16‐2999‐cv (L)
Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co.
United States Court of Appeals
for the Second Circuit
August Term 2017
(Argued: May 29, 2018 Decided: September 19, 2018)
Docket Nos. 16‐2999‐cv, 17‐2484‐cv
HARTFORD ROMAN CATHOLIC DIOCESAN CORPORATION,
PLAINTIFF‐APPELLEE‐CROSS‐APPELLANT,
‐ V.‐
INTERSTATE FIRE & CASUALTY COMPANY,
DEFENDANT‐APPELLANT‐CROSS‐APPELLEE.
Before: JACOBS, CHIN, Circuit Judges, KUNTZ, District Judge.*
Interstate Fire & Casualty Company (“Interstate”) appeals from an August
1, 2016 judgment that Interstate breached its contractual duty to indemnify the
Hartford Roman Catholic Diocesan Corporation (“Archdiocese”) under certain
excess insurance policies. The Archdiocese appeals from a July 26, 2017
amended judgment that Interstate’s breach did not violate the Connecticut
Unfair Insurance Practices Act (“CUIPA”). We affirm.
Judge William F. Kuntz of the United States District Court for the Eastern
*
District of New York, sitting by designation.
DAVID P. FRIEDMAN (Marilyn B.
Fagelson, Melissa A. Federico, on the brief),
Murtha Cullina LLP, Stamford, CT, for
Appellee‐Cross‐Appellant Hartford Roman
Catholic Diocesan Corporation.
RICHARD L. NEUMEIER, Morrison
Mahoney LLP, Boston, MA, for Appellant‐
Cross‐Appellee Interstate Fire and Casualty
Company.
JACOBS, Circuit Judge:
This diversity suit concerns insurance under second‐layer excess liability
contracts, issued 1978‐85, for four claims that were brought against the insured,
the Hartford Roman Catholic Diocesan Corporation (“Archdiocese”), and that
arose from sexual misconduct by priests of the Archdiocese. Interstate Fire &
Casualty Company (“Interstate”) appeals from an August 1, 2016 judgment of
the United States District Court for the District of Connecticut (Arterton, J.) that
Interstate breached its contractual duty to indemnify. The Archdiocese appeals
from a July 26, 2017 amended judgment dismissing its claim that Interstate
violated the Connecticut Unfair Insurance Practices Act (“CUIPA”) in its
handling of the claims. We affirm the judgment and amended judgment.1
The coverage dispute focuses on two contract provisions invoked by
Interstate to deny coverage for sexual abuse: the exclusion for assault and
battery, and the coverage grant for occurrences that unintentionally and
unexpectedly result in personal injury. The CUIPA claim alleges that Interstate
failed to comply with the obligation to make prompt reimbursement.
1 “Because we think that we can determine th[ese] issue[s] based on well‐settled
principles” of Connecticut law, there is no need to take the discretionary action
to certify any questions to the Connecticut Supreme Court, as sought by
Interstate. Best Van Lines, Inc. v. Walker, 490 F.3d 239, 242 n.3 (2d Cir. 2007).
2
I
The Archdiocese purchased excess indemnity insurance policies from
Interstate for the periods between September 1, 1978 and September 1, 1985.
Under its insurance plans, the Archdiocese had a self‐insured retention; the first
layer excess was furnished by underwriters at Lloyds of London and other
London market insurers (collectively “Lloyds”) and by Centennial Insurance
Company; and the second excess layer was furnished by defendant Interstate.
Interstate’s policies followed form to Lloyds’ policies (except as to any
inconsistency, of which none is at issue). At some point, Interstate’s second
excess layer was breached.
Beginning in 2008, Interstate received notice from the Archdiocese that the
four underlying claimants at issue in this suit had sent demand letters to the
Archdiocese seeking damages for sexual abuse inflicted by priests. After timely
notice to Interstate, and after settling with the four victims, the Archdiocese
informed Interstate of the amount of reimbursement sought.
On November 19, 2012, having received no reimbursement from Interstate
for any of the four underlying claims, the Archdiocese filed suit alleging breach
of contract, breach of the covenant of good faith and fair dealing, and violations
of CUIPA and Connecticut Unfair Trade Practices Act (“CUTPA”). Interstate’s
Answer admitted that each underlying claimant alleged sexual abuse by a priest
of the Archdiocese and asserted affirmative defenses.
