The insurers appealed, arguing that their policies did not cover physical injuries that occurred decades before their coverage began, nor any resulting mental anguish.

Court of Appeals

The Georgia Court of Appeals stated that under Georgia law, the parties to an insurance contract are bound by the plain and unambiguous terms of the policy. The complaint alleges that Darlington was negligent in its investigation of abuse, failure to terminate Stifflemire's employment, and continued allowance of Stifflemire to see students unsupervised.

The court must determine if the terms of the policies provide coverage for the claims. The court first looked at the Philadelphia Indemnity Insurance Company (PIIC) policies, to whom the trial court held liable for $232 million. PIIC issued commercial general liability, excess, umbrella, and FlexiFive plus policies from 2010 through 2020. The court analyzed each type of policy separately.

CGL Policies

The CGL policies covered bodily injury, mental anguish, and personal and advertising injury caused by an "occurrence" during the policy. The policies contained an endorsement covering sexual or physical abuse or molestation vicarious liability (SPAM). The endorsement required that bodily injury "occur" during the policy period.

"Occur" was not defined in the policy so the court looked to an ordinary definition from Merriam-Webster Dictionary, finding that "occur" means to "appear, happen, or to come into existence."

The court determined that an injury could only happen, appear, or come into existence at a single point in time. The court stated that "the fact that the mental anguish continued in subsequent years does not mean the injury "comes into existence" in each subsequent policy period."

The physical abuse occurred in the 1970s and 1980s, so the resulting mental anguish could not be said to come into existence during the policy periods from 2010 and onward. The court concluded that there is no coverage under the CGL policies, and PIIC was not in breach of its duty to defend or indemnify.

Umbrella & Excess Policies

The umbrella policies covered bodily injury that occurred during the policy period and that arose from an "occurrence" during the policy period. Crucially, "occurrence" was defined in the policies as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The court further stated that while the policy did not define accident, "in Georgia "accident" is defined as an event which takes place without one's foresight, expectation or design. In an insurance policy, an accident is an unexpected happening rather than one occurring through intention or design." The court clarified that the accident must be from the viewpoint of the insured.

The court had previously held that intentional conduct does not qualify as an accident. In the lawsuit, the allegations against Darlington include that the school knew of the abuse, failed to intervene, and actively concealed Stifflemire's actions.

Those actions constituted intentional misconduct, fraud, and willful negligence, and cannot be said to be an accident. Therefore, there is no coverage under the umbrella policies.

The excess policies followed form to the SPAM endorsement, and are subject to the same coverage and exclusions. Since there was no coverage under the SPAM endorsement, there is likewise no coverage under the excess policies.

Claims-Made Policies

The FlexiFive Plus policies were claims-made policies, in contrast to the other policies which were occurrence based. These policies could potentially cover conduct that occurred decades prior as long as the claim was made during the policy period.

However, these policies also contained an exclusion that barred coverage. The policies expressly barred coverage for any claims "arising out of, based upon or attributable to any dishonest or fraudulent act or omission or any criminal act or omission."

The allegations against Darlington include dishonest and criminal actions and omissions, so the exclusion applied. The court ruled that the trial court erred in awarding damages and reversed the decision.

The four other insurance companies issued policies that were substantially similar to those of PIIC, so the court ruled in favor of all the insurers.

Editor's Note

The court analyzed each type of policy separately to determine if any provided coverage. They looked at CGL policies, umbrella and excess policies, and claims-made policies. It found that none of the policies provided coverage for various reasons and reversed the $345 million award by the trial court.

The court also noted that awarding damages in this case would have negative effects on the insurance industry. Allowing present day policies to cover the continuing effects of pre-policy injuries would create unlimited liability for insurers and force them to increase premiums to reflect possible exposures from decades ago.

Key in this case was which policies were occurrence-based or claims-made, along with when the occurrences happened within those policy periods and any relevant retroactive dates. It's very important for insureds to understand when their policy is in effect and what could possibly fall within the coverage period.

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