Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Casualty Co., 091918 FED2, 16-2999-cv

Docket Nº:16-2999-cv, 17-2484-cv
Opinion Judge:JACOBS, CIRCUIT JUDGE.
Party Name:HARTFORD ROMAN CATHOLIC DIOCESAN CORPORATION, Plaintiff-Appellee-Cross-Appellant, v. INTERSTATE FIRE & CASUALTY COMPANY, Defendant-Appellant-Cross-Appellee.
Attorney:DAVID P. FRIEDMAN (Marilyn B. Fagelson, Melissa A. Federico, on the brief), Murtha Cullina LLP, Stamford, CT, for Appellee-Cross-Appellant Hartford Roman Catholic Diocesan Corporation. RICHARD L. NEUMEIER, Morrison Mahoney LLP, Boston, MA, for Appellant- Cross-Appellee Interstate Fire and Casualt...
Judge Panel:Before: JACOBS, CHIN, Circuit Judges, KUNTZ, District Judge
Case Date:September 19, 2018
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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HARTFORD ROMAN CATHOLIC DIOCESAN CORPORATION, Plaintiff-Appellee-Cross-Appellant,

v.

INTERSTATE FIRE & CASUALTY COMPANY, Defendant-Appellant-Cross-Appellee.

Nos. 16-2999-cv, 17-2484-cv

United States Court of Appeals, Second Circuit

September 19, 2018

Argued: May 29, 2018

Interstate Fire & Casualty Company ("Interstate") appeals from an August 1, 2016 judgment that Interstate breached its contractual duty to indemnify the Hartford Roman Catholic Diocesan Corporation ("Archdiocese") under certain excess insurance policies. The Archdiocese appeals from a July 26, 2017 amended judgment that Interstate's breach did not violate the Connecticut Unfair Insurance Practices Act ("CUIPA"). We affirm.

DAVID P. FRIEDMAN (Marilyn B. Fagelson, Melissa A. Federico, on the brief), Murtha Cullina LLP, Stamford, CT, for Appellee-Cross-Appellant Hartford Roman Catholic Diocesan Corporation.

RICHARD L. NEUMEIER, Morrison Mahoney LLP, Boston, MA, for Appellant- Cross-Appellee Interstate Fire and Casualty Company.

Before: JACOBS, CHIN, Circuit Judges, KUNTZ, District Judge [*]

JACOBS, CIRCUIT JUDGE.

This diversity suit concerns insurance under second-layer excess liability contracts, issued 1978-85, for four claims that were brought against the insured, the Hartford Roman Catholic Diocesan Corporation ("Archdiocese"), and that arose from sexual misconduct by priests of the Archdiocese. Interstate Fire & Casualty Company ("Interstate") appeals from an August 1, 2016 judgment of the United States District Court for the District of Connecticut (Arterton, J.) that Interstate breached its contractual duty to indemnify. The Archdiocese appeals from a July 26, 2017 amended judgment dismissing its claim that Interstate violated the Connecticut Unfair Insurance Practices Act ("CUIPA") in its handling of the claims. We affirm the judgment and amended judgment.1

The coverage dispute focuses on two contract provisions invoked by Interstate to deny coverage for sexual abuse: the exclusion for assault and battery, and the coverage grant for occurrences that unintentionally and unexpectedly result in personal injury. The CUIPA claim alleges that Interstate failed to comply with the obligation to make prompt reimbursement.

I

The Archdiocese purchased excess indemnity insurance policies from Interstate for the periods between September 1, 1978 and September 1, 1985. Under its insurance plans, the Archdiocese had a self-insured retention; the first layer excess was furnished by underwriters at Lloyds of London and other London market insurers (collectively "Lloyds") and by Centennial Insurance Company; and the second excess layer was furnished by defendant Interstate. Interstate's policies followed form to Lloyds' policies (except as to any inconsistency, of which none is at issue). At some point, Interstate's second excess layer was breached.

Beginning in 2008, Interstate received notice from the Archdiocese that the four underlying claimants at issue in this suit had sent demand letters to the Archdiocese seeking damages for sexual abuse inflicted by priests. After timely notice to Interstate, and after settling with the four victims, the Archdiocese informed Interstate of the amount of reimbursement sought.

On November 19, 2012, having received no reimbursement from Interstate for any of the four underlying claims, the Archdiocese filed suit alleging breach of contract, breach of the covenant of good faith and fair dealing, and violations of CUIPA and Connecticut Unfair Trade Practices Act ("CUTPA"). Interstate's Answer admitted that each underlying claimant alleged sexual abuse by a priest of the Archdiocese and asserted affirmative defenses.

