The Archdiocese of New York v. The 32 Insurance Companies and Groups That Issued Policies to the Archdiocese from September 1956 Through December 2000

Litigation over insurance coverage for CVA-revived (Child Victims Act) lawsuits apparently began even before the CVA went into effort on August 14, 2019.  On July 1, 2019, the New York Daily News reported:

The New York Archdiocese has sued its insurance companies to demand legal protection and coverage as it braces for exposure it will face once sex abuse victims begin filing lawsuits next month under New York’s Child Victims Act. 

The complaint by the archdiocese, filed last week in Manhattan Supreme Court, lists more than two dozen insurers as defendants, and claims "the insurers ... intend to dispute, limit and/or deny coverage for claims and lawsuits alleging sexual abuse and physical abuse.” Several of the defendants listed in the complaint are members of the Chubb Group of Insurance Companies.

Thirty-two insurance companies and groups are named as defendants in that New York County, Supreme Court declaratory judgment action, which seeks:

On Count I, the Archdiocese requests that this Court enter a declaratory judgment in favor of the Archdiocese against each of the Insurers;

On Count II, the Archdiocese requests that this Court enter a judgment awarding the payment of damages in an amount equal to the amount owed under the INA Insurance Policies, to be proven at trial, as well as pre- and post-judgment interest; [and]

On Count III, the Archdiocese requests that this Court enter a judgment awarding its attorneys’ fees, costs, and disbursements in connection with INA’s bad faith refusal to defend the Archdiocese against the Norman Suit, in an amount to be proven at trial, as well as pre- and post-judgment interest[.]

The predicate "justiciable controversy" for the Archdiocese's action relates to Chubb Insurance's declination of coverage for "the Norman Suit", which was commenced on April 18, 2019 against the Archdiocese and other religious corporations (a church, a school, and the Catholic School Region of Staten Island).  By letter dated May 14, 2019, Chubb had denied liability coverage under the INA policies to the Archdiocese for the Norman Suit based on (1) lack of an alleged "occurrence"; and (2) punitive damages not being covered.  Chubb also reserved its right to deny coverage based on: (1) possible late notice; and (2) the possible time-barred nature of the Norman Suit:

The INA Policies provide coverage where the insured shall become legally obligated to pay as damages because of "bodily injury" or "personal injury" to which this insurance applies caused by an "occurrence" as those terms are defined by the policies. The INA Policies generally define "occurrence" as an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage "neither expected nor intended" from the standpoint of the insured. 

In the Norman Action, Plaintiff alleges that the Archdiocese "knew and/or reasonably should have known, and/or knowingly condoned, and/or covered up, the inappropriate and unlawful sexual activities of Father Fernando and Monsignor Brennan[.)" Plaintiff alleges that "[a)t about the time" such alleged misconduct was occurring, the Archdiocese and other Defendants "were notified that Father Fernando was engaging in sexually inappropriate conduct with minor children parishioners[.)" Plaintiff further alleges that Defendants "were put on notice of Father Fernando and Monsignor Brennan's improper and inappropriate actions with minors" and that, "[a]t all times material hereto, Defendants[')...actions were willful, wanton, malicious, reckless, and outrageous in their disregard for the rights and safety of Plaintiff, which amount to conduct equivalent to criminality." 

Based on the foregoing, Plaintiff does not allege an "occurrence" under the INA Policies. Rather, Plaintiff alleges that the Archdiocese acted willfully, wantonly, maliciously, recklessly, outrageously and criminally with respect to the alleged abuse perpetrated against Plaintiff, a minor, by Fr. Fernando and Msgr. Brennan. Thus, Plaintiff alleges to have sustained injury that was expected and/or intended from the standpoint of the Archdiocese. These allegations do not give rise to an "occurrence" under the INA Policies. Therefore, Chubb has no defense and indemnification obligations in connection with the Norman Action and denies coverage accordingly. 

