[00:00:01] Speaker 00:
We'll go on to the next case on the oral argument calendar, please.

[00:00:04] Speaker 00:
Evanston Insurance Company versus Footprints Behavioral Interventions 23-55706.

[00:00:48] Speaker 00:
Good morning.

[00:00:49] Speaker 02:
Good morning, Your Honors.

[00:00:50] Speaker 02:
May it please the Court?

[00:00:51] Speaker 02:
My name is Soran Weerasuriya and I represent the appellant footprints.

[00:00:55] Speaker 02:
Your Honors, I would like to focus the Court on the central issue in this appeal and a few facts that are very pertinent to that.

[00:01:02] Speaker 02:
What facts did footprints the insurer have at its disposal that would lead it to believe that claims against itself were likely?

[00:01:09] Speaker 02:
And this question requires a two-part inquiry because we have drug liability claims and we have vicarious liability claims.

[00:01:16] Speaker 02:
As to direct liability, the question must be what facts did Footprints learn that led it to believe we did something wrong here or we failed to act in a wrongful fashion that would cause someone else's harm.

[00:01:27] Speaker 02:
Now, Evanston as the insurer had the burden at the underlying case to present admissible, indisputable facts showing that Footprints had such knowledge.

[00:01:36] Speaker 02:
Evanston attempted to do as much.

[00:01:39] Speaker 02:
Footprints believes Evanston failed, but the district court agreed.

[00:01:42] Speaker 01:
So I'm going to focus on- At the time that Footprints fills out the insurance application.

[00:01:49] Speaker 01:
Kim had already been convicted, and they knew that.

[00:01:53] Speaker 02:
That is correct, Your Honor.

[00:01:55] Speaker 01:
And nonetheless, they answer no to question seven, which is, are you aware of any circumstances which may result in a malpractice claim or suit being brought against you or any of your employees?

[00:02:09] Speaker 01:
They know there's been a conviction of one of its employees for having molested a client, raped a client, and they say no.

[00:02:18] Speaker 01:
How can that be a truthful answer?

[00:02:21] Speaker 02:
It's a truthful answer because from a direct liability claim, Your Honor, there's no evidence that footprints

[00:02:25] Speaker 02:
knew about this behavior before it happened, that Footprints failed to act to stop the behavior.

[00:02:30] Speaker 00:
Well, wait, wait, wait.

[00:02:31] Speaker 00:
So claims made policy, as you know, of course.

[00:02:33] Speaker 00:
And so to go back to Judge Fletcher's question, first of all, she had been convicted.

[00:02:40] Speaker 00:
And I think three of Footprints employees testified against her at the trial.

[00:02:43] Speaker 02:
Your honor is that right they did testify your honor.

[00:02:46] Speaker 00:
However, they didn't testify I can't did you say did or did not they did testify?

[00:02:50] Speaker 02:
Okay, correct They did however, they did not testify about her criminal acts they testified about footprints as policies and procedures relating to When an employee must report to footprints that this sort of behavior is happening Did anybody who testified at the criminal trial serve in a supervisory position?

[00:03:09] Speaker 02:
Not that I'm aware of your honor.

[00:03:10] Speaker 02:
No

[00:03:11] Speaker 00:
Okay, so back to ... I think you were ... I didn't mean to divert you.

[00:03:15] Speaker 00:
They answered, as Judge Fletcher's just inquired.

[00:03:18] Speaker 02:
Yes.

[00:03:19] Speaker 00:
And you think they answered truthfully, that they did not have a reason to anticipate that a claim was going to be made, a malpractice claim was going to be made against them?

[00:03:26] Speaker 02:
Correct, Your Honors, because a reasonable insurance footprint's position has to consider the facts in the law.

[00:03:31] Speaker 02:
The facts don't show that footprints was aware of anything that footprints did wrong

[00:03:35] Speaker 02:
in the course of this happening.

[00:03:36] Speaker 02:
Four Prince wasn't aware of this until the teacher at the eleventh hour came and told them this.

[00:03:40] Speaker 01:
But the question is not, are you going to be liable?

[00:03:44] Speaker 01:
The question is, are you going to be sued?

[00:03:46] Speaker 01:
Well, sure.

[00:03:47] Speaker 02:
It's the same analysis, Your Honor.

[00:03:48] Speaker 02:
It's not the same analysis.

[00:03:49] Speaker 00:
The insurer was asking, any reason you think you might be sued?

[00:03:53] Speaker 00:
He answered, no.

[00:03:55] Speaker 00:
And one of their employees had been convicted.

[00:03:57] Speaker 02:
Your Honor, but that's the problem here.

[00:03:59] Speaker 02:
We're focusing on the criminal conviction of an employee, and what about a criminal conviction would lead for Princeton to believe that it would get sued?

[00:04:07] Speaker 02:
That claims are likely.

[00:04:08] Speaker 01:
We have to look at the... I'm going to tell you what you already know, but I'm saying it this way because I want you to answer.

[00:04:13] Speaker 01:
Yes, it's a criminal conviction of employee for something the employee did during the course of employment.

