The U.S. Fourth Circuit Court of Appeals recently affirmed a lower court decision holding that coverage for claims against an adoption agency arising out of the death of a child at the hands of his adoptive parents is limited to the coverage provided by the policy’s sexual and/or physical abuse coverage form.  Scottsdale Ins. Co. v. Children’s Home Soc. of North Carolina, Inc., 2014 WL 4089347 (4th Cir. Aug. 20, 2014).

After a child placed by an adoption agency was tortured and killed by his adoptive parents, the deceased child’s estate sued the agency.  The agency’s liability insurer agreed to defend under a reservation of rights, but then filed a declaratory judgment action seeking a declaration that any coverage for the claims in the underlying lawsuit was limited to the coverage provided by the policy’s sexual and/or physical abuse coverage form, and otherwise excluded under any other coverage part by the policy’s sexual and/or physical abuse exclusion.  Both the agency and the deceased child’s estate asserted there was coverage beyond the policy’s sexual and/or physical abuse coverage, contending that the sexual and/or physical abuse exclusion was ambiguous (and therefore not applicable) and/or that the alleged mental abuse suffered by the deceased child fell outside the ambit of the sexual and/or physical abuse exclusion.

The court granted the insurer’s motion for summary judgment, holding that the sexual and/or physical abuse exclusion was not ambiguous and directly applicable to the claims asserted in the underlying lawsuit.  The court rejected the estate’s argument that the verbal and psychological abuse suffered by the deceased child in the weeks and months leading up to his death fell outside the ambit of the “sexual and/or physical” abuse, noting that the policy specifically defined “sexual and/or physical” abuse as including “mental abuse.”  The Fourth Circuit recently affirmed the district court’s decision in an unpublished per curiam opinion.