Court Finds Repeated Acts of Molestation Constitute Separate Occurrences Under Insurance Policies

In Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Co. of Pittsburgh, PA., a declaratory judgment action, the Court of Appeals addressed four insurance coverage issues raised by repeated instances of sexual molestation of one child by a Queens priest from August 1996 to May 2002.  In doing so, the Court of Appeals issued three opinions and Judge Lippman took no part.  The result was Judge Rivera writing for a three-judge plurality, Judge Smith issuing a concurrence in the outcome, and Judge Graffeo issuing a partial concurrence and partial dissent.  Judges Smith and Graffeo, writing separately, joined the plurality on only two of the four issues, leaving the remainder without precedential weight.

The Diocese brought this action to recover from its insurers after settling the child’s molestation claims for $2 million and “additional consideration.”  The principal dispute concerned a $250,000 self-insured retention (“SIR”) applicable to each occurrence and to each of multiple policies.  The parties contested (1) whether defenses concerning the SIR or allocation among the policies and insurers were waived when they were not mentioned in a disclaimer letter; (2) whether the claims of molestation should be considered a single occurrence or multiple occurrences; (3) how many SIRs the Diocese would need to exhaust; and (4) whether the Diocese could recover on a joint and several basis or pro rata among the insurers.

First, the Court of Appeals considered the argument that National Union waived its defense of the self-insured retention because it was not mentioned in a disclaimer letter.  The Court disposed of the argument, holding that National Union was not obligated to raise the SIR issue in its disclaimer letter because it was a limit on liability and not an exclusion.  This part of the plurality’s opinion essentially confirmed earlier Court of Appeals case law that coverage cannot be created by estoppel.  Judges Smith and Graffeo joined this part of the opinion.

Second, the plurality reasoned that the claims of molestation were multiple occurrences rather than a single occurrence under the policy.  Judge Rivera wrote that the Court applies the “unfortunate event” test when the policies themselves do not indicate an intent to aggregate separate incidents into a single occurrence.  In that test, the Court looks to whether the claims share a close “temporal and spatial relationship” and whether the claims were part of a “singular causal continuum.”  The plurality noted throughout its opinion that the claims of molestation were distinct, spanned six years, and occurred in various and unique locations such as the rectory, a vehicle, as well as more than one home.  Thus, the claims did not share a close temporal and spatial relationship, and they were not part of a singular causal continuum.  Judges Smith and Graffeo disagreed, leaving the plurality short of the four votes needed to create precedent for finding repeated instances of sexual misconduct as multiple occurrences.

Third, the plurality decided that the Diocese would be required to exhaust a SIR for each occurrence under an implicated policy.  Looking to the policy, the plurality noted that a SIR “shall apply separately to each occurrence” and only to “occurrences covered under [the] policy” (alteration in original).  Judge Graffeo, arguing that there was only a single occurrence under the policy, concluded that the Diocese needed to exhaust only a single SIR, regardless of the number of policy periods through which that occurrence carried.  Judge Smith, also arguing for a single occurrence, concluded however that a SIR should be exhausted for each policy year in which the single occurrence and injury continued. 

Summing up the number of SIRs to be applied, Judge Smith put it succinctly: “To clarify the point, imagine a case where a priest committed twenty acts of abuse of one victim over five years, and five one-year policies were successively in force, each with a self-insured retention.  How many retentions are to be applied?  The plurality’s logic gives the answer twenty.  Judge Graffeo would say one.  The Ninth and Fifth Circuits would say five, and I think they are correct.”  As none of the opinions garnered the required four votes, this opinion also lacks precedential weight.

Fourth, and finally, the Court unanimously agreed that the Diocese could not recover for the repeated claims of molestation by proceeding against one insurer on a joint and several theory of liability.  Under such a theory, the insured could recover against one insurer and the insurer could then proceed against remaining insurers.  The plurality, joined by Judges Smith and Graffeo, instead decided that the proper means of recovery would be to allocate the losses pro rata.