[00:04:19] Speaker 01:
This is not he went out and was burgling houses in his spare time.

[00:04:24] Speaker 02:
Well, Your Honor, under Oregon law, it wasn't during the scoping course of employment.

[00:04:27] Speaker 02:
That's the exact problem.

[00:04:28] Speaker 02:
There's a three-part analysis that you have to use to determine whether something was during the scoping course of employment.

[00:04:33] Speaker 00:
At least two factors are not met.

[00:04:34] Speaker 00:
Counsel, you're going to the merits.

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You're going to the merits, and that's what Judge Fletcher just reminded you of.

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It's not a question of any reason you think you're going to be found liable, any reason you think somebody's going to sue you and prevail.

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The question is just simply, do you have any reason to think you're going to be

[00:04:48] Speaker 00:
I'm paraphrasing, of course.

[00:04:49] Speaker 00:
But do you have any reason to think you're going to be sued?

[00:04:51] Speaker 02:
Well, Your Honor, the standard isn't any reason.

[00:04:54] Speaker 02:
It says, is a claim likely?

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Likelihood requires the utmost certainty.

[00:04:58] Speaker 00:
Likelihood?

[00:04:59] Speaker 00:
What?

[00:04:59] Speaker 02:
Likelihood requires the utmost certainty.

[00:05:01] Speaker 02:
The language of the policy is, well, there's two things at play here.

[00:05:04] Speaker 02:
Do you think you may be sued for malpractice?

[00:05:06] Speaker 02:
And two, under the policy language, are claims likely.

[00:05:10] Speaker 00:
Both of those require- This was an allegation that in the course of this patient-therapist relationship, this individual sexually assaulted a minor.

[00:05:20] Speaker 02:
Correct, Your Honor, but the focus is not on the pleadings.

[00:05:22] Speaker 02:
The focus needs to be on what it footprints as the insured no at the time it renewed the application.

[00:05:27] Speaker 02:
Okay, what did they know at the time?

[00:05:29] Speaker 02:
A former employee secretly raped and did these horrible acts to this minor.

[00:05:34] Speaker 02:
That's all footprints knew.

[00:05:36] Speaker 02:
Those facts would not lead a reasonable insurer.

[00:05:37] Speaker 00:
Well, they also knew that that minor was a patient.

[00:05:40] Speaker 02:
Understood.

[00:05:40] Speaker 00:
And she had access vis-a-vis this therapist-patient relationship, right?

[00:05:46] Speaker 00:
They knew that, surely.

[00:05:47] Speaker 02:
However, they did not know that the teacher

[00:05:50] Speaker 02:
Or the therapist, I should say, secretly went ahead and was alone with this minor, that the therapist was touching this minor.

[00:05:58] Speaker 02:
None of those are permitted by footprints as protocols.

[00:06:00] Speaker 02:
In fact, all of that's prohibited.

[00:06:02] Speaker 02:
A parent must always be present.

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And what this therapist did was well above and beyond her job duties.

[00:06:08] Speaker 01:
It sounds like it might be a good defense at trial.

[00:06:11] Speaker 01:
But it doesn't tell me that there's not likely to be a lawsuit.

[00:06:16] Speaker 03:
Let me back up a little bit.

[00:06:18] Speaker 03:
It seems like the key issue here, and it's really important to your case, is I think you have a strong argument that there's not necessarily a basis, a legal basis for a successful lawsuit against your client, or at least that there would be a—and all you really need is that there would be a factual dispute as to that, right, if that is the standard.

[00:06:45] Speaker 03:
that somebody would have a legitimate basis to bring a lawsuit.

[00:06:49] Speaker 03:
But we live in a litigious society, and I think what you're hearing from the bench is all of our intuition, and not just probably for lawyers, that if something like this happens, even if legally there's no basis for somebody to be sued,

[00:07:06] Speaker 03:
that they're probably going to get sued, right?

[00:07:08] Speaker 03:
Because if nothing else, hell marry.

[00:07:11] Speaker 03:
Maybe they'll find a way.

[00:07:13] Speaker 03:
So what do we do with that?

[00:07:15] Speaker 03:
That's my struggle in this case.

[00:07:16] Speaker 03:
And so for you to just keep pounding the table and saying, there was no legal basis, doesn't really help me, and I don't know about my colleagues, but with that, what do we do with the fact that even if, I agree with you, that there was no legal basis or at least there's a possible factual dispute as to whether your client could have believed there was no legal basis.

[00:07:35] Speaker 03:
Seems like a reasonable person would have thought, yeah, we're probably going to get sued.

[00:07:38] Speaker 03:
The good news is we're probably going to win that lawsuit, but we're probably going to get sued.

[00:07:42] Speaker 03:
What do you do with that in question number seven, which says, are you aware of any circumstances that may result in a malpractice claim or suit being made or brought against you?

[00:07:52] Speaker 02:
Well, respectfully, Your Honors, I believe what you described there is really more of a subjective standard that's being applied.

