This Pig Has Some Lipstick: Defending Part of the Washington Supreme Court's Finding of a Duty to Defend a Deviant Dentist

Last week, Adam Scales had so many bad things to say about the Washington Supreme Court's July 27 insurance law decision in Woo v. Fireman's Fund Insurance, he required a two-part series of columns (appearing August 14 and August 15) to air his grievances, most of which were directed toward the Court's holding that an over-the-top practical joke fell within the scope of a malpractice policy.

In this column, I'll explain why, as a fellow insurance law expert, I find at least one part of Woo - its ruling on general liability insurance coverage - worthy of celebration.

Background: The Facts of the Woo Case

As FindLaw readers may recall, Dr. Robert Woo is not the famous physician for the lovelorn of the Steely Dan song, but rather a Seattle area oral surgeon who played an outrageous, ill-considered prank on his former assistant Tina Alberts.

Alberts had arranged to have two teeth pulled and replaced by implants, a procedure that required her to go under general anesthesia. Woo, as part of his long-running attempts to poke fun at Alberts because her family raised potbellied pigs, temporarily installed fabricated fangs in lieu of the customary temporary spacers that are used until permanent implants can be installed. While the boar-tusk-like fangs were in Albert's mouth, Woo and other employees propped open Alberts's eyes, took pictures, and then replaced the tusks with normal spacers.

Woo later thought better of his plan to tease Alberts with the photos, but other staffers gave them to her as a mock birthday present. A "stunned" Alberts subsequently assisted Woo with oral surgery, but then left the office never to return. She sued, alleging a number of claims, perhaps most prominently a claim for negligent infliction of emotional distress.

Woo had previously purchased an omnibus insurance policy providing professional liability, employment practices liability, and general liability coverages. The insurer, Fireman's Fund, refused to defend him under any of the three, confident that there was no potential for coverage and hence no duty to defend.

As Scales noted, that's a pretty high-risk strategy for an insurer. If a court later finds the duty of defense to have been breached, any reasonable settlement between policyholder and plaintiff is likely to become the responsibility of the insurer - and there is the nontrivial risk of a successful "bad faith" suit against the insurer. (A "bad faith" suit alleges, in essence, that the insurer's wrongful failure to defend the policyholder against a suit covered by the policy damaged the policyholder.)

In this case, Fireman's badly miscalculated. Left without a defense, Woo retained his own counsel and negotiated a $250,000 settlement with the former assistant who had been temporarily tusked. Woo then sued for reimbursement of the settlement and for a "bad faith" judgment.

The trial judge rejected Fireman's Fund's position that it had no duty to defend, and submitted the matter to a jury, which awarded Woo $250,000 to reimburse him for the settlement, and $750,000 in bad faith damages.

The insurer appealed, and the intermediate appellate court reversed the trial court and found in the insurer's favor. However, a divided (5-4) Washington Supreme Court disagreed: It found potential coverage and a duty to defend under the professional and general liability coverages (but not the employment practices coverage), and held in favor of Woo.

With Judges So Closely Divided on This Case, Is the Washington Supreme Court's Decision Truly So Wrong?

By the end of the Woo saga, six jurists had sided with the policyholder, while seven sided with the insurer. Even if Adam Scales's criticisms of Woo are correct, the weirdness of the case and this close judicial division suggest that we are hardly likely, in the future, to see insurance risk pools unraveled by dentists with a fascination for boar tusks.

I agree with Scales that the Washington Supreme Court's finding of coverage under the professional liability policy seems quite incorrect: Since when did practical joking become an integral part of oral surgery? The Court was probably correct, in addition, that the tusk incident was not within the scope of employment practices liability. (I say "probably" because one can never be sure without the actual policy in hand; EPL insurance is not as standardized as general liability insurance and other types of policies). One could conceivably claim sexual harassment in employment if the dentist had engaged in this sort of hazing of women employees while leaving men alone, or at least tuskless, but Alberts apparently did not make this contention.

Where Scales and I part company, however, is on the question of general liability coverage and its attendant duty to defend. Here, I believe the Washington Supreme Court was correct to reject insurer arguments that the injury to Alberts was "expected or intended" by the policyholder, or that her injuries had not arisen out of an accident or occurrence.

Was the Injury To Alberts Truly Expected or Intended By Dr. Woo?

For decades, insurers have frequently raised the "expected or intended" defense (often called the "intentional act" defense, even though that's not quite accurate) under inappropriate circumstances. Often, insurers contend that any injury resulting from volitional activity must have been intended, or that the injury was expected because any reasonable policyholder should have realized that its conduct would lead to injury.

The former contention - that all injuries from intentional acts are themselves intentional -- is simply nutty. By that rationale, no commercial activity is insurable because claims against commercial policyholders by definition arise out of business activity in which they intended to engage. The correct focus should be whether the resulting injury is actually expected or intended - not whether the activity that produced it (e.g., hauling materials, building a house, or selling a product) was intentional.

The latter contention, that a reasonable policyholder should have expected injury, is also in error. Liability insurance is designed precisely to protect policyholders from the consequences of their negligence - that is, from conduct that they engage in that is not reasonable from an objective standpoint. Consequently, any attempt to apply an objective "reasonable person" test to determining whether injury was expected or intended runs counter to the very purpose of the policy. The apt test is, instead, a subjective one: one that focuses on the policyholder's actual state of mind.

