Standard insurance policies exclude coverage for sexual misconduct. As an example, with respect to sexual molestations, the sexual misconduct may not constitute an accident triggering coverage under the insuring clause of the policy. See Steven Plitt and Jordan R. Plitt, Practical Tools for Handling Insurance Cases, § 5:2 (Thomson Reuters 2011 and 2013 cumulative supplement). Additionally, insurance policies usually contain various potentially applicable exclusions including a variety of possible sexual misconduct exclusions (Practical Tools, § 5:8), sexual contact exclusions (Practical Tools, § 5:10), assault and battery exclusions (Practical Tools, § 5:11), criminal act exclusions (Practical Tools, § 5:12), violation of law exclusions (Practical Tools, § 5:13), and illegal act exclusions (Practical Tools, § 5:14).
Recently, the Indiana Supreme Court considered the application of a sexual molestation exclusion in the hospitality context. In Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574 (Ind. 2013), the Court held that a child who was staying at a hotel was in the “care” of the insured hotel for purposes of a sexual molestation exclusion which excluded coverage for molestations of any person in the “care, custody or control” of the hotel. The case involved a minor child who was a guest in a motel when an employee entered the locked guest room and molested the victim. The insurance policy contained a common and standard version of a sexual molestation exclusion. Under the exclusion, coverage was disclaimed for acts of molestation or abuse, by excluding any bodily injury arising from “[t]he actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of the insured.”
The Indiana Supreme Court began its analysis of the exclusion by noting that the parties did not argue that the language of the exclusion was ambiguous because the policy terms were undefined in the policy. The insurer argued that the victim was in the “care” of the motel at the time of the molestation because the molestation took place in one of the motel’s rooms while the victim was a guest at the motel. As a guest, the victim was therefore a business invitee and the motel owed a particular duty of care to the business invitee while the victim was at the premises of the motel. The Indiana Court of Appeals had rejected this argument concluding that being a business invitee was “not the same as being ‘in the care, custody or control’ of [the motel].” See Holiday Hospitality Franchising, Inc. v. AMCO Ins. Co., 955 N.E.2d 827, 835 (Ind. App. 2011). The Indiana Court of Appeals also concluded that a motel’s duty of care with respect to its guests “governs the responsibility given it to reasonably protect business invitees and to keep the business property in a reasonably safe condition.” However, the Court found that “[b]eing in the care, custody, or control of someone, … requires more than a mere business invitee status. In the context of a hotel, it would require something additional, such as a minor being supervised by hotel employees.” Id. The Indiana Supreme Court reversed the Court of Appeals.
Relying upon dictionary definitions, the Indiana Supreme Court found that the victim was in the “care” of the motel and therefore the molestation exclusion applied. The Supreme Court noted that Webster’s II New College Dictionary defined “care” in this context as “[t]he function of watching, guarding, or overseeing.” Holiday Hospitality¸ 983 N.E.2d 574, 579 (2013) citing Webster’s II New College Dictionary 168 (1995). Webster’s defined “custody” as “[t]he act or right of guarding, esp. such a right granted by a court.” Id. at 280. The term “control” meant “[t]o exercise authority or influence over” or “[t]o hold in restraint.” Id. at 246. Relying upon Black’s Law Dictionary, the definition of “care” was “[u]nder the law of negligence or of obligations, the conduct demanded of a person in a given situation,” Black’s Law Dictionary 240 (9th ed. 2009), defined “custody” as “[t]he care and control of a thing or person for inspection, preservation, or security,” Id. at 441, and “control” as “[t]o exercise power or influence over.” Id. at 378. The Court found these to be reasonable definitions of the terms used in the exclusion. Next, the Indiana Supreme Court observed that the policy listed the three terms—care, custody or control—in the disjunctive, thereby not requiring all three to be satisfied for coverage to be excluded.
Turning to the factual record, the Supreme Court stated that it was apparent from the facts that the victim was not in the “custody” of the motel. The Court felt that it could reasonably imagine that the victim was, to some extent, under the “control” of the motel, i.e. the motel probably had the power to exercise some authority or power over the victim if, for example, the victim smoked a cigarette in a non-smoking room, or made loud noises that disturbed neighboring guests; however, the record did not contain any such guest policies or rules and therefore the Court could only purely speculate as to whether there was “control.” The Court found the facts were sufficient to demonstrate, as a matter of law, that the victim was in the “care” of the motel at the time the molestation occurred. The facts were undisputed that the victim was molested by the employee while the victim was a guest at the motel, staying in a room rented to the mother of the victim’s friend. The facts were also undisputed that the victim was in the guest room, behind a door locked by an electronic key provided by the motel, when the employee entered and molested the victim. Given the guest status of the victim, the motel owed him a duty of care by law.
In a special concurring opinion, Chief Justice Dickson noted that the proper understanding of “care” was determined by the well-established Indiana law that a motel guest was considered a business invitee and was therefore entitled a duty of reasonable care by the motel. The concurrence noted that “care” existed as a matter of law under Indiana law based upon the business invitee status of the guest.
The Indiana Supreme Court’s Holiday Hospitality Franchising case demonstrates the importance of the sexual molestation exclusion being written in the disjunctive whereby the exclusion was applicable whenever “care,” or “custody,” or “control” could be proven by the record. In order to establish control, hotel rules and regulations should be introduced into the record to allow the Court to go beyond mere speculation on the “control” issue. However, the fact that most hospitality accommodations involve hotels/motels with automatically locking doors, the Court could have found “control” to be present absent evidence that a guest had wedged the door open preventing the door from closing and automatically locking. In the latter situation, the fact that a hotel guest overrides the automated nature of the door lock, should not defeat the hotel’s “control” since it was the hotel’s intention that the door would spring closed and automatically lock.
The Indiana Supreme Court’s Holiday Hospitality Franchising case demonstrates that the main argument to be made for the application of this type of sexual molestation exclusion was through the portal of the business invitee status of the guest. Because all guests would qualify as a business invitee, under the analysis of the Court, where the exclusion is written in the disjunctive, there simply would be no coverage for sexual molestation involving hotel guests.