Karate Studio’s Insurance Policy May Cover Negligent Retention Claim

In a lawsuit filed by a minor against a karate studio alleging the minor was sexually molested by a studio employee during a summer camp, the studio’s insurance policy would not cover claims for battery, but could cover claims that the employer was negligent for retaining the employee after learning of an earlier sexual assault and for failing to report the earlier assault to authorities, a Roanoke U.S. District Court rules.

In a case reported in the Virginia lawyers Weekly, the court concluded that coverage exists for the negligence claims. The insurance carrier tried to avoid coverage by asserting that under the reasoning in AES Corp. v. Steadfast Ins. Co., 283 Va. 609 (2012), plaintiffs’ allegations that the sexual assault perpetrated against their daughter resulted from negligence of one sort or another by defendants does not transform the allegedly willful attack into an “occurrence.”

But the holding in AES does not squarely fit the allegations in this case.

The conduct alleged is negligent retention and negligent failure to report.

In S.F. v. West American Ins. Co., 250 Va. 461 (1995), the Supreme Court of Virginia found the term “occurrence” to be ambiguous, reasoning that an occurrence could be deemed as any one of the following: the insureds’ negligent hiring of an apartment complex manager, or the insureds’ negligent retention of the manager.

Applied to the allegations in this case, such reasoning required the court to conclude that the negligent retention and negligent failure to report constituted “occurrences” under the policy. Further, the allegations of forcible sexual abuse resulting in psychological harm, including physical cutting, fall within the policy definition of “bodily injury.”