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The full case caption appears at the end of this opinion. MURPHY, Circuit Judge. This declaratory judgment action was brought by Agricultural InsuranceCompany and American National Fire Insurance Co. who had issued insurance policiesto Focus Homes, Inc. (Homes) and Focus Homes Corporation (the Corporation). Theinsurers now appeal from the district court’s denial of their summary judgment motionand dismissal of their action. Homes and Corporation cross-appeal the district court’sfailure to grant them summary judgment. We reverse and remand. I. In the underlying action, three women employees sued Homes and theCorporation under a number of theories, only one of which survived on appeal. SeeCrist v. Focus Homes, Inc., 122 F.3d 1107 (8th Cir. 1997). Homes and theCorporation operated a residential treatment facility, Yates House, at which theincidents alleged in the employees’ complaint occurred. The surviving claim of sexualharassment alleged that the employees had been physically and sexually assaulted bya severely autistic and retarded sixteen year old male resident of the facility, J.L., thatthey had reported their problems with J.L., that Homes and the Corporation hadbelittled or disregarded their complaints and relieved them of their supervisoryauthority, and that they had been constructively discharged by the absence of anyremedy to the situation. Homes and the Corporation tendered defense of this action tothe insurers, who denied coverage. After the sexual harassment claim was reinstatedon appeal in August 1997, the Crist parties agreed to submit it to binding arbitrationand eventually arrived at a settlement. The insurers brought this action in February1998 to obtain a declaration that they had no duty to defend or indemnify the insuredparties. During the time of the incidents alleged in the Crist complaint, Homes and theCorporation had been insured under three policies issued by the insurers. Both werenamed insureds on a commercial general liability policy (CGL) and a professionalliability policy (PL) issued by the Agricultural Insurance Company, and Homes was the named insured on a commercial umbrella policy (CU) issued by the American NationalFire Insurance Company. The CGL policy provided coverage for “sums that theinsured becomes legally obligated to pay as damages because of ‘bodily injury’ or’property damage’ to which this insurance applies[,]” but did not cover injury “ expectedor intended from the standpoint of the insured.” Appellant’s App., 77. The CU policycovered “those sums in excess of ‘underlying insurance’ or the retained limit that the’Insured’ becomes legally obligated to pay as damages because of ‘injury’[.]” Id. at 157.The CGL and CU policies limited coverage to damage resulting from an “ occurrence,”defined under the policies as “an accident, including continuous or repeated exposureto substantially the same general harmful conditions.” Id. at 88, 163. The PL policycovered “those sums that the Insured becomes legally obligated to pay as damagesbecause of a professional error or mistake made . . . by you . . . arising out of theperformance or failure to perform any professional service for others in your capacityas a residential care facility.” Id. at 110. All the policies contained a number ofexclusion provisions. Both sides moved for summary judgment, and the district court ruled in favor ofHomes and the Corporation, finding coverage under each of the three policies. It foundthat the Crist employees had alleged injuries within the scope of the CGL and CUpolicies and that the injuries were neither expected nor intended by Homes and theCorporation because they had been initiated by J.L. The court held that policyexclusions for injuries which occurred in the scope of employment or as a result ofemployment practices did not apply. The court also ruled that the PL policy coveredthe allegations in the Crist complaint because the employee injuries arose fromtreatment decisions for J.L. made by Homes and the Corporation. The insurers contend on appeal that the Crist allegations did not invoke coverageunder any of the policies. They argue that the complaint did not allege “occurrences”causing “bodily injury” as defined in the CGL and CU policies and that exclusions foremployer’s liability, employment practices, and workers compensation would bar coverage in any event. They further assert that there is no coverage under the PLpolicy because the complaint did not state a malpractice claim and