Ninth Circuit Says Diocese’s Insurance Did Not Cover Sex Abuse Claims

Thursday, July 31, 2014

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Ninth Circuit Says Diocese’s Insurance Did Not Cover Sex Abuse Claims

By ANN ANOOSHIAN, Staff Writer

The Ninth U.S. Circuit of Appeals yesterday ruled that the Diocese of Phoenix of the Roman Catholic Church was not covered by its insurance policy for sex abuse claims.

The panel, in a 2-1 decision, held that an “assault and battery” exclusion in the relevant policy precluded indemnification of the diocese, as well as of the individual priests. It overturned the ruling of U.S. District Judge Neil Wake of the District of Arizona, who held that the exclusion applied only to the offending priests.

The appeals court ruled in favor of Interstate Fire & Casualty Company, Inc., the excess liability carrier for the diocese, which brought a declaratory action after the diocese sought indemnification for settlements it paid in four lawsuits.

In its complaint, the diocese said it settled two claims in California alleging sexual abuse by Father John Giandelone in 2007, for approximately $1.3 million. The complaint also stated the diocese paid $1.8 million to settle claims in Arizona, alleging abuse by Fathers Mark Lehman, Dale Fushek and Phil Baniewicz.

Interstate Fire cited the exclusion of liability to “any Assured for assault and battery committed by or at the direction of such Assured.”

Although Wake found the insurer’s argument “plausible,” he construed the exclusion as applying only to the offending priest, concluding that “the best reading of the assault and battery clause is that ‘such assured’ means ‘that insured’; i.e., the assured who committed or directed the assault and battery.” Wake concluded that the exclusion did not foreclose indemnification or excess coverage of the sexual abuse claims.

But Judge M. Margaret McKeown, writing for the majority, said that interpretation “can only be reached by ignoring the plain meaning of the exclusion and jumping to the conclusion that the text is unclear.” She called it an “effort to infuse ambiguity into an otherwise clear agreement.”

Arizona courts, she said, have treated the phrase “any insured” as unambiguously applicable to all insureds. She concluded that “reading the policy in context, the ordinary meaning provides that ‘such’ refers back to ‘any,’ thus indicating that the exclusion applies to ‘any official, trustee or employee’ of the diocese.”

Judge Milan D. Smith Jr. concurred.

Senior Judge Dorothy W. Nelson dissented, saying the district judge had correctly interpreted the language.

“’Assured’ identifies the type of liability excluded, i.e., liability arising from acts of assault and battery committed by ‘any Assured,’” she reasoned. “I believe that the exclusion therefore only excludes coverage for assureds who committed or directed the assault or battery giving rise to liability.”

Nelson compared the language of the policy to the following hypothetical sentence: “The recess policy does not apply to any student acting up during Mr. Jones’ class, such students are not entitled to recess.”

Nelson continued:

“Do all students in Mr. Jones’ class lose recess privileges, or is it plain that only those students who act up lose recess privileges? If such referred back to ‘that just specified,’ then ‘any Student,’ or the entire class of students who attended Mr. Jones’ class, would lose recess privileges. That is not the commonly understood meaning of the sentence.” Therefore, Nelson argued, the exclusion did not apply to the diocese’s vicarious liability for the torts of its employees.

The case is Interstate Fire & Casualty Company, Inc. v. Roman Catholic Church of the Diocese of Phoenix, 12-17195.