Westport Ins. Corp. v. N. Cal. Relief

76 F.Supp.3d 869

Westport Insurance Corp., Plaintiff

v.Northern California Relief, et al., Defendants.

No. 3:14–cv–00312–CRB

United States District Court, N.D. California.

Signed December 16, 2014

Michael Kenneth Johnson, Lewis Brisbois Bisgaard & Smith LLP, San Francisco, CA, Adam Hoyt Fleischer, Mark G. Sheridan, Michael Haskell Passman, Chicago, IL, for Plaintiff.

Dennis J. Walsh, Walsh & Associates, Encino, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS

CHARLES R. BREYER, UNITED STATES DISTRICT JUDGE

Between September 2012 and January 2013, four women¹ filed suit in California state court alleging that as students in the 1990s, they were sexually abused by Moraga School District (“the District”) teachers. Each of the women claimed that her emotional injuries were in part caused by a 2012 investigative report that revealed that school administrators received ample notice of the abuse but never reported it and actually conspired to hide it. Westport Insurance Corporation (“Westport”), the District's insurer in the 1990s and Plaintiff here, paid for the defense of all three suits and the settlement of two.² Westport then filed the instant action against Northern California Relief (“NCR”), the District's insurer in 2012, demanding that NCR pay its share of the litigation and settlement expenses. After this Court denied NCR's motion to dismiss in June 2014, Westport brought this motion for partial judgment on the pleadings, in which it seeks a determination that: (1) NCR owes a duty to pay some portion of the defense costs and settlement payments incurred in the underlying lawsuits (Counts I, V, VI, and X); and (2) NCR owes one hundred percent of the defense costs and settlement payment incurred in one of the lawsuits, brought by Kristin Cunnane (Counts II, III, and IV). Because there is no question of fact as to whether the three underlying lawsuits allege injury that occurred at least partly in 2012, the Court GRANTS Westport's motion as to Counts I, V, VI, and X. This is so despite the affirmative defenses NCR pleaded in its answer. But because the underlying complaints also allege injury that occurred in the 1990s and early 2000s, the Court cannot determine as a matter of law that NCR owes Westport one hundred percent of the costs incurred in the Cunnane suit. Therefore, Westport's motion is DENIED as to Counts II, III, and IV.

I. BACKGROUND

In March 2012, a local newspaper published an investigation into allegations that the District had covered up child sexual abuse that occurred in the 1990s. Compl., Ex. A ¶ 14, Ex. D ¶ 65. The newspaper's investigation unearthed letters and internal memoranda from 1994 to 1996 that showed the District knew about the abuse, did nothing to stop it, and then concealed its inaction. Id. In the months following the newspaper investigation, four former students filed three complaints against the District.³ Id. at Ex. A (Cunnane Compl. of September 25, 2012); Ex. D (Does # 1 and # 2 Compl. of January 29, 2013); Ex. G (Doe # 3 Compl. of January 17, 2013). All three complaints alleged that Dan Witters, a teacher employed by the District from 1989 through November 1996, had sexually molested the young women on various occasions between 1990 and 1996. Id. at Ex. A ¶¶ 1, 3; Ex. D ¶¶ 14–17, 23–24, 35–36, 40–41; Ex. G ¶ 11.⁴ Based on information that was revealed to them through the 2012 newspaper investigation, the women further alleged that the District ignored numerous written and verbal warnings of Witters' conduct, thereby creating an environment in which sexual predators could thrive. Id. at Ex. A ¶¶ 15–24, 47–56; Ex. D ¶¶ 18–22, 25–34, 43–46; Ex. G ¶¶ 13, 18–39.

Westport and NCR insured the District at different time periods. Westport covered the District from October 1, 1991 to October 1, 1999. Compl. 11 35–36. NCR began insuring the District in 2002, but this litigation involves only NCR's annual policy effective from July 1, 2011 to July 1, 2012. Id. ¶ 39. NCR's Memorandum of Coverage (“MOC”) states that it “is the intent of [NCR] to provide the broadest form of Coverage to each Covered Party to avoid coverage disputes.” Id. ¶ 40 (citing Ex. K at 6). The District and its administrators are “Covered Parties” as defined by the MOC. Id. (citing Ex. K at 23).

The parties contest two important issues. First is whether the Cunnane and Doe complaints triggered NCR's duty to cover legal expenses. Westport argues that mere allegations of injury are enough to trigger NCR's duties under the MOC. Mot. (dkt. 45) at 9–10. NCR argues that coverage is only triggered when damages are proven, not merely alleged. Opp'n to Mot. (dkt. 53) at 11.