the policy’sexclusions for employer’s liability and workers compensation would also apply.Homes and the Corporation respond that the employees did allege occurrences causingbodily injury within the coverage of the CGL and CU policies and that no exclusionapplies because the injuries were caused by J.L. They also argue for coverage underthe PL policy because they say that the women’s injuries occurred as a result oftreatment decisions regarding J.L. While they do not dispute that the employer’sliability exclusion in the CGL policy eliminates the duty to defend or indemnify Homes,which they identify as the employer, [FOOTNOTE 1] they claim that this exclusion does not apply tothe Corporation. They also do not dispute that the employer’s liability exclusion in thePL policy eliminates the duty to defend Homes, but they claim that the exclusion doesnot apply to the Corporation and does not eliminate the duty to indemnify Homes. On their cross-appeal, Homes and the Corporation argue that the district courterred by dismissing the case without granting summary judgment in their favor andwithout addressing the motions for summary judgment on their third party complaintagainst the Minnesota Worker’s Compensation Board. After the case was dismissed,Homes and the Corporation entered into a stipulation to dismiss the third party actionwithout prejudice and they wish to have the district court give effect to that stipulationon remand. II. An insurer’s duty to defend an insured is contractual. See Meadowbrook, Inc.v. Tower Ins. Co., Inc., 559 N.W.2d 411, 415 (Minn. 1997) (citing Inland Constr.Corp. v. Continental Cas. Co., 258 N.W.2d 881, 883 (Minn. 1977)). The duty to defend is broader than the duty to indemnify and extends to every claim that arguablyfalls within the scope of the policy coverage. Id. (citations omitted). Coveragedepends upon the allegations in the complaint, which must be compared with therelevant language in the policy, see Ross v. Briggs & Morgan, 540 N.W.2d 843, 847(Minn. 1995), as the duty to defend exists regardless of the merit of the underlyingclaims. See Meadowbrook, Inc., 559 N.W.2d at 419 (citing Republic Vanguard Ins.Co. v. Buehl, 204 N.W.2d 426, 429 (Minn. 1973)) (“An insurer’s obligation to defendits named insured does not depend on the merits of the claim asserted, but on whetherthe allegations of the complaint state a cause of action within the coverage afforded bythe policy.”) (emphasis in original). An insurer contesting its duty to defend bears theburden of showing that each claim asserted in the lawsuit “clearly falls outside”coverage under the policy. Meadowbrook, Inc., 559 N.W.2d at 418 (internal quotationmarks and citation omitted). “Exclusions are to be strictly interpreted against theinsurer and an insurer denying coverage because of an exclusion bears the burden ofproof.” Useldinger & Sons, Inc. v. Hangsleben, 505 N.W.2d 323, 327 (Minn. 1993).Our review is de novo. See St. Paul Fire & Marine Ins. Co. v. Schrum, 149 F.3d 878,880 (8th Cir. 1998). A. The employee complaint alleges ‘bodily injury’ as defined under the CGL policy.That policy defines “bodily injury” as “bodily injury, sickness, or disease sustained bya person, including death resulting from any of these at any time.” Appellants’ App.,86. The complaint alleges attacks by J.L. resulting in loss of consciousness and abroken wrist, id. at 4, a back injury, id. at 5, and an attempted rape. Id. at 4. Theseallegations do not clearly fall outside the coverage for bodily injury under the policy,and the insurers’ argument on this point must therefore be rejected. SeeMeadowbrook, Inc., 559 N.W.2d at 419.The CGL policy limits coverage to “‘bodily injury’ . . . caused by an’occurrence[.]‘” Appellants’ App., 77. “Occurrence” is defined by the policy as “anaccident, including continuous or repeated exposure to substantially the same generalharmful conditions.” Id. at 88. The Minnesota courts have so far declined to decidewhether allegations of sexual harassment can satisfy the ‘occurrence’ requirement. SeeMeadowbrook, Inc., 559 N.W.2d at 419; see also St. Paul Fire & Marine Ins. Co. v.Seagate Technology, Inc., 570 N.W.2d 503, 507 (Minn. Ct. App. 1997). We need notaddress this undecided question of state law if a policy exclusion applies, so we moveon to consider the exclusions. The CGL policy’s employer’s liability exclusion bars coverage for “‘bodilyinjury’ to . . . an ‘employee’ of the Insured arising out of and in the course of . . .employment by the Insured . . . [or] performing duties