[00:07:57] Speaker 02:
whereas it is an objective standard.

[00:07:59] Speaker 02:
Why would a reasonable insured automatically believe that, hey, anytime anything wrong happens?

[00:08:04] Speaker 03:
That's the best argument you have for your position, I think, which is if the standard is just like whether you think you might be sued regardless of the merit of the lawsuits, that turns this thing into sort of a hair trigger, right?

[00:08:17] Speaker 03:
Like that anytime, especially if we live in a litigious society, which we do.

[00:08:22] Speaker 03:
So I think that's your best argument.

[00:08:24] Speaker 03:
But the problem is it doesn't say, are you aware of any circumstances that may result in a legitimate or a meritorious or possibly a meritorious claim.

[00:08:33] Speaker 03:
It just says a claim.

[00:08:35] Speaker 03:
And so that's the struggle.

[00:08:36] Speaker 03:
My apologies, Your Honor.

[00:08:37] Speaker 02:
It actually says malpractice claim.

[00:08:39] Speaker 02:
So it's very narrow.

[00:08:40] Speaker 02:
We're talking about professional negligence.

[00:08:43] Speaker 02:
So once again, sure, in the realm of possibility, would an insurer think that, yeah, we might get sued based on how society is sure?

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But what facts there would lead the reasonable insurer to say,

[00:08:53] Speaker 02:
we have not exercised our professional duty of care.

[00:08:56] Speaker 02:
And one has to look at the law, Your Honors, because without looking at the law, a reasonable insurer has no guidance as to how to contemplate the likelihood of claims, Your Honors.

[00:09:05] Speaker 02:
You can't just look at the facts in a vacuum.

[00:09:07] Speaker 02:
It depends on jurisdiction for one thing.

[00:09:09] Speaker 02:
I mean, where you are, the claims that

[00:09:12] Speaker 02:
could be triggered, that's all dependent on what the facts and the law says.

[00:09:15] Speaker 01:
And that's why one must contemplate.

[00:09:16] Speaker 01:
You know, you just said that malpractice, which is the word here in the policy question, is narrow.

[00:09:27] Speaker 01:
And I would actually, I wondered about that question.

[00:09:31] Speaker 01:
And with that question in mind, I read your brief.

[00:09:34] Speaker 01:
You made no argument in your brief that malpractice is a narrow word.

[00:09:38] Speaker 01:
And therefore, this is not within the scope.

[00:09:41] Speaker 02:
Your honor, I didn't say the malpractice itself is a narrow word, but I said that the question is limited to malpractice claims and that the facts essentially don't show a wrongdoing by footprints that it would lead it to believe we have made mistakes that would likely result in malpractice claims against us.

[00:09:57] Speaker 02:
That argument was indeed in the moving papers as well as the reply.

[00:10:02] Speaker 02:
And again, if we don't go to an objective standard where one must contemplate the law,

[00:10:05] Speaker 02:
your honor, then it's a matter of, well, let's say a parent sees a therapist raising a voice at a child and the child uncontrollably screams for the next hour.

[00:10:15] Speaker 02:
Now, should footprints now report that?

[00:10:17] Speaker 02:
in renewing the application because now you have a distraught child and now a claim might be possible?

[00:10:21] Speaker 01:
Well, I think I'm telling you something you already know.

[00:10:25] Speaker 01:
The reason the insurance company is asking you these questions is trying to figure out, OK, what's the risk that the insurance is going to have to pay out either to defend or maybe pay out on a successful claim?

[00:10:35] Speaker 01:
And if you answer yes, I think the insurance company comes back and says, oh, well, tell me about it.

[00:10:41] Speaker 01:
And once you've told him about it, the insurance company is able to assess the risk.

[00:10:45] Speaker 01:
The insurance company is saying, you just didn't give me a clue so that I couldn't figure out, okay, what kind of a lawsuit is it that might be coming down the pike?

[00:10:52] Speaker 01:
And you just, you said, nope, no lawsuit coming.

[00:10:56] Speaker 02:
And I do want to point the court to something really important about this question, which the district court found was that the question and the use of the term employee in that question referred to only current employees.

[00:11:07] Speaker 02:
I bring that up now because that is a secondarily important point.

[00:11:11] Speaker 02:
Evanston did not challenge that determination, which means for the district court, at least the question was limited to then existing employees.

[00:11:19] Speaker 02:
That's a second layer of confusion for footprints.

[00:11:21] Speaker 02:
Again, who is the insurer?

[00:11:22] Speaker 00:
But it's not, because the question asks whether you have reason to think it's likely that you or your employees are going to be sued.

[00:11:28] Speaker 00:
So footprints.

[00:11:29] Speaker 00:
OK, sure.

[00:11:30] Speaker 00:
As a supervisor, in a supervisory capacity, as the employer.

[00:11:33] Speaker 00:
Right.

[00:11:33] Speaker 00:
It's good to be sued.

[00:11:34] Speaker 02:
And again, we get back to that point, Your Honor.

