Catholic Diocese v. Insurer

By Katlin Nash

ALBANY, N.Y.—The New York State Court of Appeals will be hearing oral arguments in the case of Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Company of Pittsburgh, PA.

The lawsuit filed against the Roman Catholic Diocese of Brooklyn and Reverend James Smith in 2003, the daughter of a church employee alleged that the priest had sexually molested and assaulted her over a period of seven years, beginning shortly after her tenth birthday in August 1996 and continuing until “in or about March to May 2002.” The suit was settled in 2007 for $2 million and “additional consideration.”

During the first six years of the period of alleged abuse, the Diocese had commercial general liability (CGL) insurance policies with a liability limit of $750,000 per occurrence, subject to a self-insured retention (SIR) of $250,000 per occurrence that the Diocese was required to absorb before coverage was provided. In the seventh year, the Diocese had only an umbrella policy covering losses of $1 million. When its insurers disclaimed coverage, the Diocese brought a breach of contract action against National Union Fire Insurance Company of Pittsburgh, PA, seeking coverage solely under the two National Union CGL policies for 1995-96 and 1996-97 and against its umbrella insurer for the same two policy years.

Supreme Court denied National Union’s motion for partial summary judgment, rejecting its arguments that the incidents of sexual abuse alleged in the underlying lawsuit constituted a separate occurrence in each of the seven policy periods and that the Diocese must allocate the $2 million settlement and other costs on a pro rata basis over all seven policy periods. Applying New York’s “unfortunate event” test, the court found “Smith’s repeated acts of abuse…over a sustained period of several years establishes the requisite temporal and spatial relationship which serves as a predicate for finding a single occurrence.”

The Supreme Court ruled the Diocese could allocate all of its settlement costs to just two policy periods, saying allocation to all seven policies was not required due to the “clear interrelationship” among the CGL policies, all but one of which were issued as renewal policies by National Union or related companies. The court also ruled the insurer had waived its right to assert that the Diocese must satisfy more than one $250,000 SIR because it did not raise that affirmative defense “until more than three years after its initial disclaimer letter.”

The Appellate Division, Second Department reversed, declaring that the alleged acts of sexual abuse constitute multiple occurrences, that the settlement costs must be allocated over seven policy periods, and that the Diocese must exhaust a $250,000 SIR for each CGL policy implicated. “The sexual abuse allegedly occurred over a seven year period, at different times, and at multiple locations,” it said. “Thus, it cannot be said that there was a close temporal and spatial relationship between the acts of sexual abuse,” they therefore “constituted multiple occurrence” and the Diocese must exhaust a $250,000 SIR for each of the two CGL policies implicated. It found allocation over seven policy periods was required because “it cannot be determined to what extent the bodily injury allegedly sustained occurred during a particular policy period.” The Appellate Division also reinstated the insurer’s affirmative defenses.

The case was argued Tuesday, March 19, 2013.