Opinion
103308/07.
Decided October 8, 2009.
Schwartz and Perry, attorneys for plaintiffs (Brian Heller, of counsel) New York, NY, Frank M. Graziadei, attorney for defendants, New York, NY.
Wade Clark Mulcahy, attorneys for third-party defendant (Michael A. Bono, of counsel), New York, NY.
Before me are motions for summary judgment by defendant Mariners Temple Baptist Church (the "Church") to dismiss the complaint as against it, and by third-party defendant Nautilus Insurance Company ("Nautilus") to dismiss the third-party complaint and the complaint against the Church. Also, Nautilus has moved to sever the third-party declaratory judgment action in which the Church seeks indemnity and defense of plaintiffs' action against it.
The complaint alleges that the plaintiffs, when they were 13 and 17 years of age, were sexually harassed and abused by one Jeremy Fulton, both physically and verbally, when they were employed by the Church "and/or" the Mariners Educational Center, Inc. (the "Center") (¶ 5). The Church is alleged to be a "religious organization" (¶ 6), while the Center is stated to be a not-for-profit corporation (¶ 7), and it is asserted that the Church "through" the Center ran a summer camp for children (¶ 8). Throughout the complaint, all of the allegations of wrongdoing are alleged to have been committed by "Mariners," which is a joint reference to the Church and the Center (¶ 3). There are no separate allegations in the complaint of wrongdoing against the said two defendants, nor any specific allegation that one defendant is controlled by the other or that the two defendants are a single employer of the plaintiffs. Fulton is alleged to be "the most senior management employee present at the camp, on a day to day basis, (and) had control over the camp's activities and employees" (¶ 14), and plaintiffs contend that the sexual abuse and gender discrimination committed against them by Fulton constituted a violation of the New York City Human Rights Law ("HRL").
Defendants assert that: they are separate entities, with the Center renting space from the Church in its building and adjoining yard; Fulton and the plaintiffs were employees of the Center; Fulton had no employment relationship with the Church; and the boards and officials of the two entities are different. However, the Pastor of the Church, Rev. Henrietta Carter, acknowledged that she is executive director of the Center as well as in charge of the Church (EBT pp. 157, 161), and that there is no written lease between the Church and the Center, and that the Center pays rent only when it has available funds (EBT p. 156). Fulton stated that before his employment at the Center he was employed by the Church to run its office (EBT p. 227), and that Reverend Carter ran the Church and the Center (EBT p. 252, 266), and the offices of the Center are in the Church's building.
In Shah v. Wilco Systems, Inc., 27 AD3d 169 (1st Dept. 2005), it was stated that it "is well settled that in determining employment discrimination claims under (the HRL), federal standards are applied" (p. 176). See also, McGrath v. Toys "R" Us, Inc., 3 NY3d 421, 429 (2004).
To determine whether separate entities should be considered a "single employer" for liability purposes, courts have employed a four-factor test that "examines the interrelation of operations, common management, centralized control of labor relations and common ownership,' (and) [a]lso relevant are the use of common office facilities and equipment and family connections between or among the various enterprises, . . . (and) [u]ltimately, single employer status depends on all the circumstances of the case and is characterized by absence of an arm's length relationship found among unintegrated companies.'" [Lihli Fashions Corporation v. National Labor Relations Board, 80 F. 3d 743, 747 (2nd Cir. 1996)]. See also, Cook v. Arrowsmith Shelburne, Inc., 69 F. 3d 1235 (2nd Cir. 1995); Smith v. K F Industries, Inc., 190 F. Supp. 2d 643, 651 (S.D.NY 2002).
Here, although the complaint does not specifically allege a "single employer" theory, it is implicit therein. I find that, although the Church and Center are not commercial enterprises, the allegations of the complaint and the affidavits submitted showing, among other factors, control by the Church pastor of the operations of the Center and asserting grossly improper activity on the part of Fulton in his relationship with the very young plaintiffs working under his supervision, raise a triable issue of fact as to whether the Church and the Center should be considered an integral enterprise for the purposes of liability for the various claims asserted herein. Thus, the motion of the Church for summary judgment is denied.
The third-party complaint of the Church seeks, in effect, a declaration that Nautilus is obligated to defend and indemnify it in the main action. Nautilus states that its motion to dismiss is "based on the limited grounds that: 1) plaintiffs do not allege an occurrence' as defined by the Nautilus policies and; 2) even if there was an occurrence plaintiffs' claims are specifically excluded from coverage under both the Employer's Liability' exclusion and the Abuse or Molestation' exclusion" (April 10, 2009 memorandum of law, p. 1).
The subject policy contains the following provisions which, from the reported cases, appear to be standard in commercial general liability policies:
"This insurance does not apply to:
a) Bodily injury' . . . expected or intended from the standpoint of the insured.
* * *
e) Bodily injury' to (1) an employee' of the insured arising out of and in the course of: a) Employment by the insured."
"Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
"This insurance does not apply to bodily injury' . . . arising out of: 1) The actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured."