Second, the insurance companies disagree as to when the alleged injuries occurred. Westport claims the injuries occurred at least in part in 2012, pointing to language in all three complaints that alleges new emotional injuries in 2012 upon the women's discovery of the District's cover-up. Mot. at 11–12. Westport further maintains that Cunnane's injuries occurred exclusively in 2012 because at a demurrer hearing in state court, her attorney denied any damages claim on account of 1990s abuse, which Westport alleges makes NCR wholly liable for the District's legal expenses as to her complaint. Id. at 13–14. NCR argues that any emotional injuries the women claim to have suffered in 2012 were caused by continuing or permanent psychological harm that was inflicted in the 1990s. Opp'n to Mot. at 13–14. Regarding the Cunnane complaint, NCR maintains that arguments by counsel cannot be regarded as evidence that Cunnane disavowed any injury in the 1990s. Id. at 1516. According to NCR, the 2012 investigative report was not a new and separate injury, but merely an “accrual anchor” that allowed the complaints to proceed around the statute of limitations. Id. at 15–17. NCR argues that in any event, its answer raises material issues of fact as to whether Westport waived its right to seek indemnity by covering the legal expenses. Id. at 5–19.

Because the parties' first dispute centers around the interpretation of terms contained in NCR's MOC, key sections of the contract are reproduced below. The MOC provides as follows:

Section II. What is Covered

Coverage A–Liability

A. The Authority [NCR] will pay Ultimate Net Loss in excess of the Member Retained Limit for each Loss Occurrence, for which the Covered Party [the District] shall become obligated to pay for Damages as a result of:

1. liability imposed upon the Covered Party by law ...

Compl. ¶ 41 (citing Ex. K at 7).

The MOC defines the relevant highlighted terms in section A. as follows:

Covered Party means:

1. the public agency listed on the Declarations Page [Moraga School District]

2. persons who are past or present ... employees ... of the Covered Party, ...

* * *

Damages means, (1) as respects Coverage–A Liability, the sums owed to an entitled Claimant as compensation for a covered Loss Occurrence,

* * *

Errors and Omissions means:

1. an actual or alleged misstatement, misleading statement, act, omission by a Covered Party, individually or collectively, in the discharge of their duties for the Covered Party or any matter claimed against them solely by reason of their being or having been public employees;

* * *

Loss means the injury or damage sustained by a Covered Party, or for which a Covered Party is obligated or liable to pay, as a consequence of a covered Loss Occurrence. The amount of Loss includes ... amounts in settlement of claims and suits and in satisfaction of judgments or awards ...

* * *

Loss Occurrence means:

1. For LIABILITY ...

ii. an Error or Omission, Personal Injury, or Wrongful Acts by a Covered Party which results in Damages during the coverage period to which this Memorandum applies which were not expected nor intended by the Covered Party;

* * *

Ultimate Net Loss means all sums actually paid or payable in cash in the settlement or satisfaction of losses ... for which any Covered Party is liable either by adjudication or compromise ... and includes attorney's fees ...

Id. (citing Ex. K at 24–27, 32).

The parties' second dispute revolves around whether the women alleged injuries that occurred within NCR's coverage period. Regarding the Cunnane complaint, Westport points to four paragraphs to support its contention that she alleged new injuries in 2012:

57. This action is predicated on the District's letters and internal memoranda, previously concealed by the District, and which were uncovered only after a newspaper investigation earlier this year (2012). Until that time, despite Ms. Cunnane's reasonable and diligent investigation, she did not suspect, and had no reasonable basis to suspect, that the Defendants were on notice of allegations of sexual abuse at the School for years, but failed to report such abuse to authorities as they were required to do under law. The cause of action against Defendants therefore accrued, for the first time in March 2012, and this action is timely.

94. [Cunnane] was harmed by Defendants' concealment of Witters' suspected sexual abuse.

95. Defendants' concealment of suspected sexual abuse by Witters was a substantial factor in causing harm to [Cunnane].

96. As a direct and proximate result of Defendants' fraudulent concealment, [Cunnane] has suffered damages in an amount to be proven at trial.

Compl., Ex. A ¶¶ 57, 94–96.

Westport also relies on statements that Cunnane's counsel filed in opposition to a demurrer:

Defendants have misidentified the accrual “anchor” as the last act of molestation committed by Witters and [another School District teacher] against Ms. Cunnane, because they incorrectly characterize Ms. Cunnane's causes of action as for “childhood sexual molestation.” It is notthe abuse committed by Witters and [another teacher] that gives rise to Ms. Cunnane's causes of action. Rather, the wrongful acts at issue are defendants' own outrageous, reckless, and negligent conduct, as well as their continuous efforts, from

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