Interstate moved for summary judgment on all counts based on the assault
and battery exclusion, while the Archdiocese cross‐moved for summary
judgment on breach of contract. Interstate’s motion was denied; the
Archdiocese’s motion was granted in part and denied in part. After a ten‐day
trial, the district court found that Interstate breached its contract to indemnify,
but did not violate CUIPA, CUTPA, or the covenant of good faith and fair
dealing. The Archdiocese moved pursuant to Fed. R. Civ. P. 52(d), 59(a)(2), and
59(e) for amended or additional findings and conclusions of law and to amend
the judgment, arguing that the district court had erred in denying its CUIPA
claim. The district court denied the post‐trial motion on July 26, 2017, and
entered the amended judgment. Cross appeals ensued.
3
“On appeal from a judgment after a bench trial, we review the district
court’s findings of fact for clear error and its conclusions of law de novo. Mixed
questions of law and fact are also reviewed de novo.” Roberts v. Royal Atl.
Corp., 542 F.3d 363, 367 (2d Cir. 2008).
Three issues are presented under Connecticut law:
1) Whether the Archdiocese’s right to indemnity on the claims at
issue withstands the assault and battery exclusion.
2) Whether the loss was an occurrence, that is, neither intended nor
expected.
3) Whether Interstate’s improper denial of claims amounted to a
general business practice under CUIPA, Conn. Gen. Stat. § 38a‐
816(6).
II
Interstate argues that, because the priests who committed the molestation
are assureds under the contract along with the Archdiocese, coverage is rendered
unavailable to the Archdiocese by the assault and battery exclusion (the
“Exclusion”) in the underlying Lloyds contract, which states:
This coverage does not apply:
(a) To liability of any Assured for assault and battery committed by
or at the direction of such Assured except liability for Personal
Injury or Death resulting from any act alleged to be assault and
battery for the purpose of preventing injury to persons or damage to
property.
Supp. App’x at 1901. The term “Assured” includes the Archdiocese and, among
others, “any official, trustee or employee of [the Archdiocese] while acting within
the scope of his duties as such . . . .” App’x at 70 ¶ 9 (alteration in original).
Construction of an insurance policy is a question of law for the Court.
Flint v. Universal Mach. Co., 238 Conn. 637, 642 (1996). “Under Connecticut law,
4
the rules of contract construction govern the interpretation of an insurance
policy.” W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990).
“When the terms of an insurance policy are clear and unambiguous, they must
be accorded their ordinary meaning,” id., and “[t]he determinative question is
the intent of the parties, that is, what coverage the . . . [plaintiff] expected to
receive and what the defendant was to provide, as disclosed by the provisions of
the policy,” Heyman Assocs. No. 1 v. Ins. Co. of State of Pa., 231 Conn. 756, 770
(1995) (second alteration in original). “Where recovery under a policy turns on
the interpretation of an exclusionary clause, the insurer bears the burden of
demonstrating that the loss is excluded under the express terms of the policy.”
W. World Ins. Co., 922 F.2d at 121.
Interstate contends that the Exclusion evidences intent to bar recovery as
to all assureds if any one of them commits the assault or battery, arguing that the
phrase “such assured” refers back to the phrase “any assured” and thus
encompasses them all. Since the priests are among the assureds, Interstate’s
position is that recovery is excluded as to the Archdiocese as well.
In response, the Archdiocese observes that the Exclusion applies only to a
person “acting within the scope of his duties,” and that the assailant priests were
not acting within the scope of their duties when they committed assault. Supp.
App’x at 1921. Further, the wording excludes coverage only to those assureds
who committed or directed the assault rather than to all assureds. The
Archdiocese also invokes the familiar principle that ambiguities in a standard‐
form insurance contract are construed against the insurer.
We agree with the Archdiocese on the reading of the contract and
therefore need not consider ambiguity.
First, for the purposes of this litigation, it is doubtful whether the assailant
priests were “assureds” under the contract. Interstate’s reservation of rights
letter for one of the four claims (that of JA) took the position that the priest “was
acting outside the course and scope of his priestly duties . . . when he allegedly
sexually abused [JA and] . . . therefore, would not qualify as an insured under
[Interstate]’s policy . . . .” Supp. App’x at 1936. Interstate took the same position
in the Fifth Circuit. See Interstate Fire & Cas. Co. v. Catholic Diocese of El Paso,
5
622 F. Appʹx 418, 420 (5th Cir. 2015). Interstate should be bound to its own
reading of its contract.
Second, even if the assailant priests are “assureds,” the Exclusion bars
coverage only for an assailant, not for all Assureds. To begin, an insurer has the
burden of proving that an exclusion to coverage applies, and exclusions are
construed against the insurer. See Nationwide Mut. Ins. Co. v. Pasiak, 327 Conn.
225, 239 (2017). The rest is grammar.
The Connecticut Supreme Court has recognized that the dictionary
definition of “such” includes “having a quality already or just specified.”