Many cases have held that claims of sexual assault, harassment and abuse, being intentional torts, are not "accidents" and hence not covered by policies containing exclusions similar to those quoted above, i.e., Green Chimneys School for Little Folk v. National Union Fire Insurance Company of Pittsburgh, Pa., 244 AD2d 387 (2nd Dept. 1997); Sweet Home Central School District of Amherst and Tonawanda v. Aetna Commercial Insurance Company, 263 AD2d 949 (4th Dept. 1999); Kantrow v. Security Mutual Insurance Company, 49 AD3d 818 (2nd Dept. 2008); Sidney Frank Importing Co., Inc. v. Farmington Casualty Company, 199 F.3d 1323 (2nd Cir. 1999); Jensen v. Automobile Insurance Company of Hartford, Connecticut, 2005 WL 1876068 (W.D.NY).
The Second Department, in RJC Realty Holding Corp. v. Republic Franklin Insurance Company, 303 AD2d 573 (2003), came to a similar conclusion in a case where the plaintiff sued due to having allegedly been sexually assaulted while having a massage at defendant's place of business. In addition to alleging a sexual assault, plaintiff therein asserted that defendant was negligent in its hiring, supervision and retention of the accused masseur. In granting summary judgment to the insurer, the court held that the "intentional act of (the insured's) employee falls within the exclusionary language of the policy," ruling that the fact that "the complaint in the underlying action includes causes of action to recover damages for negligent hiring and supervision does not alter the fact that the operative act giving rise to any recovery is the assault.'" On appeal, the Court of Appeals reversed [ 2 NY3d 158 (2004)]. It held that in committing the assault the masseur departed from his duties as an employee for solely personal motives. Hence, his actions were held not to be those of the employer "for purposes of the respondeat superior doctrine," and thus "were unexpected, unusual and unforeseen from (the employer's) point of view," and consequently were an "accident" within the coverage of the policy and were not excluded by the "expected or intended" clause (pp. 164-165).
Similarly, in ACE Fire Underwriters Insurance Company v. Orange-Ulster Board of Cooperative Educational Services, 8 AD3d 503 (2nd Dept. 2004), the court, citing RJC Realty, held that an assault upon a mentally disabled patient by an employee of the insured was "unexpected, unusual and unforeseen" from the employer's point of view and therefore an "accident," requiring defense and indemnity by the insurer. Accord: Commercial Underwriters Insurance Company v. Best Cleaning Corp., 6 AD3d 335 (1st Dept. 2004). In NYAT Operating Corp. v. Gan National Insurance Company, 46 AD3d 287 (1st Dept. 2007), a judgment against the insured was obtained in the underlying action "for having negligently hired and retained an employee who sexually assaulted" the plaintiff. In finding that the exclusion for intended injuries did not apply, the court, relying on RJC Realty, stated that because the insured's "liability in the underlying action was based on its negligent hiring and retention of the employee, not respondeat superior, the sexual assault was a covered accident' within the meaning of the policy."
While here plaintiffs allege defendants to be liable under the respondeat superior doctrine, the detailed allegations of the complaint asserting verbal and physical wrongdoing by Fulton appear to constitute activities that are departures from his duties at the Center which were engaged in solely based on his personal motives. Hence, for the purpose of determining insurance coverage, it would not appear that such acts are attributable to defendants under the respondeat superior doctrine, although liability against them as an "employer" may ensue under the HRL. Further, although plaintiffs do not specifically allege negligent hiring, supervision and retention, it is clearly implicit in the allegations. See, NWL Holdings, Inc. v. Discover Property Casualty Insurance Company, 480 F. Supp 2d 655, 660 (E.D.NY 2007).
In light of the foregoing, I find that Nautilus has failed to demonstrate that the wrongdoing alleged in the complaint does not constitute an "occurrence," as defined in the policy it issued.
With respect to the contention of Nautilus that it is entitled to summary judgment based on the "employee" exclusion, I agree with the conclusion reached on this issue in NWL Holdings, Inc. v. Discover Property Casualty Insurance Company, supra, where it was ruled (p. 662)that while the injury to plaintiffs may have occurred in the course of their employment, "it cannot seriously be argued that it ar[ose] out of'" their employment. In support of that conclusion, the court quoted from Lemon v. New York City Transit Authority, 72 NY2d 324, 326-327 (1988), where it was ruled that "only if an injury flows as a natural consequence of the employee's duties can it be said to arise out of the employment."
Regarding the "abuse and molestation" exclusion, it would not appear applicable here as Nautilus has not established that the plaintiffs, as employees, were in the "care, custody or control of any insured." Moreover, it was stated in Frontier Insulation Contractors, Inc. v. Merchants Mutual Insurance Company, 91 NY2d 169, 175 (1997) that:
The duty of an insurer to defend its insured arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim, or where the insurer "has actual knowledge of facts establishing a reasonable possibility of coverage" (Fitzpatrick v. American Honda Motor Co., 78 NY2d 61, 65-67). To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis on which the insurer may eventually be held obligated to indemnify the insured under any policy provision (Continental Cas. Co. v. Rapid-American Corp., 80 NY2d 640, 652; Allstate Ins. Co. v. Zuk, 78 NY2d 41, 45). If any of the claims against the insured arguable arise from covered events, the insurer is required to defend the entire action (Seaboard Sur. Co. v. Gillette Co., 64 NY2d 304, 311).
Here, I cannot say, considering the four corners of the complaint, that there is "no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured."
In conclusion, the motions of the Church and Nautilus for summary judgment are both denied, but the branch of the application of Nautilus to sever the third party action for the purposes of trial is granted.
This decision constitutes the order of the court.