The Roman Catholic Diocese of Rockville Ctr. v. Arrowood Indem. Co.

• Decision Date: 13 December 2022
• Docket Number: 1:20-cv-11011 (JLR)
• Parties: THE ROMAN CATHOLIC DIOCESE OF ROCKVILLE CENTRE, NEW YORK, Plaintiff, v. ARROWOOD INDEMNITY COMPANY, f/k/a Royal Insurance Company, f/k/a Royal Globe Insurance Company, Defendant.
• Court: U.S. District Court — Southern District of New York

THE ROMAN CATHOLIC DIOCESE OF ROCKVILLE CENTRE, NEW YORK, Plaintiff,
v.
ARROWOOD INDEMNITY COMPANY, f/k/a Royal Insurance Company, f/k/a Royal Globe Insurance Company, Defendant.

No. 1:20-cv-11011 (JLR)

United States District Court, S.D. New York

December 13, 2022

OPINION AND ORDER

JENNIFER L. ROCHON, UNITED STATES DISTRICT JUDGE

Plaintiff, the Roman Catholic Diocese of Rockville Centre, New York (the “Diocese”), brings this action against Arrowood Indemnity Company (“Arrowood”) alleging breach of contract and seeking a declaratory judgment as to the scope of the insurance company's duty to defend and indemnify the Diocese in underlying actions alleging child sexual abuse by clergymen in the Diocese. See ECF No. 51. Though the claims were initially brought in an adversary proceeding in the U.S. Bankruptcy Court for the Southern District of New York, on May 17, 2021, this Court granted Arrowood's motion to withdraw the bankruptcy reference as to the Diocese's claims against Arrowood. ECF No. 42. The Court subsequently issued an opinion granting in part and denying in part the Diocese's motion for partial judgment on the pleadings, as well as Arrowood's motion to amend its answer to include counterclaims seeking, among other things, a declaratory judgment that it does not have a duty to defend the underlying sexual abuse claims. ECF No. 84. Now before the Court is Arrowood's motion to compel discovery related to its duty to defend. ECF No. 105. For the reasons set forth below, Arrowood's motion is GRANTED in part and DENIED in part.

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BACKGROUND

The following facts are taken from the Diocese's Amended Complaint, ECF No. 98 (“Am. Compl.”), Arrowood's Answer and Counterclaim with respect to the Amended Complaint, ECF No. 101 (“Ans. & Counterclaim”), the Court's February 23, 2022 Opinion, ECF No. 84 (“Feb. Op.”), and the papers filed with respect to the instant dispute.^[1] On February 14, 2019, the State of New York enacted the Child Victims Act (“CVA”), which expanded the statute of limitations for claimants to sue parties whose actions or omissions facilitated the sexual abuse of children. Am. Compl. ¶ 2; Feb. Op. at 2. Pursuant to the CVA, hundreds of victims have sued the Diocese and related entities for negligence related to the acts of sexual abuse allegedly committed by clergymen working for the Diocese. Am. Compl. ¶ 3; Feb. Op. at 2. The Diocese has identified insurance policies that it asserts were in effect when the alleged abuse occurred and is relying on those policies to defend the myriad of sexual abuse claims brought against it. Feb. Op. at 2. Arrowood is the successor-in-interest to several insurance companies who entered into the policy agreements with the Diocese and insured the Diocese from October 1957 to October 1976 (the “policy period”). Am. Compl. ¶ 6; Ans. & Counterclaim at 2-4, ¶¶ 6, 10-12.^[2] The Diocese tendered approximately 286 CVA lawsuits to Arrowood, including 129 pre-petition suits and 157 post-petition suits for defense

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and indemnity pursuant to the policies in effect at the relevant times. Br. at 2 n.1. Arrowood agreed to defend most of the pre-petition suits, subject to a reservation of rights. Br. at 2.

Given the extraordinary number of claims filed against the Diocese after the CVA went into effect, the Diocese filed for Chapter 11 bankruptcy on October 1, 2020, which stayed the litigation against the Diocese. See Petition, 20-bk-12345, ECF No. 1. The Diocese filed an adversary proceeding against numerous insurance companies to resolve coverage disputes; as to Arrowood, it sought declaratory judgments that Arrowood had duties to defend and indemnify the Diocese under the relevant policies. See Complaint, 20-ap-01227, ECF No. 1 ¶¶ 82-87.^[3] The Diocese also alleged that Arrowood breached the insurance contracts by not providing a defense. Id. ¶¶ 88-97. The Diocese seeks defense and indemnity from Arrowood for all of the lawsuits filed under the CVA as well as for over 400 Proofs of Claim (“POC”) filed in the bankruptcy that allege sexual abuse during the policy periods of the Arrowood policies (collectively, the “Underlying Actions”). Br. at 2; Am. Compl. ¶¶ 62-79. Arrowood has denied coverage for all post-petition claims. Am. Compl. ¶ 62.

