(Article from Insurance Law Alert, June 2026)
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Holding
A California federal court held that an umbrella insurer owes a duty to defend underlying sexual abuse lawsuits pursuant to a “Defense Settlement” provision requiring it to defend suits involving occurrences “not covered” by underlying insurance. The court concluded that, in the context of the policies at issue, the phrase “not covered” refers to the scope of indemnity coverage provided by the underlying policies, rather than whether the underlying insurer would have owed a duty to defend. Westchester Fire Ins. Co. v. Roman Cath. Bishop of Orange, No. 8:24-cv-01539 (C.D. Cal. June 1, 2026).
Background
More than 200 lawsuits were brought against the Roman Catholic Bishop of Orange (“RCBO”) under California’s Childhood Victims Act (“CCVA”), which revived or extended the statute of limitations for childhood sexual abuse claims. RCBO was insured under primary commercial general liability policies issued by Centennial and under umbrella policies issued by a predecessor to Westchester.
Centennial was later placed into liquidation and did not provide defense or indemnity for any of the CCVA actions. The Westchester umbrella policies contain a “Defense Settlement” provision requiring Westchester to defend suits involving “any occurrence not covered, as warranted, by the underlying policies . . . but covered by the terms and conditions of this policy[.]” The underlying Centennial policies define “occurrence” as an “accident” and cover “bodily injury.” By contrast, the Westchester umbrella policies define “occurrence” more broadly as “an accident or happening or event,” and extend coverage to “shock, mental anguish and mental injury.”
Westchester commenced a declaratory judgment action seeking a determination that it had no duty to defend or indemnify unless the underlying Centennial limits were exhausted. RCBO counterclaimed, arguing that the Defense Settlement provision affords primary “drop down” coverage for occurrences covered by the umbrella policies but not by the underlying insurance. The parties filed cross-motions for partial summary judgment on the drop-down duty to defend issue.
Decision
The court granted summary judgment to RCBO, holding that Westchester owed a duty to defend the CCVA actions under the Defense Settlement provision.
The principal dispute concerned the meaning of the phrase “any occurrence not covered” in the Defense Settlement provision of the umbrella policies. Westchester argued that an occurrence is “covered” whenever the underlying insurer would owe a duty to defend. Under that interpretation, because the CCVA complaints alleged claims at least potentially within the Centennial policies, Centennial’s duty to defend would be triggered, and, therefore, Westchester would have no independent defense obligation. RCBO argued that “any occurrence not covered” refers to the scope of indemnity coverage provided by the underlying policies. The court agreed with RCBO.
The court emphasized that the distinction was “significant” because the duty to defend is broader than duty to indemnify. The court noted that, under California law, an insurer that owes a duty to defend a single potentially covered claim must defend the entire action, including claims that ultimately may fall outside the policy’s indemnity coverage. Accordingly, the fact that Centennial would have owed a defense did not establish that all of the occurrences and injuries alleged in the CCVA complaints were actually covered by the underlying policies. The court therefore concluded that the phrase “occurrence not covered” refers to the scope of indemnity coverage afforded by the underlying insurance rather than existence of a defense obligation.
Applying that interpretation, the court concluded that the CCVA complaints alleged occurrences and injuries potentially covered by the umbrella policies but not by the underlying Centennial policies. Westchester argued that the relevant “occurrence” was RCBO’s alleged negligent supervision, retention, and hiring of clergy, which it contended constituted an “accident” under the Centennial policies. According to Westchester, the alleged abuse and resulting injuries were merely effects of that occurrence, and therefore Centennial’s duty to defend precluded any drop-down obligation.
The court rejected that argument. It reasoned that even if the negligence allegations were sufficient to trigger Centennial’s duty to defend the entire action, that fact did not resolve whether the underlying policies actually provided indemnity coverage for all of the conduct and injuries alleged in the CCVA complaints. Nor did it answer whether the complaints alleged occurrences falling within the umbrella policies’ broader definition of “occurrence.” The court therefore declined to treat RCBO’s alleged negligence as the sole relevant occurrence and instead examined the full range of conduct and injuries alleged in the underlying actions.
The court pointed to allegations of intentional infliction of emotional distress, sexual harassment, sexual battery, and human trafficking, as well as non-physical injuries involving grooming, exploitation, humiliation, loss of dignity, and invasion of privacy. It concluded that such allegations potentially constitute a “happening or event” causing “shock, mental anguish and mental injury” within the meaning of the umbrella policies, while not necessarily constituting an “accident” resulting in “bodily injury” under the underlying Centennial policies. Because the complaints alleged occurrences potentially covered by the umbrella policies but not by the underlying policies, the court held that Westchester’s drop-down defense obligation was triggered.
Comments
The court addressed a novel question concerning the interaction between California’s duty to defend rules and an umbrella insurer’s drop-down obligations. Despite the fact that the underlying insurer would have owed a duty to defend the entire action based on potentially covered negligence claims, the court focused on the scope of the underlying insurer’s indemnity coverage and the broader coverage afforded by the umbrella policies. The decision underscores the significance of differences in policy language between primary and umbrella coverage.