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The New Tort of Negligent Supervision

Insurance coverage

In Doyle v. Engelke,¹⁰ a claim for negligent supervision in the complaint was sufficient to trigger the duty to defend. This case arose out of an anti-abortion demonstration. One of the defendants, Ward Engelke, had allegedly accused the plaintiff, Catherine Doyle, of cursing at and kicking at his daughter in the face while his daughter was praying outside of a clinic. Engelke's claims had been covered in the print media and by a radio station owned by defendant Wisconsin Voice of Christian Youth Inc. (WVCY). The complaint also alleged that two WVCY employees filed a false security agreement with the Secretary of State encumbering the Doyle's assets and also served a false subpoena at Doyle's residence. The insurance policy at issue in the appeal was a commercial general liability policy issued to WVCY.

Numerous causes of action were alleged against WVCY and its employees. By the time the case reached the Wisconsin Supreme Court, the only claims for insurance coverage were a slander of title claim and negligent supervision. Doyle held the slander of title claim was not covered; hence, all the underlying conduct alleged in the complaint was excluded by the insurance policy. This left the negligent supervision claim against the employer, and this allegation triggered the insurer's duty to defend.

The trial court and the Wisconsin Court of Appeals had both held that the insurance company had no obligation to defend in Doyle. Both courts stated that the intentional acts of employees acting within their scope of employment were intentional acts of the employer. This brought the employer within the intentional acts exclusion. The Wisconsin Supreme Court did not deal directly with the respondeat superior issue, but stated:

"We disagree with the form of the analysis offered by the Court of Appeals. It is significant in this case that the coverage disputed by the parties is not St. Paul's obligation to defend WVCY employees individually for their intentional acts against Doyle. Rather, the coverage we are addressing is WVCY's individual coverage as a protected person under the policy."¹¹

In footnote, the supreme court noted the vicarious liability argument of the insurance company:

"Moreover, St. Paul's objection to responsibility to defend WVCY against the negligent supervision claim on vicarious liability grounds fails to recognize that it is not a claim for vicarious liability. While negligent supervision does require an underlying wrong to be committed by the employee as an element, the tort actually focuses on the tortious, i.e., negligent, conduct of the employer."¹²

There was no further analysis of respondeat superior theory nor was there any discussion of cases where the employer-insured "knew or should have known" of the employee's conduct.¹³ There also was no mention of cases such as Bankert v. Threshermens Mutual Insurance Co.¹⁴ Bankert held there was no obligation to defend an insured for negligent supervision of children that culminated in damages caused exclusively by the use of an automobile that was excluded by the policy.

Keep in mind that Doyle was a duty to defend case, and the complaint was construed in favor of the insured. Doyle gave the allegation of negligent supervision its narrowest meaning because this was most favorable to the insured.

Checklist of issues

Since the Doyle approach was narrow, there remain issues that will have to be considered when litigating an employer's conduct and matching that conduct to an insurance policy to see if there is a duty to indemnify, as opposed to a duty to defend. This section discusses some of those questions.

Was the employee acting within the scope of employment? If an employee's conduct that gives rise to damages is within the scope of employment, respondeat superior should apply. The conduct of such an employee becomes the act of the employer.¹⁵ For example, the employee's intentional acts will also be the employer's intentional acts and excluded by an insurance policy's intentional acts exclusion. The insured employer will be acting intentionally due to respondeat superior; thus, there should be no coverage for the employer.

How is the exclusion worded? Several exclusions in insurance policies may apply to an employee and employer relationship. The court and counsel will need to focus upon the exact wording of the exclusion. An exclusion may apply to "the insured" or "an insured," or "any insured." If the exclusion is worded to include "any" insured, it is much easier for a court to find that the excluded conduct of an employee also precludes coverage for an insured-employer. Doyle looked at the insurance policy's wording that excluded intentional acts committed by acts "intended by the protected person." Doyle was analyzing coverage for the protected person - the employer. Western National Insurance Co. v. Nemitz¹⁶ found the term "an insured" in an exclusion to be ambiguous, and therefore the exclusion did not apply to parents. In contrast to Doyle and Nemitz, see Taryn v. Joshua M.C.,¹⁷ which found that an exclusion covering acts of "any insured" precluded coverage for the parents as well as the child who committed the act causing damages.

Did the insured-employer know about the conduct? Doyle and Miller did not discuss the basis for negligent supervision applied in L.L.N. While a plaintiff and insured-defendant may not want to add another question to the verdict form, an insurer may want to establish that the employer "knew or should have known" that the employee would subject a third party to an unreasonable risk of harm. At least two cases have held that the status of an insured-supervisor may preclude coverage if that insured "knew or should have known" of the improper conduct. In Jessica M.F. v. Liberty Mutual Fire Ins. Co.¹⁸ the intentional act exclusion precluded homeowner insurance coverage for a grandmother who knew or should have known of her husband's sexual abuse of their grandchildren. In Carney v. Village of Darien¹⁹ a police officer's conduct should have been expected or intended from the standpoint of village officials. The complaint alleged the officials were aware and had notice of prior incidents and had reason to anticipate such conduct. The allegations that village officials were aware of numerous complaints against the officer were sufficient to bring the village officials (supervisors) within the intentional act exclusion.

