The New Tort of Negligent Supervision

By Arnold Anderson

Editor's Note: To view Wisconsin statutory materials referenced in this article you must have and/or install Adobe Acrobat Reader 3.0 on your computer.

In Miller v. Wal-Mart Stores Inc.,¹ decided June 24, 1998, the Wisconsin Supreme Court established the tort of negligent supervision in Wisconsin. On the same day Miller was filed, the Wisconsin Supreme Court also handed down Doyle v. Engelke,² which held the insurance company had an obligation to defend the allegation of negligent supervision.

Miller and Doyle establish the elements of the tort of negligent supervision and its application to a liability insurance company's duty to defend. However, much work remains before all the ramifications of these two decisions will be known. This article outlines considerations surrounding negligent supervision claims and what happens when insurance questions are raised in the same case.

Theories of employer liability

With the Miller decision, there now are at least three ways in which an employer can be held liable for the acts of employees: 1) negligent supervision; 2) respondeat superior; and 3) an employer who "knew or should have known" of the employee's tortious conduct.

Recent court decisions establishing the tort of negligent supervision will impact employer liability and insurance coverage. This article outlines considerations surrounding negligent supervision claims and what happens when insurance questions are raised in the same case.

Negligent supervision. In Miller, Wal-Mart employees stopped Miller, accused him of stealing a swimsuit, and also created a ruckus in the store's parking lot. No swimsuit was found on Miller. Miller filed an action against Wal-Mart Stores Inc. alleging that the employees unlawfully stopped, detained, searched, and interrogated him, which caused damages. The jury found that Wal-Mart was not liable, through the acts of its employees, for false imprisonment, battery, negligent infliction of emotional distress, and loss of consortium claimed by Miller's spouse. However, the jury found that Wal-Mart was negligent in hiring, training, and supervising its employees and that this negligence was a cause of damage to Miller. The jury also found that Wal-Mart did not have reasonable cause to believe the Miller carried away or concealed unpurchased merchandise, and awarded $20,000 compensatory and $30,000 punitive damages. The trial court entered judgment on the verdict and the court of appeals certified the case to the Wisconsin Supreme Court. The issue was whether the employer had a duty of care with regard to hiring, training, and supervising employees. Miller held there was such a duty.

For the duty to apply, first it must be foreseeable that employees entrusted with specific duties and authority be properly trained and that the failure to do so could result in harm to patrons. Second, if the employer fails to properly hire, train, or supervise employees, it breaches its duty to others. Third, there must be a causal connection between the conduct and the injury. Two questions are necessary to establish causation: Was the employee's wrongful act a cause in fact of the plaintiff's injury? Was the employer's negligence a cause in fact of the employee's wrongful act?

The jury in Miller found the employees were not liable for false imprisonment, battery, or negligent infliction of emotional distress and loss of consortium. However, the jury found Wal-Mart negligent in hiring, training, and supervising the employees and that this negligence was a cause of damage to Miller. Wal-Mart argued that if negligent hiring, training, and supervision was a tort, it should include an element that an underlying tort be committed by the employee. Since the employees in Miller were found to be not liable, then strictly speaking, there was no underlying tort committed by the employees. All of the cases discussing negligent supervision cited in Restatement (2d) of Agency, section 213 (1957), involved employees who had committed a tort or actionable conduct against the plaintiff. Miller sidestepped that issue. Miller did not require an underlying tort: It simply held that a wrongful act is required and the wrongful act need not be a tort. There was a wrongful act by the Wal-Mart employees, which was the basis for the tort of negligent supervision claim. In this fashion, Miller navigated around the fact that the jury exonerated the employees of any tort.

The case was remanded to determine whether the elements of the tort of negligent hiring, training, and supervision outlined in Miller could be met. There was no remand with regard to the damage issues, and that portion of the verdict was affirmed. Wal-Mart also had invoked section 943.50(3) of the Wisconsin Statutes, which immunizes a merchant from civil and criminal liability if the merchant "acts in good faith and any act authorized under this section is immune from civil or criminal liability for those acts." The jury determined that Wal-Mart did not have reasonable cause to believe that Miller had shoplifted, and that part of the verdict was affirmed. Miller also noted that, in an appropriate case, if a merchant is liable for negligent hiring, training, or supervision, the merchant nevertheless may be immune from liability if the merchant meets the elements ofsection 943.50(3).

Respondeat superior. Miller outlined the necessary elements of negligent supervision. In addition to the tort established in Miller, the principles of agency law also may apply to an employer. Agency law imposes vicarious liability on an employer if an employee is acting within the scope of employment. Thus, in addition to tort law, principles of agency law may impose liability on an employer.

