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John Berringer

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With the passage of New York’s Child Victim’s Act (the “CVA”) and similar revival statutes around the United States, there have been literally thousands of formerly time-barred actions commenced against institutions such as churches and other religious organizations, schools, camps, and other groups working with children for damages on account of sexual abuse by their employees, volunteers or agents allegedly occurring years or even decades in the past. When these institutions turn to their insurers seeking coverage under old insurance policies for injuries occurring during the relevant policy periods, they are often confronted with the defense that, because the institution may have been aware of an alleged perpetrator’s “propensity” to commit acts of abuse, the resulting injury was “expected and intended” and, therefore, excluded from coverage.

Abuse claims generally allege that the institution failed to use due care to protect children from abusive perpetrators for whom the institution is alleged to be responsible. Sexual abuse complaints typically allege that, as a result of the policyholder’s negligence in hiring, retention, supervision, or training, the claimants suffered bodily injury for which the policyholder is legally liable. In resisting coverage for sexual abuse claims, insurers typically assert that, if the institution knew of a perpetrator’s “proclivities” or “propensities,” then the injury arising from child abuse should not be deemed an “occurrence” because it should be considered “expected or intended” from the standpoint of the insured.

Negligent conduct is insurable

These arguments ignore the very high burden insurers must carry on such a defense. Like environmental litigation that preceded it, the insurers attempt to use a modern lens to evaluate policies and procedures adopted many decades earlier. While a church might have at one time believed that a perpetrator could be safe to return to the care of children after an intensive religious retreat and/or psychiatric treatment, one would be unlikely to find any now holding similar views. Thus, what might now seem outrageous, should be seen as negligent (and eligible for insurance coverage) in light of the understanding at the time the conduct occurred.

This is the approach adopted by New York courts. As an initial matter, New York holds that negligence in hiring or retaining an employee who commits a sexual assault can constitute an “occurrence” that is not “expected or intended” from the standpoint of the insured. See RJC Realty Holding Corp. v. Republic Franklin Ins. Co., 808 N.E.2d 1263 (N.Y. 2004). In the context of a suit against a massage parlor, the court explained that, although the assault was not an “accident” from the masseur’s point of view because he expected and intended it, the masseur’s expectations or intentions were irrelevant in determining the applicability of the insurance policy to his employer. Under New York law, the perpetrator’s abusive conduct is not imputed to his employer. Judith M. v. Sisters of Charity Hosp., 93 N.Y.2d 932 (1999). Instead, the institution is only liable for its own negligence in hiring or retaining such perpetrators. Accordingly, the court did not ascribe the masseur’s expectations or intentions to his employer in determining the applicability of the insurance policy. Id. See also Jewish Cmty. Ctr. of Staten Island v. Trumbull Ins. Co., 957 F. Supp. 2d 215, 233-34 (E.D.N.Y. 2013) (following the RJC court’s interpretation of “accident” in the context of sexual harassment and assault of children at a community center); NYAT Operating Corp. v. GAN National Insurance Co., 46 A.D.3d 287, 287-88 (1st Dep’t 2007) (“[it] does not avail [the insurer] to argue that the assault was foreseeable.”). Continue Reading Insurance coverage for sexual abuse in New York

An often-overlooked 2020 New York federal court decision allows policyholders to potentially recover attorneys’ fees when they bring a declaratory judgment action against an insurance company that has made litigation inevitable by resisting its duty to defend. In Houston Casualty Company v. Prosight Specialty Insurance Company, 462 F. Supp. 3d 443, 444 (S.D.N.Y. 2020), the District Court for the Southern District of New York held that an insurance company’s duty to defend obliges it to pay for attorneys’ fees and costs that an additional insured incurred in attempting to establish the duty to defend at the time the insurance company resisted such a duty.

The Houston Casualty Company case concerned an underlying lawsuit brought against New York University Hospitals Center (NYUHC) by an individual who was injured on its premises. The individual was injured due to a mis-leveled elevator maintained by a New York corporation, Nouveau. NYUHC brought a third-party complaint against Nouveau, as it had agreed to hold NYUHC harmless for any claims or liabilities arising out of the maintenance and repair of elevators on NYUHC’s property.

