U.S. Court of Appeals Finds that Mentally ill Female Patient was “sexually abused” by Facility Employee, limiting Coverage under Exclusion in General Liability Policy


U.S. Court of Appeals, 1st Circuit, Nos. 07-2190, 07-2204

The U.S. Court of Appeals for the First Circuit has upheld a decision of the District Court that an general commercial insurance policy issued to a mental health care provider did not provide coverage for the sexual misconduct of one of its employees, who had sexual intercourse with a minor female patients, based on a sexual molestation exclusion in the policy.

The female minor patient had been involuntarily committed to West Lake Academy, a facility for mentally ill teenagers between 1993 and June 1995. In June 1995, a West Lake employee transported the patient alone between West Lake and a bus station on several occasions. More than once, the employee had sexual intercourse with the patient, who became pregnant and had his child.

The patient successfully sued the employee father and another West Lake employee, a supervisor, who she alleged had negligently failed to supervise the father of the child and recovered a large judgment against West Lake and the employees. National Union Fire Insurance Company provided a commercial general liability insurance policy to West Lake and their employees.

After the judgment, National Union refused to pay on the claim and in July, 2000, filed suit in the District Court in Massachusetts against its insureds, seeking a declaratory judgment limiting its exposure under the policy. The National Union policy included an exclusion, entitled “Abuse or Molestation Exclusion,” which limited coverage to $100,000 on claims based on abuse or molestation of anyone in the custody of the insureds.

The patient alleged that she had a right to recover on the insurance policy, up to the $1 million policy limit, to satisfy the judgment against the supervisor, contending that the coverage was not limited by the Abuse or Molestation Exclusion. In February, 2007, the district court granted summary judgment in favor of National Union as to the coverage issue and also a misrepresentation claim, finding that coverage for the claims at issue was limited by the Abuse or Molestation Exclusion.

The Court of Appeals upheld the judgment, reasoning that the employee had admitted that he engaged in sexual intercourse with the patient and had been deemed the father of her child. Thus, there was no doubt that he had engaged in an “illegal sex act,” consistent with sexual abuse, even thought there had been no allegation that he used the girl to further some advantage of his own through prostitution, pornography, or other such “sexually manipulative activity.”

Therefore, the lower court had properly determined that the girl’s claim arose from sexual abuse, and was excluded from the commercial general liability provisions of the National Union policy, and covered only under the Sexual Abuse Endorsement, thus making Doe’s claim subject to the limitations of coverage provided in the Endorsement.

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