[00:11:37] Speaker 02:
The fact of heinous crimes, no one doubts that these are heinous crimes.

[00:11:40] Speaker 02:
They were terrible.

[00:11:41] Speaker 02:
It's awful what happened.

[00:11:42] Speaker 02:
But that does not lead, that should not lead a reasonable insured to believe.

[00:11:45] Speaker 02:
it's going to get sued.

[00:11:46] Speaker 02:
And to say that evidence and the footprint should have disclosed this, again, it puts this insurmountable burden.

[00:11:53] Speaker 02:
Again, every time something goes wrong now, footprints must report that in the course of renewing the application.

[00:11:57] Speaker 00:
It's just not that extreme.

[00:11:59] Speaker 00:
It's just not that extreme.

[00:12:01] Speaker 00:
We're not suggesting every time something goes wrong, it has to be reported.

[00:12:04] Speaker 00:
This is a pretty extreme example.

[00:12:06] Speaker 00:
A criminal trial had been had.

[00:12:09] Speaker 00:
It did involve

[00:12:10] Speaker 00:
this therapist-patient relationship, one of their therapists, one of their patients, and three of their employees testified at that trial.

[00:12:17] Speaker 00:
It's pretty extreme.

[00:12:18] Speaker 02:
But again, Your Honor, those employees did not testify that they saw any of the wrongdoing.

[00:12:21] Speaker 02:
They testified about policies and procedures.

[00:12:24] Speaker 02:
And where does the law say that the extreme nature or the nature of the underlying allegations, again, in a vacuum, must lead someone to believe that they're likely to be sued for malpractice?

[00:12:34] Speaker 02:
I think the Court's focusing on the serious but true nature of what happened.

[00:12:37] Speaker 00:
And again, what makes it that much more likely they're going to be sued, especially because a minor was involved.

[00:12:42] Speaker 00:
And I think we're just beating a dead horse, but I do want to respond to your rhetorical question.

[00:12:47] Speaker 02:
OK.

[00:12:48] Speaker 02:
And well, lastly, I'm going to go ahead and reserve the time then.

[00:12:52] Speaker 00:
Sure.

[00:12:52] Speaker 02:
Thank you.

[00:12:52] Speaker 00:
You bet.

[00:12:54] Speaker 00:
We'll hear from opposing counsel.

[00:12:55] Speaker 00:
Thank you, Your Honor.

[00:13:03] Speaker 04:
Good morning, Your Honors.

[00:13:04] Speaker 04:
My name is Michael Perlis.

[00:13:06] Speaker 04:
I have the honor of representing Evanston.

[00:13:09] Speaker 04:
And may it please the court.

[00:13:11] Speaker 04:
There are two things I'd like to address.

[00:13:12] Speaker 04:
First, this issue of the substantive law.

[00:13:17] Speaker 04:
The problem with counsel's argument is that there's an Oregon Supreme Court case decided in 1999, the Fearing case.

[00:13:25] Speaker 04:
And it involved a priest and a child.

[00:13:29] Speaker 04:
where, because of the priest's capacity in the church, he had access to the child and, over time, began to make sexual advances to the child.

[00:13:38] Speaker 04:
The Oregon Supreme Court in 1999 had no difficulty allowing, as a matter of law, the church to be held liable on a respondeat superior basis on the theory that no employer generally authorizes an employee to engage in these kinds of acts.

[00:13:55] Speaker 04:
They're done by the employee and, in this case, by the priest within the scope of his employment.

[00:14:00] Speaker 04:
Just as here, the complaint alleged that Ms.

[00:14:06] Speaker 04:
Kim acted within the scope of her employment.

[00:14:09] Speaker 03:
Yeah.

[00:14:10] Speaker 03:
I'm not sure if hearing helps you that much because of the procedural posture it was in.

[00:14:15] Speaker 03:
is that the Oregon Supreme Court basically just said that one plausible inference was that the priest was acting within the scope of his employment, but didn't decide that it necessarily was, and then sent it back for a, presumably for a jury to figure that out, right?

[00:14:33] Speaker 04:
Is that, am I correctly— First of all, am I correctly— But the courts sustained the concept of liability.

[00:14:38] Speaker 03:
all right so you're saying it could be liable correct but and so it is my description correct of what that was going on at the yes organ and so if one plausible inference that could be done I think in some ways your opposing counsel is making his job a little bit harder because his whole thing is to just try to get this to go to a jury right like you know not to get past this and so

[00:15:00] Speaker 03:
Why doesn't fearing help him in that if a plausible inference is that you could have liability, then a plausible inference could be that the priest might not be liable, right?

[00:15:12] Speaker 03:
And so subjectively, why would he necessarily have to think that they would have malpractice liability here?

[00:15:21] Speaker 04:
Because counsel's argument basically is it's impossible under Oregon law, under these circumstances, for there to have been liability on the part of footprints.

[00:15:31] Speaker 04:
with the Oregon Supreme Court said it's not impossible at all.