Houston Casualty Company (HCC) issued a general liability policy to the injured individual’s employer and HCC provided a defense to NYUHC and the construction company on the site, but HCC asserted that the primary obligation to defend these lawsuits belonged to Nouveau’s general liability insurance company, New York Marine (Note: New York Marine was named incorrectly by the plaintiff, HCC, as Prosight in the case). HCC sought declaratory judgments as to NYUHC’s additional insured status; New York Marine’s duty to defend and indemnify NYUHC; and HCC’s entitlement to reimbursement for all amounts paid by HCC, including attorneys’ fees, for the defense of the underlying action. These questions were resolved by agreement of the parties, and New York Marine conceded it had a duty to defend. However, the district court considered one unresolved issue regarding “whether NYUHC is entitled to recover, from New York Marine, the fees and expenses it incurred in attempting, successfully, to establish New York Marine’s duty to defend NYUHC in the consolidated [underlying] lawsuits.” Id. at 449.Continue Reading New York’s exception allowing attorney’s fees for policyholders

In a recent unanimous decision, the Appellate Division First Department provided clarity on the pleading requirements for policyholders seeking special or consequential damages allowed under the landmark decision of Bi-Economy Market v. Harleysville Insurance Company of New York, 856 N.Y.S.2d 505 (N.Y., Feb. 19, 2008). Under Bi-Economy, policyholders may seek special or consequential damages resulting from an insurance company’s failure to provide coverage if such damages were foreseen or should have been foreseen when the insurance contract was made. Id. at 508. In its prior ruling in Panasia Estates v. Hudson Insurance Company, the First Department noted that the “reference to such damages as ‘special’ in Bi-Economy Mkt. … was not intended to establish a requirement of specificity in pleading.” 889 N.Y.S.2d 452, 453 (N.Y.A.D. 1 Dept., Dec. 15, 2009). The ruling, however, left open the question of what pleading requirements policyholders had to meet in order to state a claim for special damages, a question that it recently answered in D.K. Property v. National Union Fire Insurance Company of Pittsburgh, PA, 2019 WL 237454 (N.Y.A.D. 1 Dept., Jan. 17, 2019).
Continue Reading Lightening the load: New York Appellate Division rejects heightened pleading standard for policyholders seeking Bi-Economy Market consequential damages

It has become routine in the past ten years or so for liability insurance companies to deny insurance coverage for sexual abuse claims, often on the theory that sexual abuse is intentional in nature. Many liability insurance policies commonly adopt the definition of “occurrence” which requires that a claim must arise from an “accident.” Under these policies, whether allegations of sexual abuse are encompassed by the term “accident” will determine whether the abuse claims are covered.
Continue Reading Pushing Back on Insurance Coverage Denials for Sexual Abuse Claims

This post was also written by Michael N. DiCanio.

In a recent decision Magistrate Judge David A. Baker rejected insurance company Daubert motion to exclude the expert testimony of an architect, a structural engineer, and an accountant designated in an insurance coverage case. Bray & Gillespie v. Hartford et al, Case No. 6:07-cv-00326 –DAB (M.D. Fla. April 20, 2009).

The defendants’ had moved to exclude the testimony of B&G’s accountant and his conclusions regarding the amount of business interruption loss suffered. They did not challenge the methodology of his calculations, but rather took issue with the fact that he allegedly used the wrong numbers and did not provide a period of restoration. Denying the motion, Judge Baker held that this was not a proper ground for excluding the testimony under Daubert, see Quiet Technology, 326 F.3d at 1345-46 (using incorrect numbers in a reliable formula is not grounds for exclusion), and held that the particular issue of limiting the damage calculation with respect to a period of restoration is a matter of factual and legal dispute in this case.Continue Reading Insurers Denied De Facto Win After Losing Daubert Motion

This post was also written by Michael N. DiCanio.

Policyholders and their counsel should check out a May 27 ruling denying summary judgment to the insurance company defendants in Bray & Gillespie IX, LLC v. Hartford Fire Insurance Co., et ano. In the B&G decision, a magistrate judge in the Middle District of Florida relied in part on the so-called Broad Evidence Rule. Under that rule, any evidence logically tending to establish a correct estimate of the value of damaged or destroyed property may be considered by the trier of fact to determine “actual cash value” at the time of the loss. This means that replacement cost, wholesale cost, a contractor’s estimate, even the owner’s own testimony, are among the many types of evidence that a jury could consider to determine “actual cash value.” The judge in the B&G case characterized the Broad Evidence Rule as a “liberal admissibility standard.”

In the same decision, the magistrate judge suggested that a much tougher evidentiary standard must be met by an insurance company alleging fraud or misrepresentation by a policyholder.Continue Reading A Tale of Two Evidentiary Standards