On September 20, 2011, the New York Appellate Division, Second Department, held that alleged acts of sexual abuse suffered by a single person constitute multiple occurrences under general liability policies, and that the settlement amount paid by the insured must be allocated pro rata over several policy periods.
In Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, PA., --- N.Y.S.2d ----, 2011 WL 4389671, 2011 N.Y. Slip Op. 06554 (2d Dep't, September 20, 2011), the defendant National Union sold the Roman Catholic Diocese of Brooklyn general liability insurance policies every year from 1995 to 1998. The diocese sought insurance coverage for a $2 million settlement plus "additional consideration" that it incurred in resolving a lawsuit brought by an alleged victim of sexual abuse. The alleged victim asserted that a reverend sexually abused her at different times and locations between August 1996 and March or May 2002.
The National Union policies provided coverage for "'bodily injury' ... only if ... [t]he 'bodily injury' ... is caused by an 'occurrence'" and "[t]he 'bodily injury' ... occurs during the policy period." The policies defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The Queens County Supreme Court denied National Union's motion for summary judgment seeking a declaration that the alleged acts of sexual abuse constitute multiple occurrences, and that the settlement amount must be allocated on a pro rata basis over seven policy periods. The New York Appellate Division reversed the lower court, and directed that judgment be entered in favor of National Union.
The Appellate Division analyzed the National Union policies' "occurrence" definition, and noted that it did not "reflect an intent by the parties to aggregate claims for the purpose of subjecting them to a single policy deductible or [self-insured retention]." Relying on the New York Court of Appeal's decision in Appalachian Ins. Co. v. General Elec. Co., 863 N.E.2d 994, 1000 (N.Y. 2007), the Appellate Division applied New York's "unfortunate events" test for determining the number of occurrences and analyzed whether the alleged acts of sexual abuse shared any "temporal and spatial relationship." Because the alleged acts occurred at different times over a seven-year period and at multiple locations, the court held that they did not share any temporal or spatial relationship and were separate occurrences. As a result, the Appellate Division concluded that the plaintiffs must satisfy a separate $250,000 self-insured retention for each of the applicable policies.
With respect to the allocation issue, the Appellate Division rejected the diocese's argument that the settlement should be allocated using a "joint and several" method, under which the insured could demand payment for the entire claim under a single policy up to the policy limit. The Appellate Division held that pro rata allocation, while not explicitly mandated, was consistent with the policies' language that only provided coverage for bodily injury that occurred "during the policy period." Because it could not be determined to what extent the alleged bodily injury occurred during any particular policy period, the court held that the settlement should be allocated equally among the seven policies in effect during between 1996 and 2002.
This decision reinforces New York law's requirement that courts apply the "unfortunate event" test when determining the number of occurrences, unless the parties specifically incorporate into their policies aggregating language that precisely identifies "the operative incident or occasion giving rise to liability." If there is no such aggregating language, the number of occurrences will be determined by examining the facts of the underlying accidents and whether any temporal or spatial relationships exist between them.
The Roman Catholic decision also fortifies New York law's adoption of pro rata allocation under standard commercial general liability policies for progressive injuries that span multiple policy periods. New York courts generally reject the "joint and several" or "all sums" approach, which requires a single insurer to pay for all ongoing injuries occurring over the course of multiple years, and then usually forces it to seek contribution from other previous or subsequent insurers in a separate coverage action. Under the pro rata approach, the insurer may only be held liable for its proportionate share of the damages resulting from injuries during its policy period, and the insured must look to all potentially triggered policies for coverage.