Court Holds That an Insurer was Entitled to Seek Equitable Contribution from Another Insurer for a Portion of Defense and Settlement Costs That it Paid in Connection With Three Underlying Lawsuits Brought Against Their Mutual Insured
Westport Ins. Corp. v. N. Cal. Relief, 2014 U.S. Dist. LEXIS 173676 (N.D. Cal. Dec. 16, 2014)
In Westport, the Northern District of California held that the allegations of the underlying complaints were sufficient to potentially trigger the non-participating insurer’s coverage obligation despite the fact that underlying sexual abuse allegations occurred years prior to the issuance of that carrier’s policy.
Westport arose out of three underlying lawsuits brought by four women against the Moraga School District (the “District”) alleging that, when they were students in the 1990s, they were sexually abused by the District’s teachers. Each of the women claimed that her emotional injuries were in part caused by a 2012 investigative report revealing that school administrators received ample notice of the abuse but never reported it and actually conspired to hide it. Westport Insurance Corporation (“Westport”), the District’s insurer in the 1990s, paid for the defense of all three lawsuits and the settlement of two. Westport then filed the Westport action against Northern California Relief (“NCR”), the District’s insurer in 2012, and demanded that NCR pay its share of the litigation and settlement expenses based on the allegations that the claimants suffered harm during NCR’s policy period. NCR had previously denied coverage based on the fact that is policy only covered “Loss Occurrences” during its policy period, and that the allegations in the underlying complaints were based on alleged abuse that occurred decades before that period. NCR filed a motion to dismiss, which the District Court treated as a motion for summary judgment.
The district court held that, pursuant to California law, the clear and explicit language of the insuring agreement in NCR’s policy established that NCR’s coverage obligations were triggered by the women’s allegations of injury during NCR’s coverage period. In so holding, the district court rejected NCR’s argument that the women did not allege new injuries within NCR’s coverage period because emotional injuries the women claimed to have suffered in 2012 were caused by continuing or permanent psychological harm inflicted in the 1990s (i.e., within Westport’s coverage period). In this regard, the district court noted that “it’s one thing to have one’s trust violated by the acts of molestation, but it’s a whole separate situation to discover that the District was engaging in a coverup . . . That [is] quite a different injury.” 2014 U.S. Dist. LEXIS 173676, at *25. Accordingly, the District Court found potential coverage under the NCR policy and denied NCR’s motion.
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