related to the conduct of theInsured’s business . . . whether the Insured may be liable as an employer or in any othercapacity[.]” Appellants’ App., 78. Homes and the Corporation do not dispute that thisexclusion applies to Homes, but assert that it does not bar coverage for theCorporation because it was not the employer . This argument overlooks the fact thatthe complaint alleged that both Homes and the Corporation were liable as employers.The duty to defend arises from the allegations within the complaint. SeeMeadowbrook, Inc., 559 N.W.2d at 420 (citing Ross v. Briggs & Morgan, 540 N.W.2d843 (Minn. 1995)) (“ In assessing whether an insurer has a duty to defend, the courtmust focus on the claim and whether its elements fit within the exclusion.”) (emphasisin original). The employees’ complaint identifies both Homes and the Corporation astheir employer. See Appellant’s App., 2-3. While the Corporation was insured underthe CGL policy, the allegations in the complaint only addressed it as an employer.Within that role there was no coverage under the CGL policy because of theemployer’s liability exclusion. The insurers thus had no duty under the policy to defendor indemnify the Corporation in the underlying litigation. Because the employer’s liability exclusion eliminated coverage under this policy, the employment practices andworkers compensation exclusions need not be addressed. B. The CU policy covers “those sums in excess of ‘underlying insurance’ . . . thatthe ‘Insured’ becomes legally obligated to pay as damages because of an ‘injury’caused by an ‘occurrence’ to which this policy applies.” Appellants’ App., 157.Under this policy, ‘injury’ includes ‘bodily injury,’ as well as ‘advertising injury,”personal injury,’ and ‘property damage.’ Id. at 163. Because the language defining’bodily injury’ in the CU policy is identical to that in the CGL policy, the allegationsin the Crist complaint do not clearly fall outside the scope of the policy, for the reasonsalready discussed. An “occurrence” under the CU policy is defined as “an accidentincluding continuous or repeated exposure to substantially the same general harmfulconditions.” Id. at 163. This language substantially mirrors that of the CGL policy andhas not been construed in a Minnesota sexual harassment case. The employment practices provision in the CU policy precludes coverage for theCrist allegations. The provision bars coverage for any injury “arising out of . . .refusal to employ . . . termination of employment . . . coercion, demotion, evaluation,reassignment, discipline, humiliation, discrimination or other employment-relatedpractices, policies, acts or omissions[.]” Appellants’ App., 158. The Crist complaintstates seven claims that could have invoked the duty to defend: [FOOTNOTE 2] sexual harassment,assault and battery, intentional infliction of emotional distress, negligent infliction ofemotional distress, negligent hiring and supervision, whistle blower, and aiding and abetting. Id. at 9-14. Each of these claims turns on employment practices. Thecomplaint alleges that “[d]efendants created a hostile work environment . . . byallowing a working environment to exist [that] included unlawful sexual harassment[and] discrimination,” id. at 9, that defendants made unwanted sexual conduct from J.L.”a condition of their employment,” id. at 11, that the insureds’ failure to “react[] andprotect[] [employees] [was] extreme and outrageous[,]” id., that after the employeesreported the assaults “ [d]efendants failed to take timely and appropriate action . . . toprotect [employees,]” id. at 12, that the insureds negligently hired supervisors whofailed to take appropriate action in response to the employees’ complaints, id. at 13,and that as a result of their complaints about their work environment the employeeswere “ stripped of all authority . . . and . . . constructively discharged.” Id. at 14. Thefirst paragraph of the complaint states that “[t]his is an action . . . based on unlawfulemployment practices on the basis of sex[.]” Id. at 2. As we noted in Crist v. FocusHomes, Inc., 122 F.3d 1107, 1110 (8th Cir. 1997), “ the thrust of [the employees']lawsuit is Focus Homes’ conduct in response to [the employees'] complaints aboutJ.L.’s physically aggressive behavior, not J.L.’s underlying conduct.” The relatively few cases that have addressed employment practices exclusionsin similar contexts have held in favor of the insurers. In Miller v. McClure, 742 A.2d564 (N.J. App. Div. 1998) (per curiam), aff’d, 745 A.2d 1162 (N.J. 1999) (per curiam),an employment practices exclusion was held to bar coverage of a sexual harassmentclaim because it, like the one in this case, provided that coverage did not extend to”harassment, humiliation, discrimination or other employment-related practices,policies, acts or omissions[.]” Id. at 569; see also Frank and Freedus v. Allstate Ins.Co., 52 Cal. Rptr. 2d 678, 684 (Cal. Ct. App. 1996) (defamatory statement made incontext of employment and directed to performance fell within employment practicesexclusion). Compare HS Serv. v. Nationwide Mut. Ins. Co., 109 F.3d 642, 646 (9thCir. 