Minnis v. Oregon Mutual Ins. Co.

FILED: August 4, 1999

IN THE COURT OF APPEALS OF THE STATE OF OREGON

JOHN MINNIS and LITTLE JOHN'S
PIZZA CO., LLC,

Appellants,

v.

OREGON MUTUAL INSURANCE COMPANY,

Respondent.

(C96-1230-CV; CA A98241)

Appeal from Circuit Court, Washington County.

John B. Lund, Judge.

Argued and submitted November 30, 1998.

Christopher A. Rycewicz argued the cause for appellants. With him on the briefs were Brian D. Chenoweth and Rycewicz & Chenoweth, P.C., and

Michael J. Knapp and Myers & Knapp.

William G. Earle argued the cause for respondent. With him on the brief were Alan Gladstone and Abbott, Davis, Rothwell, Mullin & Earle, P.C.

Before Edmonds, Presiding Judge, and Armstrong and Kistler,* Judges.

KISTLER, J.

Reversed and remanded as to plaintiff Little John's Pizza Co., LLC; otherwise affirmed.

Edmonds, P.J., dissenting.

*Kistler, J., vice Warren, P.J., retired.

KISTLER, J.

Plaintiffs, a corporation and its owner, appeal from a summary judgment dismissing their claim for breach of an insurance policy. They argue that defendant had a duty to provide a defense to an action that a third party (Winters) filed against them. Plaintiffs also seek indemnity for the cost of settling the case. We conclude that defendant had a duty to defend the corporation and that it was not entitled to summary judgment on the related question of whether it had a duty to indemnify the corporation. We conclude, however, that defendant had no duty to defend the owner. Accordingly, we reverse the judgment as to the corporation, affirm the judgment as to the owner, and remand.

In determining whether an insurer has a duty to defend an action against its insured, the court looks at two things: the facts alleged in the complaint and the terms of the insurance policy. An insurer has a duty to defend an action against its insured if the claim stated in the underlying complaint could, without amendment, impose liability for conduct the policy covers. The insurer should be able to determine from the face of the complaint whether to accept or reject the tender of defense. It has a duty to defend if the complaint provides any basis of recovery for which the insurer provides coverage, resolving any ambiguity in the complaint in favor of the insured. Ledford v. Gutoski, 319 Or 397, 399-400, 877 P2d 80 (1994).

Given that standard, we state the facts as Winters alleged them in the underlying complaint. Plaintiff John Minnis (John) is the owner of plaintiff Little John's Pizza Co., LLC. Little John's employed Tuck Minnis (Tuck) to manage the restaurant. Winters alleged that she had been an employee of Little John's and that while she was employed, Tuck engaged in a variety of misconduct towards her. Throughout Winters' employment with Little John's, Tuck allegedly subjected her to a sexually hostile work environment that included, "[u]nwelcome statements and graphic descriptions of sex habits, activities, body parts and abilities" and repeated "offensive sexual comments about the anatomy of females * * *." According to Winters' complaint, "sexual harassment was part of defendant Tuck Minnis' management style."

Most of Tuck's alleged misconduct occurred on the job. Some occurred at his apartment. Plaintiffs rely on the sexual harassment that occurred at the apartment to establish that defendant had a duty to defend them. Paragraph 8 of Winters' complaint alleges:

"On or about May 28, 1995, plaintiff's supervisor, defendant Tuck Minnis[,] called her at home at 3:45 a.m. and implored her and her female roommate, the assistant manager of Little John's Pizza Co., L.L.C., to come over to his apartment to help him grieve the death of his brother. Plaintiff and her roommate went to his apartment and stayed from approximately 4:30 a.m. until 9:00 a.m. During that time period plaintiff was subjected to sexually explicit, unwelcome, offensive and intimidating comments and conduct from her supervisor, defendant Tuck Minnis."

In paragraph 9, Winters alleged specific "intimidating, unwanted, and demeaning sexual contact and remarks directed from defendant Tuck Minnis to plaintiff" while Winters was at Tuck's apartment, including that Tuck engaged in "[u]nwelcome forced kissing, and touching of plaintiff's breasts while pinning her arms against the wall[.]" She also alleged that while she was at the apartment, Tuck made "[i]ntimidating statements about his ability to fire employees at Little John's Pizza Co., L.L.C., but that [Winters] should think of herself as his friend."