[00:15:34] Speaker 03:
But if one reasonable inference on the fact that's a factual determination and

[00:15:40] Speaker 03:
you know, based on what they're saying they knew of the facts, which is that their position is what we knew is that this person had done these things that were way outside of her scope of employment, whereas the priest was, you know, could have been different.

[00:15:58] Speaker 03:
And so we drew the inference from that that we couldn't be liable for malpractice, for malpractice.

[00:16:05] Speaker 04:
I have two comments to that, Your Honor.

[00:16:08] Speaker 04:
that the facts in each case are not dissimilar.

[00:16:12] Speaker 04:
You have a priest and a child where there's a relationship and trust and confidence built up between them based upon the priest's position with the church.

[00:16:21] Speaker 04:
No one is suggesting that the church authorizes it.

[00:16:24] Speaker 03:
I understand where you're going with that.

[00:16:26] Speaker 03:
At the end of the day, if this went to a jury to determine, as opposed to, then a jury would be determining whether or not

[00:16:37] Speaker 03:
they knew certain facts that would have put them on notice so they should have put you on notice, right?

[00:16:42] Speaker 03:
And that's what a jury would be determining.

[00:16:46] Speaker 04:
Well, we can step back on that issue because, excuse me, back in 2017, Ms.

[00:16:52] Speaker 04:
Kim went to her supervisors and said, KB has been sexually assaulting me, molesting me.

[00:17:00] Speaker 04:
And the footprints organization filed a form required by the state, and that form

[00:17:07] Speaker 04:
said that the victim, in fact, was KB, not Ms.

[00:17:11] Speaker 04:
Kim.

[00:17:12] Speaker 04:
There was a referral to the police.

[00:17:14] Speaker 03:
This is all, a lot of this is disputed as to exactly what is the form said.

[00:17:20] Speaker 03:
These are all, you're presenting all this as if they're given facts, but a lot of this is disputed factually.

[00:17:26] Speaker 04:
Two of it isn't, Your Honor.

[00:17:27] Speaker 04:
It is not disputed that they referred it to the police, and it is not disputed that they referred it to the licensing authorities, and I doubt a 13-year-old autistic child has any kind of license.

[00:17:37] Speaker 04:
so they were clearly referring it with respect to Ms.

[00:17:40] Speaker 04:
Kim.

[00:17:40] Speaker 04:
The issue is who the victim was.

[00:17:43] Speaker 04:
The form makes clear.

[00:17:44] Speaker 03:
Do you agree that they're disputing that why they were referring?

[00:17:47] Speaker 03:
I mean, I've read the briefing in this case.

[00:17:50] Speaker 03:
I mean, my understanding is they are disputing now and were disputing at District Court as to what all of this meant.

[00:17:56] Speaker 03:
Like, they're referring it to the police, it seems like, if whether or not

[00:18:00] Speaker 03:
you have an employee who's doing something inappropriate, or you have a client who's doing something inappropriate to your employee, it makes sense to me that you would refer that to police.

[00:18:09] Speaker 03:
You would agree with that?

[00:18:10] Speaker 04:
I would refer to the police.

[00:18:11] Speaker 04:
Either way.

[00:18:12] Speaker 04:
Because the likelihood the police are going to charge a 13-year-old autistic boy is about zero.

[00:18:19] Speaker 03:
So I guess, you know, you're relying, you're trying to rely on certain precise facts that seem to me, many of them, if not all of them, are disputed.

[00:18:28] Speaker 03:
as making it clear that they had to know that they would actually be liable.

[00:18:35] Speaker 03:
Because I think you probably saw from, you know, the bench's concern, as best I can read it, and, you know, I guess I can only speak for myself, is actually seems a little bit different.

[00:18:46] Speaker 03:
And it's not that, like, these specific facts necessarily mean that footprints could be liable.

[00:18:51] Speaker 03:
What it is is that it's just that, like,

[00:18:54] Speaker 03:
Yeah, footprints is probably going to get sued, whether or not they could actually be held liable.

[00:19:00] Speaker 03:
I feel like both sides are not really talking to our specific concern.

[00:19:05] Speaker 04:
That's the second point, Your Honor.

[00:19:08] Speaker 04:
They don't have to be found liable.

[00:19:10] Speaker 04:
All they have to be is sued.

[00:19:11] Speaker 04:
That's all the question said.

[00:19:13] Speaker 00:
Well, they have to be sued for malpractice.

[00:19:15] Speaker 00:
There is that.

[00:19:16] Speaker 00:
Speaking for myself, that's the strongest argument they've got.

[00:19:21] Speaker 00:
The question asked about malpractice is not a negligent tort.

[00:19:24] Speaker 00:
It's an intentional tort.

[00:19:25] Speaker 00:
So what's your response to that?

[00:19:26] Speaker 04:
The policy doesn't require it be a malpractice suit.

[00:19:29] Speaker 04:
The application says malpractice.

[00:19:30] Speaker 00:
That's what I'm talking about, sir.

[00:19:32] Speaker 00:
The policy says... I'm not talking about the policy.

[00:19:34] Speaker 00:
I'm talking about the application.

