Down To Cases

Among the policy's definitions were the following: "

3. 'Bodily injury' means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

"3.a. The term 'bodily injury' includes mental anguish or emotional distress if such mental anguish or emotional distress: (i) Directly results from physical contact during a 'Sexual Abuse Occurrence,' or (ii) Directly results from the claimant actually witnessing a "Sexual Abuse Occurrence," whether or not there is a physical contact between the claimant and the perpetrator(s).

"9.a. A 'Sexual Abuse Occurrence' is defined and conditioned as follows: (1) A 'Sexual Abuse Occurrence' means a single act, or multiple, continuous, sporadic, or related acts of sexual molestation or abuse caused by one perpetrator, or by two or more perpetrators acting together. 'Sexual Abuse Occurrence' includes 'Negligent Employment' of any person accused of or involved in such sexual molestation or abuse. A "Sexual Abuse Occurrence" must occur while the claimant is in the care, custody or control of: (i) An insured, or (ii) A person or entity indemnified under an "Insured Contract" pursuant to which the Named Insured has legal responsibility for the person or entity.

"(2) All acts of 'Sexual Abuse Occurrence' by an actual or alleged perpetrator or perpetrators, including 'Negligent Employment' of such perpetra- tor or perpetrators, shall be deemed and construed as one occurrence which takes place when the first act of sexual molestation or abuse occurs, regardless of the number of persons involved, or the number of incidents or locations involved, or the period of time during which the acts of sexual molestation or abuse took place.

"9.b. 'Negligent Employment' means negligence, or alleged negligence, in the employment, investigation, supervision, training or retention in employment or volunteer status of any person for whom the Named Insured is or was ever legally responsible and whose conduct or alleged conduct is within the definition of 'Sexual Abuse Occurrence.'

"12. 'Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

On appeal, the central issues were:
–Whether the commercial general liability coverage form and the sexual abuse occurrence coverage form each provided a separate grant of coverage.
–Whether all six of the sexual abuse lawsuits concerned a single "sexual abuse occurrence."
–Whether the carrier had a duty to defend the YMCA from the plaintiffs' allegations of physical abuse.

The carrier argued that the sexual abuse occurrence coverage endorsement merely modified, but did not add to, the coverage provided under the commercial general liability coverage form. The insurer asserted that the complaint alleged a single "sexual abuse occurrence." The carrier contended that the trial court erred in determining it had a duty to indemnify the YMCA in each of the lawsuits, subject only to the policy's aggregate limit because the acts of the YMCA's employee constituted one occurrence and the carrier had already paid the maximum single occurrence limit of $1 million.

The YMCA, on the other hand, contended that the commercial general liability coverage form, standing alone, provided coverage for the claims asserted against it by the plaintiffs in the six lawsuits. It said a claim may trigger coverage as both an "occurrence" and as a "sexual abuse occurrence." Under the first of those triggers, it said, the policy's aggregate $2 million has not been exhausted.

The appellate court, however, disagreed. It found that the sexual abuse occurrence coverage form did not provide an additional grant of liability coverage. "Instead, the policy clearly and unambiguously provides that the provisions of the sexual abuse occurrence coverage form modify the provisions" of the commercial general liability coverage form, the court said.

The court ruled that under the policy's unambiguous language, all of the YMCA employee's alleged acts of sexual abuse, "regardless of the number of persons involved, or the number of incidents or locations involved, or the period of time during which the acts of sexual molestation or abuse took place," constituted a single sexual abuse occurrence.

As to its duty to defend, the carrier argued that because it paid $1 million to settle three of the lawsuits, the applicable limit of insurance had been used up and it, therefore, no longer had a duty to defend in the three pending lawsuits.

Here, however, the court disagreed. Because the policy distinguished between an "occurrence" and a "sexual abuse occurrence," the court said the payment of $1 million for a "sexual abuse occurrence" does not exhaust the aggregate limit if there is a separate "occurrence." Should the YMCA be held liable for bodily injury arising from something other than a "sexual abuse occurrence," the court said, the remaining aggregate limits were available to satisfy that claim, triggering the carrier's duty to indemnify. Accordingly, said the court, if the plaintiffs' petitions allege a claim for bodily injury unassociated with sexual abuse, then the carrier had a continuing duty to defend.

In its motion for summary judgment, the YMCA has asserted that the plaintiffs alleged physical assault separate from any allegations relating to sexual abuse. There was a "possibility," the YMCA had claimed, that "despite the Plaintiffs' best efforts to prove otherwise, a jury may determine that the type of physical contact that actually occurred was wrongful but not sexual in nature." Thus, the YMCA argued that any liability on its part for its employee's physical assault of the children was covered by the policy, and that the carrier had a continuing duty to defend for an occurrence not involving sexual abuse.

The appellate courted noted that the plaintiffs alleged that, during a minor child's stay at the camp, "the child was physically, sexually, and mentally abused" by the YMCA's employee and "the minor child suffered physical abuse." The court said that, given its most liberal interpretation, these allegations suggested the possibility that the children's injuries may have resulted from physical abuse unassociated with sexual abuse or molestation. "Therefore, the allegations in the plaintiffs' petitions state a cause of action potentially covered by the policy; thus, triggering (the carrier's) duty to defend in these lawsuits."

