In a significant legal development, the California Court of Appeal has upheld a decision regarding an insurance policy dispute involving allegations of sexual misconduct at a massage spa. The case was brought forward by Toiah Gordon and others against Continental Casualty Company, filed in the Superior Court of Los Angeles County on December 3, 2024. The plaintiffs accused Continental of breaching its duty to defend the spa owner and manager under their commercial liability insurance policy.
The roots of this case trace back to 2015 when Zongwei Shen, owner of Nobles Massage Spa, secured a commercial insurance policy from Continental Casualty Company. This policy included coverage for bodily injury but explicitly excluded incidents arising from abuse or molestation. In June 2019, plaintiffs Toiah Gordon, Morganne Mersadie Root, and Karina Carrero alleged that Shen sexually assaulted them during massage sessions. Following these accusations, Shen and his wife Zhong Xin faced a lawsuit which culminated in a $6.8 million judgment against them after they admitted liability. Subsequently, they assigned their rights against Continental to the plaintiffs in exchange for protection from execution on the judgment.
The plaintiffs argued that Continental breached its contractual obligations by refusing to defend Shen and Xin under the terms of their insurance policy. They contended that the exclusion clause related to "care, custody or control" did not apply as Shen did not have exclusive control over them during the alleged incidents. However, both state and federal courts have previously interpreted similar exclusions broadly to include negligent training claims within such exclusions.
Continental maintained that their refusal was justified under subsections (a) and (b) of the abuse or molestation exclusion in their policy. Subsection (a) excluded coverage for injuries arising out of abuse while someone was in the care or control of an insured party; subsection (b) excluded injuries arising from negligent employment or supervision linked to such abuse.
The court sided with Continental's interpretation, affirming that the exclusion applied due to Shen's responsibility for client safety during massages and Xin’s alleged negligence in supervising him. The ruling emphasized that even though “training” was not specifically mentioned in subsection (b), it fell under negligent employment practices.
The plaintiffs sought economic damages and punitive damages under Civil Code section 3294 but were unsuccessful as the court found no breach of contract or bad faith by Continental. As such, there was no basis for recovery on their judgment against Continental under Insurance Code section 11580.
This ruling underscores the complexities involved in interpreting insurance policies concerning allegations of misconduct and highlights how courts may interpret exclusions broadly when determining an insurer's duty to defend.
Representing the plaintiffs were Christina M. Coleman and Michael L. Cohen from Law Offices of Christina M. Coleman; Steven M. Crane and Barbara S. Hodous from Berkes Crane Santana & Spangler represented Continental Casualty Company. The case was presided over by Judge Robert S. Draper with Case ID B329455.