Winters asserted six claims for relief variously against Little John's, Tuck, and John. We summarize the three claims that are relevant to our decision.(1) Her third claim, which she labeled as "Sexual Assault and Battery," was against Tuck and Little John's. In that claim, Winters alleged that Tuck "intended harmful, offensive, hostile, and insulting physical contact of a sexual nature" to her, that he did so within the scope of his employment, that Little John's condoned Tuck's conduct, and that Tuck's conduct was not unexpected because of Little John's failure to have any policy or training relating to sexual harassment. As a result of Tuck's actions, Winters allegedly suffered "severe emotional distress, depression, embarrassment, apprehension, fright, anguish, loss of dignity, humiliation, and physical anxiety, pain and nausea[.]" She also alleged that both defendants acted willfully, wantonly, and maliciously, entitling her to punitive damages in order to punish them and deter similar conduct in the future.

Winters labeled her fourth claim, against Tuck and Little John's, "Intentional Infliction of Severe Emotional Distress." She alleged that Tuck acted

"volitionally with knowledge that his acts would cause plaintiff severe emotional distress, and also with the intent to cause plaintiff severe emotional distress. Defendant Tuck Minnis intentionally and deliberately committed the alleged acts under circumstances in which it was likely that plaintiff would suffer such distress."

She also alleged that Tuck's actions reflected the "deliberate intent of defendant Little John's Pizza Co., L.L.C." Her alleged harm was of the same nature as that described in the third claim, and her allegation concerning punitive damages was the same.

Winters' fifth claim was directed at Little John's and John. That claim was also labeled "Intentional Infliction of Emotional Distress." Winters alleged that John acted with the same state of mind that she had alleged in the fourth claim that Tuck had had, and she alleged the same harm that she had alleged in the third and fourth claims. Winters alleged that John and Little John's "condoned defendant Tuck Minnis' conduct in subjecting plaintiff to sexual harassment, assault and battery" and "retaliated against her for resisting and reporting the harassment and other abuse in a successful effort to force plaintiff from her job."

In the policy that it issued to Little John's,(2) defendant agreed to pay those sums that Little John's became legally obligated to pay "as damages because of bodily injury * * * [or] personal injury" and to provide a defense for any action seeking damages for those injuries. The policy applies to bodily injury caused by an "occurrence" during the policy period and to personal injury caused by an "offense" arising out of the business. The policy defines bodily injury to mean "bodily injury, sickness or disease sustained by a person[.]" It defines "personal injury" to mean "injury, other than bodily injury" arising out of one of several listed offenses. One of those offenses is "[f]alse arrest, detention or imprisonment[.]" There are a number of exclusions to the coverage of bodily injuries; no exclusion to the coverage of personal injuries is relevant to this case.

In Klamath Pacific Corp. v. Reliance Ins. Co., 151 Or App 405, 950 P2d 909 (1997), on recons 152 Or App 738, 955 P2d 340 (1998), we held that an allegation of "severe physical * * * distress" stated a claim for bodily injury. 151 Or App at 414. Defendant recognizes that, under this court's decisions, Winters' allegations that she suffered "physical * * * pain and nausea" as a result of Tuck's actions state potential claims for bodily injury under the policy. On the other hand, her allegations that she suffered "severe emotional distress, depression, embarrassment, apprehension, fright, anguish, [and] loss of dignity" state potential claims for personal rather than bodily injury. Winters' claims thus raise issues under both policy coverages.

We first consider whether defendant had a duty to defend Winters' claims against Little John's for bodily injury. Because Winters' complaint alleges a claim for bodily injury against Little John's, the issues on appeal reduce to primarily two questions. The first is whether Winters' claims are excluded from coverage because they arose out of and in the course of her employment. The second is whether because Tuck acted intentionally, the injuries Winters sustained were either not an occurrence under the policy or were subject to an exception for intentional acts.

