Sexual Abuse Insurance Law

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… [C]overage for … sexual abuse of children is undoubtedly outside the contemplation of the parties to the insurance contract; indeed, ” ‘[t]he average person purchasing homeowner’s insurance would cringe at the very suggestion that [the person] was paying for such coverage. And certainly [the person] would not want to share that type of risk with other homeowner’s policyholders.’ ”

– Perreault v. Maine Bonding & Casualty Co., 568 A.2d 1100, 1102 (Me. 1990).

Public policy does not prohibit insurance coverage for an insured whose negligence contributed to an injury from sexual abuse.

– Hanover Insurance Co. v. Crocker, Decision 1997 ME 19 (February 4, 1997)

A. Introduction

When a child is a victim of sexual abuse, is insurance coverage available to pay damages?

According to the Maine Supreme Judicial Court under Perreault v. Maine Bonding and Casualty Co., where the molester is the defendant in the civil action, the answer is certainly “no”. Where, however, the civil defendant is not the molester but rather a third-party whose negligence allowed the abuse to occur, the Law Court’s answer is “maybe.”

While recent decisions by the Law Court reach opposite results, Perreault’s stated public policy against insurance coverage for the child abuser does not extend to exclude coverage for insureds whose negligence is a factor in causing damage from sexual abuse. But the Court’s opinions in Johnson v. Allstate Insurance Co., Hanover Insurance Co. v. Crocker, and most recently, in Cambridge Mutual Fire Insurance Co. v. Perry, provide little guidance for future cases in determining when there is coverage and when there is not.

B. Setting the Stage: Perreault v. Maine Bonding & Casualty Co.

Analysis of insurance coverage for child victims of sexual abuse in Maine begins with the Law Court’s 1990 decision in Perreault v. Maine Bonding & Casualty, 568 A.2d 1100 (Me. 1990). In Perreault, a civil action was brought on behalf of a child victim of sexual abuse against the criminally convicted abuser. The abuser sought a declaratory judgment ruling that Maine Bonding, his homeowner’s carrier, had a duty to defend him in the civil action. The victim’s complaint comprised three counts, each alleging intentional conduct – battery, intentional infliction of emotional distress, and malice (seeking punitive damages).

Maine Bonding’s defense in the declaratory judgment action centered on its policy exclusion for injury or damage “which is expected or intended by the insured.” 568 A.2d at 1101 n. 3. Perreault argued that the exclusion did not apply because subjectively he neither expected nor intended injury or damage to the child. Id.

Finding that sexual abuse of a child is highly likely to cause harm to the child, the Law Court ruled that “any injury produced by a criminal act of sexual abuse against a child is ‘injury – expected or intended by the insured’ within the meaning of the homeowner’s exclusion.” Therefore, Maine Bonding had no duty to defend Perreault for his sexual abuse.

It is not the Law Court’s narrow holding but rather a statement in dictum that makes Perreault a shaky foundation for coverage analysis in this area. Having held that an insurer whose policy contains an intentional act exclusion need not defend a convicted child molester from the victim’s civil action alleging only intentional torts, the Law Court went on to make a seemingly more sweeping declaration:

Furthermore, homeowner’s coverage for criminal sexual abuse of children is undoubtedly outside the contemplation of the parties to the insurance contract; indeed, ” ‘[t]he average person purchasing homeowner’s insurance would cringe at the very suggestion that [the person] was paying for such coverage. And certainly [the person] would not want to share that type of risk with other homeowner’s policyholders.

Id. at 1102 [citations omitted]. This statement left uncertainty about the true holding of Perreault: is only the molester’s conduct excluded from coverage in the face of an intentional act exclusion? Or are all damages suffered by an abused child excluded from coverage, even if a merely negligent third-party contributed to allowing those damages to occur?

C. Round One to the Insurer: Johnson v. Allstate Insurance Co.

The Law Court declined an opportunity to clarify Perreault’s breadth in its 1997 decision in Johnson v. Allstate, 1997 ME 3 (January 6, 1997). The Law Court specifically avoided comment on Perreault’s policy concerns, choosing instead to delve into an arcane discussion of policy semantics in reaching its decision denying coverage.