LaProvidenza v. State Emp. Ret. Comm’n, 178 Conn. 23, 27 (1979) (internal
quotation marks omitted); see also id. (“The word ‘such’ has been construed as
an adjective referring back to and identifying something previously spoken of;
the word naturally, by grammatical usage, refers to the last antecedent.”). So, we
read “such” as a term of limitation that references what has been previously
specified; so read, the word operates here to limit the Exclusion to “such
Assured” as committed or directed the assault and battery.
Under a contrary reading, blameless insureds would lose coverage by the
act of someone else, and their coverage would be rendered illusory. Although
there could of course have been such an exclusion, it would have had to be more
explicit than this one. And that would have been easy. Repeating the word
“any” in place of “such” would have done it. Or the Exclusion could have
excluded claims for assault and battery, without more. To read the Exclusion as
only relating back to “any assured” would obviate the limiting phrase
referencing one who commits or directs the misconduct‐‐a superfluity that
would be contrary to Connecticut law. See Buell Indus., Inc. v. Greater N.Y. Mut.
Ins. Co., 259 Conn. 527, 539 (2002) (“[E]ach and every sentence, clause, and word
of a contract of insurance should be given operative effect. Since it must be
assumed that each word contained in an insurance policy is intended to serve a
purpose, every term will be given effect if that can be done by any reasonable
construction.” (internal quotation marks omitted)). “If the terms of the policy are
clear, their meaning cannot be forced or strained by an unwarranted construction
to give them a meaning which the parties obviously never intended.” Marcolini
v. Allstate Ins. Co., 160 Conn. 280, 283 (1971).
6
Interstate relies on Interstate Fire & Casualty Co. v. Roman Catholic
Church of Phoenix, 761 F.3d 953 (9th Cir. 2014), which held (over a dissent) that
the (same) assault and battery exclusion bars coverage for both the assured who
committed or directed the assault and battery as well as for all other assureds,
including the Phoenix Archdiocese. The Ninth Circuit read the phrases “any
Assured” and “such Assured” as signifying the same thing: “when an
exclusionary clause precludes recovery to ‘any insured,’ the term is not
ambiguous and clearly encompasses all persons insured under the policy.” Id. at
955 (internal quotation marks omitted). That argument was also raised by
Lloyds‐‐and rejected‐‐in Diocese of Winona v. Interstate Fire & Cas. Co., 858 F.
Supp. 1407, 1415 (D. Minn. 1994), revʹd in part on other grounds, 89 F.3d 1386
(8th Cir. 1996).
Judge Nelson’s dissent in the Phoenix case is sound. He reasoned that,
because the quality of having committed or directed the assault and battery is the
attribute that immediately precedes “such Assured,” the best interpretation was
that “such Assured” refers back to this quality. Id. at 956‐57 (Nelson, J.,
dissenting). Under that reading, the exclusion applies only to those assureds
who commit or direct the wrong. Id. at 958 (Nelson, J., dissenting).
Interstate cites some opinions in this Circuit and the Connecticut state
courts that interpreted the phrase “any insured” in an exclusion as
unambiguously foreclosing coverage for all insureds. See, e.g., McWeeny v. City
of Hartford, 287 Conn. 56, 67 (2008) (the term “such individual” plainly refers
back to “any individual”). However, the policies in those cases use distinctly
different language than the one at issue here. In any event, the question is not
whether “such Assured” does or can reference “any Assured”; the question is
whether the reference back includes the wording of limitation that narrows “any
Assured” to one that committed or directed an assault or battery.
7
III
Interstate is bound to indemnify the Archdiocese “for all sums” it was
obligated to pay “arising out of any occurrence or happening during the period
of insurance.” App’x at 1083. “Occurrence” is defined as: “An accident or a
happening or event or a continuous or repeated exposure to conditions which
unexpectedly and unintentionally results in personal injury, or damage to
property during the policy period.” Id. Interstate contends: that there is no
coverage if the accident or happening is intended or expected, regardless of
whether the resulting loss was intended or expected; that intention and
expectation is an objective test rather than a subjective question viewed from the
standpoint of the insured; and that in any event the extraordinary circumstances
present here would justify or require an objective test.
Given the contract terms and the coverage positions taken by Interstate,
we must consider when the abuse to the four underlying claimants occurred,
when the Archdiocese became aware that the assailants were a threat to children,
and what the Archdiocese did in response.
1) JA alleged that he was sexually abused by Father Robert Ladamus
when JA was a student at St. Mary’s Church and School in 1981 or
1982. It is uncontested on appeal that the Archdiocese was not on
notice that Fr. Ladamus was a risk before he assaulted JA, and that
the assault was an occurrence.