Are damages solely a result of excluded conduct? Bankert held that an insurance provision that excludes the act of the wrongdoer also operates to exclude the coverage for an insured's negligent supervision or control of the wrongdoer.²⁰ When an insurance company writes an exclusion in a liability policy, it generally directs the exclusion at a risk, not a person's status.²¹

Doyle was a duty to defend case that left open the question of whether the obligation to indemnify (versus duty of defense) will apply when all of the damages flow from the excluded conduct of an employee. If all damages arise out of the excluded acts of an employee, subsequent cases will have to determine whether the Bankert rationale applies to preclude insurance coverage for negligent supervision of the employee.

It may be difficult for a jury to distinguish between damages caused by an employee (not covered) and damages arising out of negligent supervision (covered). In Valley Bancorporation v. Auto Owners Insurance Company²² the insurance company had the burden of establishing which damages were not covered by insurance. The failure of the insurance company to clarify that issue precluded its ability to limit recovery against it.

What does this burden of proof mean for insurance companies when there is a negligent supervision claim? An insurance company will have to become involved in the case and try to separate damages that are covered from those that are not. In most cases insured-defendants will be reluctant to add damage questions to a verdict when those questions ask a jury to specify damages that flow from conduct of the employee versus employer. On the other hand, an insurance company probably is not going to be able to separate covered and uncovered damages without additional questions in the verdict. There also may be cases where a jury cannot distinguish between covered and uncovered damages. In that event, the insurance company may have to pay all of the damages flowing from both covered and uncovered conduct.²³

Conclusion

The recent Wisconsin Supreme Court decisions in Miller and Doyle establish the elements of the tort of negligent supervision and its application to a liability insurance company's duty to defend. In order to satisfy insurance coverage, careful employers should provide and document employee training, and provide adequate supervision. Still, much work remains before all the ramifications of these decisions can be known.

Endnotes

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¹Miller v. Wal-Mart Stores Inc., No. 96-2529 (Wis. June 24, 1998).

²Doyle v. Engelke, No. 96-0680 (Wis. June 24, 1998).

³L.L.N. v. Clauder, 209 Wis. 2d 674, 698-99, n.21, 674 N.W.2d 434 (1997).

⁴Bryan v. Adler, 97 Wis. 124, 127, 72 N.W. 368 (1897).

⁵Arsand v. City of Franklin, 83 Wis. 2d 40, 264 N.W.2d 579 (1978).

⁶Id. at 45, 264 N.W.2d 579.

⁷L.L.N. at 699, 674 N.W.2d 434.

⁸Id.

⁹Id.

¹⁰Doyle v. Engelke, No. 96-0680 (Wis. June 24, 1998).

¹¹Id. at slip op. 12-13.

¹²Id. at slip op. n.6.

¹³L.L.N., 209 Wis. 2d 674, 698-99, n.21, 674 N.W.2d 434.

¹⁴Bankert v. Threshermens Mut. Ins. Co., 110 Wis. 2d 469, 329 N.W.2d 150 (1983).

¹⁵Bryan v. Adler, 97 Wis. 124, 72 N.W. 368 (1897), Arsand v. City of Franklin, 83 Wis. 2d 40, 264 N.W.2d 579 (1978).

¹⁶Western Nat'l Ins. Co. v. Nemitz, 135 Wis. 2d 245, 400 N.W.2d 33 (Ct. App. 1986).

¹⁷Taryn v. Joshua M.C., 178 Wis. 2d 719, 505 N.W.2d 418 (Ct. App. 1993).

¹⁸Jessica M.F. v. Liberty Mut. Ins. Co., 209 Wis. 2d 42, 561 N.W.2d 787 (Ct. App. 1997).

¹⁹Carney v. Village of Darien, 60 F.3d 1273 (7th Cir. 1995)(applying Wisconsin law). See also § 5.20 "Intentional Acts: Sexual Assaults" and § 5.53 (Fortuity, Known Loss and Loss In Progress," Anderson, Wisconsin Insurance Law, 4th Ed. (1998).

²⁰Bankert, 110 Wis. 2d 469, 329 N.W.2d 150 (1983). See also, Taryn N. v. Economy Fire & Cas. Ins. Co., 197 Wis. 2d 77, 540 N.W.2d 26 (Ct. App. 1995).

²¹See, Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 514 N.W.2d 1 (1994), and cases cited therein.

²²Valley Bancorporation v. Auto Owners Ins. Co., 212 Wis. 2d 609, 569 N.W.2d 345 (Ct. App. 1997).

²³Id.