In Johnson, a young girl was molested by her grandfather over an eleven-year period beginning at age five. The abuse took place in her grandparents’ home, where her grandmother was caring for her while her mother worked. The grandmother was usually at home when the abuse took place but in another room. The grandfather was convicted of gross sexual assault. A civil suit was brought against the grandfather for his intentional acts and against the grandmother for her negligence. All parties stipulated to liability as stated in the complaint, and a judgment of $475,000 was entered for plaintiff against both grandparents. The Superior Court found that the grandmothers’ actions and omissions “contributed in substantial part to the overall damages plaintiff suffered.” Plaintiff sued Allstate under Maine’s “reach and apply” statute and the action was removed to the United States District Court. On cross-motions for judgment on a stipulated record, the Court denied coverage under the Allstate policy. Acknowledging that the “question was very close under Maine precedents,” however, it granted plaintiff’s request to certify the coverage issue to the Law Court.

Though clearly invited by Allstate to accept a broad view of Perreault and deny coverage on policy grounds, the Law Court avoided the policy issue and instead based its decision solely upon the Allstate policy’s “plain language.” The Johnson policy excluded coverage for injury “intentionally caused by an insured person,” unlike other similar policies that exclude coverage for injury “intentionally caused by the insured person” [emphasis added]. Comparing the articles “an” and “the,” the Law Court held that an insurance policy employing “an” in its intentional act exclusion excludes coverage for abuse damages caused by tortfeasors who did not act intentionally because the exclusion applies to all insureds. A policy employing “the,” on the other hand, may provide coverage because “the” applies only to the insured who actually abused the child. Citing a string of Allstate cases from other jurisdictions, the Law Court teaches us that the semantic difference between “an” and “the” constitutes plain language that the “average person purchasing homeowner’s insurance” described in Perreault would readily comprehend.

In reaching this decision, the Law Court’s decision in Johnson took pains to read out of the Allstate policy the following language, found in the “Limits of Liability” section:

This insurance applies separately to each insured person. Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one loss will not exceed the limit shown on the declaration page.

Id at 5. Other states that had considered policies containing this “severability” clause had held that each insured’s actions must be considered separately in order to determine if there is coverage, so that one insured’s intentional conduct does not preclude coverage of another’s negligent conduct – regardless of which article – “an,” “the” or “any” – is employed in the intentional act exclusion. See, e.g., Worcester Mutual Insurance Co. v. Marnell, 496 N.E.2d 158 (Mass 1986) (coverage found for unintentionally acting insured; “any” used in exclusion); Northwestern Mutual Insurance Co. v. Nemetz, 400 N.W.2d 33 (Wis. App. 1986) (coverage found for unintentionally acting insured; “an” used in exclusion); Catholic Diocese of Dodge City v. Raymer, 840 P.2d 456 (Kan. 1992) (same); Premier Insurance Co. v. Adams, 632 So.2d 1054 (Fla. App.5 Dist. 1994) (coverage found for unintentionally acting insured; “any” used in exclusion”); Walker v. Lumberman’s Mutual Casualty Co., 491 S.W.2d 696 (Tex. 1973)(coverage found for unintentionally acting insured; “the” used in exclusion). The Law Court declined to apply these cases, even though the insurance contracts involved paralleled the policy in Johnson.

Johnson’s holding revealed very little about the Law Court’s policy position on insurance coverage for unintentionally acting tortfeasors who contribute to damages a child suffers from sexual molestation. The Court strained to find a justification within the insurance contract for denying coverage, implying that it held a dim view of applying liability insurance in such cases. Yet the Johnson Court expressly declared that its ruling was not an extension of its decision seven years earlier in Perreault. Therefore, Johnson left a glimmer of hope for insureds seeking coverage for alleged unintentional acts in sex abuse cases while providing little guidance for determining when this coverage would arise.

D. Round Two to the Insured: Hanover Insurance Co v. Crocker

The underlying facts in Hanover Insurance Co v. Crocker, 1997 ME 19 (February 4, 1997) mirror those in Johnson. In Crocker, suit was brought on behalf of a girl sexually abused by her father beginning at age five. Defendants in the civil action were the father, for his intentional conduct, and the mother, for her negligent conduct in witnessing the abuse and failing to take steps to stop it. The mother asked Hanover to defend and indemnify her under a homeowner’s policy, and Hanover declined. Hanover lost on summary judgment and appealed. The Law Court held that Hanover had a duty to defend.

