A Texas case suggests that insurers should be "cautious" when determining whether their duty to defend an insured has ended, according to attorneys who have studied the Texas Court of Appeals decision.

The decision, involving allegations of sexual abuse by a camp counselor, also makes clear that policy language endorsements that modify other coverage forms do not provide separate grants of coverage, according to lawyers at Hunton & Williams in McLean, Va.

According to the firm's analysis, the TIG Insurance Co. v San Antonio YMCA case suggests that courts, in Texas at least, will enforce provisions of sexual abuse endorsements or limitations to coverage by defining the occurrence by the perpetrator, not the number of victims.

"Insurers that have policies that provide for bodily injury from both occurrences and sexual abuse occurrences should carefully review a complaint's allegations to determine if those allegations fall within the definitions of 'occurrence' or 'sexual abuse occurrence'," the lawyers said.

More generally, the lawyers said, "the YMCA case makes clear that endorsements that modify other coverage forms do not provide separate grants of coverage."

Moreover, the lawyers said, the decision "reminds insurers to be cautious when determining when their duty to defend is terminated."

The Court of Appeals decision dealt with allegations that in the summer of 1999, at a youth camp run by the San Antonio YMCA, a counselor sexually and physically assaulted six children at the camp.

The children's parents sued, and the YMCA settled three of the lawsuits for $6 million, with TIG contributing $1 million to the settlement.

TIG then sued in Texas state court, alleging that its duty to the insured had ended because the $1 million payment exhausted its policy limits and it therefore had no duty to defend the three remaining law suits.

TIG took the case to the Texas Court of Appeals after a trial court held that the insurer had a continuing duty to defend the YMCA against the claims even if the policy limits were exhausted, and that the YMCA was entitled to indemnity in each of the remaining lawsuits, subject only to the policy's aggregate limit.

In this case, the policy issued to the YMCA contained a $2 million "Each Occurrence Limit."

The policy also contained a Sexual Abuse Coverage endorsement which expressly modified the liability coverage provided by the policy.

The policy also provided that the insurer's ability to defend ended when the applicable limits of insurance had been "used up" in the payment of judgments or settlements.

In rejecting TIG's claim that the duty to defend was extinguished because the endorsement's limits had been exhausted by paying $1 million toward the settlement of three of the sexual abuse claims, the Court said that because the policy distinguished between an occurrence and a Sexual Abuse Occurrence, if the underlying petitions contained any allegations of bodily injury not associated with sexual abuse, the insurer would have a continuing duty to defend if there was a separate occurrence, and the policy's aggregate had not been exhausted.

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Texas Sex Case Decision xpands Insurers Duty

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