On April 30, 2019 the Sixth Circuit, in The Scott Fetzer Company v. Zurich American Insurance Company, held a single occurrence with a single deductible applied to a vacuum cleaner company’s independent dealer, John Fields, who sexually assaulted three women on multiple occasions between May 2012 and January 2013.
Scott Fetzer had conducted a limited background check of Mr. Fields and failed to turn up his past criminal record. The three women sued Scott Fetzer and while Scott Fetzer did not directly employ Mr. Fields, it settled the litigation with the women and sought reimbursement from Zurich Insurance Company (“Zurich”) under its general liability insurance policies.
Zurich agreed to pay $2 million per occurrence for bodily injury, with Scott Fetzer paying the first $1 million as a deductible for each occurrence. Zurich argued that Mr. Field’s actions towards each of the three women resulted in three occurrences and that Scott Fetzer was responsible for paying three $1 million deductibles. Scott Fetzer argued that the “occurrence” was its negligent hiring and thus only one $1 million deductible applied.
The U.S. District Court in Cleveland agreed with Zurich, but the Sixth Circuit unanimously reversed the District Court decision. In its decision, the Sixth Circuit noted two Ohio principles of law that govern the interpretation of insurance contracts:
With respect to the first principle, The Sixth Circuit found ambiguity in the definition of “occurrence.” With respect to the second principle, the Sixth Circuit found that Scott Fetzer’s interpretation of the term “occurrence” to refer to the insured party’s negligent hiring and supervision was reasonable.
Thus, the Sixth Circuit agreed with Scott Fetzer that the “occurrence” was Scott Fetzer’s negligent supervision of Mr. Fields. After applying the “cause test” and recognizing that under Ohio law, “where there is but one proximate, uninterrupted and continuous cause, all injuries and damages are included within the scope of that single proximate cause,” Progressive Preferred Ins. Co. v. Derby, No. F-01-002, 2001 WL 672177, at*3 (Ohio Ct. App. June 15, 2001), the Sixth Circuit held that there was only one occurrence that applied to the Zurich policies.
In its concluding paragraph the Sixth Circuit stated “[u]nder Ohio law, a party seeking to interpret a clause in an insurance policy so as to deny insurance coverage must show its interpretation of the contract is the only fair one. Zurich has not done that.”
Zurich agreed to pay $2 million per occurrence for bodily injury, with Scott Fetzer paying the first $1 million as a deductible for each occurrence. Zurich argued that Mr. Field’s actions towards each of the three women resulted in three occurrences and that Scott Fetzer was responsible for paying three $1 million deductibles. Scott Fetzer argued that the “occurrence” was its negligent hiring and thus only one $1 million deductible applied.
The U.S. District Court in Cleveland agreed with Zurich, but the Sixth Circuit unanimously reversed the District Court decision. In its decision, the Sixth Circuit noted two Ohio principles of law that govern the interpretation of insurance contracts:
- “[W]here provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured.” King v. Nationwide Ins. Co., 519 N.E.2d 1380,1383 (Ohio 1988), Farauque v. Provident Life & Acc. Ins Co., 508 N.E.2d 949, 952 (Oho 1987); Buckeye Union Ins. Co. v. Price, 313 N.E.2d 844 (Ohio 1974); Thompson v. Preferred Risk Mut. Ins. Co., 513 N.E.2d 733, 736 (Ohio 1987); and Marusa v. Erie Ins. Co., 991 N.E.2d 232, 234 (Ohio 2013).
- “[A]lthough the party seeking coverage under a policy generally must show the policy covers the loss in question, Chicago Title Ins. Co. v. Huntington Nat’l Bank, 719 N.E.2d 955, 959 (Ohio 1999), if an insurer wants to interpret a clause in an insurance contract so as to defeat coverage, ‘it must demonstrate that the clause in the policy is capable of the construction it seeks to give it, and that such construction is the only one that can be fairly placed upon the language.” Bosserman Aviation Equip., Inc. v. U.S. Liab. Ins. Co., 915 N.E.2d 687,692-93 (Ohio Ct. App. 2009); Lane v. Grange Mut. Companies, 543 N.E.2d 488,490 (Ohio 1989).
With respect to the first principle, The Sixth Circuit found ambiguity in the definition of “occurrence.” With respect to the second principle, the Sixth Circuit found that Scott Fetzer’s interpretation of the term “occurrence” to refer to the insured party’s negligent hiring and supervision was reasonable.
Thus, the Sixth Circuit agreed with Scott Fetzer that the “occurrence” was Scott Fetzer’s negligent supervision of Mr. Fields. After applying the “cause test” and recognizing that under Ohio law, “where there is but one proximate, uninterrupted and continuous cause, all injuries and damages are included within the scope of that single proximate cause,” Progressive Preferred Ins. Co. v. Derby, No. F-01-002, 2001 WL 672177, at*3 (Ohio Ct. App. June 15, 2001), the Sixth Circuit held that there was only one occurrence that applied to the Zurich policies.
In its concluding paragraph the Sixth Circuit stated “[u]nder Ohio law, a party seeking to interpret a clause in an insurance policy so as to deny insurance coverage must show its interpretation of the contract is the only fair one. Zurich has not done that.”
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