(Article from Insurance Law Alert, November 2016)
For more information, please visit the Insurance Law Alert Resource Center. Our November 2015 Alert reported on a California decision holding that language in a sexual misconduct policy exclusion is ambiguous and that the insurer was therefore obligated to defend defamation claims related to sexual misconduct allegations. AIG Prop. Cas. Co. v. William H. Cosby, 2015 WL 9700994 (C.D. Cal. Nov. 13, 2015). This month, a Massachusetts federal district court, faced with similar policy language and underlying allegations, reached the same conclusion. AIG Prop. Cas. Co. v. Green, 2016 WL 6637694 (D. Mass. Nov. 8, 2016).
The coverage dispute arose out of several lawsuits against Bill Cosby alleging defamation and intentional infliction of emotional distress. The plaintiffs claimed that in response to their allegations of assault and rape, Cosby made numerous public statements that injured their reputations. Cosby tendered defense of the action to AIG under homeowners and excess policies. AIG sought a declaration that it had no duty to defend or indemnify the suits, arguing that the claims fell within a sexual misconduct exclusion, which bars coverage for “personal injury arising out of any actual, alleged, or threatened by any person . . . sexual molestation, misconduct, or harassment.” The court disagreed, denied AIG’s summary judgment motion and granted Cosby’s motion in part.
The court ruled that there was no conflict between California and Massachusetts law regarding interpretation of “arising out of” in the sexual misconduct exclusion. The court stated that under both states’ law, the phrase is ambiguous. The court explained that while sexual misconduct is “no doubt related to and setting the stage for the defamation claims,” it is “multiple steps removed from the defamatory injury-causing statements.” In deeming the exclusion ambiguous, the court noted that a different policy provision (applicable only to “Limited Charitable Board Directors and Trustees Liability”) contained broader language excluding sexual misconduct claims (“arising out of, or in any way involving, directly or indirectly, any sexual misconduct”). The court declined to rule on AIG’s indemnity obligations, noting that the underlying claims have not yet been resolved.