Coverage and Liability Issues in Sexual Misconduct Claims

TEXASCoverage Trigger & Number ofOccurrencesIntentional Acts ExclusionsPerpetrator:Non-perpetrator:Sexual Misconduct ExclusionsThe Texas courts have addressed the number of occurrences from thestandpoint of the number of injured persons and the holdings varieddepending on the policy. In one case a day care center employeemolested three children and the court found that there was onlyone occurrence based on a sexual misconduct endorsement whichprovided that “all acts of sexual misconduct by one person, or twoor more persons acting together” would constitute one occurrence.Preferred Risk Mutual Ins. Co. v. Watson 937 S.W.2d 148 (Tex. App.1997). In another case, two children were sexually abused by oneemployee and the court rejected the argument that the perpetrator’stendencies were a common cause of each child’s injuries or that theemployer’s negligence was the single cause, and instead found thatthe abuse of each child constituted a separate occurrence. H.E. ButtGrocery Co. v. National Union Fire Ins. Co., 150 F.3d 526 (5th Cir.1998).Under Texas law sexual molestation is an intentional injury as a matterof law. J.E.M. v. Fidelity & Casualty Co. of New York, 928 S.W.2d 668(Tex. App. 1996); Allen v. Automobile Ins. Co. of Hartford, 892 S.W.2d198 (Tex. App. 1994); Maayeh v. Trinity Lloyd’s Ins. Co., 850 S.W.2d193 (Tex. App. 1992).The Texas Supreme Court, in a case involving a policy with aseparation-of-insureds clause, held that the perpetrator’s intent is notimputed to the insured in determining whether the insured’s actionswere an occurrence under the policy. King v. Dallas Fire Ins. Co.,85 S.W. 3d 185 (Tex. 2002); See also Roman Catholic Diocese ofDallas v. Interstate Fire & Cas. Co., 133 S.W. 3d 887 (Tex. App. 2004)(Holding that perpetrator’s intent should not be imputed to insuredeven where policy contains no separation-of-insureds provision); StateFarm General Ins. Co. v. White, 955 S.W. 2d 474 (Tex. App. 1997)(court refused to apply an intentional act exclusion to allegations ofnegligent failure to report and stop abuse of children at a day carecenter).Where nursing home employee subjected nurses to sexualharassment an exclusion for claims “arising out of sexual abuse orlicentious, immoral or sexual behavior” barred coverage for boththe nursing home and the employee. Old Republic Ins. Co. v.Comprehensive Health Care Assoc., 2 F.3d 105 (5th Cir. 1993); Seealso American Home Assurance Co. v. Stephens, 164 F.3d 956 (5thCir. 1999) (Not against public policy for an insurer to limit coverage fortherapist’s non-sexual misconduct that allegedly occurred in the samecourse of professional treatment as sexual misconduct).– 62 –