Prior Known Acts Exclusion Negates Insurer’s Duty to Defend.

The U.S. District Court of New Jersey, applying New Jersey law, granted the insurer’s motion for summary judgment and denied the insured’s cross-motion for summary judgment.  The Court held that the insurer does not have a duty to defend a public school district from sexual abuse claims under its policy because the prior known acts exclusion precluded such coverage.

The underlying lawsuit stemmed from the alleged sexual misconduct and abuse of a student, identified in court papers as Child M, by an ex-teacher from Montville Township Board of Education (“Montville”).  According to the complaint, Child M alleges that Montville employed Jason Fennes for twelve years, knew about his sexual misconduct, failed to notify the authorities, and agreed not to tell potential future employers about that conduct in order to induce Fennes to resign.  After resigning from Montville, the teacher began working for Cedar Hill Prep, where he allegedly sexually molested Child M.

Child M and her parents sued Fennes and Cedar Hill Prep in 2012 and added Montville as a defendant in 2015.  Child M claims that Montville’s silence enabled and facilitated Fennes’ subsequent molestation of her at Cedar Hill Prep.  Montville initiated the instant action against its insurer, Zurich American Insurance Co. seeking coverage for the state complaint after Zurich refused to defend the board.  In June 2017, the Court ruled that Zurich did not have a duty to defend Montville against Child M’s allegations under its General Commercial Liability (“GCL”) policy.  The GCL policy excludes coverage of claims “arising from” or “relating in any way” to “abusive acts.”

In a subsequent motion for reconsideration, Montville asserted for the first time that Zurich had a duty to defend under the Abusive Acts (“AA”) provision of their policy.  The Court allowed Montville to file a new motion asserting that Zurich had such a duty.  That provision states that Zurich “will pay ‘loss’ because of ‘injury’ resulting from an ‘abusive act’ to which this insurance applies.”  Child M’s allegations fall within the scope of the AA provision.

The Court concluded that Zurich’s obligation to provide coverage is negated by the Prior Known Acts exclusion as the policy became effective in July 2011 and Child M has alleged that Montville was aware of the purported sexual abuse before then.  The exclusion provides that there is no coverage under the AA policy for “[a]ny claim or ‘suit’ based upon, arising out of or attributable, in whole or in part, to any ‘abusive act’ of which any insured, other than the insured actually committing the ‘abusive act’, has knowledge prior to the effective date of this Coverage Part.”

Montville argued that the exclusion did not apply as Child M’s complaint “does not allege with specificity that the Board had knowledge of any information which would clearly meet the definition of an ‘abusive act’ as used in the Abusive Act Coverage Part.”  The Court rejected Montville’s argument, noting in part that Child M has alleged that Montville knew Fennes had engaged in “sexual molestation” and “child abuse,” and knew that he was a “known pedophile and child molester.”  The Court concluded that a straightforward reading of the complaint is that Montville was allegedly aware of “abusive acts” prior to the effective date of the policy.  Therefore, the Court granted Zurich’s motion for summary judgment finding that the Prior Known Acts exclusion precluded such coverage.  Montville Township Board of Education v. Zurich American Ins. Co., No. 16-CV-04466 (D.N.J. Aug. 21, 2018).