On May 12, a unanimous Ohio Supreme Court held that the “plain wording” of an ISO Abuse or Molestation Exclusion eliminated coverages for a church preschool’s direct and vicarious liability for injuries arising out of the abuse of a toddler in the preschool’s care. The decision, obtained by the Tucker Ellis Appellate & Legal Issues Group, reversed a $1 million judgment against the insurer and established an important precedent for the enforceability of subject matter exclusions.
The underlying lawsuit in World Harvest Church v. Grange Mutual Casualty Company alleged that 2-½-year-old Andrew Faieta was severely beaten by a World Harvest teacher in 2006. A jury returned a verdict for compensatory and punitive damages against the teacher and World Harvest, affirmed on appeal. World Harvest thereafter satisfied the judgment for $3.1 million, and sought indemnity from Grange under CGL and umbrella policies containing Abuse or Molestation Exclusions. In the ensuing coverage action, the trial court held that Grange must indemnify World Harvest for all sums other than the punitive damage award. The Tenth District Court of Appeals partially reversed, but held that Grange was required to pay approximately $1 million, comprised of that portion of the judgment representing World Harvest’s vicarious liability for its teacher’s abuse, plus attorney fees and post-judgment interest.
The Ohio Supreme Court accepted jurisdiction to resolve the question of whether coverages for vicarious liability damages are eliminated by an endorsement that excludes coverages for injuries arising out of: (1) the abuse by any person of any person who is in the care, custody or control of the insured; or (2) the negligent hiring, supervision or retention of the abuser. The Ohio Supreme Court reversed the Tenth District’s finding of some coverage, holding that “the language in the exclusion is simple and unambiguous: there is no coverage for any injury arising from abuse or molestation.” Since there were no coverages, the attorney fee and post-judgment interest awards also fell.
According to IRENE KEYSE-WALKER, who argued the case on behalf of Grange, “World Harvest is important in Ohio and elsewhere because it addresses a subject matter exclusion.” Such exclusions, as described by the Ohio Supreme Court, contain “broad” exclusionary language for “a narrow category of conduct” – a combination designed to enhance clarity. Because they focus on a narrow category of injury-producing conduct, subject matter exclusions need not recite every potential legal theory that might be asserted to recover for those injuries. The Abuse or Molestation Exclusion need not, for example, specify that damages for “direct and vicarious” liability are excluded because, as the Supreme Court held, “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.” Engaging in such false parsing “would require rewriting the policy language.”
Subject matter exclusions have gained popularity in the wake of judicial decisions broadening the definition of an insured “occurrence” to include intentionally inflicted injuries that were accidental from the perspective of the employer policyholder, or to include collateral causes of action such as negligent supervision of the intentional wrongdoer. By clearly excluding coverages for all injuries arising out of abuse by anyone, such unambiguous exclusions promote the mutual understanding of insurers and their policyholders.
By finding subject matter exclusions to be clear and unambiguous, World Harvest also has the potential to streamline coverage disputes and promote consistency in judicial decisions. Coverage litigation is streamlined when courts focus their inquiry on the broad language of the subject matter exclusion, as opposed to first determining the “perspective” of each insured tangentially connected to an “occurrence” or addressing the myriad causes of action pled by attorneys seeking insurance coverages for intentionally inflicted injuries. Further, by confirming that the “plain wording” of the Abuse or Molestation Exclusion requires a finding of “no coverage as long as the claim is for bodily injury that arises out of” abuse of a person in the insured’s care, the Supreme Court’s decision should promote consistency in trial and appellate court decisions. Prior to World Harvest, for example, Ohio appellate courts had held that injuries to participants in three separate bar fights in one bar were both covered and excluded under a single CGL policy that contained an Assault or Battery Exclusion. Post World Harvest, the “plain wording” of an Assault or Battery Exclusion should be applied consistently to eliminate coverages of injuries arising out of bar fights, regardless of the legal theory of liability advanced against the insured bar owner.