2) KS alleged that he was sexually abused by Father Stephen
Crowley when KS was approximately eight years old and a student
at St. Francis of Assisi School in the 1981‐1982 school year. The
district court found evidence that Fr. Crowley began assaulting
children as early as 1975, but concluded that the Archdiocese was
not on notice of Fr. Crowley’s abuse until March 1983, when a group
of parents wrote to Archbishop John Whealon of Hartford, after the
abuse of KS. It is uncontested on appeal that the Archdiocese was
not on notice that Fr. Crowley was a risk at the time he molested KS,
and that this was an occurrence.
8
3) Richard Mallory alleged that he was sexually abused by Father
Ivan Ferguson, a teacher at Northwest Catholic High School who
was in residence at the rectory at St. Bernard’s Church between
November 1977 and October 1978. The district court found as a
matter of law, and it is uncontested on appeal, that the Archdiocese
was not on notice of Fr. Ferguson’s abuse until March 1979, after the
abuse of Mallory. This too was an occurrence.
4) Matthew Doe alleged that he was sexually abused by Fr. Ferguson
from the summer of 1981 to the fall of 1982, when Doe was 13‐14
years old and when Fr. Ferguson was the Assistant Pastor at St.
Mary’s Parish.
The indemnity issues bearing on the occurence clause therefore concern
only the claim made by Matthew Doe because he is the only claimant as to whom
the Archdiocese had prior notice of the assailant priest’s proclivities before the
abuse occurred. The issues are whether the molestation was an occurrence under
the insurance contracts, and whether it was intended or expected. These issues
all bear upon the overarching “element of ‘fortuity’ necessary for an accident,”
Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 775 (2013), and
require a narrative concerning Fr. Ferguson, and what the Archdiocese knew and
did about him.
Mallory’s mother reported Fr. Ferguson’s abuse of her son to Fr. Shea,
pastor of St. Bernard’s, in the fall of 1978; and the mother of KC (another victim,
not at issue here) told Fr. Donahue, co‐pastor of St. Mary’s, of sexual abuse by Fr.
Ferguson in 1978. KC also alleged that Fr. Shea had witnessed him with Fr.
Ferguson on multiple occasions, though not in compromising circumstances.
Further, the mother of BTL (yet another victim) spoke to Fr. Donahue about Fr.
Ferguson in early 1979.
However, the district court found that Fathers Shea and Donahue were
insufficiently senior to allow the imputing of their knowledge to the
Archdiocese. The court determined that the Archdiocese was first on notice
when on March 7, 1979, Fr. Ferguson called Archbishop Whealon’s secretary, Fr.
Gianelli, to say that he had molested two boys and had an alcohol problem.
9
The Archdiocese therefore learned of Fr. Ferguson’s proclivities prior to
his abuse of Doe. After Archbishop Whealon had notice of Fr. Ferguson’s abuse,
Archbishop Whealon told Fr. Gianelli to send Ferguson to the House of
Affirmation, a rehabilitation center for sexual dysfunction. But when the House
of Affirmation could not accommodate Fr. Ferguson, it was suggested that Fr.
Ferguson be sent instead to St. Luke Institute, which is an alcohol treatment
center rather than a rehabilitation facility for pedophiles‐‐though priests accused
of similar misconduct were regularly sent there. Father Gianelli consulted with
the Medical Director of St. Luke, Fr. Doctor Michael Peterson, who
recommended that Fr. Ferguson should be placed in a treatment program that
would fix his substance abuse problems first. Father Doctor Peterson, who was a
psychiatrist and Assistant Professor at Georgetown University Medical School,
opined that Fr. Fergusonʹs pedophilia was triggered by his alcoholism. The
Archbishop relied on Fr. Dr. Peterson’s assessment.
When Fr. Ferguson’s inpatient treatment ended in July 1979, Archbishop
Whealon reassigned Fr. Ferguson to Laurelton Hall, a school for girls, to serve as
chaplain while residing in the rectory of St. Mary’s Parish. The priests, principal,
and supervisors at the school were advised that Fr. Ferguson had been treated
for alcohol abuse; the child molestation was not disclosed.
On June 24, 1980, Fr. Dr. Peterson and an alcoholism counselor at St. Luke
Institute wrote to Fr. Kennedy, vicar for priests, to express support for Fr.
Ferguson’s return to work in a high school environment; Archbishop Whealon
was copied on the letter. Father Doctor Peterson again wrote to Archbishop
Whealon in June 1981 (memorializing a conversation he had had with the
Archbishop a month before), reaffirming his full support for Fr. Ferguson’s
reassignment to “a more exciting teaching assignment”; “it [wa]s his professional
opinion that the other issues that brought Father Ferguson to us for treatment
will be in control as long as the disease of alcoholism is in control.” App’x at
1091 (alteration in original). Fr. Ferguson was then assigned as a full‐time
Assistant Pastor at St. Mary’s. It was there that Fr. Ferguson molested Matthew
Doe.
