CA1: Girl interrupted was “molested” not “exploited”

National Union Fire v. West Lake Academy, Nos. 07-2190, 07-2204 (11/13/08).  This is a fun insurance coverage case.  It is pretty rare that case begins with the words “Fourth-party plaintiff Jane Doe (“Doe”)).    Westlake Academy is one of those places that they put “out-of-control” or “moody “ teens “involuntarily.”  As seems to be fairly common at these places, one of Westlake’s employees had sex with Doe.  Doe became pregnant.  And, as usual Doe sued the guy that made her pregnant, West Lake, and people she thought negligently let this happen.  The state court action resulted in, among other things, a judgment jointly in the amount of $750,000 based on the negligent supervision claim.  It held the employee (and another employee, probably the supervisor) jointly liable. 

To begin, the First says that the defendants are not entitled to cross-appeal when they win.

The insurance company wasn’t too happy about this, and filed suit in the District Court for a declaratory judgment saying that the liability policy they wrote didn’t include “acts of molestation.”  Though, there was a “sexual abuse endorsement” which they said limited liabile to $300,000.  Moreover, they claimed that this was a “wasting” policy in that the coverage would be reduced by the cost to defend.  The insured, as usual, answered and filed counterclaims asserting violations of state insurance and consumer protection laws.  Then Doe got involved.  She essentially was now on the same side as her molestors, and argued that she was standing in their shoes.

Doe says that she was exploited.  Not molested.  Not abused.  The First and the District Court essentially disagree that the “abuse” and “molestation” coverage endorsement applies, because the exclusion for abuse and molestation and the endorsement for molestation have the same scope.  Moreover, what went on wasn’t “exploitation” but rather “abuse.”  Exploitation would mean turning Doe into a prostitute.

Lookout Below!

Again, interpreting the policy, the First says that policy was, indeed a “wasting” one. 

There is an interesting question raised about whether evidence of another policy’s settlement was properly admitted, as it might have been irrelevant.  Thinking that this might be a can of worms, the First affirms on the ground that Doe opened the door to it.

Strangely, the insurer used that settlement as closing argument to imply that the defendant was greedy.  The First says it was improper, but just like it constantly gives the green light to similar stunts by prosecutors, the First gives the green light to the civil defense bar by saying that there was no contemporaneous objection.
Finally, the First affirms a jury verdict regarding a failure to settle claim.  Even though there was conflicting testimony, the First says that that doesn’t entitle Doe to coverage as a matter of law.  Moreover, there is no requirement, the First says, that negotiation in good faith include written offers to settle.