1997) (employment practices exclusion did not apply where defamatory statementoccurred outside employment context). See generally Joseph P. Monteleone & EmyGrotell, Coverage for Employment Practices Liability under Various Policies: Commercial General Liability, Homeowners’, Umbrella, Worker’s Compensation andDirectors’ and Officers’ Liability Policies, 21 W. New. Eng. L. Rev. 249 (1999). The assertion by Homes and the Corporation that the employees sought reliefprimarily because of the failure to provide proper treatment for J.L. is not borne outby their complaint. The employees could have sued Homes and the Corporation undera number of theories. For example, they could have alleged that the employers had aduty to control J.L., that they had failed to do so, and that the employees had beeninjured as a result. See, e.g., Johnson v. Minnesota, 553 N.W.2d 40, 50 (Minn. 1996);Lundgren v. Fultz, 354 N.W.2d 25, 27 (Minn. 1984). They could also have alleged thatHomes and the Corporation improperly medicated J.L. or negligently provided or failedto provide professional services to him. Nowhere in their complaint, however, did theemployees make such claims. The complaint instead deals with the insureds’ treatmentof the plaintiffs as employees. The employment practices exclusion therefore precludescoverage for the claims, and the insurers had no duty to defend or indemnify the Homesor the Corporation under the CU policy. C. The PL policy covers “those sums that the Insured becomes legally obligated topay as damages because of a professional error or mistake made . . . by you . . . arisingout of the performance or failure to perform any professional services for others in yourcapacity as a residential care facility.” Appellants’ App., 110. The policy does notcover “‘bodily injury’ . . . resulting from other than a professional error or mistakeacting in your capacity as a residential care facility” or bodily injury to “an employeeof the Insured arising out of and in the course of employment by the Insured[.]” Id. at110-111. The Crist complaint did not allege injuries arising from professional malpractice,and the PL policy therefore does not cover the claims in the complaint. Moreover, the employer’s liability exclusion would bar coverage under the PL policy, as it did underthe CGL policy, because the complaint alleged injuries that occurred in the course ofemployment. III. After a thorough review of the record, we conclude that the insurers had no dutyto defend or indemnify Homes or the Corporation under any of the three policies. Theinsurers are therefore entitled to judgment in their favor, and the stipulation fordismissal of the third party action may be presented to the district court on remand.The judgment of the district court is reversed, and the case is remanded for furtherproceedings consistent with this opinion. A true copy. Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT. :::FOOTNOTES::: FN1 The allegations in the complaint name both Homes and the Corporation as theemployer. FN2 As noted above, only the sexual harassment claim survived on appeal. The dutyto defend arises regardless of the merits of the claims, however, so long as theallegations do not clearly fall outside the coverage of the policy. See Meadowbrook,Inc., 559 N.W. 2d at 418.
Agricultural Ins. Co. v. Focus Homes, Inc. United States Court of Appeals For The Eighth Circuit Nos. 99-1157/1162 Agricultural Insurance Company and American National Fire Insurance Co., Appellants/Cross-Appellees, v. Focus Homes, Inc. and Focus Homes Corporation, Appellees/Cross-Appellants,Third Party Plaintiffs, v. Minnesota Workers’ Compensation Assigned Risk Plan, Third Party Defendant. Appeals from the United States District Court for the District of Minnesota. Submitted: March 13, 2000 Filed: May 5, 2000 Before RICHARD S. ARNOLD, BEAM, and MURPHY, Circuit Judges.
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