American Family Mutual Insurance Co. vs. Eastman

(Iowa Court of Appeals, April 28, 2005)

—Ruling: Expected/ intended harm exclusion bars coverage for sexual abuse claims; no coverage for innocent insured under severability clause.

Insurer brought declaratory judgment action seeking declaration that it had no duty to defend and indemnify insured, a daycare worker, in underlying suits commenced against her for her son’s sexual abuse of children. The insured procured a homeowners’ policy with a home day care endorsement that defined “insured” as the defendant and any relatives residing in her household.

The insurer disclaimed coverage based on three exclusions in the contract: abuse, intentional injury and violation of law. The court held that the insured’s son constituted an “insured” for purposes of the policy and that claims related to his abuse were excluded under the intentional injury and violation of law exclusions.

In a matter of first impression in Iowa, the court held that the policy’s severability clause did not make the mother’s coverage severable from her son’s and therefore did not trump the exclusions in the policy. As such, the court granted summary judgment in favor of the insurer.