New York Court of Appeals Finds Acts of Sexual Abuse Constitute Multiple Occurrences And Potential Liability Must Be Allocated Among Several Policies
In a recent decision, New York’s highest state court affirmed an appellate division ruling that a priest’s separate acts of sexual abuse against a single victim over a period of approximately six years constituted multiple occurrences under the insured Roman Catholic Diocese of Brooklyn’s several commercial general liability insurance policies. The Court of Appeals further held that any liability of the Diocese should be allocated among the applicable policies on a pro rata basis, thus requiring satisfaction of the self-insured retention (“SIR”) amount for each of the policies.
The coverage dispute in Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, 21 N.Y.3d 139, 969 N.Y.S.2d 808 (2013), arose from the settlement of a civil action between the Diocese and a minor plaintiff alleging sexual molestation by a priest. Id. at 143. More specifically, the victim alleged that the priest sexually abused her on numerous occasions from August 1996 through May 2002 in several locations, including the rectory, office, and other areas of a church in Queens, New York; the priest’s vehicle; the victim’s home; and a home in Amityville, New York. Id. In August 2007, the Diocese settled the underlying action for $2 million and, thereafter, demanded reimbursement from its insurer, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). National Union denied coverage under the seven potentially applicable policies, which each provided coverage for damages resulting in bodily injury during the policy period and included a $250,000 SIR applicable to each occurrence. Id. at 144.
In a subsequent declaratory judgment action commenced by the Diocese, National Union moved for summary judgment, arguing that the incidents of sexual abuse alleged by the victim constituted separate occurrences in each of the seven implicated policy periods and that the $2 million settlement should, therefore, be allocated on a pro-rata basis across each of the seven policies, requiring the Diocese to exhaust a separate $250,000 SIR for each occurrence. Id. In response, the Diocese argued that National Union waived its affirmative defenses regarding the allocation and the number of SIRs “by failing to timely include those bases in their notices of disclaimer of coverage.” Id. at 146.
While the Supreme Court ruled in favor of the Diocese, the Appellate Division reversed, “declaring that the alleged acts of sexual abuse constituted multiple occurrences, and that the settlement amount should be allocated on a pro-rata basis over the seven policy periods, requiring the concomitant satisfaction of the SIR attended to each implicated policy.” Id. The Court of Appeals affirmed. Id.
As a threshold matter, the Court of Appeals rejected the Diocese’s claim that National Union waived its affirmative defenses, finding that National Union was under no statutory duty to disclose arguments regarding limitations on liability (as opposed to arguments related to the outright exclusion or disclaimer). Id. at 146-47.
Turning to the merits, the Court of Appeals determined that nothing in the language of the policies indicated any intent to aggregate the incidents of sexual abuse into a single occurrence and, thus, the “unfortunate event” test adopted in Arthur A. Johnson Corp. v. Indemnity Ins. Co. of N. Am., 7 N.Y.2d 222, 227 (1959), should be applied to determine how the occurrences should be categorized for purposes of coverage. Id. at 149. Focusing on “the nature of the incident[s] giving rise to the damage,” the Court distinguished the cases cited by the Diocese and found that the incidents of sexual abuse were not part of a singular causal continuum. Id. at 149-51. The Court concluded that, although the policies defined “occurrence” as including “continuous or repeated exposure to substantially the same general harmful conditions,” such language was designed to deal with physical exposure to “phenomenon such as heat, moisture, or radiation,” “asbestos fibers in the air, or lead-based paint on the walls, rather than priests and choirboys.” Id. at 151 (quoting prior cases).
Finally, the Court found that the Diocese should not be permitted to exhaust a single SIR yet receive coverage under up to seven different policies and that the liability of the Diocese should be allocated on a pro-rata basis across each of the seven policies. Id. at 153-54.
For additional information regarding insurance matters, contact Bob Laurie at Gfeller Laurie LLP today.