This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Metro Ride, Inc.,



Michael Shields,


Corporate 4 Insurance Agency, Inc.,

f/k/a TRS Insurance Agency, Inc.,


Scottsdale Insurance Company,


Filed April 28, 1998

Affirmed in part, reversed in part and remanded

Schumacher, Judge

Hennepin County District Court

File No. CT964514

Gregory R. Merz, Megan L. Anderson, Gray, Plant, Mooty, Mooty & Bennett, P.A., 3400 City Center, 33 South Sixth Street, Minneapolis, MN 55402 (for appellant)

Rolf E. Sonnesyn, Tomsche, Sonnesyn & Tomsche, P.A., 888 Lumber Exchange Building, 10 South Fifth Street, Minneapolis, MN 55402 (for respondent Michael Shields)

Joseph B. Marshall, Marshall and Associates, P.A., 9501 Lexington Avenue North, Circle Pines, MN 55014 (for respondent Scottsdale Insurance Company)

Considered and decided by, Shumaker, Presiding Judge, Huspeni, Judge, and Schumacher, Judge.



In this declaratory judgment action, the district court considered the terms of a liability insurance policy and granted summary judgment in favor of the insurer and its agent, concluding that the policy did not cover claims against the insured that alleged the negligent hiring and retention of an employee who had sexually assaulted a client. We affirm the summary judgment in favor of the agent. Because the alleged negligent hiring and/or retention constituted an "occurrence" covered by the policy, and because certain endorsements to the policy were ineffective due to the fact that they were added without providing adequate notice to and/or consent by the insured, we reverse and remand. We also remand for a determination of the insured's attorney fees incurred in pursuing this declaratory judgment action.


Appellant Metro Ride, Inc. is a company that provides drivers for the elderly and disabled. Melvin Francisco worked as a driver for Metro Ride in 1990, resigned, and was re-hired in 1994. Francisco had a history of arrests and/or convictions for gross misdemeanors and felonies, including assault. The record contains evidence that after Francisco was re-hired in 1994, he was reprimanded for being unprofessional, calling clients at home, and fraternizing with clients. There is also evidence that Metro Ride changed Francisco's route in response to his behavior.

In December 1994, Francisco drove S.W. to an appointment. A week later, Francisco went to S.W.'s apartment and sexually assaulted her. Francisco was convicted of criminal sexual conduct.

S.W. sued Metro Ride, alleging breach of a duty to provide her with a safe driver. Metro Ride tendered the defense of S.W.'s lawsuit to respondent Scottsdale Insurance Company, which insured Metro Ride under a commercial general liability policy. Under the policy, Scottsdale agreed to pay sums that Metro Ride became legally obligated to pay as damages because of "bodily injury" caused by an "occurrence."

The policy excluded from coverage bodily injury that was "expected or intended from the standpoint of the insured." The policy defined "insured" as Metro Ride and its employees acting within the scope of their employment. The policy also contained a "Separation of Insureds" clause, stating that coverage would apply separately, to each insured against whom a claim or suit was brought, as if that insured were the only named insured.

Scottsdale denied coverage and refused to defend Metro Ride, arguing that S.W.'s suit did not allege an "occurrence" and that coverage was excluded pursuant to endorsements limiting coverage to Metro Ride's premises and excluding coverage for injury arising out of sexual abuse.

Metro Ride settled with S.W. and brought the present declaratory judgment action against Scottsdale and insurance agent respondent Michael Shields, whom Metro Ride claimed had failed to inform it of the endorsement excluding coverage for sexual abuse.


Summary judgment is appropriate if the pleadings and discovery indicate that no genuine issue of material fact exists and that a party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03. An appellate court is not bound by the district court's legal conclusions and may independently review questions of law. Hammer v. Investors Life Ins. Co., 511 N.W.2d 6, 8 (Minn. 1994). "Insurance coverage issues are questions of law for the court." State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn. 1992).

An insurer has a duty to defend claims that are "arguably" covered by a policy even if it is ultimately determined that there is no duty to indemnify under the policy. Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 165 (Minn. 1986); Brown v. State Auto. & Cas. Underwriters, 293 N.W.2d 822, 825 (Minn. 1980). Whether an insurer has a duty to defend is a question of law. Auto-Owners Ins. Co. v. Todd, 547 N.W.2d 696, 698 (Minn. 1996).

1. The district court concluded that because S.W.'s claims were precipitated by Francisco's intentional assault, S.W. did not arguably allege an "occurrence" requiring Scottsdale to defend or indemnify Metro Ride against any claims that arose out of that underlying assault. We disagree.

Scottsdale's policy does not contain a broad coverage exclusion for injuries "arising out of" another insured's conduct. To the contrary, the policy specifically distinguishes between the acts of each insured. Thus, while precluding coverage for Francisco's intentional acts, the Scottsdale policy provides separate coverage for Metro Ride's own negligence.

