Sexual Abuse Can Be Within The Scope Of Professional Liability Coverage
For lots of reasons, securing coverage, under a professional liability policy, for sexual abuse, is going to be an uphill battle. But as a Connecticut federal court recently explained, under some scenarios, coverage can attach: “Lastly, the parties dispute whether the underlying lawsuits properly implicate HPL [Hospital Professional Liability] coverage, or if allegations of sexual abuse are necessarily outside the scope of professional liability insurance. There is certainly not, as PEIC would have it, a bright-line exclusion, because the Connecticut Supreme Court has held that a dentist’s professional liability insurance covered claims that he sexually assaulted a patient after (or while) negligently administering excessive nitrous oxide. See St. Paul Fire & Marine Ins. Co. v. Shernow, 222 Conn. 823, 610 A.2d 1281 (1992). In that case, the Court held that ‘[w]hen [a] medically negligent procedure is so inextricably intertwined and inseparable from the intentional conduct that serves as the basis for the separate claim of a sexual assault, we join with those jurisdictions that conclude that professional liability policies must, in such instances, extend coverage.’ Id. at 830, 610 A.2d 1281. The underlying claims in this case allege that Dr. Reardon for several decades purported to conduct a child growth study under the auspices of the Hospital, and that the study was at least in large part a ruse to sexually exploit children. They do not allege that a person who happened to be a medical professional abused children on his days off, or even that he opportunistically abused his patients at the Hospital, but rather that he devised a long-term medical study to be carried out under the Hospital’s imprimatur and ostensibly under its professional supervision and that a principal purpose of that study was to find and abuse his victims. The medical study and the sexual abuse could hardly be any more ‘inextricably intertwined.’” Pacific Employers Ins. Co. v. Travelers Casualty and Surety Co., No. 3:11-924 (D. Conn. Sept. 25, 2015).

No Coverage Owed To Landlord For Tenant’s Marijuana Growing Operation
A New York Federal Court held in United Specialty Insurance Co. v. Barry Inn Realty, Inc., No. 14-4892 (S.D.N.Y. Sept. 8, 2015) that no coverage was owed to a landlord, under a property policy, for damage to his building, caused by a tenant’s marijuana growing operation. The tenant had modified a number of building components and created extreme humidity needed to grow marijuana, which caused significant damage throughout the building. The court held that no coverage was owed on account of a policy exclusion for loss or damage caused directly or indirectly by dishonest or criminal acts by anyone to whom the insured entrusts the property for any purpose. It was not disputed that the damage was caused by acts that were criminal and dishonest in nature.

At issue was whether the landlord had “entrusted” the property to the tenant. The court held that entrustment had taken place: “Here, entrustment is manifest in the course of dealings between Barry [landlord] and Castelliano [tenant]. Negotiation of the lease took place over a three-month period. Denti [landlord] questioned Castelliano about his experience in operating a bar and restaurant, was shown a bar and a restaurant that Castelliano was allegedly operating in Yonkers, and met with an individual who claimed to be working on obtaining a liquor license for the planned sports bar. After extensive negotiations, the parties entered into a five-year lease for the Premises. The lease is fourteen pages in length and contains various negotiated terms and conditions. Denti’s interaction with Castelliano, the three-month negotiation process, and the lease itself suggest a measured and deliberate decision by Barry to permit Castelliano to occupy the Premises.”