State Farm Fire & Casualty Co. v. Century Indemnity Co.

I. Introduction

In 1987, three former students in the alternative school program at Cubberly High School in the Palo Alto Unified School District (District) filed separate but similar actions against four teachers and the District, which, according to State Farm, were later consolidated for trial. In these actions, the plaintiffs alleged that between 1977 and 1979, Tom Derrick, one of the teachers, sexually molested them and neither he nor the other defendant teachers reported information about the molestation to proper authorities. Derrick tendered his defense to Insurance Company of North America (INA), the District’s insurer. Under the District’s policy, INA agreed to pay all sums the “Insured” became legally obligated to pay as damages because of personal injury, among other things. The policy defined “Insured” to include teachers, among others, “while acting within the scope of their duties as such.” When a demurrer based on the statute of limitations was overruled, INA declined to defend Derrick. He tendered his defense to State Farm Fire and Casualty Company (State Farm), which accepted it under his homeowners policy. INA ultimately settled the cases against…