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School administrators’ insurer on hook for part of sex abuse settlement

Posted On: Feb. 21, 2019 1:56 PM CST


A federal appeals court has agreed with a Swiss Re Ltd. unit that another insurer should contribute $2.6 million to a $15.8 million settlement the unit reached with a school district in a sexual abuse case.

Three former students of the Moraga School District in Moraga, California, filed suit against the district and three of its school administrators in 2013, contending they had been sexually molested in the mid-1990s by a middle school teacher, according to Wednesday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Westport Insurance Corp. v. California Casualty Management Co., DBA California Casualty. The teacher had committed suicide after the students first came forward in 1996.

Swiss Re unit Westport, which had issued primary general liability insurance policies to the district through a predecessor company, settled the case for $15.8 million, according to the ruling. It then sought $2.6 million from the administrators’ insurer, San Mateo, California-based California Casualty Co.

Both insurers filed for summary judgment in U.S. District Court in San Francisco, which ruled California Casualty owed Westport $2.6 million plus $755,637 in prejudgment interest.

A three-judge appeals court panel unanimously upheld the ruling on appeal. California Casualty asserts that a section of the California government code, which prohibits public entities from seeking indemnification from its employees, bars Westport’s lawsuit, said the ruling.

But the section does “does not preclude Westport’s claim because (the code) does not contain a blanket ban on an employee’s insurer contributing to the employee’s defense and settlement costs,” said the ruling.

“There is no evidence in the record, and neither party claims, that any of the Administrators personally contributed to the settlement. That their insurer, California Casualty, is now being called upon to provide its excess coverage to cover the employees’ settlements does not violate the intent behind (the code’s) indemnification,” said the ruling, in upholding the lower court’s decision.

Mark B. Bonino, a partner with Hayes Scott Bonino Ellingson & McLay LLP, who represented California Casualty, said he was disappointed in the ruling. “Unfortunately, I think the decision is contrary to public policy with regard to the application of insurance available to public entities, but the court decided what it decided. That’s it.”

Adam Fleischer, a partner with BatesCarey LLP in Chicago, who argued the case on Westport’s behalf before the 9th Circuit, said in a statement, “The resolution of child molestation claims present extremely difficult challenges for both insureds and insurers.

“We were very disappointed that California Casualty refused to help Westport in settling these claims years ago, but we are pleased with the creation of a precedent that will encourage such collaborative resolution efforts in the future.”