"Therefore, a claim for negligent supervision is distinct from a claim for vicarious liability, in that the former is based on tort principles and the latter is based on agency principles. More specifically, with a vicarious liability claim, an employer is alleged to be vicariously liable for a negligent act or omission committed by its employee in the scope of employment. See Shannon v. City of Milwaukee, 94 Wis. 2d 364, 370, 289 N.W.2d 564 (1980)."³

The liability of an employer for the acts of a servant within the scope of employment has been around for more than 100 years:

"In such a case, where the wrongful act of the servant, though wilful, is strictly within the scope of his employment, it is unnecessary that the master should be at the same time sanctioned nor subsequently ratified of the unlawful act, in order to be held liable for mere compensatory damages ... this is upon the theory that what one does by his servant acting within the scope of his employment and for his benefit is the same, in legal effect, as though done by himself."⁴

Arsand v. City of Franklin⁵reiterated that when respondeat superior applies, the master must pay for the torts of the servant. Agency law will "let the master answer."⁶

The difference in applying respondeat superior and negligent supervision is best illustrated by a hypothetical. Assume the plaintiff was a bar patron and was disturbing patrons by being loud and obnoxious. The bartender-enforcer (employee) got sick of the plaintiff's antics and slammed the plaintiff up against the wall and slapped the plaintiff across the face three or four times causing injury. If the bar owner had instructed the bartender-employee that the bar has a "get tough" policy with loud and obnoxious patrons, and the only way to handle them is to slap them around, then the employee probably was acting within the scope of employment. Vicarious liability (respondeat superior) would attach and the owner is liable. Assume further, however, that the bartender's conduct was so outrageous as to not be considered within the scope of employment. With the new tort of negligent supervision, the employer-owner of the bar still may be found liable for negligent hiring (didn't check to find out if the bartender had done this before); negligent training (hadn't told the bartender not to slap people around); or negligent supervision (turned the bartender loose without any monitoring).

"Knew or should have known" standard. L.L.N. v. Clauder involved negligent supervision of priests. L.L.N. also set out a standard of care for negligent supervision, which appears to be a separate basis upon which liability of an employer can be based:

"Therefore, an employer is liable for negligent supervision only if it knew or should have known that its employee would subject a third party to an unreasonable risk of harm."⁷

This is a third avenue of liability against an employer. The "knew or should have known" standard probably is harder to establish in most cases than the tort outlined in Miller. However, there may be circumstances where the plaintiff will want to apply the "knew or should have known" standard, particularly if the level of culpability is important and punitive damages are being sought. The "knew or should have known" standard also may be relevant to insurance coverage issues.

In the hypothetical concerning the bartender (employee) and the bar owner (employer), if the incident with the plaintiff was the second or third time the bartender had slapped someone around, the court or jury probably could find that the facts come within the "knew or should have known" standard, and liability would be imposed on the employer without the necessity of establishing negligent hiring, training, or supervision.

Verdict form. Litigants in Wisconsin now have at least three theories of recovery against an employer when dealing with employee conduct: 1) the tort of negligent supervision; 2) respondeat superior, that is, the employee acting within the scope of employment when the damage was inflicted; and 3) the employer "knew or should have known" that the employee would subject a third party to an unreasonable risk of harm.⁸

The basic verdict questions concerning negligent supervision follow:

1) Did the employer have a duty to properly hire or train or supervise the employee? If so,

2) Did the employer breach that duty? If so,

3) Was the employee's wrongful act a cause in fact of the plaintiff's damages? If so,

4) Was the employer's negligence a cause in fact of the employee's wrongful act?

5) What amount of money will fairly and reasonably compensate the plaintiff for damages sustained as a result of the employee's (or employer's) conduct?

The doctrine of respondeat superior could add another question to the verdict:

6) Was the employee, at the time of his or her conduct, acting within the scope of his or her employment?

If the answer is yes, there may be no need to go into issues of negligent hiring, training, and supervision. The conduct of the employee within the scope of employment is conduct of the employer.

Finally, if applicable, the jury also may be asked if the employer "knew or should have known" the employee would cause harm or injury.⁹

Insurance coverage

In Doyle v. Engelke, ¹⁰ a claim for negligent supervision in the complaint was sufficient to trigger the duty to defend. This case arose out of an anti-abortion demonstration. One of the defendants, Ward Engelke, had allegedly accused the plaintiff, Catherine Doyle, of cursing at and kicking at his daughter in the face while his daughter was praying outside of a clinic. Engelke's claims had been covered in the print media and by a radio station owned by defendant Wisconsin Voice of Christian Youth Inc. (WVCY). The complaint also alleged that two WVCY employees filed a false security agreement with the Secretary of State encumbering the Doyle's assets and also served a false subpoena at Doyle's residence. The insurance policy at issue in the appeal was a commercial general liability policy issued to WVCY.