The district court determined that Archbishop Whealon reasonably relied
on Fr. Dr. Peterson’s assessment that Fr. Ferguson would not return to sexual
10
abuse of minors so long as he remained sober, and that the Archdiocese therefore
lacked notice that Fr. Ferguson would molest Doe.
To revisit the essential contract terms: Interstate is required to indemnify
the Archdiocese for loss “arising out of any occurrence or happening during the
period of insurance.” App’x at 1083. “Occurrence” is defined as: “An accident
or a happening or event or a continuous or repeated exposure to conditions
which unexpectedly and unintentionally results in personal injury, or damage to
property during the policy period.” App’x at 1083. Construing those terms, the
district court determined that:
Interstate was obligated to indemnify the Archdiocese for all sums
paid (a) arising out of the Archdiocese’s placement of the accused
priests in environments where they had the opportunity to abuse
children if (b) the Archdiocese did not subjectively know that it was (c)
substantially probable that the priests would abuse children.
App’x at 1083 (emphasis in original).
Interstate raises three arguments on appeal.
1. Interstate argues that, under the definition of “occurrence,” the
“accident or a happening” itself must be unexpected and unintended, even if the
resulting injury comes as a surprise. Interstate relies on Pennsylvania General
Insurance Company v. Thakur, No. 3:12‐CV‐1799‐AWT, 2014 WL 3906456 (D.
Conn. Aug. 11, 2014), which observed that “[t]he relevant inquiry here at the
stage of determining whether there was an ‘occurrence’ is whether the event
causing the injury was an accident, not whether the injury itself is accidental.”
Id. at *3. From there, Interstate surveys the failures of the Archdiocese to take
effective action: KC had told Fr. Donahue of Fr. Ferguson’s abuse back in 1978,
and Archbishop Whealon knew of the misconduct in March 1979, yet sent him to
a rehabilitation facility for alcohol abuse, not pedophilia. Placing Fr. Ferguson in
St. Mary’s where he had the opportunity to molest Matthew Doe was therefore
(according to Interstate) a reckless act that was no accident.
Interstateʹs argument is not frivolous. In Jacob Doe v. Hartford Roman
Catholic Diocesan Corporation, 317 Conn. 357, 394 (2015), the tort liability case
11
involving Fr. Fergusonʹs abuse of Matthew Doe’s best friend, the Connecticut
Supreme Court determined that the Archdiocese was reckless. And the Eighth
Circuit, in Diocese of Winona v. Interstate Fire & Casualty Company, 89 F.3d
1386 (8th Cir. 1996), concluded in similar circumstances that there was no
occurrence.
However, we agree with the district court that the proper inquiry is
whether the injuries were expected, not whether the accidents were expected. It
would seem that in most instances the concepts merge and cannot be teased
apart. But insofar as it matters, Interstate loses the point. The contracts in the
cases on which Interstate relies, such as Thakur, 2014 WL 3906456, define an
occurrence simply as “an accident,” whereas the occurrence clause at issue here
defines an occurrence as an accident (or “happening,” “event,” and “continuous
and repeated exposure to conditions”) that “unexpectedly or unintentionally
results in personal injury.” App’x at 985 (emphasis added). So the focus is on
intention and expectation as to the resulting injury rather than the accident itself.
To find otherwise would require discounting the clause after “accidents,” which
(as explained above) we cannot do. See Buell Indus., Inc. v. Greater N.Y. Mut.
Ins. Co., 259 Conn. 527, 539 (2002).
2. More consequential in this case is whether intention and expectation is
determined by an objective test of what a reasonable person knew or should
have known (as Interstate argues), or whether it is determined subjectively from
the standpoint of the insured (as the district court concluded).
Interstate relies on the Eighth Circuit ruling in Diocese of Winona, 89 F.3d
1386, that the test is objective, and invokes the ruling in Jacob Doe that the
Archdiocese was reckless. Since recklessness is a state of mind that entails
conscious choice, Interstate contends that the Archdiocese is collaterally
estopped from claiming that Matthew Doe’s claim is an occurrence.
The district court properly determined that intention and expectation is
considered from the standpoint of the insured. Connecticut state trial courts
apply a subjective standard. See, e.g., Colony Ins. Co. v. Walnut Beach, LLC, No.
