Affirming the district court, the Second Circuit agreed that the excess insurer had a duty to indemnify the insured for sexual abuse claims. Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co., 905 F.3d 84 (2nd Cir. 2018).
The Archdiocese had excess policies from Interstate between September 1, 1978 and September 1, 1983. The Archdiocese had underlying policies with Lloyds and Centennial Insurance Company. Interstate provided the second layer of excess coverage, following form to Lloyds' policies.
Beginning in 2008, Interstate received notice from the Archdiocese that four underlying ciaimants had sent demand letters seeking damages for sexual abuse by priests. The Archdiocese settled with the four victims and asked Interstate for reimbursement of portions of the settlement amounts. When Interstate refused, the Archdiocese filed suit, claiming breach of contract and breach of the covenant of good faith and fair dealing.
Interstate moved for summary judgment based on an assault and battery exclusion, while the Archdiocese moved for summary judgment on breach of contract. After a trial, the district court found that Interstate breached its contract to indemnify, but did not violate the covenant of good faith and fair dealing. Cross appeals followed.
Interstate contended that because the priests who committed the molestation were assureds under the policy, there was no coverage for the Archdiocese under the assault and battery exclusion. The exclusion stated coverage did not apply "to liability of any Assured for assault and battery committed by or at the direction of such Assured . . ." The term "Assured" included the Archdiocese and "any official, trustee, or employee of the for the Archdiocese while acting within the scope of his duties as such . . ." Interstate argued that the exclusion was meant to bar recovery as to all assureds if any one of them committed the assault or battery, arguing that the phrase "such assured" referred back to the phrase "any assured" and thus encompassed them all. Since the priests were assureds, Interstate's argued that recovery is excluded as to the Archdiocese as well.
In response, the Archdiocese observed that the exclusion applied only to a person "acting within the scope of his duties," and that the priests were not acting within the scope of their duties when they committed assault. Further, the wording excluded coverage only to those Assureds who committed or directed the assault rather than to all assureds.
The court agreed with the Archdiocese. Even Interstate agreed in its reservation of rights letter that the priests were acting outside the course and scope of their priestly duties when they allegedly abused the victims. Interstate was bound by its own reading of the policy. Further, even if the priests were "assureds," the exclusion barred coverage only for an assailant, not for all Assureds.
Interstate next argued that there was no coverage if the accident was intended or expected, regardless of whether the resulting loss was intended or expected; intention and expectation was an objective test rather than a subjective question viewed from the standpoint of the insured. The Archdiocese had prior notice of one priest's proclivities before the abuse occurred. Therefore, the issues were whether the molestation was an occurrence and whether it was intended or expected.
The court noted that the Archdiocese wanted to send the priest to the House of Affirmation, a rehabilitation center for sexual dysfunction. But the Center could not accommodate the priest, so he went instead to St. Luke Institute, an alcohol treatment center. The inpatient treatment ended in July 1979, and the priest was reassigned to a school for girls to serve as a chaplain. While the school was informed that the priest had been treated for alcohol abuse, the child molestation was not disclosed. The priest was moved to a high school after his doctor and alcoholism counselor gave full support for a reassignment to a "more exciting teaching assignment." While at the high school, the priest molested a young boy.
The district court determined that the Archdiocese relied upon the doctor's assessment that the priest would not return to sexual abuse of minors if he remained sober, and that the Archdiocese therefore lacked notice that the priest would molest a student.Therefore, under the policy, the Archdiocese did not subjectively know that it was substantially probable that the priest would abuse children.
On appeal, Interstate first argued that the accident itself must be unexpected or unintended, even if the resulting injury came as a surprise. The Second Circuit held, however, that the proper inquiry was whether the injuries were expected, not whether the accidents were expected. The occurrence clause defined an occurrence as an accident that "unexpectedly or unintentionally results in personal injury." The focus, therefore, was on intention and expectation as to the resulting injury rather than the accident itself. To find otherwise would require discounting the clause after "accidents."
Another issue addressed by the Court was whether intention and expectation was determined by an objective test of what a reasonable person knew or should have known (as Interstate argued), or whether it was determined subjectively from the standpoint of the insured (as the district court concluded). The Second Circuit agreed with the district court.
Consequently, the district court was affirmed.
