(CN) - Metropolitan Property and Casualty Insurance must defend a policyholder's ward who is accused of sexually and otherwise abusing a younger boy, the 1st Circuit ruled.
The finding by a three-judge panel that included retired U.S. Supreme Court Justice David H. Souter, who was sitting by designation, affirmed a ruling by U.S. District Judge Nancy Torresen.
Torrensen, of the Federal Court in Bangor, Maine, had rejected Metropolitan's assertion that the policy purchased by Glynis Dixon McCormack specifically excludes coverage for the alleged abuse.
In doing so she concluded that the facts alleged in the underlying complaint leave open the possibility that some, if not all, of the alleged conduct fell outside the policy's conclusions.
On appeal, Metropolitan offered three arguments to support its contention the district court erred.
First, it said, the only abuse allege in the underlying complaint was either sexual or intended to conceal sexual abuse, and was therefore excluded from coverage by the policy's definition of bodily injury.
Second, the insurer said, the abuse exclusion disallows coverage for even nonsexual physical abuse committed by any person.
Finally, Metropolitan claimed the policy in question at least excludes coverage for nonsexual physical abuse committed by an insured, as well as harm resulting from intentional acts of an insured.
But U.S. Circuit Judge Kermit V. Lipez, writing for the panel, found the arguments unpersuasive.
"As noted above, Metropolitan asserts that the complaint alleges only sexual abuse or 'other' physical abuse related to sexual abuse, which is excluded from coverage by the policy's definition of 'bodily injury,'" Lipez wrote. "... Here, the complaint directly alleges that some of the perpetrator's acts are within the definition of 'bodily injury' because the complaint includes allegations of physical abuse that are not on their face limited to physical contact related to sexual abuse."
Lipez continued: "Metropolitan argues that, even if the bodily injury definition does not preclude coverage for all of the abuse alleged in the complaint, the policy elsewhere excludes coverage for any type of abuse inflicted by any person. However, the provision on which Metropolitan relies -- the abuse exclusion -- reasonably may be read to preclude coverage only for abuse inflicted or directed by an insured rather than by any individual. Although the first sentence of the provision is written in general terms, the second sentence may be understood to limit the exclusion to such individuals."
On review, the panel felt this provision is at best ambiguous, and given that ambiguity, it said it had to adopt a reading most favorable to the insured.
"Hence, for the purposes of the duty to defend, we treat the conduct of a non-insured individual as outside the score of the abuse exclusion," Lipez wrote.
Finally, the panel turned to the question of whether the allegations in the complaint allow the possibility that the accused perpetrator, Glynis McCormack's ward, is a non-insured.
Here, Lipez said the underlying complain clearly establishes that the alleged abuser was a minor ward of McCormack, but that he, like his victim, only stayed "temporarily, though repeatedly" at McCormack's home.
"Given that inference, the youth would be a non-insured whose conduct would be outside the abuse exclusion under the reading of the policy we have described above," Lipez wrote. "The same rationale -- i.e., that the perpetrator might not be a covered individual under the policy -- also potentially places his conduct outside the policy exclusion for intentional acts. That provision also applies only to an insured.
"In sum, the complain allows inferences that McCormack's ward was not a resident of her household and alleges that he inflicted physical, non-sexual abuse on the younger boy. Under those facts, her policy would cover the resulting harm," Lipez wrote.