Similarly, Plaintiff seeks punitive damages for Defendants' alleged misconduct. Amounts that are punitive in nature do not constitute damages under the INA Policies. Furthermore, in New York, punitive damages are uninsurable as a matter of law. Accordingly, Chubb denies coverage under the INA Policies in connection with Plaintiff's claim for punitive damages in the Norman Action. 

With regard to the Archdiocese notice obligations under the INA Policies, the INA Primary Policies are amended via endorsement to provide that, in the event of an occurrence, written notice shall be given by or on behalf of the insured as soon as practicable after such notice is received by the "Archdiocesan Service Corporation." Plaintiff's complaint alleges that the Archdiocese had knowledge of the alleged abuse by Fr. Fernando, but does not allege or discuss whether such information was ever received by the Archdiocesan Service Corporation. Similarly, Plaintiff alleges that the Archdiocese knew or should have known of the alleged abuse by Msgr. Brennan, but Plaintiff's complaint contains no allegation that such information was ever given to or received by the Archdiocesan Service Corporation. The INA Excess Policies require notice thereunder when the Archdiocese became aware that those policies might be implicated, but Chubb does not currently possess that information. As a result, Chubb is not in a position at this time to assess whether the Archdiocese complied with the notice provisions under the INA Policies. Therefore, Chubb reserves the right to deny coverage if and when Chubb obtains information that demonstrates that the Archdiocese breached the notice provisions of the INA Policies in this matter. 

Finally, it is not apparent from Plaintiff's complaint whether Plaintiff's action may be barred by the current statute of limitations. As noted above, the INA Policies only provide coverage in connection with the insured's legal obligation to pay damages in circumstances specifically defined by the policies. To the extent that an insured settles a claim for which it has no legal liability, no indemnification would be provided under the INA Policies. Chubb reserves its rights accordingly.

The INA policies at issue spanned the period 1971 to 1974, and careful readers will notice that no policy exclusions are cited in Chubb's declination letter as grounds for denying coverage.  Coverage geeks will know the reason Chubb's declination letter did not cite the expected or intended injury exclusion:  it didn't exist in commercial liability policies in the 1970s.  Pre-1986 ISO CGL policies instead incorporated the "expected or intended" aspect into the policies' definition of "occurrence":

“Occurrence” means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

According to Frederick J. Hunt, Jr.'s paper, Homeowners Insurance -- The First Decade, presented at the smoke-filled May 1962 meeting of the Casualty Actuarial Society,

The first true "Homeowners Policy," in the sense that the words are used today, was developed by the Insurance Company of North America. This policy was formally filed with the Insurance Department of Pennsylvania on August 11, 1950 and approved effective September 11, 1950. 

This policy, which was called "Homeowners Policy Multiple Form," was a true multiple line contract providing coverage previously available only under separate policies and described as Fire, Extended Coverage, Theft, Personal Liability, and Medical Payments. Since this was the first real answer to the problem of taking advantage of multiple line opportunities and at the same time coming up with a saleable product, the filing letter submitted with this policy represents a valuable document in any consideration of Homeowners rating.

If anyone has one of those INA policies lying around, please send it to me.  I'll pay the postage (and maybe a reasonable price).  I'm trying to nail down when multi-line homeowners policies began using the expected or intended harm exclusion.

Regardless, interested readers and coverage geeks like me can follow the progress of this DJ action at this NYSCEF docket.  I've set that e-docket to re-open in a Chrome tab one month for now.

09.17.19 Update ~~ Nothing new on the e-docket.  Rolling ahead another month. 

When Just a Reservation of Rights Letter Won't Do

HOMEOWNERS – INTENTIONAL ACT – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Encompass Ins. Co. v. Adelis
(Sup. Ct., Nassau Co., decided 11/23/2010)

Immutable Law of New York Insurance Coverage # 47:  Defending a bar fight case under a reservation of rights for two years without disclaiming coverage under a policy that does not define an "occurrence" as an accident will result in being found obligated to indemnify one's pugilistic insured for the injuries he admitted to have intentionally caused.