[00:19:35] Speaker 00:
That's what you're relying on.

[00:19:37] Speaker 04:
The application says malpractice suit.

[00:19:38] Speaker 04:
Correct.

[00:19:39] Speaker 00:
So what's the answer to that question?

[00:19:41] Speaker 00:
The answer to that is there is a second threshold.

[00:19:43] Speaker 00:
Can I just finish?

[00:19:44] Speaker 00:
My understanding to make sure we... Because I think we're miscommunicating.

[00:19:48] Speaker 00:
My understanding, paraphrase, is that their argument is this question, this application asks us if it was likely that we're going to be—we or our employees are going to be sued for malpractice, and we answered no, and that's truthful because this isn't malpractice, it's criminal conduct.

[00:20:00] Speaker 00:
That's my paraphrase, but could you respond to that?

[00:20:02] Speaker 04:
Yes, because the issue is if there's a failure to supervise, which is one of the allegations, that's malpractice.

[00:20:09] Speaker 04:
You have failed to discharge your responsibilities to supervise your employee in her care of this child, and that is malpractice.

[00:20:20] Speaker 00:
I asked if any of the folks who testified at the criminal trial were supervisors.

[00:20:24] Speaker 00:
He said no.

[00:20:25] Speaker 00:
Do you have any?

[00:20:25] Speaker 04:
I believe one of them was.

[00:20:26] Speaker 01:
There were four.

[00:20:30] Speaker 00:
Four witnesses, not three.

[00:20:33] Speaker 00:
And she was terminated, I think, immediately.

[00:20:35] Speaker 00:
Isn't that right?

[00:20:35] Speaker 04:
That's right, for failure to follow proper procedure.

[00:20:38] Speaker 00:
Presumably by a supervisor.

[00:20:42] Speaker 03:
That's the struggle.

[00:20:44] Speaker 03:
I think in some ways the more egregious, and we all think that what she did was very egregious, and the more egregious it was what she was doing, in some ways that cuts against your argument because it sort of starts to feel really way outside the scope of her employment and the kind of thing that you couldn't have seen coming.

[00:21:08] Speaker 03:
So I don't know.

[00:21:10] Speaker 03:
So your response to the malpractice point is that, no, you can have malpractice for not having appropriate supervision, and that makes sense.

[00:21:18] Speaker 03:
And their response to that is, yeah, but that's a, we 100% thought that we had supervised appropriately, that we had supervised appropriately, and we knew we had, because we're the ones that are, we know what we did, right?

[00:21:33] Speaker 03:
And so we knew we had supervised appropriately, so we did not think that there would be a claim for that, to which I think your response would be,

[00:21:40] Speaker 03:
kind of what you heard from the bench earlier, which is, come on, this is somebody who went to jail, and it was really bad.

[00:21:45] Speaker 03:
So you're going to get sued for that, even if it's not.

[00:21:47] Speaker 03:
So I think we end up back in the place of, does it matter?

[00:21:53] Speaker 03:
I'd be interested to hear your view on, does it matter whether or not there would be this whole question of whether there's any meritorious claims out there, or is it just one of these things where you just know you're going to get sued?

[00:22:07] Speaker 03:
And so we don't care about whether or not

[00:22:10] Speaker 03:
There's this whole dispute that there seems to be between you both as to whether or not there could be meritorious claims for supervision.

[00:22:18] Speaker 04:
In a claims-made policy with a duty to defend, one has an obligation to pay reasonable defense costs.

[00:22:25] Speaker 04:
Therefore, one of the paramount concerns of an insurer is, are they going to get sued and am I going to have the responsibility to spend

[00:22:32] Speaker 04:
in some of these suits, not necessarily this one, tens of millions of dollars in defense costs.

[00:22:38] Speaker 04:
Sometimes defense costs exhaust the limits of the policy.

[00:22:42] Speaker 04:
And so therefore, we're very keen to understand whether or not it is likely that a claim would be made.

[00:22:48] Speaker 04:
Now, the policy itself has a provision.

[00:22:51] Speaker 04:
It's a threshold provision.

[00:22:54] Speaker 04:
It's a precondition that doesn't even relate to

[00:22:58] Speaker 04:
uh... malpractice claims it's any claim and not only is it any claim it's an objective standard it's not what they thought it's what a reasonable person would think

[00:23:07] Speaker 04:
And that ties into the .

[00:23:09] Speaker 04:
.

[00:23:10] Speaker 04:
.

[00:23:11] Speaker 03:
So you both used the word objective, but I think you're using it differently.

[00:23:13] Speaker 03:
They use objective as in like, does it have any objective legal merit?

[00:23:17] Speaker 03:
But you're using objective, I think, just so I understand, that would a reasonable person think, not them, but would a reasonable person think you're going to be sued even if this claim had no legal merit?

[00:23:32] Speaker 03:
Do I understand your use of it?

[00:23:33] Speaker 04:
That's the one we just talked about under the policy.

[00:23:36] Speaker 04:
Under the application, it's whether they thought.

