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Wrongful Act Exclusion Deemed Ambiguous

AMERICAN HOME ASSURANCE COMPANY v. POPE  (8 Cir. Jan. 11, 2010)

This coverage dispute arises out of a tragic underlying action involving the sexual molestation of a young child. Claimant Kelly, was placed in foster case with Lester and Nancy Pope in 1979. Lester began abusing Kelly soon afterwards, and the abuse continued for years. Eventually, Nancy discovered the abuse and arranged a meeting with Dr. Strand and his business partner, Dr. Ray. Nancy asked Dr. Strand not to report the abuse, and he agreed. In fact, neither doctor notified officials about the abuse despite the obligation to do so under Missouri law.
 
Eventually, a number of tort actions were filed resulting in a determination that Dr. Strand acted negligently in failing to fulfill his common law duty to warn Kelly or someone else in a position to protect her. The resulting inquiry was whether Dr. Strand’s professional liability insurer was required to provide indemnity for the damages awarded to Kelly. A declaratory judgment ensured.
 
The insurer had denied coverage based upon the wrongful act exclusion. The insurer argued that Dr. Strand knew he had a duty to report the abuse and he violated that duty. Therefore, he knowingly committed a wrongful act, and his conduct was expressly excluded under the policy. In response, Kelly argued that the knowingly wrongful act exclusion is an exclusion for intentional, not negligent, conduct, which would require a showing that Dr. Strand intended to harm Kelly or intended the hostile consequences of his actions in order to be applied.
 
In turning to the language of the policy, the court noted that the insurer agreed to provide coverage for wrongful acts arising out of the performance of professional services. The policy also excluded coverage for any wrongful act committed with knowledge that such an act was wrongful. The court concluded that in light of the parties’ two different interpretations of this knowingly wrongful act exclusion, the policy language was ambiguous and should therefore be interpreted against the insurer.
 
In reaching its decision, the court emphasized that the underlying arbitration panel had determined that Kelly was entitled to damages based solely upon Dr. Strand’s negligence. As a result, the insurer was obligated to provide coverage for Dr. Strand’s negligent conduct because the policy covers any actual or alleged negligent act. The court noted that there has been no finding of intentional misconduct which would be required to satisfy Missouri’s requirement that an insured intends not only the act itself but also the consequences of that act.
 
Impact: The court’s interest in finding coverage for the underlying loss cannot be understated. Arguably, there remains a strong argument that coverage should be excluded. It appears undisputed that the psychologist certainly knew of the continuing danger to Ms. Kelly and intentionally failed to warn or take any other action. That said, here, an underlying determination by an arbitration panel that the psychologist had indeed acted negligently had a significant impact on the court’s decision. That decision allowed the court to conclude that the issue of negligence was adjudicated, the policy provided coverage for negligence and therefore, Ms. Kelly was entitled to indemnification of her damages under the policy.
 
For a copy of this decision, click here: http://tinyurl.com/GS-PLM-Fed-Ed
All content © 2020 Goldberg Segalla LLPNational Law Review, Volume , Number 64

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About this Author

Richard J. Cohen, Goldberg Segalla Law Firm, Insurance Attorney
Managing Partner

Richard Cohen, a founding partner of Goldberg Segalla, has been the firm’s managing partner since its inception and has led its dynamic growth from a team of seven attorneys into one of the largest law firms headquartered in the United States. Rick oversees all of the firm’s operations across its more than 20-office footprint, and is responsible for developing and implementing the firm’s strategic direction, driving its geographic expansion, and cultivating leadership within the firm and throughout the greater business community. He plays a primary, active role in the...

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Sharon Angelino, Insurance Lawyer, Goldberg Segalla Law Firm
Partner

Sharon Angelino is a Goldberg Segalla partner and a member of the firm's Insurance Coverage and Extra-contractual Liability Practice Group, where her practice includes complex insurance coverage, commercial litigation and general corporate law.

Having earned a bachelor's degree in biochemistry and an M.B.A., combined with several years of working in the health care industry, Ms. Angelino brings unique blend of knowledge and experience to benefit her clients.

Ms. Angelino has more than a dozen years of insurance coverage experience in both first party and third party claims. She has reviewed coverage issues in New York as well as throughout the Northeast, and served as national coverage counsel monitoring exposure and coverage issues for all toxic tort claims for London insurers for several years.
 

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