Claims Arising Out of Alleged Sexual Abuse by Doctor are “Related Claims” Subject to Single Limit of Liability Under Sexual Misconduct Endorsement

The United States District Court for the Southern District of West Virginia, applying West Virginia law, has held that claims against a surgery center arising out of medical procedures performed by a doctor while patients were anesthetized, primarily related to alleged sexual abuse, were “related claims” subject to a single limit of liability pursuant to a sexual misconduct endorsement.  Allied World Surplus Lines Ins. Co. v. Day Surgery Ltd. Liab. Co., 2020 WL 1545881 (S.D. W. Va.) (Mar. 31, 2020).  However, the court held that the surgery center’s excess policy, which did not contain a sexual misconduct endorsement, did not cover claims arising solely out of sexual abuse.

A number of lawsuits were filed against the insured surgery center and its management company arising out of medical procedures performed by the same doctor while patients were anesthetized at facilities owned or operated by the insured, primarily arising out of alleged sexual abuse.  The surgery center was insured under a primary professional liability and general commercial insurance policy, which contained an endorsement providing $1 million in coverage for claims alleging sexual misconduct or sexual abuse, notwithstanding the sexual misconduct exclusion in the policy form.  The same insurer issued an excess insurance policy to the surgery center for the same period, which contained a sexual misconduct exclusion but not a comparable endorsement.  The insurer acknowledged a duty to defend the underlying claims but filed a declaratory judgment action seeking clarification regarding the scope of coverage.

On cross-motions for summary judgment, the court held that all the underlying claims were “related claims” because they all shared a common factual basis—procedures performed by a single doctor on a female patient while under anesthesia.  Although two of the underlying actions also asserted negligence claims unrelated to alleged sexual abuse, the court concluded that these still constituted “related claims” under the “unambiguously broad” related claims provision in the policy because these claims were based on the same actions or inactions by the surgery center in relation to the doctor’s procedures.  In so holding, the court rejected arguments by the insured that the related claims issue was not ripe while the underlying actions remained pending, concluding instead that the related claims issue was not contingent upon the resolution of issues in the underlying case.  The court also held that the underlying claims were subject to the single $1 million per claim limit of liability provided by the sexual misconduct endorsement, not the higher per claim limit applicable to other coverage provided by the policy.

Because the excess policy contained a sexual misconduct exclusion and did not contain the same endorsement as the primary policy, the court held that the excess policy did not cover claims arising solely out of sexual misconduct.  However, the court declined to determine whether the excess policies might provide coverage in connection with claims also alleging negligence unrelated to sexual misconduct, holding that the issue was not ripe because its resolution depends upon factual findings in the underlying actions.

Next, the court held that the management company constituted an insured under the primary policy, which defined “insured” to include a “manger” of the named insured but only with respect to two of the policy’s insuring agreements and only for claims arising out of services performed by the named insured.  The court rejected the insurer’s argument that claims covered under the sexual misconduct endorsement necessarily did not implicate coverage under the policy’s other insuring agreements, concluding instead that the sexual misconduct endorsement reinstated coverage otherwise excluded by the sexual misconduct exclusion in the main policy form but that such claims could also potentially implicate other insuring agreements.  However, the court held the management company was not an insured under the excess policy’s separate definitions.

Finally, the court declined to determine whether the insured was entitled to recover its fees in connection with the coverage action, determining that the issue was not yet ripe while the underlying actions remained pending.