While the underlying facts in Crocker and Johnson are similar, the insurance policies are not. Johnson’s policy stated affirmatively that it would not cover damages caused by intentional acts. Crocker’s policy stated passively that it would cover “accidents” resulting in bodily injury. Because the complaint alleged only negligent conduct by Mrs. Crocker in recognizing the abuse and failing to stop it, the Law Court ruled that her negligent conduct fell within the meaning of an accident and therefore was covered. The Court reasoned that negligence is considered “accidental” and damages resulting therefrom are not “expected or intended.” 1997 ME 19 at ¶ 5. Hanover was therefore required to defend Mrs. Crocker against the charges of negligence in permitting the child to be molested.

In Johnson, a finding of no coverage based on the Court’s interpretation of the insurance contract’s “plain language” allowed the Court to decide the case without deciding the policy. In Crocker, however, there was no way for the Court to find coverage without acknowledging, at least implicitly, that the public policy concerns stated in Perreault apply only to coverage of the molester, and not of other negligent actors. In Crocker, the Law Court stated clearly that “public policy does not prohibit insurance coverage for an insured whose negligence contributed to an injury from sexual abuse.” . What remains less clear is when such coverage will actually arise under a particular policy.

E. Can Johnson and Crocker be reconciled?

Cognizant, no doubt, that it had denied coverage to an identically situated insured less than one month before, the Law Court in Crocker weakly attempted to reconcile that decision with Johnson. Even though the policy exclusion upon which Hanover relied in Crocker bears no resemblance whatsoever to the Allstate policy exclusion in Johnson, the Law Court turned again to the semantic distinction between “the” and “an” that carried the day for Allstate in Johnson. Whether such a minor distinction can be considered “plain language” understandable by a policy holder of average intelligence, however, is highly questionable.

Reconciling Johnson and Crocker is not as simple as the Law Court suggested. In Crocker, the Court held that in order to determine whether the insured seeking coverage is entitled to coverage, one must look to the allegations made against that particular insured. The Court will look at each insured separately in order to determine coverage for that particular insured. An insured acting negligently will not be denied coverage because of the intentional conduct of the coinsured. 1997 ME 19 at ¶ 7. In Crocker, the Court looked at the mother’s conduct completely separately from that of her husband. Her conduct was deemed unintentional and the damages resulting were deemed “unexpected and unintended” under the Perreault standard. Id. This seems a reasonable result based on both the language of the contract and public policy.

Yet the Law Court rejected this same analysis less than a month earlier in Johnson. In seeking coverage, the negligent coinsured in Johnson urged the Court to consider her negligent conduct separately from the criminal conduct of her husband. She pointed out that the Allstate policy itself required that the insurance be applied separately to each insured person because of the “severability” clause the severability clause in the Allstate policy, of which no mention is made in Crocker. In Crocker the Law Court did exactly what it declined to do less than one month earlier in Johnson: it refused to look at each insured independently in order to determine coverage. There is no justification for this distinction in treatment which yields opposite results for negligent insureds under almost identical circumstances.

F. Round 3: Cambridge Mutual Fire Insurance Co. v. Perry

The Law Court’s next ruling in this area came three months later, in Cambridge Mutual Fire Insurance Co. v. Perry, 1997 ME 94. In Perry, an adult woman sued her father for sexually abusing her while she was a minor. She also sued her mother, Joan Perry, for negligently failing to protect her from her father’s predatory acts. Id. at ¶ 2. Mrs. Perry requested defense and indemnification from her homeowner’s carrier whose policy was in place at the time of the alleged acts. The carrier, Cambridge Mutual, initially provided defense counsel but then refused to provide a defense. Mrs. Perry consented to a judgment for $75,000 and assigned the rights in her insurance contract to the plaintiff. Id. at ¶ 3. The Superior Court granted Cambridge Mutual’s motion for summary judgment on the declaratory judgment action to determine the duty to defend and indemnify under Mrs. Perry homeowner’s policy. The Law Court found that Cambridge Mutual’s insurance contract did not exclude coverage for Mrs. Perry’s negligence connected with her husband’s intentional sexual abuse of their daughter.

With Perry, the Law Court missed an opportunity to clarify its inconsistent rulings in Johnson and Crocker, and the underpinning for its opinion is curious. In Perry, the Law Court applied the same reasoning it used in Crocker, stating that because the alleged acts are considered “accidental” they are within the scope of coverage. Id. at ¶ 7.

