Sexual Misconduct Exclusion Ambiguous
When an insurer fails to be clear and unambiguous it finds it must defend an insured it never intended to insure. In AIG Property Casualty Company v. William H. Cosby, Jr., Barbara Bowman, Tamara Green, Angela Leslie, Katherine Mae Mckee, Louisa Moritz, Kristina Ruehli, Therese Serignese, Joan Tarshis, Linda Traitz, No. 17-1505, United States Court of Appeals For the First Circuit (June 7, 2018) Bill Cosby, even after being convicted in a criminal court of sexual abuse was still allowed a defense of defamation suits brought by women who accused him of sexual misconduct.
The First Circuit affirmed the judgment of the district court declaring that AIG Property Casualty Company had a duty to defend William H. Cosby, Jr. In 2014 and 2015, nine of the women who had, over the past decade, accused Cosby of sexual assault, filed three separate actions claiming that Cosby had defamed them by publicly denying their accusations.
AIG had a duty to defend lawsuits alleging defamation. AIG sought a declaration that the policies’ “sexual misconduct” exclusions barred coverage because the underlying defamation claims “arose out of” Cosby’s alleged sexual assaults. The First Circuit affirmed and held the “arising out of” language in the policies rendered the pertinent sexual-misconduct exclusions ambiguous as to the question in this case.
The opinion, written by Retired Supreme Court Justice, Souter. Cosby argued that plaintiff AIG Property Casualty Company’s appeal from a judgment that it has a duty to defend the policyholder, defendant William H. Cosby, Jr. should fail.
Over the past decade, a number of women have accused Cosby of sexual assault. In 2014 and 2015, nine of them, also defendants here, filed three separate actions claiming that Cosby had defamed them by publicly denying their accusations. At relevant times, Cosby held two insurance policies issued by AIG: a homeowners policy and a personal excess liability policy (the “umbrella policy”). Under each, AIG has a duty to “pay damages [Cosby] is legally obligated to pay [due to] personal injury or property damage caused by an occurrence covered by this policy anywhere in the world . . . .” Both policies define “personal injury” to include “[d]efamation,” and oblige AIG to pay the cost of defending against suits seeking covered damages.
When Cosby notified AIG of the underlying defamation suits, AIG initially agreed to defend him, subject to a reservation of rights that permitted the company to bring this action, seeking a declaration that the policies’ “sexual misconduct” exclusions barred coverage. The cited exclusion in the homeowners policy bars coverage for liability or defense costs “arising out of any actual, alleged[,] or threatened . . . [s]exual molestation, misconduct or harassment[,] . . . or . . . [s]exual, physical or mental abuse.” And the umbrella policy similarly excludes coverage for liability or defense costs “[a]rising out of any actual, alleged[,] or threatened . . . [s]exual misconduct, molestation or harassment[,] . . . or . . . [s]exual, physical or mental abuse.”
Contending that the underlying defamation claims arose out of Cosby’s alleged sexual assaults, AIG moved for summary judgment on its declaratory judgment claim. Cosby, for his part, moved to dismiss or, in the alternative, for judgment on the pleadings. The district court treated his motion as one for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) and held that the sexual-misconduct exclusions were at least ambiguous and consequently granted Cosby’s motion insofar as it sought a judgment that AIG had a duty to defend.
Under Massachusetts law, a court must construe an insurance policy under the general rules of contract interpretation, beginning with the actual language of the policies, given its plain and ordinary meaning. The insurer bears the burden of demonstrating that an exclusion exists that precludes coverage, however, and any ambiguities in the exclusion provision are strictly construed against the insurer. Ambiguity exists when the policy language is susceptible to more than one meaning.
There is no single definition of “arising out of” under Massachusetts law. The Massachusetts Supreme Judicial Court has said that the term indicates a wider range of causation than the concept of proximate causation in tort law,
Here, AIG says that because Cosby’s allegedly defamatory denials were prompted by the women’s sexual-assault allegations, the defamation injury and the excluded conduct are so “inextricably intertwined” as to trigger the sexual-misconduct exclusions. Cosby counters that the source of the women’s claimed injuries is not any alleged sexual misconduct, but rather the allegedly defamatory statements.
As the district court observed, the presence of another, more broadly worded sexual-misconduct exclusion in the umbrella policy tips the scales in favor of finding ambiguity. That policy’s coverage for “Limited Charitable Board Directors and Trustees Liability” is subject to an exclusion that applies to claims for damages “[a]rising out of, or in any way involving, directly or indirectly, any alleged sexual misconduct.” (emphasis added).
To be clear, the First Circuit did not hold that “arising out of” is an inherently ambiguous term under Massachusetts law or that discrepancies in insurance provisions always give rise to ambiguity. Rather, the holding is confined to this case where the ambiguity question is close to begin with and where another sexual-misconduct exclusion is worded more broadly.
Out of caution, Justice Souter also notes that this appeal decides only the question of coverage in providing defense to the policyholder. Coverage for any damages that may be awarded if the defense is unsuccessful could turn on facts beyond those pertinent here, requiring independent analysis.
The most difficult of all writing is to compose – using easy to read language – a clear and unambiguous exclusion. AIG tried to use the sexual misconduct exclusion to defeat a defamation claim and failed because the umbrella policy also issued to Cosby was more clear. Had both policies excluded losses “[a]rising out of, or in any way involving, directly or indirectly, any alleged sexual misconduct” it would have saved the defense costs. As usual, difficult facts make for a difficult decision, and AIG must defend Bill Cosby even after he was found criminally guilty by a jury.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
New Books From Full Court Press
Full Court Press continues to publish expert secondary content. This time it’s a new collection of ew insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.
Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 50 years in the insurance business. We welcome his deskbooks as the first published under our Full Court Press imprint. Three titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.
Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner.
California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma.
Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers.
An annual subscription to secondary content on the Fastcase platform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.
Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.