Coverage for Lawsuit Against School District Involving Student’s Acts of Sexual Misconduct Not Barred by Sexual Misconduct Exclusion

Applying Illinois law, a federal district court has held that a policy’s sexual misconduct exclusion did not apply to preclude coverage for an underlying lawsuit against a school district involving a student’s acts of sexual misconduct, where the applicability of the exclusion in that context was not “clear and free from doubt.”  Netherlands Ins. Co. v. Macomb Cmty. Unit Sch. Dist., 2019 WL 5417144 (C.D. Ill. Aug 6, 2019).

In 2018, two female students sued the insured, an Illinois-based school district.  The underlying complaint against the district included a series of allegations involving sexual misconduct perpetrated against the students by one of their male classmates.  The complaint included causes of action for, among other things, violations of Title IX and wanton and reckless conduct by school administrators.  When the suit was filed, the district had two policies in place – a package policy and an umbrella policy – under which it sought coverage.  The carriers denied coverage for the suit and initiated a separate action seeking a declaration of their rights and obligations to the district under their respective policies.

The coverage action turned on the applicability of the package policy’s sexual misconduct exclusion.  That exclusion stated that the policy does not apply to “[a]ny actual or alleged sexual misconduct or sexual molestation of any person; and any allegations relating thereto that an insured negligently employed, investigated, supervised or retained a person, or based on an alleged practice, custom or policy, including but not limited to any allegation that a person’s civil rights have been violated.”  In a motion for judgment on the pleadings, the insurers argued that the exclusion unambiguously applied to bar coverage.  The district argued that, because the suit involved allegations of sexual assault by a student, and not an employee of the district, the exclusion did not apply.

The court ultimately denied the insurers’ motion, stating that the district’s reading of the exclusion is plausible and, as such, any doubts of coverage should be resolved in its favor.  The court reasoned that certain of the exclusionary language “links itself to some actions that would be performed by school leaders concerning employees,” and the rest of the exclusion “can be read as linked to those and other such actions school leaders can take or fail to take concerning the actions of school employees” – not students.  Accordingly, the court found that because “it is not clear and free from doubt that such underlying conduct by a student” fits into the exclusion, it did not apply to bar coverage for the underlying lawsuit.