Numerous causes of action were alleged against WVCY and its employees. By the time the case reached the Wisconsin Supreme Court, the only claims for insurance coverage were a slander of title claim and negligent supervision. Doyle held the slander of title claim was not covered; hence, all the underlying conduct alleged in the complaint was excluded by the insurance policy. This left the negligent supervision claim against the employer, and this allegation triggered the insurer's duty to defend.

The trial court and the Wisconsin Court of Appeals had both held that the insurance company had no obligation to defend in Doyle. Both courts stated that the intentional acts of employees acting within their scope of employment were intentional acts of the employer. This brought the employer within the intentional acts exclusion. The Wisconsin Supreme Court did not deal directly with the respondeat superiorissue, but stated:

"We disagree with the form of the analysis offered by the Court of Appeals. It is significant in this case that the coverage disputed by the parties is not St. Paul's obligation to defend WVCY employees individually for their intentional acts against Doyle. Rather, the coverage we are addressing is WVCY's individual coverage as a protected person under the policy."¹¹

In footnote, the supreme court noted the vicarious liability argument of the insurance company:

"Moreover, St. Paul's objection to responsibility to defend WVCY against the negligent supervision claim on vicarious liability grounds fails to recognize that it is not a claim for vicarious liability. While negligent supervision does require an underlying wrong to be committed by the employee as an element, the tort actually focuses on the tortious, i.e., negligent, conduct of the employer." ¹²

There was no further analysis of respondeat superior theory nor was there any discussion of cases where the employer-insured "knew or should have known" of the employee's conduct.¹³ There also was no mention of cases such as Bankert v. Threshermens Mutual Insurance Co. ¹⁴ Bankert held there was no obligation to defend an insured for negligent supervision of children that culminated in damages caused exclusively by the use of an automobile that was excluded by the policy.

Keep in mind that Doyle was a duty to defend case, and the complaint was construed in favor of the insured.Doyle gave the allegation of negligent supervision its narrowest meaning because this was most favorable to the insured.

Checklist of issues

Since the Doyle approach was narrow, there remain issues that will have to be considered when litigating an employer's conduct and matching that conduct to an insurance policy to see if there is a duty to indemnify, as opposed to a duty to defend. This section discusses some of those questions.

Was the employee acting within the scope of employment? If an employee's conduct that gives rise to damages is within the scope of employment, respondeat superior should apply. The conduct of such an employee becomes the act of the employer. ¹⁵ For example, the employee's intentional acts will also be the employer's intentional acts and excluded by an insurance policy's intentional acts exclusion. The insured employer will be acting intentionally due to respondeat superior; thus, there should be no coverage for the employer.

How is the exclusion worded? Several exclusions in insurance policies may apply to an employee and employer relationship. The court and counsel will need to focus upon the exact wording of the exclusion. An exclusion may apply to "the insured" or "an insured," or "any insured." If the exclusion is worded to include "any" insured, it is much easier for a court to find that the excluded conduct of an employee also precludes coverage for an insured-employer. Doyle looked at the insurance policy's wording that excluded intentional acts committed by acts "intended by the protected person." Doyle was analyzing coverage for the protected person - the employer. Western National Insurance Co. v. Nemitz ¹⁶ found the term "an insured" in an exclusion to be ambiguous, and therefore the exclusion did not apply to parents. In contrast to Doyle and Nemitz , see Taryn v. Joshua M.C. , ¹⁷ which found that an exclusion covering acts of "any insured" precluded coverage for the parents as well as the child who committed the act causing damages.

Did the insured-employer know about the conduct? Doyle and Miller did not discuss the basis for negligent supervision applied in L.L.N. While a plaintiff and insured-defendant may not want to add another question to the verdict form, an insurer may want to establish that the employer "knew or should have known" that the employee would subject a third party to an unreasonable risk of harm. At least two cases have held that the status of an insured-supervisor may preclude coverage if that insured "knew or should have known" of the improper conduct. In Jessica M.F. v. Liberty Mutual Fire Ins. Co. ¹⁸ the intentional act exclusion precluded homeowner insurance coverage for a grandmother who knew or should have known of her husband's sexual abuse of their grandchildren. In Carney v. Village of Darien ¹⁹ a police officer's conduct should have been expected or intended from the standpoint of village officials. The complaint alleged the officials were aware and had notice of prior incidents and had reason to anticipate such conduct. The allegations that village officials were aware of numerous complaints against the officer were sufficient to bring the village officials (supervisors) within the intentional act exclusion.

Are damages solely a result of excluded conduct? Bankert held that an insurance provision that excludes the act of the wrongdoer also operates to exclude the coverage for an insured's negligent supervision or control of the wrongdoer.²⁰ When an insurance company writes an exclusion in a liability policy, it generally directs the exclusion at a risk, not a person's status.²¹

Doyle was a duty to defend case that left open the question of whether the obligation to indemnify (versus duty of defense) will apply when all of the damages flow from the excluded conduct of an employee. If all damages arise out of the excluded acts of an employee, subsequent cases will have to determine whether theBankert rationale applies to preclude insurance coverage for negligent supervision of the employee.

