Federal Court Ruling on Insurer Coverage for Abuse Claims

A federal appeals court has ruled that an American International Group subsidiary must reevaluate its decision to deny coverage for settlement costs related to child sexual abuse claims involving the Church of Jesus Christ of Latter-day Saints.

The decision by the 10th U.S. Circuit Court of Appeals pivots on an ambiguity in the insurance policy language held by National Union Fire Insurance Company of Pittsburgh. This ruling comes after the Church, based in Salt Lake City, filed a lawsuit when National Union and Ace Property and Casualty Insurance, a Chubb unit, declined coverage for legal defense and settlement costs in a case involving Michael Jensen. Jensen, convicted of abusing multiple children while babysitting for church families, prompted the church to settle with victims during the trial phase.

Policy Language Ambiguities

The Tenth Circuit's decision highlights the complexities surrounding insurance policy interpretations, especially regarding what constitutes a single "occurrence." The insurers contended that each abuse incident was a distinct occurrence under their policies, which meant no individual settlement exceeded the necessary coverage activation threshold. The district court initially sided with this view. However, Circuit Judge Gregory A. Phillips, writing for the panel, found merit in the church's argument that prolonged negligence represented a single continuous occurrence. Under Utah law, such ambiguities must favor the insured, suggesting that the church’s interpretation is plausible.

Industry Implications

This ruling could reverberate throughout the insurance industry, particularly affecting how policies define occurrences in cases involving repeated or continued harmful actions. The divergence in national legal opinions on this matter underscores a significant challenge for insurers and insured parties alike, potentially leading to increased scrutiny and calls for clearer policy language. This case returns to district court for further proceedings, setting a precedent for handling similar claims and coverage disputes.

• Decision impacts interpretation of single vs. multiple occurrences.
• Highlights the necessity for clear policy terms in covering repeat incidents.
• Could influence future lawsuits involving ambiguous coverage language.