Radiology Associates filed suit against its insurers to compel the insurers to defend Radiology Associates against claims stemming from an employee's alleged sexual assault of a patient while performing an unauthorized examination at their facility. Radiology Associates' professional liability policy, however, contained exclusions for claims arising out of any (1) sexual act, (2) act in violation of the applicable penal code or criminal statutes, or (3) intentional tort.

The district court found coverage under the policy because the patient potentially stated a claim for negligence - e.g., that the employee may have negligently thought he could undertake a vaginal exam, or that, in the course of performing the authorized ultrasound, the patient had been negligently and inappropriately touched by the employee. Based upon this speculation, the district court concluded that it was unclear whether the facts alleged in the complaint met the exclusion's criteria and, therefore, that the insurers had a duty to defend the group.

The Fifth Circuit, however, held that the insurers were not required to defend the group when the plaintiff's complaint made no allegation that the employee may have negligently believed his actions were authorized. The Fifth Circuit would not permit the district court to "imagine factual scenarios" which might avoid the consequences of an insurance policy exclusion.

Radiology Associates next argued that the court must interpret the allegations in the complaint from the standpoint of the insured and, therefore, because the employee was not an insured, and the complaint did not allege that Radiology Associates committed sexual misconduct, an intentional tort or violated a criminal code, that the insurer must defend it. The Fifth Circuit held that, even though the complaint alleges Radiology Associates was only negligent, those claims all arose out of (e.g., had a causal connection or relation) its employee's excluded conduct and, thus, were outside of the entity's professional liability policy's coverage.

Providers should carefully review the terms of their professional and general liability insurance policies to be sure they are covered for potential improper acts of their employees.