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In a divided opinion, a federal appeals court has largely upheld a lower court ruling that says a Liberty Mutual Insurance Group unit must indemnify USA Gymnastics in connection with the activities of Larry Nassar, the physician convicted of sexually assaulting numerous girls and young women gymnasts, under its claims-made directors and officers liability policy.
Liberty Mutual unit Liberty Insurance Underwriters, Inc. was one of several insurers sued by USA Gymnastics, which is now in bankruptcy, in state court litigation that was later removed to federal court, according to Friday’s ruling by the 7th U.S. Circuit Court of Appeals in Chicago in USA Gymnastics v. Liberty Insurance Underwriters Inc.
Federal and state convictions resulted in effective life sentences for Mr. Nassar, the ruling said.
Friday’s ruling by two of three judges on the appeals court panel essentially affirmed a ruling by the U.S. District Court in Indianapolis.
In its 57-page ruling, the majority opinion disagreed with the insurer and held that none of the activities before the policy period amounted to a claim, and the district court did not abuse its discretion when it decided not to hear additional evidence in its review of the bankruptcy court’s proposed findings and conclusions.
The ruling also agreed with the lower court that the policy’s wrongful conduct exclusion “applies to only the 10 claims for which Nassar was found guilty, and not to the remaining Nassar-related claims, for which Liberty must provide insurance coverage.”
The majority opinion did conclude that the bankruptcy court should have considered extrinsic evidence offered as to the use and meaning of a third-party employment practices liability $250,000 sublimit in the policy, and remanded that issue back to the district court and bankruptcy court.
The dissenting opinion said while it largely agrees with the majority opinion, “I conclude that the wrongful conduct exclusion applies to all the Nassar-related conduct.”
Liberty Mutual said in a statement it does not publicly discuss litigation, and a USA Gymnastics spokeswoman had no comment.
Embattled USA Gymnastics sued seven of its insurers on Friday seeking defense costs related to damages suits it faces related to the sex abuse scandal involving former team doctor Larry Nassar.