CV‐094011366, 2010 WL 1224364, at *4 (Conn. Super. Ct. Feb. 25, 2010) (“[I]t is
well established that in gauging intention and expectation, the analysis must be
12
conducted from the standpoint of the insured.”); Steadfast Ins. Co. v. Purdue
Federick Co., No. X08‐CV‐020191697S, 2006 WL 1149185, at *3 (Conn. Super. Ct.
Apr. 11, 2006) (“[W]here the expected and intended language does not indicate
otherwise, the majority rule that a court should apply a subjective standard as to
whether the insured expected or intended the damage is ‘fair.’”); Linemaster
Switch Corp. v. Aetna Life and Cas. Corp., No. CV91‐0396432S, 1995 WL 462270,
at *24 (Conn. Super. Ct. July 25, 1995) (same). Interstate cites Diocese of Winona,
89 F.3d 1386, which is to the contrary, but is expounding the law of Minnesota.
Minnesota is an outlier, however.2
In cases that are distinguishable but influential nonetheless, the
Connecticut Supreme Court has rejected the “should have known” standard for
determining what is “expected” under a commercial general liability policy. In
Capstone Building Corp. v. American Motorists Insurance Co., 308 Conn. 760
(2013), the word “accident” was not defined. The court adopted the “ordinary
meaning of an ‘unexpected happening’”, which “means ‘unexpected or
unintended.’” Id. at 774. The court added: “We have held that ‘[a]n accident is
an event that is unintended from the perspective of the insured.’” Id. at 775
(quoting Vt. Mut. Ins. Co. v. Walukiewicz, 290 Conn. 582, 594 (2009)).
Since the recklessness standard differs from the subjective standard, see
Allstate Ins. Co. v. Berube, 84 Conn. App. 464, 470‐71 (2004) (a shooting was an
“occurrence” because, regardless of the insured’s reckless conduct, he did not
specifically intend the resulting injury); Harleysville Worcester Ins. Co. v.
Paramount Concrete Inc., 10 F. Supp. 3d 252, 264‐65 (D. Conn. 2014) (holding that
2 See e.g., City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146,
1150 (2d Cir. 1989) (interpreting New York law); Broderick Inv. Co. v. Hartford
Accident & Indem. Co., 954 F.2d 601, 606 (10th Cir. 1992), cert. denied, 506 U.S.
865 (1992) (interpreting Colorado law); Smith v. Hughes Aircraft Co., 783 F.
Supp. 1222, 1236 (D. Ariz. 1991); Hatco Corp. v. W.R. Grace & Co.–Conn., 801 F.
Supp. 1334 (D. N.J. 1992); Brown Foundation v. St. Paul Ins. Co., 814 S.W.2d 273,
278‐79 (Ky. 1991); Am. Home Assurance Co. v. Safway Steel Prods. Co., 743
S.W.2d 693, 701 (Tex. Ct. App. 1987); Queen City Farms, Inc. v. Cent. Nat’l Ins.
Co., 126 Wash.2d 50, 68 (1994); Farmers & Mechanics Mut. Ins. Co. v. Cook, 210
W. Va. 394, 400 (2001).
13
a jury’s finding that the policyholder was reckless would not bar coverage under
the policy’s “expected and intended” clause), collateral estoppel cannot be
applied to Matthew Doe’s claims based on the Connecticut Supreme Court
findings in Jacob Doe, see Crochiere v. Bd. of Educ., 227 Conn. 333, 345 (1993)
(“Before collateral estoppel applies there must be an identity of issues between
the prior and subsequent proceedings. To invoke collateral estoppel the issues
sought to be litigated in the new proceeding must be identical to those
considered in the prior proceeding.”).
3. Finally, Interstate argues that even if the inquiry on intention and
expectation is ordinarily subjective, this Court should follow the reasoning in
Linemaster Switch Corp. v. Aetna Life & Casualty Corp., No. CV91‐0396432S,
1995 WL 462270, at *1 (Conn. Super. Ct. July 25, 1995), which held that in
“exceptional circumstances” the subjective test for an occurrence should be
changed to an objective one.
There is no need here to extend Linemaster Switch. Linemaster Switch was
an environmental tort case, and Interstate identifies no other Connecticut case
which relies on the “exceptional circumstances” exception.
We do not question the conclusion in Jacob Doe, 317 Conn. 357, that the
Archdiocese was reckless in allowing Fr. Ferguson to reenter a school for boys.
Nevertheless, a subjective standard applies to the Matthew Doe claim, the only
claim in this case in which the Archdiocese had prior notice of the assailant
priest’s proclivities. Under that standard, the Archdiocese did not intend or
expect the injury, given that Archbishop Whealon relied on Fr. Dr. Peterson‐‐a
psychiatrist who ran a treatment center‐‐who opined that treatment of Fr.