In summary, the appellate court concluded that each of the six claims that the YMCA's employee sexually assaulted a child constituted a single "sexual abuse occurrence" under the policy; therefore, the insurer's $1 million payment in the settled lawsuits exhausted its limit for such an occurrence. However, the plaintiffs' petitions also alleged a potential cause of action for physical abuse, the court said. Therefore, the carrier had a continuing duty to defend the YMCA in the remaining lawsuits.

TIG Insurance Co. v. San Antonio YMCA, No. 04-04-00017-CV (Tex.App. Dist.4 07/13/2005) 2005.TX.0004911 (www.versuslaw.com).

Court-appointed umpire who concluded
loss was uncovered exceeded authority

An insurer issued a policy covering nine of 13 buildings in a townhouse complex against physical loss caused by windstorm, with a per-building deductible of $7,500. Following Hurricane Irene, several of the insured units sustained interior damage due to water seepage. The owner of the townhouse complex, who was the insured, filed a claim for the damage. The owner also claimed the hurricane blew clay tiles off the townhouse roofs, and cracked or loosened other tiles that remained on them.

The insurer hired an adjuster to inspect the damage. The adjuster's report stated that none of the units had breaks in either their roofs or skylights, and that the damage to the interior walls was caused by "wind-blown water seepage." The adjuster said there was no coverage for this damage, since it did not result from any breaks in the townhouses. The report did note that "a few tiles" were blown off some of the buildings' roofs and that these missing tiles were covered. The cost to replace the tiles, however, was less than the policy's windstorm deductibles. Consistent with its adjuster's report, the insurer denied the claim.

The insured demanded an appraisal pursuant to the policy's appraisal provision, which stated: "If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree (on an umpire), either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding."

The insured and insurer each selected its own appraiser. The insured's appraiser estimated the covered loss at approximately $716,000. On the other hand, the insurer's appraiser estimated that the covered damage amounted to less than $1,000.

Based on the conflicts in the appraisals and the inability of the parties to agree on an umpire, the insurer filed a petition for selection of an umpire with a trial court, which entered an order appointing one. The umpire subsequently ruled that the insured "did not carry the burden of proof to establish insurance coverage. … Therefore, the loss to property is not covered under the subject insurance policy."

The trial court entered a final judgment confirming the appraisal award. An appeal followed.

In the appeal, the insured argued that pursuant to Johnson v. Nationwide Mutual Insurance Co., 828 So. 2d 1021 (Fla. 2002), causation of the damage is a coverage issue reserved for the trial court, not the appraisal panel. The appeals court rejected that argument, noting that the state Supreme Court held in that case that "causation is a coverage question for the court when an insurer wholly denies that there is a covered loss, and an amount-of-loss question for the appraisal panel when an insurer admits that there is a covered loss, the amount of which is disputed."

The appeals court noted that in the case at hand, "The insurance carrier agrees that there is a covered loss, but disagrees as to the amount of loss. Therefore, based on Johnson, although there is a large discrepancy between the insured's and insurance carrier's estimate of the loss, because the insurer has not wholly denied that there is a covered loss, causation is 'an amount-of-loss question for the appraisal panel,' not a coverage question that can only be decided by the trial court."

The insured also contended that the umpire exceeded the duties assigned to it and made findings that in this case specifically were reserved for determination by the trial court. On this point, the appeals court agreed.

A review of the trial court's order showed that the trial court imposed limitations on the duties it granted to the umpire, the appeals court said. The order directed the umpire to "derive … an amount of the total loss, and … further break down the amount of the loss by virtue of excluded causes." The trial court's order also stated, "The Court shall be the ultimate finder of fact on the issue of whether the loss, in whole or part, was caused by a covered cause." The record on appeal did not indicate that either party objected to this language, the appeals court noted.

But contrary to the trial court's order, the umpire did not report the total loss or "break down the amount of the loss by virtue of excluded causes." Instead, the appeals court noted, the umpire "made factual findings as to coverage, an issue not in dispute and an issue it lacked authority to resolve; and causation, an issue which pursuant to the trial court's order, the trial court had reserved for itself." Thus, the appeals court concluded that the trial court erred by confirming the appraisal award.

While an umpire has the authority to resolve causation issues, the appeals court said, the umpire in this instance did not, since the trial court specifically reserved this issue for its own determination. Therefore, the appeals court reversed the trial court's order affirming the appraisal award, and remanded with instructions that the appraisal process proceed before a new umpire.

Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess and Surplus Lines Insurance Co., No. 3D04-3094 (Fla.App. 10/05/2005) 2005.FL.0005288 (www.versuslawcom).

Don Renau is a retired agent and practicing attorney in Louisville, Ky. As an attorney, he consults for agencies and businesses in Kentucky. He also conducts P&C insurance training by line (non-CE credit) for agencies, either in person or by CD. He can be reached at drenau@thepoint.net or at (502) 893-202.