Insurance Alert: Massachusetts Appeals Court holds "Deemer Clause" bars coverage for negligent supervision claims
In Granite State Insurance Company v. Conner et al., the Massachusetts Appeals Court held that a "deemer clause" in an abuse and molestation endorsement to a Commercial General Liability policy operated to bar coverage for the insured under the entire policy, and not just that endorsement. The Massachusetts Appeals Court decision is here. The decision is instructive on both the language of policy limitations, as well as the location of that language in a policy.
The coverage case arose out of allegations that an employee of the insured abused a number of children over the course of several years. The insured had purchased primary and excess liability coverage from a number of carriers for the time period in which the abuse occurred. The claim was noticed to all carriers. The Plaintiff insurer had issued a primary policy that provided standard Commercial General Liability coverage (for liability arising out of bodily injury and personal injury) as well as professional liability coverage. The policy also provided limited coverage for the entity and its employees, officers and directors for negligent supervision under an abuse and molestation endorsement.
The Plaintiff insurer filed the declaratory judgment action seeking a declaration that there was no coverage under its policy, because of a "deemer clause" in the abuse and molestation endorsement to the policy, which stated:
As respects each claimant, multiple acts of 'sexual abuse' by the same person(s), including any breach of duty in allowing or contributing to such act(s), will be deemed one event. The date of the event will be deemed to be the date of the first act of 'sexual abuse.' There is no coverage under this policy as respects such claimant if the date of the event precedes the effective date of this policy.
The Plaintiff insurer argued that because the abuse commenced before its policy's inception date, the "deemer clause", quoted above, barred coverage under all coverages under that policy, because that abuse was deemed one event that commenced prior to the effective date of the policy. Accordingly, it argued, there was no coverage under the policy for any of the claims against the insured entity or its employees, directors and officers. (The abuser was not covered under any coverage part of the policy)
One of the other carriers defended and indemnified the insured entity and its employees, directors and officers in the civil suit filed by the family of the victim. Following settlement, that carrier then intervened in the pending declaratory judgment action, arguing that the "deemer clause" was limited specifically to the coverage provided by the abuse and molestation endorsement, and that there would be coverage for the claims under the policy for bodily injury, personal injury and professional liability claims.
The Massachusetts Appeals Court rejected that argument: "[T]he "deemer clause", clearly eliminates coverage under coverage D [the abuse and molestation endorsement] with respect to the sexual abuse alleged in the Doe suit, as the date of the first act of sexual abuse was prior to the effective date of the policy." The Court also held that the "deemer clause", unambiguously applied to the entire policy:
Despite its location in the endorsement captioned "COVERAGE D," and indeed in the section describing the insuring agreement, . . . the language of the deemer clause is clear and unmistakable. It does not merely limit "this insurance." Rather, it states a limit to coverage under "this policy." . . .The language in the deemer clause limiting the scope of the "policy", therefore must be read as though it were inserted into the body of the policy itself. At least in this circumstance, the language inserted into the body of the policy that limits the coverage provided under "the policy" serves as a limitation on all the policy's coverages, not only on coverage D. The language of the policy [is] unambiguous[.]
The message should be clear: in policy drafting - particularly where coverage is being limited or eliminated altogether - the location of the policy limitation may be just as important as the language of that limitation.