Ferguson’s alcoholism would allow him to work safely in a school for boys. The
Archbishop monitored the situation, receiving regular reports on Fr. Ferguson’s
status from Fr. Dr. Peterson (and from Fr. Ferguson himself). Thus Archbishop
Whealon, and the Archdiocese, did not subjectively know that Fr. Ferguson
would abuse more children.
14
IV
As the district court concluded, the Archdiocese failed to support its claims
under CUIPA. CUIPA does not provide litigants an independent cause of action,
so Connecticut plaintiffs are allowed to use CUTPA as a vehicle to bring CUIPA
claims. CUTPA prohibits any person from “engag[ing] in unfair methods of
competition and unfair or deceptive acts or practices in the conduct of any trade
or commerce,” Conn. Gen. Stat. § 42‐110b(a), and provides a right of action for
“[a]ny person who suffers any ascertainable loss of money or property, real or
personal, as a result of the use or employment” of an unfair or deceptive act, id. §
42‐110g(a). CUIPA in turn defines unfair or deceptive acts or practices in the
insurance business, and prohibits any person from engaging in such practices in
Connecticut. See id. § 38a‐815.
Among the prohibited practices under CUIPA are “unfair claim settlement
practices,” including, as relevant here: “failing to acknowledge and act with
reasonable promptness upon communications with respect to claims arising
under insurance policies,” id. § 38a‐816(6)(B); “failing to affirm or deny coverage
of claims within a reasonable time after proof of loss statements have been
completed,” id. § 38a‐816(6)(E); “not attempting in good faith to effectuate
prompt, fair and equitable settlements of claims in which liability has become
reasonably clear,” id. § 38a‐816(6)(F); and “compelling insureds to institute
litigation to recover amounts due under an insurance policy by offering
substantially less than the amounts ultimately recovered in actions brought by
such insureds,” id. § 38a‐816(6)(G).
To prove an “unfair claim settlement practice,” a plaintiff must
demonstrate that the defendant has engaged in unfair or deceptive acts “with
such frequency as to indicate a general business practice.” Id. § 38a‐816(6).
The district court found that Interstate “fail[ed] to affirm or deny the [four]
underlying claims within a reasonable time after Plaintiff’s provision of a proof
of loss.” App’x at 1152. For JA’s claim, Interstate had all of the documentation it
requested, knew the amount of the settlement and that it pierced Interstate’s
layer, and knew the amount of reimbursement sought by the Archdiocese, one
year and nine months before this suit was filed. For the claims of Mallory, KS,
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and Doe, Interstate had this information (respectively) five months, seven
months, and nine months before this suit was filed. The delays were unusual.
But it is fair to say that clergy molestation claims justify close inquiry and
investigation as to the insured’s knowledge (or lack) of the circumstances bearing
on intention and expectation, and that such claims entail coverage questions that
are not insubstantial. However, the parties litigated the CUIPA claim chiefly on
the basis of what constitutes a “general business practice” under § 38a‐816(6)(E)
of CUIPA, and the district court decided it on that basis. We will review that
ruling.
The claims history is similar as to all four of the claims that are the subject
of this appeal. When each of the four victims filed lawsuits against the
Archdiocese, the Archdiocese gave notice to Interstate and the other insurers.
Interstate does not contest the finding that the Archdiocese fulfilled its notice
obligation. After getting notice, Interstate requested documentation, and
reserved rights. The reservation of rights letter asserted the positions (inter alia)
that, if the allegations were proven, the priest whose acts gave rise to the claim
had been acting outside the course and scope of priestly duties and therefore
would not qualify as an assured, and that, since the intentional assault of a minor
did not constitute an occurrence, coverage would be voided if it was shown that
the Archdiocese was on notice of the priest’s proclivities. Interstate opened a
claim file and communications were exchanged. After Interstate was notified of
the settlement and the Archdiocese requested indemnity, many months of delay
ensued notwithstanding repeated notices from the Archdiocese and its counsel.
The Archdiocese submitted 57 claims as a representative sample of
Interstate’s response to sexual abuse claims across the country. The district court
found that 9‐11 percent of the 57 claims reflected misconduct, a total of nine cases
(five in other settlements, and the four at issue here). However, relying on the
definition of “general business practice” in Lees v. Middlesex Insurance Co., 229
Conn. 842 (1994), the district court concluded that misconduct in handling that
percentage of claims did not evidence a “general business practice” that would
violate CUIPA.