We conclude that Scottsdale had a duty to defend Metro Ride against S.W.'s allegations of negligent hiring and retention. Unlike the doctrine of negligent supervision, which is based on vicarious liability, and which relies on a connection with the employer's premises or chattels, the doctrines of negligent hiring and negligent retention are based on direct liability, and "do not rely on the scope of employment but address risks created by exposing members of the public to a potentially dangerous individual." Yunker v. Honeywell, Inc., 496 N.W.2d 419, 422 (Minn. App. 1993), review denied (Minn. Apr. 20, 1993).

Several prior decisions support our conclusion. See, e.g., Mork Clinic v. Fireman's Fund Ins. Co., ___ N.W.2d ___ (Minn. App. Mar. 17, 1998) (holding that victim of employee's sexual misconduct, who sued employer for negligent hiring/retention of employee, alleged covered "occurrence" within liability policy, absent other policy exclusions; employer's acts were separate cause of victim's injuries); D.W.H. v. Steele, 512 N.W.2d 586, 588 n. 1 (Minn. 1994) (recognizing distinction between claims against insured who allegedly committed intentional acts and claims against another insured for negligent supervision); American Nat'l Fire Ins. Co. v. Estate of Fournelle, 472 N.W.2d 292, 294 (Minn. 1991) (explaining that intent of severability clause is to provide each insured with separate and distinct coverage; existence of severability clause demands that policy exclusions be construed with reference to particular insured seeking coverage).

Scottsdale points out that Francisco's actions occurred while he was off duty and that the policy excludes coverage for acts committed outside an employee's scope of employment. Again, however, while this exclusion applies to S.W.'s claims of negligent supervision, the claims against Metro Ride for hiring and retaining Francisco must be considered separately from Francisco's own actions.

Scottsdale's policy provided coverage for Metro Ride only if the covered occurrence was "accidental." In other words, coverage is available only if Metro Ride did not expect or intend the injuries to S.W. See Board of Regents v. Royal Ins. Co., 517 N.W.2d 888, 892 (Minn. 1994) (defining "accidental" for purposes of insurance policy). To "expect" an injury, a person knows or should know that a substantial probability exists that certain consequences will result from one's actions. Sylvester Bros. Dev. Co. v. Great Cent. Ins. Co., 480 N.W.2d 368, 372 (Minn. App. 1992), review denied (Minn. Mar. 26, 1992). Whether or not Metro Ride should have "expected" Francisco's actions is a fact question. Remand is also necessary to address the question whether Metro Ride is in fact liable for the negligent hiring and/or retention, as alleged by S.W. If so, Scottsdale has a duty to indemnify Metro Ride for that negligence.

2. The Scottsdale policy issued to Metro Ride in 1993 defined "coverage territory" as including the entire United States. Scottsdale subsequently issued a "premises-only" endorsement, reducing coverage under the policy to bodily injury arising out of Metro Ride's ownership, maintenance, or use of its premises and operations necessary or incidental to those premises.[1]

Scottsdale argues that the premises-only endorsement did not substantially reduce the coverage that Metro Ride could have reasonably expected under the 1993 policy because Shields had described the 1993 policy to Metro Ride as "premises insurance" and because the 1993 policy was in fact a premises insurance policy. The plain language of the 1993 policy, however, when compared with the later endorsement, indicates that the endorsement substantially reduced coverage under the policy.

3. Scottsdale also denied any duty to defend or indemnify Metro Ride because of a policy exclusion for "sexual abuse." In a prior summary judgment order, the district court concluded that the sexual abuse exclusion did not apply. If properly challenged, the prior order would be reviewable pursuant to Minn. R. Civ. App. P. 103.04 (providing that appellate court may review any order involving merits of appeal or affecting judgment and other matter as interests of justice require). Metro Ride does not argue, however, that the court erred, nor have respondents filed a notice of review alleging error on this basis. See Minn. R. Civ. App. P. 106 (stating procedures for respondents who seek review of error). Therefore, the issue is not properly before this court.

In light of our decision, we affirm the district court's dismissal of Metro Ride's negligence claims against Shields, which alleged only that Shields had failed to properly notify Metro Ride of the sexual abuse exclusion.

4. Because Scottsdale breached its duty to defend Metro Ride against S.W.'s lawsuit, Metro Ride is entitled to recover from Scottsdale its attorney fees incurred in this declaratory judgment action, as well as those attorney fees incurred in defending against S.W.'s lawsuit. See American Standard Ins. Co. v. Le, 551 N.W.2d 923, 927 (Minn. 1996).

Affirmed in part, reversed in part and remanded.

[ ]1 Scottsdale added the premises-only endorsement to the 1993 policy after it was issued. When an insurer does not notify an insured of a change in the policy until after the policy has become effective, the changes are ineffective, absent consent by the insured. Warrick v. Graffiti, Inc., 550 N.W.2d 303, 308-09 (Minn. App. 1996), review denied (Minn. Sept. 20, 1996). If the insured has not consented to the changes, the terms of the prior policy will control if those terms are more favorable to the insured. Id. at 310 and n.3. Scottsdale does not allege that Metro Ride consented to the endorsement.