Sixth Circuit Solidifies UNBENDABLE Bar on Insurance Coverage for Acts of Sexual Misconduct in Ohio

On the heels of the Ohio Supreme Court’s significant decision in World Harvest Church v. Grange Mutual Insurance Company, the Sixth Circuit in Clifford v. Church Mutual Insurance Company held that victims of sexual abuse were not entitled to insurance coverage under a policy maintained by the perpetrator’s employer based on an application of the plain and unambiguous language of a “sexual molestation and sexual misconduct” exclusion commonly employed in liability insurance contracts. Additionally, the court held that coverage was excluded because Ohio public policy prohibits insurance coverage for sexual abuse of a minor. Clifford is a significant decision for Ohio insurers as the opinion illustrates not only the broad applicability and strength of “sexual misconduct and sexual molestation” coverage exclusions in Ohio, but also the additional bar to obtaining insurance coverage for sexual abuse represented by Ohio public policy that precluded insurance for this particular form of misconduct.

Lonnie Aleshire, Jr., an associate pastor at Licking Baptist Church, sexually molested Sandra Cottrell repeatedly and raped her sister Jacquin when both were just teenagers. Aleshire pleaded guilty to his unlawful acts and was sent to prison for seven years. The two teenagers and their parents sued Aleshire for sexual assault, sexual battery, intentional infliction of emotional distress, false imprisonment and loss of consortium. At trial, the plaintiffs focused exclusively on Aleshire’s sexual acts and the impact that his sexual misconduct had on the family. The plaintiffs, however, made no attempt to present separate claims for relief unrelated to the sexual acts, and no evidence was presented on the plaintiffs’ claims for false imprisonment. An Ohio jury found Aleshire liable and awarded over $4 million in damages to the plaintiffs. The jury did not, however, allocate the award between the various claims for relief.

Licking Baptist Church maintained an insurance contract with Church Mutual Insurance Company. While Church Mutual paid for Aleshire’s defense in the underlying civil litigation, it refused to satisfy the judgment, reasoning that the insurance contract did not cover Aleshire for any liability. As a result, after obtaining their judgment against Aleshire, the plaintiffs sued Church Mutual in order to recover the judgment rendered against Aleshire. The plaintiffs asserted that the insurance contract covered their claims under its: (1) bodily injury provision; (2) medical expense provision; (3) counseling provision; and/or (4) personal injury provision. After the case was removed to federal court, the district court granted summary judgment in favor of Church Mutual.

On appeal, the plaintiffs argued that the insurance contract covered their claims based on Aleshire’s sexual misconduct. Alternatively, the plaintiffs contended that they were entitled to recover the full amount of the judgment based on three non-sexual incidents between Aleshire and Sandra. The Sixth Circuit rejected both arguments in turn. The Sixth Circuit easily dispatched the coverage argument, finding that Aleshire’s acts constituting sexual misconduct or sexual molestation were not covered due to the express coverage exclusion, which stated that the insurance did not apply to “[a]ny person who personally participated in any act of ‘sexual misconduct or sexual molestation’.” In addition, the court noted that the coverage was further excluded because the contract’s remaining provisions also specifically excluded damages arising out of acts of “sexual misconduct and sexual molestation.” Thus, because all relevant provisions in the insurance contract excluded coverage for Aleshire’s sexual acts, the plaintiffs could not recover for claims based on those acts.

Furthermore, the court found that even if coverage was not expressly excluded, Ohio public policy precluded the plaintiffs from recovering their judgment from the insurance contract because Ohio prohibits coverage for sexual abuse of minors. In this respect, the court noted that insurance contracts generally define an insurable “occurrence” as an “accident.” The Ohio Supreme Court has “long recognized that Ohio public policy generally prohibits obtaining insurance to cover damages caused by intentional torts.” Because there is “nothing accidental” about acts of sexual molestation of children or harm resulting from that molestation, in Ohio incidents of intentional acts of sexual molestation of a minor do not constitute “occurrences” for purposes of determining liability insurance coverage. Thus, the public policy of the state of Ohio precludes the issuance of insurance to provide liability coverage for injuries produced by criminal acts of sexual misconduct against a minor.

Turning to the present coverage action, Aleshire had pleaded guilty to molesting minors, the plaintiffs sought damages from an insurance company for an insured’s sexual acts and the insurance contract defined “occurrence” as an “accident.” As such, the court found that Ohio public policy precluded coverage as a matter of law. In addition, the court also rejected the plaintiffs’ contention that their case fell outside of Ohio’s public policy barring insurance coverage for sexual misconduct because they were attempting to recover under a religious insurance policy. The court refused to establish an exception to Ohio’s general rule against sexual misconduct insurance. Rather, because Ohio public policy prohibited insurance coverage of sexual abuse of a minor, the plaintiffs were precluded from recovering claims based on Aleshire’s sexual acts.

In a last ditch effort to save themselves from the jaws of an adverse judgment on appeal, the plaintiffs also argued that three non-sexual incidents involving Aleshire and one of the daughters—constituting false imprisonment—served as a potential basis from which the jury may have returned their verdict at trial, which the plaintiffs contended fell within the insurance contract’s scope of coverage. The plaintiffs further argued that Church Mutual had the burden to allocate damages between covered and non-covered claims and, therefore, Church Mutual was on the hook for the full $4.35 million judgment because it did not request an allocated verdict. With respect to the district court’s finding that the general rule in Ohio is that the party seeking coverage bears the burden of allocating a verdict, the plaintiffs countered that an exception to the rule applied in that particular case that required an insurer to allocate the verdict when it maintained a duty to defend the insured. The Sixth Circuit rejected this alternative argument in its entirety. In doing so, the court found that it was unnecessary to resolve the question of who maintained the burden to allocate a verdict because, in that case, “there was nothing to allocate.” Importantly, the plaintiffs failed to present any non-sexual, covered claims at trial, which precluded them from recovering based on these “hypothetical, manufactured-after-the-fact” claims. Thus, there was simply no basis to support the argument that the jury returned any portion of its verdict for the purported non-sexual incidents. Therefore, their post hoc argument failed as a matter of law.

Insurers should bookmark the Sixth Circuit’s decision, especially as the frequency and severity of disputes continue to proliferate over claims for coverage stemming from sexual misconduct. Clifford demonstrates that both state and federal courts sitting in Ohio continue to treat sexual misconduct exclusions favorably to preclude institutional insureds and their representatives from obtaining coverage for acts arising out of sexual abuse. Furthermore, this broadly applicable exclusion is further backstopped by Ohio public policy barring insurance coverage for acts of sexual misconduct. Thus, even when a policy does not expressly exclude coverage for sexual misconduct, Ohio public policy nonetheless precludes insureds and third-party claimants from obtaining coverage because Ohio prohibits coverage for acts of sexual abuse. Combined, it is clear that unmovable roadblocks exist for policyholders seeking coverage for claims arising out of inappropriate sexual contact, which Ohio insurance carriers can rely on to completely defeat coverage actions arising out of claims for sexual misconduct.

*David is an associate in our Cincinnati, Ohio office. He can be reached at 513.372.6817 or jdoberly@mdwcg.com.

_{Defense Digest, Vol. 24, No. 2, June 2018. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}