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The Phrase “An Insured” Alters Applicability of Policy Exclusions (PA)

September 27, 2019

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<p style="text-align: justify;">In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2019/09/Doe-1-v.-Liberty-Mutual-Fire-Ins.-Co..pdf">Doe 1 v. Liberty Mutual Fire Ins. Co.</a>,</em> the Court for the Middle District of Pennsylvania analyzed whether Liberty Mutual Fire Insurance Company’s (“Liberty”) was obligated to defend and indemnify N.H., a minor, and D.H., N.H.’s mother, for underlying claims asserting sexual abuse and molestation.</p>
<p style="text-align: justify;">The underlying action arose out of alleged sexual abuse sustained by minor, John Doe, while he was visiting the home of N.H. and D.H. At the time of the incident, John Doe was five years old. According to the underlying complaint, N.H. sexually abused John Doe, which caused John Doe to suffer, inter alia, substantial mental and physical harm. Due to the incident, John Doe sued N.H. and D.H. in the Court of Common Pleas, Monroe County, wherein he alleged negligence, battery, negligent infliction of emotional distress, negligent supervision and punitive damages. Subsequently, the instant action was filed against Liberty for a declaration that Liberty owed coverage to N.H. and D.H. for the underlying action. In response, Liberty filed a motion to dismiss.</p>
<p style="text-align: justify;">In regard to the instant matter, Liberty issued a LibertyGuard Deluxe Homeowners Policy (“Policy”) to D.H. that was in effect on the day of the incident. The Policy contained standard policy language and exclusions. The Court first analyzed whether John Doe’s allegations of stress in the form of physical manifestations constituted “bodily injury” and whether the alleged sexual abuse constituted an “occurrence” as defined in the Policy. However, of particular note is the Court’s discussion of the applicability of the Policy’s Intentional Or Criminal Act and Sexual Molestation Exclusions as they relate to John Doe’s negligent supervision claim against the mother.</p>
<p style="text-align: justify;">The Court first analyzed whether the Policy’s Intentional Or Criminal Act exclusion barred coverage to D.H. for John Doe’s claim that D.H. negligently supervised N.H. While the Policy provides coverage for “bodily injury” caused by an “occurrence”, the Policy contained an amendatory endorsement, which inter alia, excluded coverage for “bodily injury” resulting from or “may reasonably be expected to result, from the intentional or criminal acts or omissions of an “insured” even if it (1) is a different kind, quality, or degree than initially expected or intended; or (2) is sustained by a different person, entity, real or personal property, than initially expected or intended.” While the Court concluded negligent supervision does not constitute an “intentional or criminal act”, the Court relied on long-standing Pennsylvania law in holding the Intentional Or Criminal Act exclusion barred coverage. Specifically, the Court noted that courts in Pennsylvania hold, in this context, the use of the phrase “an insured” or “any insured” in an exclusion clause bars coverage for the person who acted intentionally or criminally and for the person charged with related acts of negligence. As the claim for negligent supervision stemmed from N.H.’s alleged intentional and criminal acts (as determined by the Court), the Court held the Policy’s Intentional Or Criminal Act exclusion barred coverage to D.H.</p>
<p style="text-align: justify;">Although the Court determined the foregoing exclusion barred coverage, the Court deemed it appropriate to discuss the applicability of the Policy’s Sexual Molestation exclusion as it related to John Doe’s claim of negligent supervision against D.H. The Policy’s Sexual Molestation exclusion states the Policy excludes coverage for any “bodily injury” “[a]rising out of sexual molestation, corporal punishment or physical or mental abuse.” Based on the plain language of the Policy, the Court first analyzed the phrase “arising out of”. In doing so, the Court discussed Pennsylvania case law, which holds the phrase “arising out of . . . bodily injury” does not apply to negligent acts (like it does in the context of the Intentional Or Criminal Act exclusion). While the Court did not draw any conclusion about the applicability of the Policy’s Sexual Molestation exclusion as it related to the negligent supervision claim, the Court noted it came to divergent findings regarding the Sexual Molestation and Intentional Or Criminal Act exclusions. Specifically, the Court held, because the Sexual Molestation exclusion did not contain the phrase “an insured” like the Intentional Or Criminal Act exclusion, the Sexual Molestation exclusion did not apply equally to co-insureds who did not engage in the prohibited conduct.</p>
<p style="text-align: justify;">In sum, this case is a reminder to closely examine the plain language of a policy and be cognizant of differing language in policy exclusions.</p>
<p style="text-align: justify;">Thanks to Lauren Berenbaum for her contribution to this post. Please email <a href="mailto:VPinto@wcmlaw.com">Vito A. Pinto</a> with any questions.</p>

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