Defendant argues initially that the policy exclusion for bodily injury to "[a]n employee of the insured arising out of and in the course of employment by the insured" justifies its refusal to defend Little John's. Defendant acknowledges that the bodily injury Winters suffered could have arisen when Tuck sexually assaulted her at his apartment. And because Tuck called Winters at her home and "implored" her and her roommate "to come over to his apartment to help him grieve the death of his brother," it does not appear that the injuries Winters sustained at the apartment occurred in the course of her employment. This case thus differs from McLeod v. Tecorp International, Ltd., 318 Or 208, 216-17, 865 P2d 1283 (1993), and Klamath Pacific, where all of the harassment that gave rise to the employees' injuries occurred on the job.(3)

Defendant argues, however, that Little John's cannot be vicariously liable for Tuck's conduct at the apartment unless Winters was acting in the course of her employment. Defendant observes that Winters sought to hold Little John's vicariously liable for Tuck's misconduct on the theory that Tuck performed "his management functions in accordance with a management style that incorporated sexual harassment." It follows, defendant reasons, that Little John's could be held vicariously liable for Tuck's conduct at his apartment only if Tuck were supervising Winters at that time. Defendant concludes that if Tuck were supervising Winters at the apartment, Winters was also necessarily acting in the course of her employment. Alternatively, defendant argues that "[i]f Winters were not acting as an employee at the time of Tuck Minnis's conduct in his apartment, then Minnis could not have been supervising her. In short, as pleaded by Winters, she could not recover against [Little John's] if she were not in the course of her employment."

Defendant's argument turns on two assumptions. Its argument assumes initially that Little John's could be held vicariously liable for Tuck's sexual harassment if, as Winters' complaint alleges, sexual harassment was part of Tuck's way of supervising Little John's employees. Defendant's argument also assumes that Little John's could be held vicariously liable for Tuck's conduct at the apartment only if Tuck was supervising Winters at that time. We agree with the first assumption. It is both supported by the complaint and consistent with this court's decision in Mains v. II Morrow, 128 Or App 625, 631-33, 877 P2d 88 (1994). We disagree with the second assumption. Even if Tuck were not acting as Winters' supervisor when he invited her to his apartment,(4) it does not necessarily follow that Little John's may not be held vicariously liable for Tuck's conduct at the apartment. Rather, the Supreme Court's recent decisions make clear that Little John's may be vicariously liable for Tuck's intentional torts at the apartment if those torts were a direct outgrowth of earlier actions that he took on behalf of Little John's.

The seminal case, for the purposes of this issue, is Chesterman v. Barmon, 305 Or 439, 753 P2d 404 (1988). In Chesterman, an employee took a drug to allow him to perform work for his corporation and later, as a result of ingesting the drug, broke into the victim's house and sexually assaulted her. The court held that the break-in and the assault "were, as a matter of law, outside the scope of employment. They were outside the authorized limits of time and space, were not motivated by a purpose to serve the employer and were not of a kind which [the employee] was hired to perform." Id. at 443. The court also held, however, that the employer could still be held vicariously liable for its employee's intentional torts (the break-in and the assault) as long as the act (ingesting the drug) that allegedly resulted in those torts was within the scope of employment. Id.

The court recognized in Chesterman that previously it had "determined whether respondeat superior applied as of the time that the injury occurred." Id. at 444. It explained, however, that that is not the only basis for determining whether respondeat superior applies. The court reasoned that "in cases where there is a 'time-lag' between the act allegedly producing the harm and the resulting harm, it is inappropriate to determine whether respondeat superior applied as of the time when the injury occurred." Fearing v. Bucher, 328 Or 367, 373, ___ P2d ___ (1999) (summarizing Chesterman's reasoning). "Rather, '[t]he focus should be on the act on which vicarious liability is based on not on when the act results in injury.'" Id. (quoting Chesterman, 305 Or at 444; emphasis in Chesterman).

Chesterman establishes two related but separate propositions. First, an employee's intentional tort need not occur within the time and space limits of the job to hold the employer vicariously liable. That much follows from the court's holding that even though the intentional torts in that case occurred "outside the authorized limits of time and space" of the employee's work, the employer could still be found vicariously liable for them. 305 Or at 443-44. Second, in order to hold an employer vicariously liable when there has been a "time lag" between the acts taken on the employer's behalf and the later intentional torts, the plaintiff must establish a causal connection between the two sets of acts. The question that remained after Chesterman was how strong that causal connection had to be.

