(Article from Insurance Law Alert, December 2024)
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Holding
A California appellate court ruled that an abuse or molestation exclusion barred coverage for claims arising out of incidents at a massage spa because the victims were under the “care” and “control” of the spa during the alleged incidents, as required by the exclusion. Gordon v. Continental Cas. Co., 2024 Cal. App. LEXIS 777 (Cal. Ct. App. Dec. 3, 2024).
Background
Shen, an owner of a massage spa, and his wife were sued by individuals alleging sexual assault during massage sessions. When Continental refused to defend the suits, Shen and his wife stipulated to liability and a judgment of $6.8 million was entered against them. They assigned their rights against Continental to the plaintiffs in exchange for a covenant not to execute the judgment against them. The plaintiffs then sued Continental for breach of contract, among other claims.
Continental moved for summary judgment based on an exclusion that applied to injuries “arising out of the actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured.” The exclusion also applied to injuries arising out of the negligent employment or supervision of any person for whom the insured is legally responsible. A trial court granted the motion, ruling that the exclusion was unambiguous and barred coverage for the underlying claims. The appellate court affirmed.
Decision
Addressing this matter of first impression under California law, the appellate court ruled that the phrase “care, custody or control” in the exclusion encompassed the factual scenario presented here. The court explained that the victims were under the “care” of Shen because he was responsible for the customers’ well being as the massage therapist and were likewise under his “control” because he allegedly used physical force during the incidents.
The court also ruled that the exclusion applied to a claim against Shen’s wife alleging negligent training of Shen, finding that such a claim “arises out of” abuse or molestation. The court rejected as unreasonable the assertion that the exclusion did not apply because the word “training” was not included in the subsection related to “supervision.”
Comments
Notably, the court rejected Shen’s assertion that the phrase “care, custody or control” requires “exclusive or complete” control over individuals. Shen’s argument was based on McMillin Homes Construction, Inc. v. National Fire & Marine Ins. Co., 35 Cal. App.5th 1042 (2019), a California appellate court decision involving a policy exclusion for damages to property in an insured’s care, custody or control. The insurance dispute in McMillin arose out of underlying construction defects. There, the court ruled that a “care, custody or control” exclusion applied only when the insured had exclusive or complete control over the property that had been damaged. The trial and appellate courts in Gordon distinguished McMillin as involving the care, custody or control over property, rather than human beings.