(Article from Insurance Law Alert, June 2018)
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Our November 2016 Alert reported on a Massachusetts federal district court’s holding that that an insurer was obligated to defend defamation claims related to sexual misconduct allegations because a sexual misconduct exclusion was ambiguous. AIG Prop. Cas. Co. v. Green, 2016 WL 6637694 (D. Mass. Nov. 8, 2016). This month, the First Circuit affirmed. AIG Prop. Cas. Co. v. Cosby, 2018 WL 2730762 (1st Cir. June 7, 2018).
The coverage dispute arose out of several lawsuits against Bill Cosby alleging defamation and intentional infliction of emotional distress. The plaintiffs claimed that Cosby made public statements that injured their reputations in response to their allegations of assault and rape. 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 . . . sexual molestation, misconduct, or harassment.” The court disagreed and denied AIG’s summary judgment motion and granted Cosby’s motion in part.
Although Massachusetts law has not clearly defined the scope of the phrase “arising out of,” the First Circuit held that it “indicates a wider range of causation than proximate causation,” but requires a “sufficiently close relationship” between the injury and relevant event. Here, AIG argued that the defamation claims were “inextricably intertwined” with the excluded sexual assault allegations so as to trigger the sexual misconduct exclusion. In contrast, Cosby maintained that the causal link between the excluded conduct and the defamation claims was too attenuated to implicate the exclusion.
Noting that there was no “easy answer” to the question, the court concluded that the exclusion was ambiguous in light of the policy as a whole. In particular, the court reasoned that another, more broadly-worded sexual misconduct exclusion (relating to Board Directors and Trustees) mitigated in favor of finding ambiguity because that exclusion contained more expansive exclusionary language (
e.g., “arising out of or in any way involving, directly or indirectly, any alleged sexual misconduct”). The court emphasized that “arising out of” is not inherently ambiguous under Massachusetts law. It also cautioned that its holding “is confined to this case where the ambiguity question is close to begin with and where another sexual-misconduct exclusion is worded more broadly.”