The Archdiocese argues that the district court erred as a matter of law in
considering what constitutes a “general business practice” because: (1) the
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quantum of proof to establish a general business practice is lower than 9‐11
percent; (2) a Handbook issued by the National Association of Insurance
Commissioners (“NAIC”) confirms that 9‐11 percent is sufficient; and (3) in any
event Interstate admitted that it never provided policyholders with a categorical
denial of coverage in priest‐misconduct claims.
1. Relying on the Connecticut Supreme Court’s dictionary‐based
definition of “general business practice” in Lees, 229 Conn. 842, the district court
concluded that misconduct in 9‐11 percent of claims did not constitute a general
business practice. We agree with the district court that the Archdiocese fails to
demonstrate a violation of CUIPA. While a single instance of misconduct is
insufficient to demonstrate a “general business” practice under CUIPA, see Mead
v. Burns, 199 Conn. 651, 659 (1986), no Connecticut appellate court has said how
many acts of misconduct would suffice, nor is “general business practice”
defined in Connecticut General Statute § 38a‐816(6). Acknowledging this, the
Connecticut Supreme Court in Lees, 229 Conn. 842, advised that a court “may
look to the common understanding of the words as expressed in a dictionary.”
Id. at 849 n.8. Doing so, the Connecticut Supreme Court observed that
“‘[g]eneral’ is defined as ‘prevalent, usual [or] widespread’; Websterʹs Third New
International Dictionary; and ‘practice’ means ‘[p]erformance or application
habitually engaged in . . . [or] repeated or customary action.’” Id.
Under this definition, Interstate’s misconduct in nine cases in a limited
sample of 57 claims‐‐out of more than 1700 sexual abuse settlements nationwide‐
‐does not evidence a “prevalent, usual [or] widespread” practice. Id.
The Archdiocese relies on cases in which an appreciable percent of
misconduct was detected in a small sample: for example, four cases of
misconduct out of eight claims in Tucker v. American International Group, 179 F.
Supp. 3d 224, 244 (D. Conn. 2016). That is a different situation from this one,
where there is a large sample size.
2. The Market Regulation Handbook produced by NAIC presumes that
there is a general business practice if more than seven percent of sampled claims
are found to entail a particular kind of misconduct. The Archdiocese contends
that the Handbook is authoritative because: NAIC helped draft the Model Act on
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which CUIPA is based; NAIC has an ongoing role in advising state insurance
departments on enforcement; the Connecticut Supreme Court looked to NAIC
reports to help define “insurer” in Doucette v. Pomes, 247 Conn. 442, 461 (1999);
and the Connecticut legislature recently passed legislation allowing the
Insurance Department to rely on NAIC standards in its investigations.
The district court properly rejected the argument premised on the NAIC
Handbook, which describes itself as a regulatory creation “designed primarily as
a guideline for regulatory agencies to use in developing their own procedures for
performing market conduct examinations. It does not reflect policies or
procedures that are required to be implemented by any jurisdiction.” NAIC Mkt.
Regulation Handbook, Vol. 1, Chapter 8, F. Disclaimers, p. 114. Presumably that
is why the Archdiocese is unable to point to a Connecticut case that relied on the
NAIC seven percent error rate to support a finding of civil liability under
CUIPA.
3. Finally, the Archdiocese contends that Interstate admitted that it never
provided policyholders with a categorical affirmance or denial of coverage in
priest‐misconduct claims, and cites a Massachusetts opinion on a motion to
dismiss, which ruled that even a single incident of misconduct could
demonstrate a general business practice if the insurer, by word or action,
conceded that the single incident reflected its overall practice. See RAMS II, LLC
v. Mass. Bay Ins. Co., No. CV136043177S, 2016 WL 3266084, at *3 n.1 (Conn.
Super. Ct. May 23, 2016).
Interstate did not concede at trial (as the Archdiocese asserts) that
Interstate “never affirmed or denied a claim” of priest sexual abuse. The
argument misrepresents the testimony of Interstate’s witness, Debra Sons. She
testified that while she had never written a denial letter on the basis of the
occurrence provision, she had issued denial letters based on other coverage
issues, and that where it was clear that there had been an “occurrence” under the
policy, Interstate would negotiate with the insured, or file a declaratory
judgment action to resolve the coverage issue.
What the Archdiocese is really arguing is that the Connecticut legislature,
when drafting subsection E of CUIPA, intended that insurance companies must
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formally accept or deny coverage even if other steps are being taken to resolve a
disputed claim. As the district court observed: just because claims remained
pending does not mean that Interstate failed to affirm or deny coverage within
the meaning of subsection E, especially since the Archdiocese admits that
“Interstate has not received enough information to make [a] determination” as to
some of the claims. App’x at 1699.
* * *
For the foregoing reasons, the judgments of the district court are
AFFIRMED.
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