Recent Developments in Federal Courts Regarding Insurance

A federal appeals court ruled that an insurance policy covered two denominational agencies that were sued as a result of the sexual misconduct of an affiliated pastor, despite the fact that the policy excluded sexual misconduct claims.

Church Law and Tax1999-07-01


Key point. Church liability insurance policies generally cover sexual misconduct claims despite the exclusion of intentional acts, since churches ordinarily are sued in such cases as a result of their alleged negligence rather than their intentional acts.

A federal appeals court ruled that an insurance policy covered two denominational agencies that were sued as a result of the sexual misconduct of an affiliated pastor, despite the fact that the policy excluded sexual misconduct claims. This case will have a direct impact on the interpretation of church insurance policies, since it is a ruling by the second highest level of court in America. The facts of the case can be quickly stated. A learning disabled woman claimed that she had been sexual assaulted by an ordained minister on several occasions at a state school for the mentally handicapped. The minister served as a chaplain at the school. The woman sued the minister for injuries she allegedly suffered as a result of these assaults. She also sued the national denomination (the “national church”) with which the minister was affiliated, and a regional denominational agency (the “regional church”). She claimed that the national and regional churches had been negligent in training, supervising, placing, and monitoring the chaplain, who eventually was indicted for alleged sexual contact with three mentally handicapped individuals. The chaplain was never an agent or employee of the national or regional churches, but graduated from a seminary affiliated with the national church and was listed in the national church’s “clergy roster” as a retired pastor.

The national church had an insurance policy containing both comprehensive general liability and “umbrella” liability provisions. The comprehensive general liability provision provided nationwide coverage for the national church. The umbrella liability provision covered the national church and about 40 regional churches. Both the comprehensive general liability and umbrella liability provisions obligated the insurance company to pay “damages because of bodily injury or property damage to which this insurance applies,” but the policies explicitly require that “the bodily injury or property damage must be caused by an occurrence.” An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general conditions.” Both policies excluded “bodily injury or property damage expected or intended from the standpoint of the insured.”

The insurance company asked a federal district court to dismiss the case on the ground that the chaplain’s conduct had been “intended” and therefore was excluded from any coverage under the terms of the policy. The district court declined to do so, and ruled that the policies did provide coverage for the national and regional churches. The insurance company appealed.

The federal appeals court began its opinion by noting that the policy provisions quoted above did not arise by accident:

[I]t was confusion about what is an accident that spurred the definitional changes leading to the current form of the exclusions. Before 1966, comprehensive general liability policies generally referred simply to an accident, but continued litigation and uncertainty over this term led to the substitution of the word occurrence. In 1972, after complaints that this definition was too restrictive, the definition of occurrence was changed to 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. The policies here essentially track this definition ….

The court observed that “the language of the exclusions … is still vague enough to allow for generous amounts of litigation.” However, it concluded that under Illinois law (that law applicable to this case) it was clear that the victim’s allegations of negligent hiring fell within the definition of “occurrence.” It added that “if a complaint potentially supports a ground for recovery, the insurer must defend the entire complaint.” The court, in rejecting the insurance company’s argument that the exclusion of intentional acts precluded coverage, observed: “Here, negligent training was not an intentional tort, and [the chaplain’s] acts are not the insureds’ intentional acts. Thus, the insurance policy did not exclude the acts, and [the insurer] has a duty to defend.”

The insurance company also pointed out that the policies in question provided for coverage attributable to “any negligent act, error and omission of the insured arising out of the performance of professional services for others in the insured’s capacity as a pastoral counselor.” This coverage, however, did not apply to “licentious, immoral or sexual behavior intended to lead to or culminating in any sexual act.” The insurance company insisted that this exclusion applied in this case. Once again, the court disagreed, noting that even if the chaplain had been acting as a pastoral counselor “the insureds were not, since [he] was not working for them at the time.”

Application. This case is significant for a number of reasons, including the following:

(1) The case represents an opinion by a federal appeals court, and so it will be given great deference by other courts.

(2) The court concluded that sexual assaults committed by clergy represent a covered “occurrence” under a general liability insurance policy.

(3) The court concluded that the “intentional misconduct” exclusion under a church’s insurance policy does not apply to lawsuits brought against the church as a result of a minister’s acts of sexual misconduct. While the minister behaved intentionally, the church did not, and so the exclusion was not triggered. This is great news for churches. Churches generally cannot engage in “intentional” acts, and so the exclusion for such acts should not apply. The court specifically ruled that negligent training is not an intentional tort, and that a minister’s acts “are not the insureds’ intentional acts.”

(4) The court ruled that the policies in question covered the national and regional churches despite an exclusion for “licentious, immoral or sexual behavior intended to lead to or culminating in any sexual act” in the course of pastoral counseling. The court correctly pointed out that even if the chaplain had been acting as a pastoral counselor “the insureds were not.”

(5) Even if your insurance policy covers claims of negligent selection or supervision brought against the church as a result of the sexual misconduct of a church worker, you need to remember that the coverage may be limited. Read your policy carefully to determine any coverage limits. If you have any questions, discuss them with your insurance agent. Evangelical Lutheran Church in America v. Atlantic Mutual Insurance Company, 169 F.3d 947 (5th Cir. 1999). [Negligence as a Basis for Liability, Denominational Liability]

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