Second Circuit Rules That Hartford Archdiocese is Entitled to Insurance Coverage for Prior Sexual Abuse by its Priests

Case Name: Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co. – Second Circuit

Date of Opinion: September 19, 2018

Opinion by: Judge Jacobs

Summary:

The Roman Catholic Archdiocese of Hartford (“Archdiocese”) purchased excess indemnity insurance policies from Interstate Fire & Casualty Company (“Interstate”) for the period between September 1, 1978 and September 1, 1985. The Archdiocese later sought reimbursement from Interstate for damages that it had to pay in a settlement agreement with four claimants seeking compensation for sexual abuse inflicted by priests in the Diocese. Interstate refused to pay on grounds that the priests’ molestation was not covered by the policy, because the policy had an exclusion for “assault and battery committed by or at the direction of such assured.” Interstate argued that the priests were among the assured, and so the policy did not cover their molestation (a form of assault and battery).

The Archdiocese ultimately sued in the United States District Court for the District of Connecticut, alleging that Interstate had breached its contract, breached the covenant of good faith and fair dealing, and violated the Connecticut Unfair Insurance Practices Act and the Connecticut Unfair Trade Practices Act. The District Court ruled for the Archdiocese on the breach of contract claim, but for Interstate on the other claims. Both sides appealed.

The Second Circuit affirmed in full. As to the breach of contract claim, the court found that the “assault and battery” exclusion was inapplicable here, because it only applied to an assured “acting within the scope of his duties,” and the assailant priests (even if they could be considered assureds) were not acting within the scope of their duties. Similarly, the wording excluded coverage only to those assured who actually committed or directed the assault, and did not exclude coverage to the other assureds (such as the Archdiocese).

The court further explained that Interstate was bound to indemnify the Archdiocese “for all sums” it was obligated to pay “arising out of any occurrence or happening” during the period of insurance. The court found that an “occurrence” is any incident that “unexpectedly and unintentionally results in personal injury, or damage to property during the policy period.” Of the four claims, it was uncontested that three of them counted as occurrences, because the Archdiocese did not have prior notice of the three molesting priests’ behavior. However, there was a dispute about the fourth claim, with Interstate arguing that because the Archdiocese had received prior notice about the offending priest’s proclivities, and the fourth instance of abuse should not count as an unexpected occurrence. The Second Circuit, however, rejected that argument. The Archdiocese had indeed received notice—directly from the offending priest—that he had molested two boys and had an alcohol problem. However, the Archbishop was later told by the priest’s treating psychiatrist that the priest’s pedophilia had stemmed from his alcoholism, and that since he had been treated for the alcoholism, he could return to teaching. The Second Circuit emphasized that although the Archdiocese was reckless in allowing the priest to return to teaching, it still did not subjectively know that the priest would abuse more children. Thus, the abuse still counted as an unexpected, unintentional occurrence that should be covered by insurance.

Lastly, the court found that the other claims had been properly rejected by the district court. In particular, the Archdiocese had failed to establish that Interstate failed to comply with the procedural requirements of CUIPA, which prohibits “failing to acknowledge and act with reasonable promptness upon communications with respect to claims arising under insurance policies.” The judgment of the district court was therefore affirmed in full.

Summary Prepared By: Rachel Thanasoulis

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