Interstate moved for summary judgment on all counts based on the assault and battery exclusion, while the Archdiocese cross-moved for summary judgment on breach of contract. Interstate's motion was denied; the Archdiocese's motion was granted in part and denied in part. After a ten-day trial, the district court found that Interstate breached its contract to indemnify, but did not violate CUIPA, CUTPA, or the covenant of good faith and fair dealing. The Archdiocese moved pursuant to Fed.R.Civ.P. 52(d), 59(a)(2), and 59(e) for amended or additional findings and conclusions of law and to amend the judgment, arguing that the district court had erred in denying its CUIPA claim. The district court denied the post-trial motion on July 26, 2017, and entered the amended judgment. Cross appeals ensued.

"On appeal from a judgment after a bench trial, we review the district court's findings of fact for clear error and its conclusions of law de novo. Mixed questions of law and fact are also reviewed de novo." Roberts v. Royal Atl. Corp., 542 F.3d 363, 367 (2d Cir. 2008).

Three issues are presented under Connecticut law: 1)W hether the Archdiocese's right to indemnity on the claims at issue withstands the assault and battery exclusion.

2) Whether the loss was an occurrence, that is, neither intended nor expected.

3) Whether Interstate's improper denial of claims amounted to a general business practice under CUIPA, Conn. Gen. Stat. § 38a- 816(6).

II

Interstate argues that, because the priests who committed the molestation are assureds under the contract along with the Archdiocese, coverage is rendered unavailable to the Archdiocese by the assault and battery exclusion (the "Exclusion") in the underlying Lloyds contract, which states:

This coverage does not apply: (a) To liability of any Assured for assault and battery committed by or at the direction of such Assured except liability for Personal Injury or Death resulting from any act alleged to be assault and battery for the purpose of preventing injury to persons or damage to property.

Supp. App'x at 1901. The term "Assured" includes the Archdiocese and, among others, "any official, trustee or employee of [the Archdiocese] while acting within the scope of his duties as such . . . ." App'x at 70 ¶ 9 (alteration in original).

Construction of an insurance policy is a question of law for the Court. Flint v. Universal Mach. Co., 238 Conn. 637, 642 (1996). "Under Connecticut law, the rules of contract construction govern the interpretation of an insurance policy." W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990). "When the terms of an insurance policy are clear and unambiguous, they must be accorded their ordinary meaning," id., and "[t]he determinative question is the intent of the parties, that is, what coverage the . . . [plaintiff] expected to receive and what the defendant was to provide, as disclosed by the provisions of the policy," Heyman Assocs. No. 1 v. Ins. Co. of State of Pa., 231 Conn. 756, 770 (1995) (second alteration in original). "Where recovery under a policy turns on the interpretation of an exclusionary clause, the insurer bears the burden of demonstrating that the loss is excluded under the express terms of the policy." W. World Ins. Co., 922 F.2d at 121.

Interstate contends that the Exclusion evidences intent to bar recovery as to all assureds if any one of them commits the assault or battery, arguing that the phrase "such assured" refers back to the phrase "any assured" and thus encompasses them all. Since the priests are among the assureds, Interstate's position is that recovery is excluded as to the Archdiocese as well.

In response, the Archdiocese observes that the Exclusion applies only to a person "acting within the scope of his duties," and that the assailant priests were not acting within the scope of their duties when they committed assault. Supp. App'x at 1921. Further, the wording excludes coverage only to those assureds who committed or directed the assault rather than to all assureds. The Archdiocese also invokes the familiar principle that ambiguities in a standard- form insurance contract are construed against the insurer.

We agree with the Archdiocese on the reading of the contract and therefore need not consider ambiguity.

First, for the purposes of this litigation, it is doubtful whether the assailant priests were "assureds" under the contract. Interstate's reservation of rights letter for one of the four claims (that of JA) took the position that the priest "was acting outside the course and scope of his priestly duties . . . when he allegedly sexually abused [JA and] . . . therefore, would not qualify as an insured under [Interstate]'s policy . . . ." Supp. App'x at 1936. Interstate took the same position in the Fifth Circuit. See Interstate Fire & Cas. Co. v. Catholic Diocese of El Paso, 622 F. Appʹx 418, 420 (5th Cir. 2015). Interstate should be bound to its own reading of its contract.

Second, even if the assailant priests are "assureds," the Exclusion bars coverage only...

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