Abuse and Molestation Exclusion Precludes Insurance Coverage for Church’s Child Abuse Incident
The Ohio Supreme Court ruled today that an abuse and molestation exclusion in a commercial insurance policy bars coverage for damages awarded against an employer found liable for an employee’s physical abuse of a child in the care, custody, or control of the employer.
A unanimous Supreme Court found Grange Mutual Casualty’s insurance policy exclusion does not allow coverage to World Harvest Church for a 2006 incident regarding the beating of a 2 1/2-year-old child in its daycare center. The church settled a lawsuit with the child’s parents for $3.1 million and sought to have Grange reimburse it for a portion of the settlement.
Writing for the Court, Chief Justice Maureen O’Connor concluded the Tenth District Court of Appeals incorrectly found Grange responsible to cover a portion of the “vicarious liability” claims against World Harvest, more than $642,000 of the parents’ attorney fees, and nearly $230,000 in postjudgment interest.
Beating With Ruler Leads to Lawsuit
In 2006, Michael and Lacey Faieta initiated a lawsuit against World Harvest Church (WHC) and its school and employee Richard Vaughan. The Faietas dropped their son off for daycare in the morning, and sometime in the afternoon, the regular classroom teacher left and Vaughan took over. When Mr. Faieta picked up his son, he noticed bright red marks and abrasions on his son’s rear end, back, and upper thighs. The boy stated Vaughan had beaten him with a “knife,” which the child later identified as a ruler, and he was taken to a local hospital for treatment. The Faietas contacted WHC to report the injuries and seek action against Vaughan, and WHC responded by banning the Faietas from the school and church premises.
The Faietas sued Vaughan for assault and battery and Vaughan and WHC for negligence and intentional infliction of emotional distress. They also sued WHC for negligent hiring and supervision and for Vaughan’s actions through respondeat superior. WHC acknowledged it employed Vaughan but denied any of his actions were unlawful or negligent.
At the time of the incident, WHC was insured through a Grange commercial policy and submitted a claim under the policy asking Grange to defend WHC against the Faietas’ lawsuit. Grange agreed to defend and retained a law firm to do so, but reserved the right to deny the coverage and refuse to pay the claim citing its policy exclusions.
The case proceeded to trial where a jury awarded the Faietas $764,235 in compensatory damages and $5 million in punitive damages plus attorney fees from WHC. The jury awarded the Faietas $134,865 in compensatory damages against Vaughan and $100,000 in punitive damages. After adjustments by state law, the final judgment made WHC solely liable for $2.79 million, and Vaughan primarily - and WHC secondarily - liable for $82,365 for intentional infliction of emotional distress. Prior to any appeal, the church settled the case with the Faietas for about $3.1 million.
World Harvest Sues Grange
Grange invoked its right to deny the insurance claim after the verdict. In 2009, WHC sued Grange seeking reimbursement under the policy of most of the $3.1 million it paid to settle the case with the Faietas for the damages awarded.
Grange argued it is obligated to provide coverage for damages for “bodily injury” caused by an “occurrence,” which was defined in the policy as an “accident.” The policy excluded bodily injury that was “expected or intended from the standpoint of the insured.” The policy was further modified by a corporal punishment endorsement that provided coverage for injuries that result from the corporal punishment of a student administered by or at the direction of the insured.
The policy also included an “Abuse and Molestation Exclusion” which denied coverage for a bodily injury arising from “the actual or threatened abuse by anyone of any person while in the care, custody or control of the insured.”
The Franklin County Common Pleas Court sided with WHC finding Grange was obligated to indemnify the church for $1.47 million to cover the compensatory damages, the attorney fees, and postjudgment interest awarded to the Faietas, but not the punitive damages. Both appealed the decision to the Tenth District Court of Appeals. The Tenth District affirmed part of the trial court’s decision finding Grange had to cover WHC for the $82,365 in compensatory damages against Vaughan for which the jury held WHC secondarily liable, $693,861 in attorney fees, and $229,716 in postjudgment interest. The Tenth District reversed the portion of the trial court order directing Grange to reimburse the remainder of the damages award.
Both sides appealed but the Supreme Court only accepted Grange’s appeal.
WHC’s Role at Issue
Chief Justice O’Connor explained that Grange contended the abuse exclusion applies to bar coverage for damages regardless of whether the damage award is based on WHC’s direct or vicarious liability for claims arising from Vaughan’s physical abuse of the child. WHC claimed the policy exclusion only applied if it was directly liable for the damages.
Chief Justice O’Connor also noted that WHC contended Vaughan’s actions constituted “excessive corporal punishment” covered by the policy, and that the abuse exclusion was intended only to exclude coverage for sexual abuse, not physical abuse. She wrote the Tenth District squarely addressed and rejected WHC’s sexual abuse argument and the claim that Vaughan’s actions were excessive corporal punishment. The Supreme Court let that ruling stand.
Policy Language Examined
Citing the Court’s 1992 Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd. decision, Chief Justice O’Connor wrote that an exclusion in an insurance policy “will be interpreted as applying only to that which is clearly intended to be excluded.” She found the language of the abuse and molestation exclusion in the Grange policy is broad and excluded actual or threatened abuse or molestation by anyone as long as the victim was in the care, custody, or control of WHC.
She noted the exclusion contained no language limiting its application to damages awarded as a result of WHC’s direct liability. The fact that the policy does not expressly state it will deny coverage for secondary or vicarious liability, does not support WHC’s contention that such liability is covered, the Court concluded.
“We find that the abuse exclusion simply does not limit the exclusion to claims for bodily injury arising from direct liability, while failing to exclude claims for bodily injury arising from secondary, or vicarious, liability for the same conduct,” Chief Justice O’Connor wrote.
She added that, to provide coverage, the Court would have to add language to the policy which it would not do when the terms of the policy are “clear and unambiguous.”
“Thus, the language of the abuse exclusion encompasses WHC’s vicarious liability for Vaughan’s intentional infliction of emotional distress arising from the abuse,” Chief Justice O’Connor wrote.
The Court reversed the Tenth District’s determination that Grange is responsible for coverage under the policy for damages awarded to the Faietas.
No Payment for Attorney Fees and Interest
The Tenth District determined Grange had to indemnify the attorney fees award because it was found to be responsible for coverage of some of the damages. Chief Justice O’Connor wrote that because the Supreme Court determined Grange is not responsible to cover any of WHC’s damages, then Grange is not obligated under the policy to pay for the attorney fees or postjudgment interest awarded.
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