First Circuit Addresses Definition of “You” in Liability Policy

by Traub Lieberman Straus & Shrewsberry LLP
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In its recent decision in Metropolitan Prop. & Cas. Ins. Co. v. McCarthy, 2014 U.S. App. LEXIS 10622 (1st Cir. June 5, 2014), the United States Court of Appeals for the First Circuit, applying Maine law, had occasion to consider the application of policy exclusions for sexual assault and abuse.

Metropolitan insured Dixon McCormack under a series of homeowners policies. Ms. McCormack sought coverage under these policies for an underlying lawsuit alleging brought by a friend of Ms. McCormack’s on behalf of her son. The suit alleged the boy was sent to stay at the McCormack residence during a school vacation. During this time, he was alleged to have been “repeatedly sexually and otherwise physically abused” by another individual for whom Ms. McCormack was a legal guardian. Similar incidents allegedly took place over the next two years. The complaint alleged that Ms. McCormack knew of her ward’s propensity for such conduct, but took no steps to prevent the underlying plaintiff from being abused.

Metropolitan, in turn, denied coverage for the underlying suit on several grounds. First, the policies’ definition of “bodily injury” specifically identified several events that would not be considered “bodily injury,” including “the actual, alleged or threatened sexual molestation of a person.” The policies contained exclusions applicable to:

Abuse. We do not cover bodily injury caused by or resulting from the actual, alleged or threatened sexual molestation or contact, corporal punishment, physical abuse, mental abuse or emotional abuse of a person. This exclusion applies whether the bodily injury is inflicted by you or directed by you for another person to inflict sexual molestation or contact, corporal punishment, physical abuse, mental abuse or emotional abuse upon a person.

and:

Intentional loss. We do not cover bodily injury or property damage which is reasonably expected or intended by you or which is the result of your intentional and criminal acts or omissions.

In considering these defenses, the United States District Court for the District of Maine held on motion for summary judgment that the underlying suit contained allegations not falling entirely within the scope of these exclusions, thus creating a duty to defend.

On appeal, Metropolitan argued that the underlying suit should be construed primarily as one alleging sexual abuse and thus falling outside of the policies’ definition of bodily injury. Metropolitan argued that in the alternative, the two policy exclusions applied to the entirety of the allegations in the underlying suit.

With respect to Metropolitan’s first argument, the court observed that the underlying complaint contained several allegations that the underlying plaintiff was “repeatedly sexually and otherwise physically abused,” thus suggesting that he was subjected to physical abuse separate and apart from the alleged sexual assault. This raised the possibility that some of the allegations in the underlying complaint qualified as “bodily injury,” thus triggering the duty to defend.

While the court agreed that the policies’ exclusion for “abuse” was broader in scope, encompassing both sexual molestation and physical abuse, the court noted that the second sentence of the exclusion limited its application to actions committed by “you,” a term defined by the policies as the named insured, as well as certain residents of the household, including “any other person under the age of twenty-one in the care of” the named insured. The court agreed that a similar restriction was contained in the policies’ intentional acts exclusion.

In considering whether the alleged perpetrator could fit within this definition of “you,” the court observed that the underlying complaint did not allege sufficient facts from which to conclude that the perpetrator fit this criteria:

The complaint establishes that the alleged abuser was a minor ward of McCormack, but it does not state that he resided with her. Rather, the allegations permit the inference that he, like the victim, stayed only temporarily, though repeatedly, at McCormack’s home. … Given that inference, the youth would be a non-insured whose conduct would be outside the abuse exclusion under the reading of the policy we have described above. The same rationale — i.e., that the perpetrator might not be a covered individual under the policy — also potentially places his conduct outside the policy exclusion for intentional acts.

The court therefore agreed that because the complaint was unclear as to whether the perpetrator qualified as “you,” it was proper for the lower court to have concluded the exclusions inapplicable for duty to defend purposes.