Arnold Anderson, Marquette 1969, is the author of the recently publishedWisconsin Insurance Law, 4th Ed., corporate counsel with Wisconsin Reinsurance Corporation, and a member of the firm of Mohr & Anderson S.C., Madison.

Can damages be separated? If there is a single act by an employee, it may be relatively easy to attribute all of the employee's conduct to an employer's negligent hiring, training, or supervising of the employee. But what if there are multiple acts? In addition, what if a jury were to find that the employee may have committed the wrongful acts even if the employer had not been negligent? And what of instances where damages in a negligent supervision case are not solely a result of the employee's conduct?

It may be difficult for a jury to distinguish between damages caused by an employee (not covered) and damages arising out of negligent supervision (covered). In Valley Bancorporation v. Auto Owners Insurance Company ²² the insurance company had the burden of establishing which damages were not covered by insurance. The failure of the insurance company to clarify that issue precluded its ability to limit recovery against it.

What does this burden of proof mean for insurance companies when there is a negligent supervision claim? An insurance company will have to become involved in the case and try to separate damages that are covered from those that are not. In most cases insured-defendants will be reluctant to add damage questions to a verdict when those questions ask a jury to specify damages that flow from conduct of the employee versus employer. On the other hand, an insurance company probably is not going to be able to separate covered and uncovered damages without additional questions in the verdict. There also may be cases where a jury cannot distinguish between covered and uncovered damages. In that event, the insurance company may have to pay all of the damages flowing from both covered and uncovered conduct. ²³

Conclusion

The recent Wisconsin Supreme Court decisions in Miller and Doyle establish the elements of the tort of negligent supervision and its application to a liability insurance company's duty to defend. In order to satisfy insurance coverage, careful employers should provide and document employee training, and provide adequate supervision. Still, much work remains before all the ramifications of these decisions can be known.

Endnotes

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¹ Miller v. Wal-Mart Stores Inc., No. 96-2529 (Wis. June 24, 1998).

² Doyle v. Engelke, No. 96-0680 (Wis. June 24, 1998).

³ L.L.N. v. Clauder, 209 Wis. 2d 674, 698-99, n.21, 674 N.W.2d 434 (1997).

⁴ Bryan v. Adler, 97 Wis. 124, 127, 72 N.W. 368 (1897).

⁵ Arsand v. City of Franklin, 83 Wis. 2d 40, 264 N.W.2d 579 (1978).

⁶ Id. at 45, 264 N.W.2d 579.

⁷ L.L.N. at 699, 674 N.W.2d 434.

⁸ Id.

⁹Id.

¹⁰ Doyle v. Engelke, No. 96-0680 (Wis. June 24, 1998).

¹¹Id. at slip op. 12-13.

¹²Id. at slip op. n.6.

¹³L.L.N., 209 Wis. 2d 674, 698-99, n.21, 674 N.W.2d 434.

¹⁴Bankert v. Threshermens Mut. Ins. Co., 110 Wis. 2d 469, 329 N.W.2d 150 (1983).

¹⁵Bryan v. Adler, 97 Wis. 124, 72 N.W. 368 (1897), Arsand v. City of Franklin, 83 Wis. 2d 40, 264 N.W.2d 579 (1978).

¹⁶Western Nat'l Ins. Co. v. Nemitz, 135 Wis. 2d 245, 400 N.W.2d 33 (Ct. App. 1986).

¹⁷Taryn v. Joshua M.C., 178 Wis. 2d 719, 505 N.W.2d 418 (Ct. App. 1993).

¹⁸Jessica M.F. v. Liberty Mut. Ins. Co., 209 Wis. 2d 42, 561 N.W.2d 787 (Ct. App. 1997).

¹⁹Carney v. Village of Darien, 60 F.3d 1273 (7th Cir. 1995)(applying Wisconsin law). See also § 5.20 "Intentional Acts: Sexual Assaults" and § 5.53 (Fortuity, Known Loss and Loss In Progress," Anderson, Wisconsin Insurance Law, 4th Ed. (1998).

²⁰Bankert, 110 Wis. 2d 469, 329 N.W.2d 150 (1983). See also, Taryn N. v. Economy Fire & Cas. Ins. Co., 197 Wis. 2d 77, 540 N.W.2d 26 (Ct. App. 1995).

²¹See, Sprangers v. Greatway Ins. Co., 182 Wis. 2d 521, 514 N.W.2d 1 (1994), and cases cited therein.

²²Valley Bancorporation v. Auto Owners Ins. Co., 212 Wis. 2d 609, 569 N.W.2d 345 (Ct. App. 1997).

²³Id.

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