On December 29, 2020, Arrowood moved in this Court to withdraw the reference to the Bankruptcy Court. ECF No. 1. On May 17, 2021, this Court granted that motion, bringing the Diocese's claims against Arrowood before this Court. ECF No. 42. The parties subsequently filed a Complaint, ECF No. 51, and Answer, ECF No. 53. On June 16, 2021, the Diocese moved for, among other things, partial judgment on the pleadings, contending that Arrowood has a duty to defend all of the Underlying Actions when the claims are at least potentially covered, that Arrowood has a duty to defend and indemnify four of the Underlying

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Actions that Arrowood was refusing to defend, and for a stay with regard to the issue of Arrowood's duty to indemnify. ECF No. 55. On June 25, 2021, Arrowood moved for leave to file an amended answer, and to assert counterclaims for, among other things, a declaratory judgment that it does not have a duty to defend the Underlying Actions. ECF No. 65.

On February 23, 2022, the Court granted both parties' motions, in part. Specifically, the Court granted judgment on the pleadings to the Diocese with respect Arrowood's duty to defend four Underlying Actions - the G.C., Kelly, B.R. and F.C. lawsuits. Feb. Op. at 11. Those lawsuits allege sexual abuse by Romano Ferraro, a priest in the New York area during the policy period. Id. at 6. The suits allege that Ferraro was a known sexual predator, who was dishonorably discharged from the Navy in 1970, and subsequently transferred between Dioceses when allegations of abuse percolated. See, e.g., ECF No. 57, Ex. D, G.C. v. Diocese of Rockville Centre, et al., Index No. 900035/2019, Compl. ¶¶ 16-53 (alleging negligence with respect to abuse by Romano of plaintiff altar boy in 1975 and 1976); see Feb. Op. at 6-11; ECF No. 57, Exs. E, F, G. Without discovery, and based on the four underlying complaints, the Court granted judgment on the pleadings, holding that Arrowood has a duty to defend those lawsuits. Feb. Op. at 11. The Court stated that:

[t]he allegations in the complaints do not provide sufficient detail about who in the Diocese of Rockville Centre knew what when and whether individuals within the Diocese of Brooklyn communicated what they knew to their colleagues in the Diocese of Rockville Centre such that the only permissible conclusion is that the sexual abuse had to have been intended or expected by the Diocese of Rockville Centre

Id. Deeming it a “close call,” the Court reasoned that while the allegations in the four underlying complaints “involve conduct and knowledge that occurred either prior to or concurrently with the abuse alleged in the four complaints,” the Court cannot conclude that there is “no possible factual or legal basis on which” Arrowood may be held to eventually

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indemnify the Diocese. Id. at 10-11. Given the broad scope of the duty to defend, the Court held that Arrowood must defend those four actions. Id. at 11.

The Court did not, however, determine whether Arrowood has a duty to defend the other Underlying Actions, many of which Arrowood agreed to defend with a reservation of rights. See Golden Ins. Co. v. Ingrid House, Inc., 538 F.Supp.3d 293, 308 (S.D.N.Y. 2021) (“An insurer can both disclaim coverage and provide a defense pursuant to a reservation of rights.”). Other Underlying Actions allege similar facts with respect to different clergymen.^[4]For instance, one complaint alleges negligence against the Diocese with respect to Charles Ribaudo, a priest employed at Holy Trinity Catholic High School, who sexually abused a young parishioner from 1971 to 1975, allegedly taking him to his apartment on the campus in the presence of other priests and employees. See Koeneke v. Holy Fam. Roman Cath. Church, et al., Index No. 900004/2019, Compl. ¶¶ 15-26 (N.Y. Sup. Ct. Aug. 14, 2019). Another complaint alleges that the Diocese knew or should have known that Monsignors Edward Melton and Patrick Quigley sexually abused minors and still put them in direct contact with the minor plaintiff. See Mills v. Roman Cath. Diocese of Rockville Centre, et al., Index No. 900040/2019, Compl. ¶¶ 50-52, 62-72 (N.Y. Sup. Ct. Sept. 16, 2019) (alleging negligence with respect to abuse by Melton, Quigley, and one other employee in 1976); see also, e.g., Silvestre v. The Roman Cath. Diocese of Rockville Centre, et al., Index No. 900054/2019, Compl. ¶¶ 7-21 (N.Y. Sup. Ct. Oct. 22, 2019) (alleging negligence with respect to sexual abuse by Monsignor Melton and others of a child in the late 1960s and early 1970s). Yet another complaint alleges that the Diocese knew or should have known about Monsignor Alan

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Placa's prior abuse of children and/or his propensity to abuse children. See Fernan v. Diocese of Rockville Centre, et al., Index No. 900037/2019, Compl. ¶ 4 (N.Y. Sup. Ct. Aug. 23, 2019) (alleging negligence with respect to sexual abuse by Placa of a child from 1974 to 1977).

The Court permitted Arrowood to amend its answer and assert counterclaims seeking a declaratory judgment that it does not have duties to defend and indemnify based on certain coverage exclusions. Feb. Op. at 30.^[5] Finally, the Court stayed the action with respect to Arrowood's duty to indemnify the Diocese until after the Underlying Actions have been resolved. Feb. Op. at 23.

On April 14, 2022, the Court held a conference to address, among other things, disputes about the scope of discovery related to the present action. The Court ultimately granted discovery regarding insurance policies and forms. See ECF No. 99 (“April Tr.”) at 11:3-7. With respect to Arrowood's discovery related to exclusions such as late notice, known loss, and cooperation, the...