- See more at: http://www.traublieberman.com/insurance-law/2014/0610/4685/#sthash.3e4OYIlR.dpuf

In its recent decision in Metropolitan Prop. & Cas. Ins. Co. v. McCarthy, 2014 U.S. App. LEXIS 10622 (1st Cir. June 5, 2014), the United States Court of Appeals for the First Circuit, applying Maine law, had occasion to consider the application of policy exclusions for sexual assault and abuse.

Metropolitan insured Dixon McCormack under a series of homeowners policies. Ms. McCormack sought coverage under these policies for an underlying lawsuit alleging brought by a friend of Ms. McCormack’s on behalf of her son. The suit alleged the boy was sent to stay at the McCormack residence during a school vacation. During this time, he was alleged to have been “repeatedly sexually and otherwise physically abused” by another individual for whom Ms. McCormack was a legal guardian. Similar incidents allegedly took place over the next two years. The complaint alleged that Ms. McCormack knew of her ward’s propensity for such conduct, but took no steps to prevent the underlying plaintiff from being abused.

Metropolitan, in turn, denied coverage for the underlying suit on several grounds. First, the policies’ definition of “bodily injury” specifically identified several events that would not be considered “bodily injury,” including “the actual, alleged or threatened sexual molestation of a person.” The policies contained exclusions applicable to:

Abuse. We do not cover bodily injury caused by or resulting from the actual, alleged or threatened sexual molestation or contact, corporal punishment, physical abuse, mental abuse or emotional abuse of a person. This exclusion applies whether the bodily injury is inflicted by you or directed by you for another person to inflict sexual molestation or contact, corporal punishment, physical abuse, mental abuse or emotional abuse upon a person.

and:

Intentional loss. We do not cover bodily injury or property damage which is reasonably expected or intended by you or which is the result of your intentional and criminal acts or omissions.

In considering these defenses, the United States District Court for the District of Maine held on motion for summary judgment that the underlying suit contained allegations not falling entirely within the scope of these exclusions, thus creating a duty to defend.

On appeal, Metropolitan argued that the underlying suit should be construed primarily as one alleging sexual abuse and thus falling outside of the policies’ definition of bodily injury. Metropolitan argued that in the alternative, the two policy exclusions applied to the entirety of the allegations in the underlying suit.

With respect to Metropolitan’s first argument, the court observed that the underlying complaint contained several allegations that the underlying plaintiff was “repeatedly sexually and otherwise physically abused,” thus suggesting that he was subjected to physical abuse separate and apart from the alleged sexual assault. This raised the possibility that some of the allegations in the underlying complaint qualified as “bodily injury,” thus triggering the duty to defend.

While the court agreed that the policies’ exclusion for “abuse” was broader in scope, encompassing both sexual molestation and physical abuse, the court noted that the second sentence of the exclusion limited its application to actions committed by “you,” a term defined by the policies as the named insured, as well as certain residents of the household, including “any other person under the age of twenty-one in the care of” the named insured. The court agreed that a similar restriction was contained in the policies’ intentional acts exclusion.

In considering whether the alleged perpetrator could fit within this definition of “you,” the court observed that the underlying complaint did not allege sufficient facts from which to conclude that the perpetrator fit this criteria:

The complaint establishes that the alleged abuser was a minor ward of McCormack, but it does not state that he resided with her. Rather, the allegations permit the inference that he, like the victim, stayed only temporarily, though repeatedly, at McCormack’s home. … Given that inference, the youth would be a non-insured whose conduct would be outside the abuse exclusion under the reading of the policy we have described above. The same rationale — i.e., that the perpetrator might not be a covered individual under the policy — also potentially places his conduct outside the policy exclusion for intentional acts.

The court therefore agreed that because the complaint was unclear as to whether the perpetrator qualified as “you,” it was proper for the lower court to have concluded the exclusions inapplicable for duty to defend purposes.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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