The court recently reaffirmed Chesterman's reasoning and addressed the sufficiency of the causal connection in Fearing and Lourim v. Swensen, 328 Or 380, ___ P2d ___ (1999). In both those cases, the court recognized that an employee, as part of his or her job, may establish a relationship with another person that results in sexual abuse. The court explained that it was not sufficient for vicarious liability that the employment merely "brought the tortfeasor and the victim together in time and place and, therefore, gave the tortfeasor the 'opportunity' to commit the assaults." Fearing, 328 Or at 377 (explaining G.L. v. Kaiser Foundation Hospitals, Inc., 306 Or 54, 757 P2d 1347 (1988)). Rather, the allegations must permit the jury to infer that the acts taken within the scope of employment "were a necessary precursor to the sexual abuse and that the assaults were a direct outgrowth of and were engendered by conduct that was within the scope of [the employee's] employment." Fearing, 328 Or at 377.

The allegations in Winters' complaint would permit a jury to find that she met that standard. See Fearing, 328 Or at 376-77; Blohm et al v. Glens Falls Ins. Co., 231 Or 410, 416, 373 P2d 412 (1962). A jury reasonably could find that the sexual harassment Tuck inflicted on Winters at the job site was within the scope of his employment--a point that defendant does not dispute. See Mains v. II Morrow, 128 Or App at 631-33. The allegations would also permit a jury to infer that the sexual harassment at the job site was "a necessary precursor" to the sexual abuse that occurred at Tuck's apartment and that the assaults at the apartment were "a direct outgrowth of and were engendered by" the conduct that occurred on the job. See Fearing, 328 Or at 377. Defendant's own summary of the allegations in Winters' complaint establishes that much. According to defendant, the allegations in Winters' complaint would permit a jury to find that the "conduct that occurred at [Tuck's] apartment * * * was part of a protracted campaign of sexual harassment, sexual assault, and emotional intimidation that was predicated on and made possible by the employment relationship between Winters and Little John's."

The dissent concludes that Little John's cannot be held vicariously liable for Tuck's sexual harassment at the apartment because there was no causal connection between his actions at the restaurant and his actions at the apartment. The dissent's conclusion appears to turn on two related but separate propositions. The dissent begins by drawing the following proposition from the Supreme Court's cases: In order for there to be "a causal connection between the actions authorized by the employer and the acts that resulted in harm to the [victim], * * * the harm [must have] occurred while the employee was engaged in an activity on behalf of the employer." (Emphasis added.) The court held, however, in Chesterman that even though the employee's intentional torts in that case occurred "outside the authorized limits of time and space" of his work, the employer could still be held vicariously liable if those torts were caused by earlier acts the employee took on the employer's behalf. 305 Or at 443-44. As we read Chesterman, Fearing, and Lourim, those cases establish that the question is whether there is a causal connection, not a temporal and spatial link, between the acts taken on the employer's behalf and the acts that result in harm.(5)

The dissent reasons alternatively that the allegations in Winters' complaint are factually insufficient to establish a causal connection between Tuck's acts at the restaurant and his acts at the apartment. As noted above, defendant recognized in its brief that, fairly summarized, Winters' complaint alleged that the "conduct that occurred at [Tuck's] apartment * * * was part of a protracted campaign of sexual harassment, sexual assault, and emotional intimidation that was predicated on and made possible by the employment relationship between Winters and Little John's." Defendant's admission is virtually identical to the causal standard the court announced in Fearing and Lourim.

Even if defendant's admission were not binding, it recognizes, as a reasonable juror could, that a two-month pattern of sexual intimidation and harassment begun at work can lead a supervisor to try and press his advantage off the job as well. A juror could reasonably conclude that the sexually charged relationship with Winters that Tuck pursued at work caused him to try and lure her, by one stratagem or another, to his apartment and sexually assault her there. A juror, of course, could reach the opposite conclusion, but we cannot say, as a matter of law, that the allegations in Winters' complaint would not have permitted her to establish the requisite causal connection. See Fearing, 328 Or at 376-77 (a jury could reasonably infer necessary causal connection even though the plaintiff had not directly alleged that the priest's work-related activities caused the plaintiff's injuries).