In January 2006, Encompass's insured James Adelis was involved in an altercation in a bar.  While pleading guilty to the related criminal charge of second degree assault in August 2006, Adelis acknowledged that he had intended to injure the person he hit, Kevin Smith, when he hit him.  In January 2007, Smith sued Adelis and the bar for personal injuries, alternatively alleging intentional tort and negligence causes of action against Adelis.

In February 2007, Encompass notified Adelis by letter that it was reserving its rights to deny liability coverage based on the policy's exclusion for bodily injury or property damage "[i]ntended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of one or more covered persons."  Encompass then undertook to defend Adelis in Smith's personal injury action for two years before commencing this declaratory judgment action in 2009 and moving for summary judgment.

In DENYING Encompass' motion for summary judgment and instead declaring that Encompass was obligated to defend and indemnify Adelis in the underlying Smith personal injury action, Nassau County Supreme Court Justice Ute Wolff Lally found that Encompass' attempt to deny coverage by commencing this declaratory judgment action after defending Adelis for two years was "woefully late" and precluded by New York Insurance Law § 3420(d): 

A reservation of rights letter does not constitute a disclaimer of coverage, nor does it negate an insurer's obligation to provide a timely rejection. (Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 2009 WL 1370819 (Supreme Court New York County 2009), citing New York Cent. Mut. Fire Ins. Co. v Hildreth,  40 AD3d 602). In fact, "a reservation of rights letter ... has no relevance to the question of timely notice of disclaimer. (NYAT Operating Corp. v GAN National Insurance Company, 46 AD3d 287, 288, lv den., 10 NY3d 715, citing Hartford Ins. Co. v County of Nassau, supra at p. 1029).

*  *  *  *  *

Encompass never disclaimed coverage for James Adelis.  Assuming, arguendo, that its complaint here constituted its disclaimer, it was untimely as a matter of law.  Encompass has been defending James Adelis in the underlying personal injury action for over two year [sic] and that action was commenced over one year after the defendant James Adelis' [sic] pled guilty to assault in the third degree. Thus, Encompass' disclaimer based upon the plaintiff's allegations in the underlying action, the policy exclusion and James Adelis' guilty plea was woefully late: [sic] All of those facts were known to Encompass for virtually the entire time that it defended James Adelis.  Thus, the pivotal question here becomes whether coverage exists under the policy but for the exclusion relied upon by Encompass.  (See Desire v Nationwide Mutual Fire Insurance Company, supra).

The subject policy covers a claim or suit for "personal injury" or "bodily injury" caused by an "occurrence. "  The policy defines an "occurrence" as, inter alia, "(a)n offense including a series of related offenses, committed during the policy period which results in personal injury."  James Adelis' alleged acts for which coverage is sought under the policy fit the description of an "occurrence." Accordingly, coverage for James Adelis' acts exists under the policy's terms, absent the application of an exclusion.  Since Encompass is relegated to rely solely upon the policy's exclusion to defeat James Adelis' claim for coverage, Encompass' failure to timely disclaim results in coverage.

It is important to note that the subject policy did not define an "occurrence", at least with respect to liability coverage for bodily injury and property damage, as an accident.  Had it done so, Encompass may have been able successfully to argue that its failure earlier to disclaim did not violate Insurance Law § 3420(d) because the underlying plaintiff's intentionally caused injuries did not result from a covered "occurrence" in the first instance, regardless of the policy's intentional or criminal acts exclusion. 

