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Court News Ohio
Abuse and
Molestation Exclusion Precludes Insurance Coverage for Church’s Child
Abuse Incident
By Dan Trevas
May 12, 2016
The Ohio Supreme Court ruled today that an abuse and molestation
exclusion in a commercial insurance policy bars coverage for damages
awarded against an employer found liable for an employee’s physical
abuse of a child in the care, custody, or control of the employer.
A unanimous Supreme Court found Grange Mutual Casualty’s insurance
policy exclusion does not allow coverage to World Harvest Church for a
2006 incident regarding the beating of a 2 1/2-year-old child in its
daycare center. The church settled a lawsuit with the child’s parents
for $3.1 million and sought to have Grange reimburse it for a portion
of the settlement.
Writing for the Court, Chief Justice Maureen O’Connor concluded the
Tenth District Court of Appeals incorrectly found Grange responsible to
cover a portion of the “vicarious liability” claims against World
Harvest, more than $642,000 of the parents’ attorney fees, and nearly
$230,000 in postjudgment interest.
Beating With Ruler Leads to Lawsuit
In 2006, Michael and Lacey Faieta initiated a lawsuit against World
Harvest Church (WHC) and its school and employee Richard Vaughan. The
Faietas dropped their son off for daycare in the morning, and sometime
in the afternoon, the regular classroom teacher left and Vaughan took
over. When Mr. Faieta picked up his son, he noticed bright red marks
and abrasions on his son’s rear end, back, and upper thighs. The boy
stated Vaughan had beaten him with a “knife,” which the child later
identified as a ruler, and he was taken to a local hospital for
treatment. The Faietas contacted WHC to report the injuries and seek
action against Vaughan, and WHC responded by banning the Faietas from
the school and church premises.
The Faietas sued Vaughan for assault and battery and Vaughan and WHC
for negligence and intentional infliction of emotional distress. They
also sued WHC for negligent hiring and supervision and for Vaughan’s
actions through respondeat superior. WHC acknowledged it employed
Vaughan but denied any of his actions were unlawful or negligent.
At the time of the incident, WHC was insured through a Grange
commercial policy and submitted a claim under the policy asking Grange
to defend WHC against the Faietas’ lawsuit. Grange agreed to defend and
retained a law firm to do so, but reserved the right to deny the
coverage and refuse to pay the claim citing its policy exclusions.
The case proceeded to trial where a jury awarded the Faietas $764,235
in compensatory damages and $5 million in punitive damages plus
attorney fees from WHC. The jury awarded the Faietas $134,865 in
compensatory damages against Vaughan and $100,000 in punitive damages.
After adjustments by state law, the final judgment made WHC solely
liable for $2.79 million, and Vaughan primarily - and WHC secondarily -
liable for $82,365 for intentional infliction of emotional distress.
Prior to any appeal, the church settled the case with the Faietas for
about $3.1 million.
World Harvest Sues Grange
Grange invoked its right to deny the insurance claim after the verdict.
In 2009, WHC sued Grange seeking reimbursement under the policy of most
of the $3.1 million it paid to settle the case with the Faietas for the
damages awarded.
Grange argued it is obligated to provide coverage for damages for
“bodily injury” caused by an “occurrence,” which was defined in the
policy as an “accident.” The policy excluded bodily injury that was
“expected or intended from the standpoint of the insured.” The policy
was further modified by a corporal punishment endorsement that provided
coverage for injuries that result from the corporal punishment of a
student administered by or at the direction of the insured.
The policy also included an “Abuse and Molestation Exclusion” which
denied coverage for a bodily injury arising from “the actual or
threatened abuse by anyone of any person while in the care, custody or
control of the insured.”
The Franklin County Common Pleas Court sided with WHC finding Grange
was obligated to indemnify the church for $1.47 million to cover the
compensatory damages, the attorney fees, and postjudgment interest
awarded to the Faietas, but not the punitive damages. Both appealed the
decision to the Tenth District Court of Appeals. The Tenth District
affirmed part of the trial court’s decision finding Grange had to cover
WHC for the $82,365 in compensatory damages against Vaughan for which
the jury held WHC secondarily liable, $693,861 in attorney fees, and
$229,716 in postjudgment interest. The Tenth District reversed the
portion of the trial court order directing Grange to reimburse the
remainder of the damages award.
Both sides appealed but the Supreme Court only accepted Grange’s appeal.
WHC’s Role at Issue
Chief Justice O’Connor explained that Grange contended the abuse
exclusion applies to bar coverage for damages regardless of whether the
damage award is based on WHC’s direct or vicarious liability for claims
arising from Vaughan’s physical abuse of the child. WHC claimed the
policy exclusion only applied if it was directly liable for the damages.
Chief Justice O’Connor also noted that WHC contended Vaughan’s actions
constituted “excessive corporal punishment” covered by the policy, and
that the abuse exclusion was intended only to exclude coverage for
sexual abuse, not physical abuse. She wrote the Tenth District squarely
addressed and rejected WHC’s sexual abuse argument and the claim that
Vaughan’s actions were excessive corporal punishment. The Supreme Court
let that ruling stand.
Policy Language Examined
Citing the Court’s 1992 Hybud Equip. Corp. v. Sphere Drake Ins. Co.,
Ltd. decision, Chief Justice O’Connor wrote that an exclusion in an
insurance policy “will be interpreted as applying only to that which is
clearlyintended to be excluded.” She found the language of the abuse
and molestation exclusion in the Grange policy is broad and excluded
actual or threatened abuse or molestation by anyone as long as the
victim was in the care, custody, or control of WHC.
She noted the exclusion contained no language limiting its application
to damages awarded as a result of WHC’s direct liability. The fact that
the policy does not expressly state it will deny coverage for secondary
or vicarious liability, does not support WHC’s contention that such
liability is covered, the Court concluded.
“We find that the abuse exclusion simply does not limit the exclusion
to claims for bodily injury arising fromdirect liability, while failing
to exclude claims for bodily injury arising from secondary, or
vicarious, liability for the same conduct,” Chief Justice O’Connor
wrote.
She added that, to provide coverage, the Court would have to add
language to the policy which it would not do when the terms of the
policy are “clear and unambiguous.”
“Thus, the language of the abuse exclusion encompasses WHC’s vicarious
liability for Vaughan’s intentional infliction of emotional distress
arising from the abuse,” Chief Justice O’Connor wrote.
The Court reversed the Tenth District’s determination that Grange is
responsible for coverage under the policy for damages awarded to the
Faietas.
No Payment for Attorney Fees and Interest
The Tenth District determined Grange had to indemnify the attorney fees
award because it was found to be responsible for coverage of some of
the damages. Chief Justice O’Connor wrote that because the Supreme
Court determined Grange is not responsible to cover any of WHC’s
damages, then Grange is not obligated under the policy to pay for the
attorney fees or postjudgment interest awarded.
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