• Key point. Church insurance companies may have no duty to defend clergy or lay workers who molest children, since such conduct represents intentional misconduct that generally is not covered under liability insurance policies. However, such exclusions do not necessarily apply to churches that are sued for negligently failing to adequately screen or supervise the offender.

A federal court in Rhode Island ruled that a diocese’s insurance company had a legal duty to defend diocesan officials who were sued as a result of the sexual molestation of several children by Catholic priests. Nine lawsuits were brought against the Roman Catholic Diocese of Providence, Rhode Island, and various of its officials, by persons who claim that they were sexually assaulted by priests of the diocese between 1972 and 1975. The lawsuits were brought against the individual priests accused of perpetrating the assaults, the diocese and various diocesan officials. The victims claimed that the diocese and its officials were liable for their injuries on the ground that they were negligent in hiring and supervising the priests and that they failed to take appropriate preventive action after learning of the priests’ propensities. The diocese’s insurance company asked a federal court to rule that it had no duty to defend the diocese or its officials, or to pay any damages awarded to the victims as a result of their lawsuits. The insurance company claimed that it had no duty to defend the diocese or pay any judgments since (1) the diocese had violated the insurance policy by not providing it with timely notice of the claims, (2) the priests’ actions were intentional, and the policy excluded any coverage for intentional acts, and (3) the victims sought punitive damages which were excluded under the policy.

The court rejected the insurance company’s position, and ordered it to defend the diocese and its officials in the lawsuits brought by the alleged molestation victims. The court pointed out that under Rhode Island law “an insurer’s duty to defend is broader than its duty to indemnify,” and that

EXT a duty to defend arises if the factual allegations contained in the complaint raise a reasonable possibility of coverage. An insurer is not relieved of its duty to defend even though additional facts might be developed that would negate coverage. Nor is an insurer relieved of its duty to defend on the ground that the claim against the insured lacks merit. In short, determining whether an insurer has a duty to defend requires nothing more than comparing the allegations in the complaint with the terms of the policy. If the facts alleged in the complaint fall within the risks covered by the policy, the insurer is obligated to defend. Otherwise, it is not.

The court also rejected the insurance company’s claim that it was excused from having to defend the lawsuits since the diocese failed to disclose or report the alleged sexual abuse. The court pointed out that for the insurance company to prevail on this claim it would have to prove that the incidents of molestation actually occurred and that the diocese was aware of them. The court correctly noted that these are the very facts that the victims would have to prove to hold the diocese liable for their injuries, and it would be unthinkable for the diocese’s own insurance company to attempt to prove the victims’ case for them! Such efforts “would be inconsistent with [the insurance company’s] obligations as an insurer. The principal purpose of liability insurance is to protect policy holders from claims asserted by third parties based on matters covered by the policy. By taking action that makes a policy holder liable for such claims, an insurer would subvert the purpose of the policy and violate one of the most fundamental duties it owes to its insured.”

Finally, the court also rejected the insurance company’s claim that it had no duty to “indemnify” the diocese against any judgments awarded in favor of the alleged molestation victims. The insurance company insisted that the policy specifically excluded coverage for intentional acts or punitive damages. The court agreed that the insurance company would not have a legal duty to defend or indemnify priests who are found to have engaged in intentional or criminal acts of molestation. However, this exclusion did not apply to the diocese itself, which was being sued not for any intentional act but rather for negligently failing to screen or supervise the priests.

This case is important for the following reasons: (1) It illustrates the almost universal view that churches and denominational agencies will not be liable for a worker’s sexual misconduct unless they were aware (or in the exercise of reasonable care should have been aware) that it was occurring and took no action to stop it. (2) Church workers who engage in sexual misconduct should not expect the church insurance policy to provide them with a legal defense in the event of a lawsuit, or contribute toward any verdict or settlement entered against them. (3) Church insurance policies that deny coverage for intentional acts of sexual misconduct do not preclude coverage for churches and denominational agencies that are sued on the basis of negligent selection or supervision of the offender. (4) As the court pointed out, “an insurer’s duty to defend is broader than its duty to indemnify.” Aetna Casualty & Surety Company v. Kelly, 889 F. Supp. 535 (D.R.I. 1995). [ Negligence as a Basis for Liability, Denominational Liability]

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