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Insurer not required to pay for Phoenix diocese's abuse settlements: Court

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Insurer not required to pay for Phoenix diocese's abuse settlements: Court

A Fireman's Fund Insurance Co. unit is not obligated under terms of its excess insurance policies to indemnify the Roman Catholic diocese in Phoenix for settlements it reached in connection with priests' sexual abuse, says a divided appeals court in reversing a lower court ruling.

During a period of a little over a year beginning in December 2003, four individuals filed separate suits against the Diocese of Phoenix claiming they had been sexually abused and molested by several priests over periods ranging from 1978 to 1984, according to court records. The diocese settled all four cases.

From Jan. 2, 1979, to at least July 1986, the diocese had successive primary liability indemnity policies with certain Lloyd's of London underwriters which provided a first layer of occurrence-based coverage after exhaustion of a $50,000 self-insured retention per occurrence, according to the court records.

After the settlements, the diocese sought payment from Lloyd's under these policies. In December 2008, after receiving partial payment from Lloyd's, the diocese submitted a claim to Chicago-based Fireman's Fund unit Interstate Fire & Casualty Co., which had provided excess overage, for the costs of defense and settlement. These policies followed the form of the Lloyd's policies.

Interstate responded by filing a lawsuit in 2009, seeking a declaration that the settlements were not covered by the terms of its policies. The diocese counterclaimed for breach of contract and bad faith, seeking compensatory damages of $1.9 million.

In February 2011, the U.S. District Court in Phoenix held Interstate was obligated to provide coverage under the terms of its policies. But that holding was overturned Wednesday by the 9th U .S. Circuit Court of Appeals in San Francisco in a 2-1 ruling that was based on the excess policies' language, in Interstate Fire & Casualty Co. Inc. v. Roman Catholic Church of the Diocese of Phoenix et al.

The key element in the 9th Circuit's analysis was the policies' assault and battery exclusion, which states the insurance does not apply “to liability for any Assured for assault and battery committed by or at the direction of such assured.”

The District Court “construed the exclusion as applying only to the offending priest” in each case, said the appellate ruling, and therefore did not foreclose coverage of the sexual abuse claims.

But the appeals court interpreted the exclusion more broadly. Interstate contends the exclusion precludes coverage for “'any assured' — and because 'such assured' refers back to 'any assured' — the assault and battery exclusion categorically excludes coverage for both the insured who committed the assault and battery as well as innocent co-insureds,” said the ruling. “The diocese's reading can only be reached by ignoring the plain meaning of the exclusion and jumping to the conclusion that the text is unclear,” said the ruling. “This effort to infuse ambiguity into an otherwise clear agreement is unavailing.”

The case was remanded to the District Court over the issue of attorneys' fees.

The dissenting opinion said it agreed with the District Court's interpretation of the policies.

Earlier this year, an appeals court ruled that a Fireman's Fund Insurance Co. unit, Chicago Insurance Co. was not obligated to pay for settlement of a wrongful death claim filed against the Archdiocese of St. Louis in connection with a man's suicide that was allegedly caused by priest's sexual abuse, because the archdiocese could not be held legally liable for the claim.

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