Insurance Company Duty To

Irving insurance lawyers will tell you that an insurance company’s duty to defend one of their insureds in a lawsuit depends on several factors. This is discussed in a 1997, Austin Court of Appeals opinion styled, State Farm v. White.
State Farm filed a suit for declaratory judgment that it owed no duty to defend its insureds.
Sean and Sandra Nash, sued numerous defendants, including White, on behalf of themselves and their minor children, for the sexual abuse of their children which occurred at the day care center operated by Daniel Keller and his wife, Francis Keller. The lawsuit papers allege that Daniel Keller physically and sexually abused the Nash children, as well as other children attending the day care center, while the children were in the center’s care and custody. Such abuse occurred on a regular basis throughout the Nash children’s attendance at the facility. The petition further alleges that the children were taken from the day care center’s premises to other nearby locations where Daniel Keller abused them and sometimes allowed others to witness or participate in the abuse.
On one particular occasion the Nash children attended the center, the Whites were invited to the day care center, served alcoholic beverages, and observed Daniel Keller abuse unidentified children. The petition alleges that, although the Whites witnessed the sexual abuse of these children at the day care center, they failed to report, stop, or prevent the abuse. As a result of their failure to take any action, the day care center remained in operation, and the Nash children suffered subsequent abuse. It is against these charges that State Farm seeks a declaratory judgment that it has no duty to defend.
State Farm argues that it owes no duty to defend the Whites because (1) the intentional injury exclusion clause of the policy applies and (2) public policy precludes a duty to defend.
Factual allegations in the pleadings and the policy language determine an insurer’s duty to defend. In considering the allegations in the petition to determine whether they fall within the provisions of the insurance policy, the Court must apply a broad interpretation to the meaning of those allegations.
Under its policy, State Farm must defend suits against the insured arising from bodily injury or property damage except for bodily injury or property damage caused intentionally by, or at the direction of, the insured. The parties agree that the White’s are insured by State Farm policies which entitle them to a defense against the Nash claims unless the exclusion clause applies. [1] State Farm’s standard homeowners’ policy provides, in relevant part:
SECTION II–LIABILITY SECTION COVERAGE D–PERSONAL LIABILITY [The Company] agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the Company shall defend any suit against the Insured alleging bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the Company may make such investigation and settlement of any claim or suit as it deems expedient.
EXCLUSIONS–Coverage D Shall not apply:
* * * * *
5. To bodily injury or property damage caused intentionally by or at the direction of the Insured….
“Bodily Injury” is defined as “bodily injury, sickness or disease, including death resulting therefrom, sustained by any person.”

State Farm argued that the language of the petition filed against the Whites triggers the intentional injury exclusion. The facts alleged in the petition are that White was Francis Keller’s long-time friend and confidant; that White knew about Daniel Keller’s abusive habits toward children; that the Whites were invited to the day care center, served alcoholic beverages, and watched Daniel Keller abuse unidentified children; and that appellees failed to report the abuse. The pleadings do not allege an intent to harm, as the factual recitations contained in the petition do not allege any intentional acts by the Whites. Instead, the Nashes have presented facts constituting and expressly accusing the Whites of negligence in failing to report the abuse; thus, the language of the petition does not trigger the intentional injury exclusion.
Even though the Whites did not know or see the Nash children, State Farm asserts that the intentional injury exclusion applies because the Whites’ omission was intentional conduct under the “substantial certainty” test. Relying on the proposition that “an insured intends to injure or harm another if he intends the consequences of his acts, or believes that they are substantially certain to follow,” State Farm argues that the Whites’ failure to report the abuse was substantially certain to cause injury to children in the day care, and therefore, falls within the intentional injury exclusion. The Texas Supreme Court has issued prior rulings that the defendant who acts in the belief or consciousness that the act is causing an appreciable risk of harm to another may be negligent, and if the risk is great the conduct may be characterized as reckless or wanton, but it is not an intentional wrong.
While the Whites’ failure to report the witnessed abuse may have placed children in an appreciable risk of harm, there is no evidence that appellees knew with substantial certainty that any children, including the Nash children, would be abused as a result of their failing to report.
Finally, State Farm contends that the claims are excluded from coverage because intent to injure may be inferred as a matter of law in sexual molestation cases. State Farm bases its position on the child molestation cases in which intent to injure has been inferred on the part of the actual molester. While this Court recognized that intent to injure can be inferred in cases involving the actual molester, here the actual molester is not the actor seeking a defense under State Farm’s policy. The Whites are not the ones who physically molested the Nash children. Rather, they were bystanders to the abuse of other children and failed to report the abuse.
Additionally, State Farm argues that intent to injure can be inferred if the character of an act is such that the degree of certainty that the conduct will cause injury is sufficiently great to justify inferring intent to injure as a matter of law. In making this argument, State Farm again attempts to convert the Whites’ omission into an act. While intent may be inferred from an affirmative act, it is difficult to infer intent from a failure to act. Furthermore, the language in the policy specifically refers to acts; it does not suggest that intent to injure can be inferred from omissions. The Whites’ omission, while troubling, cannot as a matter of law justify the inference of intent to injure under these circumstances.
This Court ruled State Farm must defend.