No Insurance Coverage for Intentional Assault or False Imprisonment; Different Claims and Proof in Trial Court May Have Led to Different Result

In July 2009, the Colorado Court of Appeals held on an issue of first impression that under a commercial general liability policy an intentional assault by employee was not an “occurrence” which triggered coverage, even though the injury, from the perspective of the victim, may not have been “intended.” Mountain States Mutual Casualty Co. v. Hauser, ___P.3d ___, 2009 WL 2182600 (Colo. App. 2009). The case was brought by a former restaurant employee who had obtained a default judgment against the restaurant corporation (“policyholder”) for negligent hiring, negligent supervision and negligent retention of a manager who had allegedly assaulted her. The former employee had then sued the insurer, which sought and obtained a declaratory judgment that no coverage existed.

The Court of Appeals first analyzed the issues under Coverage A, Bodily Injury and Property Damage Liability. The court noted this provided indemnity coverage to the policyholder for sums it becomes legally obligated to pay as damages because of bodily injury to which the insurance applied. The insurance applied to “bodily injury” only if caused by an “occurrence.” Thus, the court analyzed whether a sexual assault by a restaurant manager who was negligently hired by the policyholder was an “occurrence.” The court held there was no “occurrence” because the conduct was not “accidental.”

The Court of Appeals then analyzed coverage under Coverage B, Personal and Advertising Injury Liability. Coverage B provides coverage for sums the insured becomes legally obligated to pay as damages because of personal and advertising injury to which the coverage applies. The policy defines “personal and advertising injury” as “injury, including consequential ‘bodily injury,’ resulting from ... [f]alse arrest, detention or imprisonment.” The plaintiffs had argued that the victim’s hiding in a restaurant bathroom during the events leading to her assault fit within this definition.

However, the Court of Appeals found the district court had not made a finding of false imprisonment, but only held the evidence supported claims of negligence, negligent hiring, supervision, and negligent retention against the policyholder. The Court of Appeals held that, because there was no finding of false imprisonment or damages awarded for that tort, the insurer need not indemnify for damages actually awarded. The ruling leaves open the question of whether an insurer might be liable for damages for false imprisonment awarded in a case which pleaded and proved both false imprisonment against the manager and respondeat superior liability for the policyholder.

Post by Wesley B. Howard, Esq.

What To Do on Appeal When a Trial or Hearing Transcript is Unavailable

In July 2009, the Colorado Court of Appeals for the first time ruled on what an appellant must show to gain a new trial based on a missing or inadequate transcript of the trial proceedings. In Knoll v. Allstate Fire and Casualty Ins., ___ P.3d ____, 2009 WL 2182592 (Colo.App.2009) the court applied a three part test announced and followed in several federal and foreign state cases, but never before applied in Colorado. The test requires an appellant to: 1) make a specific allegation of error; 2) show the defect in the record materially affects the appellate court’s ability to review the alleged error; and 3) show a C.R.E. 10(c) proceeding has failed or would fail to produce an adequate substitute for the evidence.

Rule 10 (c) tells an appellant what to do if no proceeding transcript is available. It provides that the appellant may prepare and serve a statement of the evidence or proceedings from the best available means, including his or her recollection. The appellee may then serve objections or proposed amendments.The trial court then settles and approves the matter, and the court clerk includes the resulting statement in the record on appeal.

The Kroll court clarified that, when the record cannot be so reconstructed, a new trial may be ordered “in the interest of substantial justice.” Citing Pierpoint v. Akin, 76 Colo. 478, 479, 232 P. 682, 682 (1925). The appellant must show that a proper reconstruction effort failed, making a new trial necessary. Otherwise, no error will appear and the case will be affirmed.

Post by Wesley B. Howard, Esq.

New Clear Limits on Federal Jurisdiction for Compelling Arbitration

In March 2009 the United States Supreme Court ruled 5-4 that unless federal-question jurisdiction exists based on the complaint in the underlying litigation, federal courts cannot compel arbitration when petitioned under section 4 of the Federal Arbitration Act, 9 U.S.C. § 4. Vaden v. Discover Bank, 552 U.S. ____, ____, 129 S. Ct. 1262, 173 L. Ed. 2d 206 (2009). The Court also held that federal courts may “look through” the petition to determine whether there is federal subject-matter jurisdiction. However, it is the complaint, not counterclaims, which establishes whether or not such jurisdiction exists, said the Vaden court. (Complaints, even though predicated on state law claims, may be recharacterized to arise under federal law if the governing law is exclusively federal. The same is not true for counterclaims.) The holding that federal courts may “look through” the petition seeking to compel arbitration abrogated rulings by the Fifth, Sixth, Seventh, and Eleventh circuits to the contrary.

The Vaden court’s ruling on the “look through” issue was unanimous, but its determination that the complaint controls was made on the narrowest of margins, 5 to 4. The dissent would have federal courts examine the controversy below framed by the petition to compel arbitration in order to determine whether federal courts would have jurisdiction over the subject matter. In Vaden the bnk’s petition asserted that federal law preempted Vaden’s state law counterclaims. The bank thus argued that the counterclaims should be recharacterized as arising under federal law. The bank thus claimed the right to a federal court order compelling arbitration, since federal jurisdiction existed predicated on Federal Deposit Insurance Act provisions governing interest rates. The bank had obtained a federal district court order compelling arbitration and affirmance by the Fourth Circuit. The four Vaden court dissenters would have found federal subject matter jurisdiction, allowing the federal district court to compel arbitration of Vaden’s counterclaims.

This Supreme Court decision will restrict federal courts examining petitions to compel arbitration of disputes brought in state or federal courts to examining the complaint initiating the litigation sought to be stayed, along with the petition. State court, in many instances, will be the forum of choice for parties seeking to compel arbitration.

Post by Wesley B. Howard, Esq.

EMPLOYEE V. INDEPENDENT CONTRACTOR - NEW PENALTIES FOR EMPLOYERS

Colorado employers have additional incentive to correctly classify their workers. House Bill 09-1310, effective June 2, 2009, authorizes the Colorado Department of Labor and Employment to investigate complaints about employers misclassifying employees as independent contractors, and permits the imposition of fines and penalties on employers found to have misclassified employees with willful disregard for the law. An employer may be fined up to $5,000 per misclassified employee for the first misclassification with willful disregard. In the event of a subsequent misclassification, the employer is subject to a fine of up to $25,000 per misclassified employee with willful disregard and to being barred from state contracts for up to two years.

The new law also establishes a framework for employers to obtain a nonbinding advisory opinion concerning whether to classify an individual as an employee for purposes of the Colorado Employment Security Act.

Post By Brent W. Houston, Esq.