Watkins Glen Sch. Dist. v. Nat'l Union Fire Ins.
| Decision Date | 29 October 2001 |
| Docket Number | 2,00-01627 |
| Parties | WATKINS GLEN CENTRAL SCHOOL DISTRICT, ET AL., RESPONDENTS, v. NATIONAL UNION FIRE INS. CO. OF PITTSBURGH, PA., APPELLANT, ET AL., DEFENDANTS.SUPREME COURT OF THE STATE OF NEW YORK APPELLATE DIVISION: SECOND JUDICIAL DEPARTMENT Argued - |
| Court | New York Supreme Court — Appellate Division |
Robinson Silverman Pearce Aronsohn & Berman, Llp, New York, N.Y. (Mark J. Bunim and Glenn B. Coleman of counsel), for appellant.
Congdon, Flaherty, O'Callaghan, Reid, Donlon, Travis & Fishlinger, Garden City, N.Y. (Albert J. Turi of counsel), for respondents.
Cornelius J. O'Brien, J.P.
Sondra Miller
William D. Friedmann
APPEAL by the defendant National Union Fire Ins. Co. of Pittsburgh, Pa., in an action, inter alia, for a judgment declaring that the defendant National Union Fire Ins. Co. of Pittsburgh, Pa., is obligated to defend and indemnify the plaintiffs in an underlying action entitled Dean v. Watkins Glen Central School District, pending in the United States District Court for the Western District of New York, under Civil Action No. 98-CV-0362C, from so much of an order of the Supreme Court (Daniel Martin, J.), dated December 17, 1999, and entered in Nassau County, as denied its motion for summary judgment dismissing the complaint insofar as asserted against it and declaring that it was not obligated to defend and indemnify the plaintiffs in the underlying action, and granted that branch of the plaintiffs' cross motion which was for summary judgment on the complaint and declaring that it is obligated to defend and indemnify the plaintiffs in the underlying action.
This appeal presents an issue of first impression. Where a school district seeks defense and indemnification under an errors and omissions policy of liability insurance, in connection with charges that it was negligent in the hiring and supervision of a teacher with a history of sexual misconduct with students, may the insurer disclaim coverage under exclusions, inter alia, for intentional acts? We find that to permit the insurer to do so would wholly vitiate coverage and frustrate the reasonable expectations of the insured, contrary to the parties' unambiguous intentions. Thus, under the circumstances of this case, the plaintiff Watkins Glen Central School District (hereinafter the District) is entitled to defense and indemnification as a matter of law.
The District seeks a judgment, inter alia, declaring that the defendant National Union Fire Ins. Co. of Pittsburgh, Pa. (hereinafter National Union), is obligated to provide it with defense and indemnification under an errors and omissions policy of liability insurance, in connection with an underlying action in the United States District Court. In that underlying action, it was alleged that the District was negligent in connection with its hiring, supervision, and retention of a teacher, Gary Serlo.
Serlo was reportedly convicted in Pennsylvania in 1974 of sex crimes he committed in the course of his prior employment as an elementary school teacher there. Despite a lengthy gap in his teaching employment history, the District hired Serlo in 1984, allegedly without conducting an adequate background check. Then at subsequent times during his employment with the District, Serlo had allegedly been the subject of complaints of sexual misconduct with students which the District failed to aggressively investigate. In the underlying action, Serlo was alleged to have committed criminal acts of sexual abuse as against the infant plaintiffs in 1996 and 1997, while in the employ of the District at its middle school. The District was alleged, inter alia, to have been negligent in its hiring of Serlo, and in its failure to investigate and discover Serlo's alleged "pedophilic conduct involving young boys in the Watkins Glen Middle School throughout the course of his employment".
Insurance coverage for the District is arranged through the New York School Insurance Reciprocal (hereinafter NYSIR), which is, in effect, a legislatively-established insurance cooperative created to service the needs of municipal entities (see, Insurance Law art 61; L 1986, ch 220; Memorandum of State Exec. Dept., in support of L 1986, ch 220, 1986 McKinney's Sessions Laws of NY, at 2856, 2862-2863). At all pertinent times, the District was insured under two policies of insurance; a NYSIR commercial general liability policy and a school leaders errors and omissions policy underwritten by National Union.
