLO’s facilities. The state-court complaint alleged that CLO failed to take reasonable precautions, failed to provide a safe work environment, discriminated based on sex, failed to prevent sexual harassment and discrimination, created a hostile work environment, and allowed unwanted sexual harassment. Lundblad alleged that Chambers raped her while she was the only employee assigned to supervise him. O’Brien alleged that Chambers punched her in the face, and Lundblad alleged that he engaged in other aggressive conduct toward her.

CLO sought coverage from Selective Insurance for the state-court lawsuit. Selective initially refused to defend CLO, later agreed to defend while reserving the right to withdraw, and then sought a declaration that it had no duty to defend or indemnify CLO. CLO asserted a breach-of-contract counterclaim and moved for partial judgment on the pleadings, arguing that Selective at least had a duty to defend.

Legal standard

The court applied Minnesota law, under which insurance-policy interpretation is governed by contract principles. On a motion for judgment on the pleadings, the court accepts the nonmoving party’s pleaded facts as true and grants judgment when no material factual dispute remains and the moving party is entitled to judgment as a matter of law.

Under Minnesota law, an insurer seeking to avoid its duty to defend must show that every part of the claim falls clearly outside the policy’s coverage. If any part of a claim is arguably covered, the insurer generally must defend all of the insured’s claims. The court compares the policy with the allegations and relevant facts, and it narrowly interprets coverage exclusions against the insurer.

Duty to defend

CLO conceded that it sought coverage only under the policy’s Abuse or Molestation Liability section. The parties agreed that, without an applicable exclusion, the state-court claims would be covered under that section.

The relevant employer-liability exclusion barred coverage for an injury to an employee arising out of and in the course of employment or while performing duties related to the insured’s organization. Under Minnesota law, an injury arises out of employment when there is a causal connection between the injury and the employment. Employment provides the necessary connection when it supplies the time and place for the injury and exposes the employee to the risk because of the nature of the job.

The court concluded that O’Brien’s and Lundblad’s alleged injuries were causally connected to their employment. O’Brien was allegedly assaulted while driving Chambers back to CLO’s facility at CLO’s direction, and Lundblad was allegedly assaulted while on duty at the facility. The court rejected CLO’s argument that the exclusion did not apply when employees sued CLO in a capacity other than as their employer. The court found that the exclusion’s plain language applied when employees were injured while performing duties related to their employment and did not support adding a separate employer-capacity requirement.

The court therefore held that Selective Insurance had no duty to defend CLO in the state-court litigation.

Duty to indemnify and disposition

The court explained that the duty to defend is broader than the duty to indemnify. Because Selective Insurance had no duty to defend CLO, it also had no duty to indemnify CLO.

The court granted Selective Insurance’s motion for judgment on the pleadings and denied CLO’s motion for partial judgment on the pleadings. It declared that the policy provided no coverage for CLO’s claims in the Minnesota state-court litigation and discharged Selective Insurance from further defense or indemnification duties concerning that litigation. The court dismissed with prejudice Count II of CLO’s counterclaim, which sought a declaration requiring coverage, indemnification, and defense costs. The court did not decide Count I because no party had moved for judgment on or dismissal of that count.