[00:23:39] Speaker 04:
It's a subjective standard with respect to the question of whether they thought they might be sued.

[00:23:44] Speaker 04:
And I think one thing that's pretty helpful in terms of case law is the decision of the district court in the Central District of California, Western World Insurance, which this court affirmed in an unpublished opinion.

[00:23:56] Speaker 04:
In Western World Insurance, there was a question of an FBI investigation.

[00:24:01] Speaker 03:
Make sure I understand.

[00:24:03] Speaker 03:
This is actually pretty important.

[00:24:05] Speaker 03:
So you're saying their answer to question number seven is a subjective standard.

[00:24:10] Speaker 03:
I understand subjective in the sense of their awareness of circumstances, but then the question of the awareness of any circumstance, which may result in a malpractice claim.

[00:24:17] Speaker 03:
May.

[00:24:19] Speaker 03:
It seems to me that that part

[00:24:24] Speaker 03:
You're saying that that's subjective, because I think that kind of hurts your position.

[00:24:28] Speaker 03:
If this whole thing is subjective, then it sounds awful like that should go to a jury to decide their dispute that they were aware of any such circumstances, whereas I thought your position was, or at least in part, that like, come on, there's going to be some claim brought here.

[00:24:43] Speaker 04:
Well, that's what the district court said in the case I was just referring to, which this court affirmed in an unpublished decision.

[00:24:50] Speaker 04:
There was an FBI investigation of the organization.

[00:24:54] Speaker 04:
The FBI investigation was closed.

[00:24:56] Speaker 04:
Sometime later, the FBI acted.

[00:25:01] Speaker 04:
And the answer to the question in the application was the same as here, nothing.

[00:25:08] Speaker 04:
The district court said, come on.

[00:25:11] Speaker 04:
No one can believe that after the FBI has been looking around, you're not going to get sued.

[00:25:19] Speaker 04:
And this court affirmed it again in an unpublished decision.

[00:25:22] Speaker 04:
And I think that's pretty close to what's happened here.

[00:25:25] Speaker 04:
We didn't hear from the family for two years, and therefore we assumed nothing was going to happen.

[00:25:30] Speaker 04:
But the difference is that at the end of April,

[00:25:34] Speaker 04:
of 2019, they became aware of the conviction.

[00:25:38] Speaker 04:
And they became aware of the conviction through, according to their lawyer, reading newspapers.

[00:25:44] Speaker 04:
Among those newspapers was an article that said, and they've retained counsel.

[00:25:49] Speaker 04:
And then about a month later, they signed the application saying, we're not aware of anything.

[00:25:59] Speaker 04:
The policy provision is an objective provision.

[00:26:02] Speaker 04:
It says, based on the information you do.

[00:26:04] Speaker 03:
The policy, what I think of as the prior knowledge clause, is that what you're talking about?

[00:26:09] Speaker 03:
Yeah, that's correct.

[00:26:10] Speaker 03:
So you're saying the prior knowledge clause is objective because it says, may lead a reasonable person.

[00:26:14] Speaker 03:
Correct.

[00:26:14] Speaker 03:
In the insurance position.

[00:26:15] Speaker 04:
And so the question is, and this really goes along to the unpublished Ninth Circuit decision I referred to in the district court provision.

[00:26:24] Speaker 04:
Knowing what they know, and it's pretty undisputed, although they attempt to dodge when they knew about the conviction.

[00:26:30] Speaker 04:
And there's some inconsistency in their statements, but it's undisputed based upon the representations of their counsel.

[00:26:37] Speaker 04:
Based upon all the things they knew,

[00:26:40] Speaker 04:
Are you seriously going to suggest that a reasonable person wouldn't anticipate the likelihood that somebody was going to sue him?

[00:26:49] Speaker 04:
Because suing Ms.

[00:26:50] Speaker 04:
Kim would be a waste of time, since Ms.

[00:26:54] Speaker 04:
Kim was going to prison for I don't know how many years, and Footprints and its insurance company, arguably, were the people who could respond to a judgment.

[00:27:05] Speaker 04:
Whether there was one or whether there wasn't one, the insurance company was going to be on the hook for tens, hundreds, millions of dollars, hundreds of thousands.

[00:27:14] Speaker 04:
You don't know.

[00:27:16] Speaker 04:
I see this day in and day out, what in terms of defense costs there are, even if the insured ultimately prevails.

[00:27:23] Speaker 04:
There's a story attributed to Nicholas Katzenbach when he was general counsel of IBM in the IBM antitrust case.

[00:27:31] Speaker 04:
And they said, how much did it cost to defend it?

[00:27:33] Speaker 04:
And he said, I gave my lawyers an unlimited budget, and they exceeded it.

[00:27:37] Speaker 04:
And that's the way insurance companies look at defense costs.

[00:27:40] Speaker 04:
So we needed to know these things, either because they believed it or because a reasonable person would have believed it, given the facts that everyone knows.

[00:27:49] Speaker 04:
They knew there was a conviction for horrible acts

[00:27:54] Speaker 04:
and they knew it a month before they signed off on that application.