It is also important to note that Justice Lally incorrectly quoted the "occurrence" definition for the policy's "personal injury" coverage, which insurance coverage mavens know is defined as and protects against injury arising out of libel, slander, false arrest, wrongful eviction, wrongful detention, wrongful entry, malicious prosecution, false imprisonment, invasion of privacy or defamation of character.  As applicable to bodily injury and property damage coverage, however, the policy defined "occurrence" to mean "[a]n event, or a series of related events resulting from continuous or repeated exposure to the same general conditions, that causes bodily injury or property damage during the policy period[.]"  Thus, without any policy requirement that an "occurrence" be accidental in nature, Adelis' act of intentionally punching Smith qualified as an "occurrence" under the policy because it was an "event ... that cause[d] bodily injury[.]"

Homeowners Insurer Ordered to Defend Teenager Who Allegedly Injured Another Teenager at a Party

HOMEOWNERS – EXPECTED OR INTENDED INJURY EXCLUSION – DUTY TO DEFEND
Rhodes v. Liberty Mut. Ins. Co.
(2d Dept., decided 11/17/2009)

The standard homeowners policy excludes liability coverage for bodily injury or property damage which is expected or intended by an insured.  With a liability insurer's duty to defend being broader that its duty to indemnify, the allegations of a complaint are what, in most cases, dictate whether the insurer must defend its insured notwithstanding facts that may indicate an intentionally caused harm.  It is only in cases where the insurer can establish that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision that it can disregard complaint allegations and deny both the duty to defend and the duty to indemnify.

Although the facts underlying this decision are scant, it appears Devon Rhodes and Alava David were at a teenage party at which alcohol was being served.  Rhodes reportedly caused injury to David, and David brought a personal injury action against her.  Although the personal injury complaint alleged that Rhodes' "recklessness, carelessness, and negligence" caused serious personal injuries to David, Liberty Mutual Insurance Company apparently declined to defend or indemnify Rhodes under her parents' homeowners policy with Liberty, citing the policy's intended or expected harm exclusion.  Rhodes then commenced this declaratory judgment action for liability coverage in relation to the underlying personal injury action.

Suffolk Supreme denied Liberty's motion and granted plaintiff's cross motion for summary judgment on the issue of defense coverage owed with respect to the underlying personal injury action.  In AFFIRMING that order, the Second Department agreed that the underlying complaint's allegations triggered defense coverage and held:

Generally, it is the insured's burden to establish coverage and the insurer's burden to prove the applicability of an exclusion (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 218-220; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061). Moreover, an insurer's duty to defend is broader than its duty to indemnify, and arises whenever the allegations in the complaint in the underlying action, construed liberally, suggest a reasonable possibility of coverage, or where the insurer has actual knowledge of facts establishing such a reasonable possibility (see Frontier Insulation Contrs., v Merchants Mut. Ins. Co., 91 NY2d 169, 175; Burlington Ins. Corp. v Guma Constr. Corp.,AD3d, 2009 NY Slip Op. 07216 [2d Dept 2009]; City of New York v Insurance Corp. of N.Y., 305 AD2d 443). As such, the duty to defend arises if the claims against the insured arguably arise from a covered event, even if the claims may be meritless or not covered, either because the insured is not liable or because the event is later determined outside the policy's scope of coverage (see Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137; Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65-66; Physicians' Reciprocal Insurers v Loeb, 291 AD2d 541, 542). An insurer can be relieved of its duty to defend only "if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45; see Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652; Physicians' Reciprocal Insurers v Giugliano, 37 AD3d 442, 444).

Here, the plaintiffs established that Devon Rhodes (hereinafter Rhodes) was entitled to coverage under the homeowner's insurance policy issued to her parents (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d at 218, 220; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061). In contrast, the defendant Liberty Mutual Insurance Co. (hereinafter Liberty) failed to establish that "there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d at 45). The complaint in the underlying action alleges, inter alia, that while attending a teenage party at which alcohol was served, Rhodes' "recklessness, carelessness, and negligence" caused serious personal injuries to Alava David, the plaintiff in the underlying action. Construing the complaint liberally, a possible legal or factual basis exists by which Rhodes's conduct may be deemed accidental and, therefore, a covered "occurrence" under the subject Liberty policy, and not excluded from coverage on the ground that the personal injuries allegedly sustained by David were expected or intended by Rhodes (see Frontier Insulation Contrs., v Merchants Mut. Ins. Co., 91 NY2d 169, 175; City of New York v Insurance Corp. of N.Y., 305 AD2d 443; see also Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137-138; Merchants Ins. of N.H., Inc. v Weaver, 31 AD3d 945).

