Jodee Edwards had a home and auto insurance policy issued by insurer Encompass that excluded coverage for loss “arising out of sexual molestation, corporal punishment, or physical or mental abuse.” Edwards was sued in January, 2016 for negligent supervision of her teenage son based on the following events, using initials for names, due to the sensitive nature of the conduct and injuries:
One HES, a female teenage minor, while aboard a cruise ship, was furnished alcohol by Edwards’s son EH and his older brother, drinking until she was so intoxicated she was unable to consent to sex. Then EH and another teenage boy sexually assaulted her. Relying upon the molestation exclusion of its policy, Encompass sued Edwards for a court declaration that it was not obligated to defend Edwards in the lawsuit or cover damages from HES’s injuries.
A federal district court in Ohio, applying Ohio law, granted summary judgment to Encompass based on the molestation exclusion. Its decision, filed August 14, 2017, is entitled Encompass Home & Auto Insurance Company v. Edwards, and is reported at 2017 U.S. Dist. LEXIS 128713.
Employing the “scope of the allegations” test, the court said that, when the facts alleged in a complaint arguably or potentially fall within the scope of coverage of insurance policy, an insurer must defend the insured in the lawsuit. Any doubts regarding coverage must be resolved in favor of the insured, the court said. However, if none of the claims asserted in a complaint against the insured is arguably or potentially within the scope of the insurer’s policy, the insurer “obviously” has no duty to defend its policyholder.
The court then provided instruction as to how to determine whether claims in a complaint arguably or potentially fall within the scope of coverage. The court stated that it must compare the language of the policy, including any exclusions, with the claims asserted in the complaint. The court must strictly construe policy exclusionary language. For an insurer to defeat coverage, it must demonstrate that the proviso on which it relies is reasonably capable of the construction it favors – and no other.
The court pointed out that insurance policies are contracts after all, their terms are to be given their ordinary and plain meanings, and the court must examine the contract as a whole, presume the parties’ intent is reflected in the contract language, and give effect to that intent.
Interpreting the molestation exclusionary language of the subject policy, the court relied on Ohio precedent set by cases involving similar facts. Primary reliance was placed upon a 2016 Ohio state court appellate decision, World Harvest Church v. Grange Mut. Cas. Co., 68 N.E. 3rd 738, where the parents of a minor child physically abused at a church daycare facility sued the employee who inflicted the abuse as well as the church. The church’s insurance policy excluded coverage for bodily injury “arising out of the actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured,” as well as damage arising out of the negligent employment and supervision of a person for whom an insured is legally responsible. Finding that the abuse exclusion does not limit itself to bodily injury claims arising from direct liability as opposed to secondary, or vicarious liability for the same conduct, the court ruled that the respondeat superior claim against the employer church was excluded from coverage.
Another case upholding a molestation exclusion in a vicarious liability setting was Crow v. Dooley, where the insured sought coverage for a lawsuit that alleged she negligently supervised her son, who sexually assaulted and molested a minor. The court held that the negligence claims were excluded from coverage under the unambiguous language of the sexual molestation provision of the policy.
In the section of the subject decision applying the exclusion to the subject molestation claim, Edwards argued that the operative complaint included an allegation that her negligent supervision led to the furnishing of alcohol to the victim in violation of Ohio law. Therefore, Edwards argued, Encompass had a duty to defend and indemnify her for the “separate and distinct allegations of negligent supervision against Edwards related to the intoxication of” the young victim.
The problem with the argument, the court pointed out, was that, although the operative complaint did allege that Edwards failed to prevent the victim from obtaining alcoholic beverages and was therefore negligent under Ohio law, nowhere did the amended complaint allege that the victim suffered injury as a result of drinking alcohol, and nor did the complaint allege a separate cause of action against Edwards for her failure to prevent the victim from obtaining alcoholic beverages in violation of Ohio law. Rather, the complaint made it clear that the injury suffered by the victim was due to the sexual assault, not the consumption of alcoholic beverages. Therefore the court concluded that the claim asserted against Edwards fell within the scope of the exclusion for injuries arising out of sexual molestation, because all of the victim’s injuries were alleged to have resulted from the sexual assault.
Finally, the court found it significant that to the extent the complaint could be construed as alleging a separate claim against Edwards for the victim’s intoxication, Encompass noted that Edwards’s insurance policy limited its coverage to claims for bodily injury and property damage, and, since there was no allegation in the operative complaint that the victim suffered bodily injury or property damage from consuming alcohol, it follows that the policy did not cover any separate and distinct allegations of negligent supervision against Edwards related to the intoxication of the victim.
As a consequence, under Ohio law and based on the plain meaning of the policy wording, the claim for negligent supervision against Edwards fell outside the scope of coverage, and Encompass had no duty to defend or indemnify Edwards in the bodily injury lawsuit. Accordingly, the court granted the insurer’s motion for summary judgment on coverage.
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