469_C280

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Homeowner	Business exclusion
Molestation	Severability

DAYCARE OPERATOR CLAIMS COVERAGE FOR MOLESTATION

For 25 years, Vicki Dobson operated a daycare center in her home in Bloomington, Indiana. For 10 of those years she watched a girl referred to as "T.B." most recently before and after school and during the summer. On April 4, 1996, Vicki agreed to watch T.B. all day because she was too sick to go to school. At some point during that day Vicki left T.B. and three other children in the care of her husband, Murl, so she could care for her mother-in-law who lived across the street. While she was gone, Murl molested T.B.

In May 1997, T.B., her parents and others sued the Dobsons. At the time of the molestation incident, the Dobsons had a homeowners insurance policy issued by State Farm Fire & Casualty Company. They immediately notifed State Farm of the lawsuit. Within six days, State Farm sent the Dobsons two letters. One acknowledged receipt of their notification and explained that an investigation was underway. The other raised the issue of whether State Farm was required to defend or indemnify the Dobsons or whether coverage was excluded by the policy's childcare exclusion to the extent that the claim arose out of childcare services provided by the Dobsons.

Eventually State Farm denied coverage, claiming that "Murl and Vicki Dobson were providing full-time childcare services for many children and have done so for many years." According to State Farm, Murl's molestation of T.B. did not constitute an "occurrence" under the policy because it was excluded by the childcare exclusion. The Dobsons agreed to assign to T.B. all rights it had against State Farm arising from their homeowners policy. The agreement also provided for a money judgment of $375,000, conditioned upon T.B.'s promise not to execute on the [Dobsons'] personal assets. In turn, T.B. filed an action against State Farm seeking coverage. After several procedural disputes, the trial court eventually found in favor of State Farm, holding that the policy's childcare exclusion applied. T.B. appealed.

The childcare exclusion in the State Farm policy contained an exception that provided: "This exclusion does not apply to the occasional child care services provided by any insured, or to the part-time child care services provided by any insured who is under 19 years of age[.]" The policy also contained a severability clause that provided: "This insurance applies separately to each insured. This condition shall not increase our limit of liability for any one occurrence." On appeal, T.B. argued that the policy was ambiguous and should be construed in favor of the insured. According to T.B., the severability clause language allowed the policy to be interpreted to allow general coverage for each insured; the childcare exclusion excluded coverage for each insured separately, and the exception to the childcare exclusion applied when only occasional childcare was provided by "any insured."

The Court of Appeals of Indiana disagreed. It noted that "the purpose of a severability clause is to spread protection, to the limits of coverage, among all of the...insureds. The purpose is not to negate bargained-for exclusions which are plainly worded." According to the court, the childcare exclusion applied because Vicki provided non-occasional childcare services to T.B., a fact that was undisputed by the parties. The key was not whether Murl's childcare services were occasional; rather, the issue was whether Vicki's childcare services were occasional. Because Vicki's childcare services were non-occasional, the exception to the exclusion did not apply and there was no coverage for T.B.'s molestation. Accordingly, the decision of the trial court was affirmed.

Bruce vs. Dobson-No. 53A04-0609-CV-533-Court of Appeals of Indiana-June 22, 2007-868 North Eastern Reporter 2d 831