That is particularly true where, as here, the issue arises in the context of deciding whether an insurer had a duty to defend its insured against a third-party's complaint. As the court explained in Blohm, any "'doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action * * * will be resolved in the insured's favor.'" Blohm, 231 Or at 416 quoting 29A Am Jur 567, Insurance, § 1454; see Cooper v. Commonwealth Land Title Ins. Co., 73 Or App 539, 543, 699 P2d 1128, rev den 299 Or 583 (1985). We follow that standard in concluding that the allegations in Winters' complaint would permit a reasonable juror to find Little John's vicariously liable for Tuck's conduct at the apartment.(6)

We turn to the second issue defendant raises to support its decision not to defend Little John's. That issue arises in several contexts: (1) whether the bodily injury was caused by an "occurrence," which the policy defines as "an accident, including continuous or repeated exposure to substantially the same harmful conditions;" (2) whether the policy exclusion for bodily injury "expected or intended from the standpoint of the insured" applies to avoid coverage; and (3) whether the state public policy against insurance coverage for intentional acts applies to prohibit coverage. We conclude that neither the limitation on injuries that are caused by accident nor the exclusion for injuries that are caused intentionally negates defendant's duty to defend Little John's.

The policy does not define the term "accident," but we have recognized that the term usually means actions that are "unforeseen, unexpected, unintended or the like." Safeco Ins. v. House, 80 Or App 89, 96, 721 P2d 862, rev den 302 Or 86 (1986). When the term is defined in that way, the question whether a bodily injury was caused by an "accident" and the question whether it was caused intentionally present two sides of the same coin. See Fox v. Country Mutual Ins. Co., 327 Or 500, 515 n 11, 964 P2d 997 (1998) (recognizing that the same requirement applies in policies covering losses caused by accident and those excluding coverage for intentional losses); Albertson's Inc. v. Great Southwest Fire Ins. Co., 83 Or App 527, 530-31, 732 P2d 916, rev den 303 Or 332 (1987) (reasoning that cases interpreting the exclusion for intentional acts provide the appropriate measure for determining coverage of accidental injuries).(7) In each instance, the question is not whether the conduct that caused the injury was intentional but whether the insured specifically intended to cause the injury that gives rise to coverage. See Ledford, 319 Or at 402; Neilsen v. St. Paul Companies, 283 Or 277, 280-81, 583 P2d 545 (1978). More specifically, the question is whether the allegations establish that Little John's specifically intended to cause Winters bodily injury. A jury could find that it did not for two reasons.

First, according to Winters' complaint, Tuck acted intentionally when he sexually harassed Winters. As explained above, however, Winters could have introduced evidence under the allegations in her complaint that would have permitted a jury to hold Little John's liable under the doctrine of respondeat superior, not for its own misconduct. See Farris v. U.S. Fidelity & Guaranty, 273 Or at 636-37; Albertson's, 83 Or App at 531-32. And the Supreme Court has recently reaffirmed that an employer may be liable for its employee's intentional torts under the doctrine of respondeat superior without any wrongdoing on the employer's part. See Fearing, 328 Or at 377; see also McLeod v. Tecorp International, Ltd., 117 Or App 499, 502-03, 844 P2d 925 (1992), mod on recons, 119 Or App 442, 850 P2d 1161, rev'd on other grounds, 318 Or 208, 865 P2d 1283 (1993). It follows that under Farris, Albertson's, and Fearing, the jury could find that Tuck's conduct was accidental as to Little John's regardless of whether Tuck acted intentionally.(8)

Second, Winters' complaint alleged that Tuck intended to harass her sexually and cause her emotional distress, but it did not allege that he intended to cause her bodily injury. Specifically, Winters' third claim for relief alleged that Tuck intended "harmful, offensive, hostile, and insulting physical contact of a sexual nature." Her fourth claim for relief incorporated that allegation by reference. It also alleged that Tuck and Little John's acted with the intent of causing her severe emotional distress and that they "deliberately committed the alleged acts under circumstances in which it was likely that [Winters] would suffer such distress." In determining whether those allegations establish that Tuck intended to cause Winters bodily injury, we construe any ambiguities in the underlying complaint in favor of the insured. Ledford, 319 Or at 400.

