Homeowner's policy covers sexual assault, Alaska court says.

The parents of a child physically and sexually assaulted at a friend's home can sue the homeowners for negligence that led to the assault, the Alaska Supreme Court recently ruled.(C.P. v. Allstate Insurance Co., Nos. S-8606, 5245, 2000 WL 245992 (Alaska Mar. 3, 2000).)

Dolan and Eleanor Lancaster lived in their home with their adult son, Harold Lancaster, and Harold's daughter, known in court documents as C.L. An 11-year-old friend of C.L., known as C.P., spent the night in November 1995. C.P.'s parents did not know that Dolan and Eleanor were out of town or that Harold was staying at the house. While C.P. was at the Lancasters' home, Harold physically and sexually assaulted her.

The homeowner's insurance policy of Dolan and Eleanor Lancaster covered liability for bodily injury "arising from an accident" and required the insurer, Allstate Insurance Co., to defend them against covered claims. The policy excluded coverage for injury resulting from intentional or criminal acts.

In December 1995, C.P. and her parents sued Harold, Dolan, and Eleanor, alleging that Harold assaulted C.P. and injured her. They claimed that Dolan and Eleanor were negligent in failing to disclose Harold's presence and his alleged propensity to assault children and in failing to protect C.P.

Allstate assigned Sheryl Norton, a salaried employee, to investigate the claims. She consulted an attorney, who raised doubts about coverage. Allstate refused to defend the Lancasters. The Lancasters settled with C.P. and her parents and assigned them their right to sue Allstate, which they did, adding Norton as a codefendant.

In certified questions to the Alaska Supreme Court, U.S. District Court Chief Judge James Singleton asked whether the policy covered claims that the homeowners had negligently failed to protect C.P. and whether the salaried claims adjuster owed a duty of care to the Lancasters.

Allstate argued that the policy did not cover the assault because C.P.'s damages were caused by nonaccidental acts. But Justice Robert Eastaugh wrote, "Allstate reasons that because Harold's conduct caused C.P. to suffer injury, it is irrelevant that his parents' independent conduct also allegedly contributed causally to the loss. The policy does not define `accident.' Nor does it specify whether we are to apply the term subjectively ... or objectively." Reasoning that the policy did not clearly state whether it excluded coverage for the claim that the Lancasters negligently contributed to C.P.'s injuries, the court interpreted the policy as covering it.

Allstate also argued that the policy's criminal and intentional act exclusions applied because C.P.'s injuries resulted from intentional and criminal acts. The court disagreed, saying that although Harold's conduct was intentional and criminal, the Lancasters' negligence also caused injuries and should be treated independently for purposes of determining coverage. The court ruled that the policy specified only the types of injury to be excluded--injury resulting from criminal or intentional conduct--not injury caused in part by both unintentional or noncriminal conduct. Dolan and Eleanor's conduct "triggered neither exclusion," Eastaugh wrote.

"The important thing to note about how the supreme court analyzed this case is that the logic of the decision does not apply only to cases involving sexual assault," said Steven Hemple of Juneau, Alaska, who represented the plaintiffs. "The analysis applies whenever it is alleged that an injury arose from both covered and excluded causes.

"Any time an insurance company with similar language in its policy denies a defense or indemnification to an insured person because the loss arose from both covered and excluded causes, the company may well be breaching the contract," he said. Hempel advised lawyers to review the language of this opinion and of the insurance contracts in their cases to prevent this kind of breach from happening.

In response to the question concerning the potential tort duties of Allstate's adjuster, the five-judge panel for the state supreme court agreed with the plaintiffs that Alaska law recognizes a cause of action against insurance adjusters for negligent adjustment.

"It is heartening that a sole practitioner representing individuals against a large company can obtain a full hearing and a just ruling from the highest court in the state," Hempel said. "When corporations do not do what they promised, and were paid, to do, the entire civil justice system will step in with the force of law to secure the legal rights of the individual who was wronged. That is justice."