When the District was served with the complaint in the underlying action, it looked to National Union for defense and indemnification under the errors and omissions policy. National Union disclaimed coverage, however, pursuant to two policy exclusions for claims arising from assault and battery, and bodily injury and emotional distress. The District thus commenced this action, inter alia, for a declaration of National Union's obligation to provide defense and indemnification in the underlying action.
In support of its motion for summary judgment, National Union asserted that coverage for damages arising from Serlo's alleged sexual misconduct was expressly foreclosed pursuant to the unambiguous language of the assault and battery and bodily injury/emotional distress exclusions. In support of its cross motion for summary judgment, the District offered parol evidence that the parties had purposely negotiated for the elimination of a provision within the policy that would have expressly excluded coverage for sexual molestation. The District thus argued that since the specific exclusion for sexual misconduct had been deleted from the policy, damages arising from Serlo's sexual misdeeds were covered.
Finding the policy provisions to be ambiguous under the circumstances, the Supreme Court considered the credible parol evidence tendered by the District and granted that branch of its cross motion which was for summary judgment. We now affirm, albeit for different reasons.
The appropriate determination of this appeal requires an understanding of the type of insurance policy involved. An errors and omissions policy is not a standard general liability policy. "An errors and omissions policy is intended to insure a member of a designated calling against liability arising out of the mistakes inherent in the practice of that particular profession or business" (Albert J. Schiff Assoc. v. Flack, 51 N.Y.2d 692, 700). An errors and omissions policy effectively provides malpractice insurance coverage to members of professions other than those in the legal and medical fields (see, Carey v. Employers Mut. Cas. Co., 189 F.3d 414; Arthur J. Gallagher & Co. v Bellamy-Baronowskus, A.2d [Conn. Super. Ct., March 12, 2001]; 1 Couch on Ins., § 1:35 [3d ed]). Errors and omissions policies are common in the field of education (see, St. Paul Fire and Marine Ins. Co. v. Missouri United School Ins. Council, 98 F.3d 343; Board of Public Educ. of School Dist. of Pittsburgh v. National Union Fire Ins. Co. of Pittsburgh, Pa., 709 A.2d 910 [Pa. Super. Ct.]; Edinburg Consol. I.S.O. v. INA, 806 S.W.2d 910 [Tx. Ct. App.]).
Errors and omissions policies generally provide coverage for acts of negligence and do not insure against intentional acts (see, DeSantis Enters. v. American and Foreign Ins. Co., 241 A.D.2d 859). Furthermore, there is ample authority for the proposition that sexual assaults are intentional acts that ordinarily are excluded from coverage under a general liability policy (see, Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153; Tasso v. Aetna Ins. Co., 247 A.D.2d 376; Travelers Ins. Cos. v Stanton, 223 A.D.2d 104; Pistolesi v. Nationwide Mut. Fire Ins. Co., 223 A.D.2d 94). However, none of the cases from this state applying intentional-act exclusions to acts of sexual misconduct have arisen within the context of direct allegations of supervisory negligence against school officials under an errors and omissions policy for the intentional sexual misconduct of a teacher. While Serlo unquestionably committed intentional acts for which National Union owes no duty of defense or indemnification in favor of Serlo, to the extent that the District may be held liable for its negligent hiring and supervision of Serlo, this risk falls squarely within the type of errors and omissions coverage provided by the National Union errors and omissions policy: to wit, professional malpractice liability insurance.
That National Union is obligated to provide defense and indemnification to the District for its alleged negligent acts is best illustrated by a factually-similar case that also involved National Union. In Board of Public Educ. of School Dist. of Pittsburgh v National Union Fire Ins. Co. of Pittsburgh, Pa. (supra), the parent of a student sued the Board of Education for alleged civil rights violations stemming from the sexual abuse of her child by the president of the parent-teacher organization (hereinafter PTO) of the middle school...
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