“Expected injury” Exception Does Not Categorically Bar Negligence Claim Based on Failure to Supervise.

The Illinois Appellate Court for the Second District, applying Illinois law, reversed the decision of the circuit court and held that an insurer was not entitled to judgment on the pleadings because the underlying complaint lacked specific factual allegations that would trigger the “expected injury” exclusion with respect to the daycare owner for alleged sexual abuse.

The underlying lawsuit stemmed from the alleged sexual abuse of two young girls by home daycare owner Alejandra Contreras’ husband, Adan Contreras, while the daughters were at the daycare.  The girls’ mother filed a lawsuit on behalf of her two daughters against the daycare, Jasmine’s Day Care, and against Alejandra Contreras.  According to the complaint, as the owner and operator of Jasmine’s Day Care, Ms. Contreras was negligent by (1) failing to provide adequate supervision while the children were in her care; (2) allowing her spouse, Adan Contreras, who was not an assistant, to be alone with the children, in violation of administrative code; and (3) failing to adequately protect the children from exploitation, neglect and abuse while under her care.

Ms. Contreras tendered the claim to her homeowner’s insurer, Allstate Indemnity Company (“Allstate”).  Allstate sought a declaration that it did not owe a duty to defend or indemnify Jasmine’s Day Care or Ms. Contreras in connection with the lawsuit filed against them.  Under Illinois law, “where an adult is accused of sexually abusing a minor[,] an intent to injure is inferred as a matter of law and an insurer has no duty to defend.”  Thus, Allstate maintained that it was not obligated to defend or indemnify Jasmine’s Day Care or Ms. Contreras in connection with the claims asserted against them because they were the reasonably expected result of the sexual abuse by Mr. Contreras.   The underlying plaintiff filed an opposition to Allstate’s motion for judgment on the pleadings arguing that the intent to injure was not inferred as a matter of law because the underlying suit was not against Mr. Contreras and the allegations against the daycare and Ms. Contreras were based on negligence.  In its reply, Allstate cited the “joint obligations” clause from the policy: “The terms of this policy impose joint obligations on the person named on the Policy Declarations as the insured and on that person’s resident spouse … The terms of this policy impose joint obligations on persons defined as an insured person.  This means that the responsibilities, acts and failures to act of a person defined as an insured person will be binding upon another person defined as an insured person.”  The circuit court granted Allstate’s motion finding that the “expected injury” exclusion precluded coverage.

The appellate court agreed that Mr. Contreras’ intent to injure the children was presumed as a matter of law.   However, the appellate court found that it could not simply impute Mr. Contreras’ intentional conduct to Jasmine’s Day Care and Ms. Contreras for purposes of the “expected injury” exclusion, but instead must consider the specific policy language in light of the facts alleged in the underlying complaint.  The appellate court examined the innocent-insured doctrine and declined to hold that Mr. Contreras’ intent to injure the children categorically precluded a defense for the other insured relating to claims for the same injuries.  The appellate court reversed the circuit court’s ruling and remanded for further proceedings. It found that there were no specific factual allegations in the underlying complaint that would trigger the “expected injury” exclusion with respect to the daycare or Ms. Contreras.  Allstate Indem. Co. v. Contreras, 2018 IL App (2d) 170964 (Ill. App. Ct. July 20, 2018).