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In a significant ruling, a California state appeals court affirmed that Continental Casualty Co. had no obligation to defend the owner and manager of a massage spa against sexual assault allegations under the terms of its commercial insurance policy. The court’s decision, handed down on Tuesday, interpreted the meaning of the phrase "care, custody or control" within the abuse exclusion, a first-of-its-kind interpretation in the state.

The appeal stemmed from claims filed by three women—Toiah Gordon, Morganne Mersadie Root, and Karina Carrero—who alleged that the spa owner, Zongwei Shen, sexually assaulted them during separate massage sessions. The plaintiffs sought coverage for a $6.8 million covenant judgment stemming from an arbitration settlement with Shen and his wife, Zhong Xin, who managed the spa.

In its ruling, a three-judge panel in the Second Appellate District rejected the claimants’ argument that Shen needed to have "exclusive or complete" control over them for the abuse exclusion to apply. The court found that Shen was responsible for the well-being of the plaintiffs during the massage sessions, thereby meeting the threshold for "care, custody or control."

Justice Gail Ruderman Feuer, writing for the panel, explained that the facts in the complaint indicated Shen held Gordon down with his body weight and pressure during the session, which placed her under his control. The court noted that the underlying case did not involve any other individuals in the room during the alleged incidents.

The plaintiffs also argued that the abuse exclusion should not apply to their negligent training claims against Shen and Xin. However, the court disagreed, concluding that negligent training is merely a variant of negligent supervision, and thus the exclusion would still apply.

As a result, the court affirmed summary judgment for Continental, ruling that the insurer had no duty to defend Shen or Xin, and consequently, no duty to cover the $6.8 million arbitration award.

The insurance dispute centers around a commercial policy issued by Continental Casualty Co. to Shen, doing business as Nobles Massage Spa, covering the period from October 2015 to October 2016. The abuse exclusion under the policy bars coverage for bodily injuries resulting from "actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured."

The plaintiffs filed their lawsuit in June 2019, alleging that Shen assaulted them between July 2016 and May 2018. Although Shen was convicted of false imprisonment in connection with Root's claims, he was acquitted regarding other allegations. By May 2021, a nearly $6.8 million arbitration award was confirmed against Shen and Xin, leading to the insurance coverage dispute.

This decision, which was influenced by similar rulings from other jurisdictions, marks a pivotal interpretation of insurance exclusions in California. The court cited cases like Valley Forge Insurance Co. v. Field (1st Cir. 2012) and Holiday Hospitality Franchising Inc. v. AMCO Insurance Co. (Indiana 2013) as guiding precedents.

Representing the Gordon plaintiffs are Christina M. Coleman and Michael Lee Cohen, while Continental Casualty Co. is defended by Steven M. Crane and Barbara S. Hodous of Berkes Crane Santana & Spangler LLP.

The case is Toiah Gordon et al. v. Continental Casualty Co., case number B329455, in the Court of Appeal of the State of California, Second Appellate District.