In New York and other jurisdictions there are a number of a "harm inherent in the nature of the act" cases in which liability insurers have successfully argued that the nature of the intentional act itself is such that the insured must have expected or intended the harm, negating liability coverage.  See, e.g., Allstate Ins. Co. v. Mugavero, 79 NY2d 153 (1992).  This apparently was not such a case.

Food Fighting Coverage -- Middle School Cafeteria Garbage Can Hurler Entitled To Defense & Indemnification

HOMEOWNERS – INTENTIONAL ACT – "OCCURRENCE" – EXPECTED/INTENDED HARM EXCLUSION
Medrano v. State Farm Fire & Cas. Co.
(2nd Dept., decided 9/2/2008)

While Medrano was working as a middle school aide monitoring students during lunch in the cafeteria, a "food fight" broke out among eighth-grade students. [The decision doesn't indicate at what volume and velocity of tossed food and number of combatants such a fracas qualifies as a "food fight" or whether the aide received battle pay for her station in the cafeteria.] The food fight escalated into the use of non-foodstuff, heavy artillery, when student Robert Filer threw a garbage can into the air, striking and injuring Medrano.

At the time of the incident, Robert qualified as an "insured" under his parents homeowners insurance policy with State Farm. Medrano and her husband sued Robert, alleging that he negligently, carelessly, and recklessly caused Medrano's injuries. State Farm denied liability coverage for the claims asserted against Robert in the personal injury action stating, inter alia, that the alleged incident did not qualify as an "occurrence," which the policy defined as an accident, and that the policy contained an exclusion for a claim for bodily injury that either was expected or intended by the insured or was the result of willful and malicious acts of the insured.

The Medranos then commenced this action for a judgment declaring that State Farm was obligated to defend and indemnify Robert in connection with the underlying personal injury action. Queens Supreme granted the Medranos' motion for summary judgment declaring that State Farm was so obligated, granted Filer's cross motion for the same relief, and denied State Farm's cross motion for summary judgment. The court reasoned, in part, that the complaint in the underlying action alleged negligence. It further based its determination on the deposition testimony of Filer, which indicated a lack of intent to injure Medrano, ruling that this was sufficient to bring the underlying personal injury action within the parameters of the policy, and to create a duty to defend. State Farm appealed.

In AFFIRMING the lower court's order, the Second Department held:

State Farm failed to demonstrate its entitlement to judgment as a matter of law since it did not show that the allegations of the complaint fell wholly outside coverage or within any valid policy exclusion. The allegations of negligence in the complaint implied an unintentional or unexpected event which potentially gives rise to a covered claim as against Filer (see Barry v Romanosky, 147 AD2d 605).

The plaintiffs and Filer demonstrated their prima facie entitlement to judgment as a matter of law by submitting evidence that Filer did not intentionally cause injury to the plaintiff, and that although such injury may have been the unintended result of Filer's conduct, it was not the result of a willful and malicious act (see Slayko v Security Mut. Ins. Co., 98 NY2d 289, 293; Allegany Co-op Ins. Co. v Kohorst, 254 AD2d 744, 745; Baldinger v Consolidated Mut. Ins. Co., 15 AD2d 526, affd 11 NY2d 1026). In opposition, State Farm failed to raise a triable issue of fact.

Middle school cafeteria + food fight + flying garbage can + injury- proof of intent to injure = coverage, at least in the opinion of the 2nd Department.