Proving Intent to Injure, While Challenging, Is Far From Impossible, and Should Be the Standard

Although insurers protest that it is difficult to prove intent to injure and invoke this exclusion to coverage, the task is not impossible. Circumstantial evidence (and sometimes even direct evidence) is often available to show subjective intent. A policyholder's highly implausible claim of innocence (e.g., "I don't know how I possibly managed to empty the gun into the plaintiff's torso") is usually not effective.

In addition, the "expected or intended" defense is based on exclusionary language in the standard general liability policy. Under the long-established ground rules of insurance policy interpretation, exclusions are strictly construed against the insurer, which bears the burden of persuasion on the issue. The reason for this rule is that the exclusion attempts to cut back from the scope of the insuring agreement, which is the core of the liability insurance contract.

Recognizing this, insurers have attempted to shift the battlefield away from the expected or intended exclusion, and focused instead on whether the injury of which plaintiff complains was due to an "occurrence" within the meaning of the insuring agreement. This argument contends that policyholder conduct leading to injury was not accidental or fortuitous and is thus not covered, irrespective of whether injury was expected or intended.

Unfortunately, some courts have taken the bait produced by this switch and denied coverage by placing too high a burden on the policyholder to demonstrate that the incident leading to injury was sufficiently accidental. Fortunately, the Washington Supreme Court's Woo majority did not make this mistake. Instead, the Woo Court correctly saw that at the duty to defend stage of litigation, the focus must be on the plaintiff's complaint, which, in this case, contained allegations of negligence creating a potential for coverage. That potential, the Court correctly held, was not negated merely because the incident could ultimately be adjudicated to be something other than an accident. The Court also correctly found that the general liability policy's "personal injury" coverage, which encompassed assault and related claims, was applicable in the absence of intend to injure.

The Bottom Line: With Facts Suggesting Woo Lacked Intent to Injure, The Policy Applied

Dr. Woo may have been tasteless and insensitive, but the context of the case strongly suggests he subjectively thought he was merely engaged in a great practical joke that went awry. Moreover the "practical joke" interpretation of Woo's intent was implicitly taken by a jury of presumably reasonable people who heard the facts, found that he was covered by the policy, and awarded him a large sum of money.

It can't be disputed, at a minimum, that Woo at least thought he was funny and that pig jokes were a scream. From that, it would have been only a small step to concluding that his infliction of injury upon Alberts was "accidental" and not the product of a conscious effort to injure.

The jury's view may be unsurprising in light of the apparent prevalence of sometimes sharp-edged kidding and horseplay in some workplaces. For example, the Delaware Supreme Court in its July 9 decision in Grabowski v. Mangler, a case testing the boundaries of the scope of work, found that under apt facts even some very rough "horseplay" (i.e., duct-taping a co-worker from shoulder to ankles) could be considered part of the job. The Court's test for determining whether horseplay was inside or outside the scope of employment involved the extent to which horseplay was an accepted part of the job, and the extent to which the nature of the work was expected to include at least some horseplay.

The Washington Supreme Court's Ruling Was Proper

Under these circumstances, the Court of Appeals and the Washington Supreme Court's dissenters must be seen as judicial activists favoring the insurer and attempting to substitute their views of the incident for the jury's adjudication.

To be sure, Dr. Woo is not a particularly sympathetic figure - but neither is Fireman's Fund. Scales bemoans the $ 1 million paid to Woo, but one-fourth of that amount is the simple reimbursement of what Woo paid to get rid of the Alberts suit - a suit that should have been handled by Fireman's Fund.

Moreover, while Scales is right that $750,000 is a large bad faith award, it may have been apt under these facts. The Alberts claim and the ensuing coverage/bad faith litigation is not the kind of publicity a dentist normally seeks. If Fireman's Fund had jumped quickly into the breach, Dr. Woo would not today be on his way to becoming a symbol of Dentists Gone Wild. The Alberts settlement of $250,000, although not outrageous in light of the facts, nonetheless seems high. Prompt and aggressive defense by the insurer might well have resulted in a significantly lower settlement payment. Had Fireman's Fund done the right thing right away, and defended the case, perhaps as much as $900,000 could have been saved, taking into account both the settlement and bad-faith verdict representing damages to Dr. Woo from Fireman's failure to defend. Scales thus is too tolerant of the insurer's own role in the arguable social waste caused by the entire Alberts/Woo/Fireman's Fund litigation.

Most important is that the Woo majority adhered to the right approach to general liability questions of accidentalness and fortuity, even in the face of an unsympathetic policyholder. Because liability insurance exists to protect people and organizations from occasional forays into negligence or even stupidity, the law must continue to resist insurers' efforts to avoid defending claims brought against policyholders whom the insurer regards as foolish or undeserving.

Remember, Dr. Woo paid premiums to Fireman's Fund, and in return was promised litigation insurance and protection against his mistakes. A moment of thoughtless insensitivity on Dr. Woo's part should not destroy that promise. If general liability insurance did not cover policyholder negligence, but only intentional misconduct, then it would be a far less important product, commanding far lower premiums.

Erotica impresario Larry Flynt once famously remarked "If the First Amendment will protect a scumbag like me, then it will protect all of you." In the same fashion, the apt approach to liability insurance may on occasion result in arguable windfalls to a few foolish policyholders. Still, this is a comparatively small price to pay for requiring insurers to honor their contract and fiduciary obligation to policyholders who make mistakes (even stupid mistakes) that engender claims.