The Appellate Division, Second Department, held unanimously in National Union's favor and reversed the trial court, stating:

the pro rata allocation methodology which the Court of Appeals approved in Consolidated Edison Co. of New York v. Allstate Insurance Co., 774 N.E.2d 687 (2002) was consistent with the allegations of "bodily injury," and with the clear and unambiguous language of the CGL policies. Further, the Second Department noted that the allocation method advocated by the Diocese, the "joint and several" method, conflicted with both New York law and the CGL policies' requirement that any "bodily injury" take place during the applicable policy period in order to be covered (but not before or after that period). Thus, because victim allegedly sustained "bodily injury" during several different policy periods in a six-year span, the Appellate Court held that the Diocese's settlement must be allocated on a pro rata basis across all of the periods;
the subject acts of sexual abuse constituted multiple occurrences under New York's "unfortunate events" test because they occurred over many years, at different times, and at various locations. Accordingly, the Appeals Court held that the Diocese was required to exhaust a separate $250,000 SIR for each CGL policy, and it rejected the Diocese's argument that the policies' definition of "occurrence" should be construed as permitting it to aggregate the multiple acts of sexual abuse as a single occurrence; and
the requirement that a carrier timely disclaim coverage under §3420(d) did not apply to National Union's SIR-based defense. The Appellate Court relied upon the statute's plain language and two Appellate Division, First Department, decisions on the issue. The court further found that National Union did not waive its right to assert an affirmative defense related to the CGL policies' "Other Insurance" clause, or its argument that the Diocese's settlement be allocated on a pro rata basis across all seven policy periods.

The Court of Appeals affirmed the Second Department's decision, ruling that National Union had not waived its "multiple occurrence" argument, that the Diocese was required to exhaust a separate $250,000 SIR per occurrence for each CGL policy, and that the Diocese's settlement must be allocated across each of the seven policy periods. The court noted that while §3420(d) precludes an insurer from denying coverage where the bases are not timely asserted, the statute does not apply to defenses that simply limit the insurer's ultimate liability.

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Sexual assault: Is there insurance coverage for that?

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