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Liberty Mutual Fire Insurance Co. v. Shaibaz S.

United States District Court, N.D. California

May 16, 2017

SHAIBAZ S., et al., Defendants.


          JAMES DONATO, United States District Judge

         Plaintiff Liberty Mutual Fire Insurance Company (“Liberty Mutual”) brought this declaratory judgment action for a determination of its obligations in an underlying state action arising out of alleged incidents of sexual molestation in defendants' home. The state action settled, and Liberty Mutual now seeks a declaration on summary judgment that it had no duty to defend or indemnify defendants Shaibaz S. and Saiqha S., or their minor son, Ishaaq S. Liberty Mutual also seeks recovery of the settlement payment, and attorneys' fees and costs expended on a defense under a reservation of rights.

         Defendants agree that there is no duty to defend or indemnify Ishaaq, who is alleged to have committed intentional torts. The main dispute on summary judgment is whether the sexual molestation exclusion in Liberty Mutual's policies bars coverage of the vicarious liability and negligence claims against defendants. Summary judgment is granted in favor of Liberty Mutual.


         The material facts are undisputed. Beginning on April 14, 2009, Liberty Mutual issued renewable, yearly insurance policies to Shaibaz and Saiqha. Dkt. No. 44-21 (Akoto Decl.) ¶ 3; Dkt. No. 44 (Compendium of Exhibits), Exhs. D, E, & F. Liberty Mutual first issued LibertyGuard Tenants Policy No. H42-268-573995-40, which was effective until April 14, 2010, and was renewed twice after that. Dkt. No. 44-21 ¶ 3; Dkt. No. 44, Exhs. D & E (“Tenants Policy”). This Tenants Policy was cancelled on October 4, 2011, at which time defendants purchased LibertyGuard Deluxe Homeowners Policy No. H32-268-844454-40, which was effective through October 2012. Dkt. No. 44-21 ¶ 3; Dkt. No. 44, Exh. F (“Homeowners Policy”).

         In December 2012, minor Ethan M. and some of his family members filed a complaint against defendants and their minor son, Ishaaq, in Contra Costa County Superior Court. Dkt. No. 44-21 ¶ 8; Dkt. No. 44, Exh. C. They alleged that Ishaaq sexually molested Ethan in defendants' home from June 2011 through May 2012. Dkt. No. 44-21 ¶ 8; Dkt. No. 44, Exh. C ¶¶ 20-26. They also alleged that defendants knew of Ishaaq's “violent sexual tendencies, ” but nonetheless allowed him to play with Ethan unsupervised. Dkt. No. 44, Exh. C ¶¶ 42-50. Ethan's family sued Ishaaq for sexual battery and intentional infliction of emotional distress. Id., Exh. C at 4-5. They sued Shaibaz and Saiqha for: (1) sexual battery -- imputed parental liability, (2) intentional infliction of emotional distress, (3) negligent failure to warn, and (4) negligent failure to supervise. Id., Exh. C at 4-6.

         Under the insurance policies effective during that period, defendants tendered their and Ishaaq's defense and indemnity to Liberty Mutual. Dkt. No. 48 (Shaibaz S. Decl.) ¶ 4. Liberty Mutual denied coverage for Ishaaq, but agreed to defend Shaibaz and Saiqha subject to a full reservation of rights. Dkt. No. 44-21 ¶¶ 11-12; Dkt. No. 44, Exhs. J & K. In 2013, Ethan's family agreed to a settlement with defendants for $300, 000, which Liberty Mutual paid. Dkt. No. 44-21 ¶¶ 14-18, Exhs. M-P, R.

         Liberty Mutual filed this complaint on August 28, 2015, against Shaibaz and Saiqha for declaratory judgment and restitution. Dkt. No. 1. It filed an amended complaint on September 1, 2015, to add Doe defendants. Dkt. No. 7; see also Dkt. No. 27. Liberty Mutual seeks a determination that: (1) it properly denied coverage for Ishaaq; (2) it had no duty to defend defendants or to pay any portion of the defense costs; (3) it had no duty to pay the $300, 000 settlement; and (4) defendants must reimburse Liberty Mutual for those costs of defense and settlement, plus applicable prejudgment interest. Liberty Mutual now moves for summary judgment on all counts. Dkt. No. 44.

         The pertinent coverage provisions are straightforward:

If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” to which this coverage applies, we [insurer] will:
1. Pay up to our limit of liability for the damages for which the “insured” is legally liable. Damages include prejudgment interest awarded against the “insured”; and
2. Provide a defense at our expense by counsel of our choice even if the suit is groundless, false or fraudulent.

Dkt. No. 44, Exh. D at 12 & Exh. F at 18. The policies define “[i]nsured” to include the “named insured” and “residents of [the named insured's] household who are: a. [the named insured's] relatives; or b. [o]ther persons under the age of 21 and in the care of any person named above.” Id., Exh. D at 5 & Exh. F at 8. The policies further provide that:

1. “Bodily injury” means bodily harm, sickness or disease, including required care, loss of services ...

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