The problem with adopting the Crocker analysis is that the reason the Court discussed whether the negligent conduct was “accidental” in Crocker was because of specific language in the Hanover policy. Supra n. 5. In contrast, Perry cites no such language in the Cambridge Mutual policy, so the relevance of the “accidental occurrence” analysis applied in Crocker is unclear. Does this mean that, in determining whether there is coverage for a person who negligently permits another insured to sexually abuse a third person, the focus is on whether the negligent act was truly “accidental?” Is this so regardless of whether the policy language incorporates the “accidental occurrence” language discussed in Crocker? If this is so, why was this analysis not applied in Johnson, where instead the Court placed great weight on a strained semantic analysis between “an” and “the” in the exclusion clause, using this as the basis of denying coverage? This distinction between “an” and “the,” found so compelling in Johnson, is not even mentioned in Perry. Similarly, the holding Crocker relies heavily upon the proposition that each insured must be considered separately in analyzing the existence of coverage, 1997 ME 19 ¶ 7. This proposition had been rejected in Johnson, despite the severability clause found in the Allstate policy, and is omitted entirely from Perry.

G. Conclusion

What one takes from the trilogy of Johnson, Crocker and Perry depends upon whether one sees the glass as half empty or half full.

On one hand, Crocker draws a clear distinction between insurance coverage for damages caused by a sex abuser, ruled out in Perreault, and damages caused by the simple negligence of an independently acting insured. As confirmed by Perry, no longer will insurers be able to argue that, as a matter of public policy under Perreault, no sex abuse victim may seek insurance proceeds to cover damages.

On the other hand, the Court has failed to supply a reasoned basis for the different treatment of identically positioned insureds, leaves the bench and the bar with little guidance. In the future, determining whether coverage exists will require both careful scrutiny of the policy language – and a crystal ball.

[1]Under Perreault, 568 A.2d 1100 (Me. 1990), a child abuser is deemed to act intentionally and the damages caused are intentional or expected. Since most liability policies contain intentional act exclusions in some form, defense and indemnification of the abuser under such policies will be excluded.

[2]24-A M.R.S.A. Section 2904 provides in pertinent part:

Whenever any person . . . recovers a final judgment against any other person for any loss or damage . . . the judgment creditor shall be entitled to have the insurance money applied to the satisfaction of the judgment by bringing a civil action, in his own name, against the insurer to reach and apply the insurance money . . .

[3]The Law Court commented that the plaintiff “overstated” the importance of the severability clause, saying that an unambiguous exclusion is not negated by a severability clause. 1997 ME 3 at ¶ 8. In support of this statement, the Law Court cited cases in which the intentional act exclusion differs quite markedly from the general exclusion found in Johnson. E.g., Northwest G.F. Mutual Insurance Co v. Norgard, 518 N.W.2d 179 (N.D. 1994) (exclusion was specifically for damage “arising out of sexual molestation, corporal punishment or physical or mental abuse”); Taryn E.F. by Grunewald v. Joshua M.C., 505 N.W.2d 418 (Wis. 1993) (exclusion was specifically for “liability which results directly or indirectly from the actual, alleged or threatened sexual molestation of a person”). With the exception of one split Colorado decision, none of the cases cited by the Law Court for this proposition considered a policy similar to that in Johnson. Cf. Chacon v. American Family Mutual Ins. Co., 788 P.2d 748 (Colo. 1990).

[4]Though perhaps not to indemnify; see infra n. 6.

[5]The Hanover policy provided:

This Company agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage, to which this insurance applies, caused by an occurrence.

“Occurrence” was defined as “an accident, including injurious exposure to conditions, which results, during the policy term, in bodily injury or property damage.” 1997 ME 19 at ¶ 4.

[6]The Law Court addressed a second issue concerning the stipulated judgment agreed to by the parties following Cambridge Mutual’s denial of a defense and indemnification. Cambridge Mutual argued that Mrs. Perry breached her insurance agreement by entering into a stipulation of judgment without the insurer’s knowledge and consent. It further argued that even if she had the right to enter into such an agreement, she had to prove that the stipulated amount was reasonable. 1997 ME 94 ¶ 4. The Law Court disagreed, ruling that once an insurer breaches its duty to defend, the insured is free to proceed to protect her interests. Id. at ¶ 10. Further, the insurer and not the insured has the burden of proving that the settlement is unreasonable or in bad faith. Id. at ¶ 11.