Winters' allegations might require a jury to conclude that Tuck intended to cause her emotional distress. They do not, however, require a jury to conclude that he intended to cause her bodily injury, which is the relevant inquiry. Although the third and fourth claims for relief alleged that Tuck intended "harmful * * * physical contact of a sexual nature," the use of the word "harmful" is ambiguous. It could describe the nature of the contact rather than the notion that Tuck intended to inflict harm as such. Moreover, even if he intended to inflict harm, the allegation reasonably may be read as limited to emotional rather than bodily harm. It follows that the bodily injury Winters suffered was accidental as to Tuck and, a fortiori, as to Little John's. We conclude that defendant had a duty to defend Little John's against Winters' claims for bodily injury. Because defendant had a duty to defend Little John's on one claim, it had a duty to defend Little John's on all of Winters' claims.

We reach a different conclusion with respect to defendant's duty to defend John. The allegations in Winters' fifth claim for relief are the only relevant allegations against John.(9) Winters' complaint does not allege that John was Tuck's employer,(10) and the allegations against John reduce to the proposition that Winters suffered bodily injury when John condoned Tuck's behavior, retaliated against Winters for reporting it, and effectively forced her to quit her job. All of the allegations in Winters' fifth claim for relief involve actions that were taken in John's capacity as owner of Little John's against Winters in the course and scope of her employment. Because those allegations fall squarely within the policy exclusion for bodily injuries arising out of and in the course of Winters' employment, defendant had no duty to defend John against Winters' claim.(11)

For the reasons stated above, we conclude that defendant had no duty to defend John. It did have a duty to defend Little John's; on remand, the trial court should enter partial summary judgment for Little John's on that issue. See Cochran v. Connell, 53 Or App 933, 939-40, 632 P2d 1385, rev den 292 Or 109 (1981). Defendant does not suggest that the record would support summary judgment in its favor on the duty to indemnify Little John's independently of its claim that it had no duty to defend Little John's. We accordingly leave that issue for the parties on remand.

Reversed and remanded as to plaintiff Little John's Pizza Co., LLC; otherwise affirmed.

EDMONDS, P. J., dissenting.

The majority holds that the allegations against Little John's in Winters' complaint suffice to trigger defendant's duty to defend Little John's under its insurance policy. Those allegations are that Little John's manager, Tuck Minnis, acted within the scope of his employment when he sexually assaulted Little John's employee Winters at Tuck's apartment. For the reasons that follow, I disagree with the majority's analysis and with its conclusion that defendant's policy provides coverage to Little John's.

The majority is correct that defendant's duty to defend is governed by the allegations in Winters' complaint against Little John's and the terms of defendant's insurance policy insuring Little John's. In the policy, defendant agrees to "pay those sums that the Insured becomes legally obligated to pay as damages because of bodily injury * * * to which this insurance applies." The policy then excludes coverage for bodily injury to "[a]n employee of the insured arising out of and in the course of employment by the insured[.]" Defendant, relying on that exclusion, argues:

"The only conduct that [Little John's] contend[s] did not take place in the course of [Winters'] employment with [Little John's] is conduct that took place at Tuck Minnis's apartment 'after hours.' However, because the claim against [Little John's is] that [Tuck] was acting as [Little John's] supervisor at the time, [Winters] also had to have been in the course of her employment as an employee being 'supervised' by [Tuck]. Accordingly, the employee exclusion defeats coverage."

The majority responds to defendant's argument by reasoning,

"[d]efendant's argument turns on two assumptions. Its argument assumes initially that Little John's could be held vicariously liable for Tuck's sexual harassment if, as Winters' complaint alleges, sexual harassment was part of Tuck's way of supervising Little John's employees. Defendant's argument also assumes that Little John's could be held vicariously liable for Tuck's conduct at the apartment only if Tuck was supervising Winters at that time. We agree with the first assumption. * * * We disagree with the second assumption. Even if Tuck were not acting as Winters' supervisor when he invited her to his apartment, it does not necessarily follow that Little John's may not be held vicariously liable for Tuck's conduct at the apartment. Rather, the Supreme Court's recent decisions make clear that Little John's may be vicariously liable for Tuck's intentional torts at the apartment if those torts were a direct outgrowth of earlier actions that he took on behalf of Little John's." ___Or App at ___ (slip op at 7-8) (footnote omitted).