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Church's Insurance Policy Prevents Coverage

Sexual injuries to three minors at a church preschool aren't covered by church's insurance policy.

North Carolina
Key point 10-16.7. A liability insurance policy provides a church with a legal defense to lawsuits claiming that the church is responsible for an injury, and it will pay any adverse settlement or judgment up to the limit specified in the policy. Liability insurance policies exclude a number of claims. For example, some policies exclude injuries based on criminal or intentional acts and claims for punitive damages. A church has an obligation to promptly notify its insurer of any potential claim, and to cooperate with the insurer in its investigation of claims.

* A federal district court in North Carolina ruled that an insurance company properly denied coverage to a church for sexual injuries to three minors at a church-owned preschool due to a sexual misconduct exclusion in the church's insurance policy. A guardian of three minor children sued a church, its preschool, and a regional denominational agency (the "church defendants") after learning that the victims had been sexually assaulted by a 4-year-old preschool enrollee who was "acting out" sexual activity. The lawsuit alleged that the preschool director approved the perpetrator's enrollment in the preschool, despite being informed that he "had been sexually abused and had a history of acting-out sexually with other children." The lawsuit further alleged that the church defendants were negligent in their supervision of the perpetrator, thereby allowing him to continue this inappropriate "acting-out sexually" on other members of his preschool class.

A question arose as to the coverage of the victims' injuries under the church's liability insurance policy. The parties asked a federal court to issue a "declaratory judgment" addressing the availability of insurance under the church's policy. The policy contained the following "abuse and molestation" exclusion:

This insurance does not apply to "bodily injury," "property damage," or "personal and advertising injury" arising out of:
  1. The actual or threatened abuse or molestation by anyone of any person while in the care, custody, or control of any insured; or
  2. The negligent:
    1. Employment;
    2. Investigation;
    3. Supervision;
    4. Reporting to the proper authorities, or failure to so report;
    5. Retention of a person whom any insured is or ever was legally responsible and whose conduct would be excluded [by this exclusion].

The church defendants claimed that this exclusion was ambiguous because the terms "abuse" and "molestation" were not defined by the policy, and that these terms did not apply to the behavior engaged in by the 4-year-old perpetrator since "to abuse" or "to molest" requires an element of intent that young children do not possess.

The court concluded that the abuse and molestation exclusion was not ambiguous. It noted that "there is nothing in the language of the exclusion to indicate that the alleged abuse must be sexually motivated or calculated to arouse the person or persons involved in the offending conduct; the [perpetrator's behavior] falls within the plain meaning of the words 'abuse' and 'molestation' irrespective of the [his] subjective state of mind."

The church defendants also argued that the exclusion did not apply to them since they had not engaged in abuse or molestation. Rather, they were being sued for negligence in the enrollment and supervision of the perpetrator. The court disagreed: "The exclusion applies to the injury at issue, not the pleaded cause of action. In other words, the issue is whether the alleged bodily injury arose from sexual molestation—not whether another individual's alleged negligence arose out of the sexual molestation …. The exclusion specifically applies to bodily injury arising out of abuse or molestation by anyone of any person. Here, the injuries to minor plaintiffs are a result of molestation, and therefore fall within the exclusion."

Application. According to our research, sexual molestation of minors remains one of the leading causes of church litigation. Yet, some church insurance policies exclude these cases from coverage, meaning that the church must retain and compensate its own attorneys, and pay any settlement or judgment. Church leaders should carefully review their general liability policy and determine if it contains such an exclusion. If it does, contact your insurance agent to request that sexual misconduct be added to the policy. This usually requires a separate endorsement and payment of an additional premium. Failure to confirm coverage for sexual misconduct exposes a church to potentially significant defense costs and damages.

It is also important to note that the court rejected the church defendants' argument that the exclusion did not apply to them since they were being sued for negligence, not abuse or molestation. Erie Insurance Exchange, 690 F.Supp.2d 410 (W.D.N.C. 2010).

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  • July 1, 2011

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