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(Article from Insurance Law Alert, November 2015)

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A California federal district court ruled that because language in a sexual misconduct policy exclusion was ambiguous, the insurer was obligated to provide a defense.  AIG Prop. Cas. Co. v. William H. Cosby et al., No. 15-04842 (C.D. Cal. Nov. 13, 2015). 

The coverage dispute arose out of a lawsuit filed by Janice Dickinson against Bill Cosby alleging defamation and intentional infliction of emotional distress.  Dickinson claimed that in response to her allegations of assault and rape, Cosby made numerous public statements that injured her reputation.  Cosby tendered defense of the action to his homeowners and excess insurer.  The insurer defended under a reservation of rights and brought suit seeking a declaration that it had no duty to defend and reimbursement of defense costs.  Although the insurer did not dispute that the policies covered claims for defamation and intentional infliction of emotional distress, it argued that the claims fell within a sexual misconduct exclusion, which barred coverage for “personal injury arising out of any actual, alleged, or threatened by any person . . . sexual molestation, misconduct, or harassment.”  The court disagreed and granted Cosby’s motion to dismiss, the insurer’s action.

The court concluded that the phrase “arising out of” in the sexual misconduct exclusion was ambiguous.  Noting a split in California case law, the court stated that “the sexual misconduct exclusion could be reasonably read to require that Dickinson’s claims merely relate to sexual misconduct, or that Dickinson’s claims be proximately caused by the sexual misconduct.”  The court went on to explain that the exclusion would not apply under the proximate causation interpretation because the alleged rape and assault did not give rise to the defamation claim; rather, the crux of the underlying claims were Cosby’s denials and personal statements about Dickinson’s credibility.  The court also noted that even if the exclusion was unambiguous, the insurers would still be obligated to defend the suit because some of the underlying claims were unrelated to the alleged sexual misconduct and would thus still potentially be covered by the policies.