[00:27:59] Speaker 04:
Thank you, Your Honor.

[00:28:00] Speaker 04:
Anybody have any questions?

[00:28:01] Speaker 04:
I'm happy to respond.

[00:28:02] Speaker 00:
I don't think there are any additional questions.

[00:28:04] Speaker 00:
Thank you for your advocacy.

[00:28:05] Speaker 00:
We'll hear from the public.

[00:28:06] Speaker 00:
Thank you, Your Honor.

[00:28:06] Speaker 00:
Thank you.

[00:28:18] Speaker 02:
Your Honors, I want to address Mr. Perlis's comments.

[00:28:21] Speaker 02:
and a comment the court made.

[00:28:24] Speaker 02:
There are factual disputes throughout the record.

[00:28:28] Speaker 02:
In fact, the material facts, all of them are disputed.

[00:28:31] Speaker 02:
The district court did not acknowledge that in its ruling.

[00:28:33] Speaker 02:
However, that alone warrants denial of the summary judge in motion because

[00:28:37] Speaker 02:
the district court should not be able to make a credibility determination.

[00:28:41] Speaker 02:
Who's more correct about what Fort Prince knew or should have known?

[00:28:44] Speaker 01:
There are some things that are undisputed.

[00:28:46] Speaker 01:
There was a criminal conviction, and your client knew about the criminal conviction when it answered no to question 70.

[00:28:56] Speaker 01:
Am I right that there's no dispute in terms of what I just said?

[00:28:59] Speaker 02:
That is correct, Your Honor.

[00:28:59] Speaker 02:
Fort Prince was aware of that.

[00:29:02] Speaker 02:
what a party's, it's not about what footprints just knew, it's about how those facts would lead footprints to believe that claims were likely.

[00:29:09] Speaker 02:
And the jury is the one who has to determine, hey, would this put these folks on alert that they were likely to be sued?

[00:29:15] Speaker 02:
Number one is that.

[00:29:17] Speaker 02:
Number two is, you know, Evanston didn't really discuss the fact that there's an issue of indemnity and defense.

[00:29:24] Speaker 02:
The prior knowledge clause and the sexual acts clauses that Evanston relied on to disclaim coverage

[00:29:29] Speaker 02:
They're tied into the duty to understand.

[00:29:31] Speaker 03:
It's like I'm very aware of what you're talking about But that issue only relates to the prior knowledge right that doesn't come into play if if 7c Knocks out your knocks out your yes 70 that that is correct your honor and For your best argument on 7c is yes, we knew about a criminal conviction but a criminal conviction does not necessarily tell us that we would be liable for a malpractice claim are we gonna be huge sure but that we would be liable for a malpractice claim and

[00:29:59] Speaker 03:
And their response is, you're a supervisor.

[00:30:01] Speaker 03:
And your response is, yeah, the worse the thing—the worse the conduct was, the more it seems like it's the kind of thing that—that's your seven argument.

[00:30:12] Speaker 03:
And then when you get in the prior knowledge, your argument—

[00:30:14] Speaker 03:
Your backup argument is that they still have a duty to defend, even if the prior knowledge knocks out coverage for the claim.

[00:30:21] Speaker 02:
Correct, Your Honor, and I'll only add one fact to that, which is I want to remind the court that this renewal application was also answered nearly two years after they were first alerted to Ms.

[00:30:31] Speaker 02:
Kim's allegations.

[00:30:32] Speaker 02:
In essence, now two years have passed by, nothing has happened to footprints in that time, Your Honors.

[00:30:38] Speaker 02:
reaffirming of what they already knew, which is this individual is accused of crimes.

[00:30:43] Speaker 01:
She's ultimately convicted of crimes.

[00:30:44] Speaker 01:
Two years earlier, but not at all two years earlier, was the conviction.

[00:30:49] Speaker 01:
The convictions in March 2019, they answered the question in June 2019.

[00:30:54] Speaker 02:
Correct, Your Honors, but the point is that you have an act of allegations, you have a charge, and you have a conviction, but nothing changes about the facts relating to footprints and its negligent omissions or acts.

[00:31:04] Speaker 01:
But the conviction turns what might or might not have been a lawsuit into, my view, an extreme likelihood of a lawsuit.

[00:31:11] Speaker 01:
As soon as you get that conviction, the lawsuit just looms on the horizon.

[00:31:15] Speaker 01:
Any lawyer knows that.

[00:31:17] Speaker 02:
But this is all about what footprints should have ascertained or anticipated.

[00:31:20] Speaker 02:
It goes into its frame of mind, which is naturally a question of fact for jury honors.

[00:31:24] Speaker 02:
Thank you for your time.

[00:31:26] Speaker 00:
Thank you all for your advocacy.

[00:31:27] Speaker 00:
We'll take that case under advisement and go on to the next case.

[00:31:29] Speaker 02:
Can we be excused, Your Honor?

[00:31:30] Speaker 00:
Yes.

[00:31:31] Speaker 00:
Thank you.