Court: Court of Appeals for the Seventh Circuit; June 11, 1996; Federal Appellate Court
William O’Connell, a former priest in the Roman Catholic Diocese of Providence, Rhode Island, is imprisoned for sexually abusing a minor. The Diocese and its insurers have settled the victim's tort claim, leading to litigation under the alien-citizen jurisdiction of 28 U.S.C. 1332(a)(3). The key issue is the apportionment of the settlement responsibility between the Diocese, its primary insurers (Lloyd’s of London and Centennial Insurance Company), and the excess carrier, Interstate Fire & Casualty Company. This determination hinges on the number of insured "occurrences," given that the Diocese is self-insured for the first $100,000 per occurrence, with Lloyd’s liability depending on this count as well.
O’Connell's abuse occurred over two policy years and in two locations, suggesting at least two occurrences from the victim's viewpoint. However, since O’Connell’s acts were intentional torts, they are excluded from coverage. The Diocese’s liability stems from the negligent supervision by the Bishop and his subordinates. The Diocese and Lloyd’s argue, supported by the district judge, that negligent supervision constitutes a single "occurrence," regardless of the number of years or locations involved.
While no state court has defined "occurrence" under the Lloyd's policy, two appellate courts have ruled that there is one "occurrence" per priest per abused child per policy year. Given that the case is in Illinois, the state’s choice-of-law rules apply, which are complex and have evolved significantly over the past decades. The district court applied a weighing approach to determine that Rhode Island law governs, based on the location of the insured risk. The Illinois Supreme Court has acknowledged the ambiguity in choice-of-law principles for contracts that lack a choice-of-law clause, emphasizing a variety of factors including the location of the subject matter and the last act giving rise to the contract.
The formulation discussed incorporates both the traditional and modern approaches to determining applicable law for insurance contracts, without clarifying what applies when a policy is delivered in one state but insures risks in another. In Lapham-Hickey, the law was derived from the state of delivery, but the current dispute sensibly favors Rhode Island law. The two policies in question, one from Lloyd’s and a follow form excess policy from Interstate, contain identical terms and should yield consistent legal interpretations. It would be illogical for the primary policy to be governed by UK law while the excess policy is governed by Illinois law, especially considering the last acts to make the insurance effective occurred in those states.
Rhode Island law starts with the policy language, defining "occurrence" broadly to include events leading to personal injury or property damage during the policy period. Lloyd’s argues that repeated exposure to similar conditions constitutes a single occurrence, comparing it to hazardous waste exposure. The negligent supervision by the Bishop is deemed a singular occurrence despite multiple injuries resulting from it.
Interstate contends that O’Connell’s wrongful acts at various locations and the discrete nature of each episode should be classified as multiple occurrences; however, this perspective does not align with Rhode Island law, which suggests that negligent supervision is a unitary act. The debate extends to whether the acts of supervision could be seen as discrete, especially when the Archdiocese received multiple reports of misconduct without taking action. Ultimately, if negligence is considered a single act, then multiple losses would not equate to multiple occurrences, although Lloyd’s acknowledged that if O’Connell had abused two boys within one policy year, it would count as two occurrences. This distinction highlights the complexity of coverage from both the victim's and the Diocese's viewpoints.
Counsel struggled to reconcile Lloyd's interpretation of the insurance policy with the treatment of negligent supervision cases. Lloyd’s views a negligent supervisory structure as a single "occurrence." This raises questions about categorizing incidents of abuse: if one priest abuses two boys in one policy year constitutes two occurrences, does one priest abusing the same boy in separate years count as multiple occurrences? The language defining "cause" does not directly address this, focusing instead on a two-party harm perspective, which complicates cases of negligent supervision over intentional wrongdoers. Terms like "continuous or repeated exposure" seem ill-suited for cases involving individuals, such as priests and victims, who are not merely "conditions."
The contra proferentum principle under Rhode Island law, which interprets ambiguous policy language against the drafter, does not resolve the issue, as Interstate chose to adopt Lloyd’s policy. The interpretation of occurrences could shift based on the circumstances; for instance, if the victim's losses exceed single occurrence limits, the parties might reverse their stance on the number of occurrences to limit liability.
The courts have indicated that multiple injuries to a single victim do not constitute multiple occurrences without distinct negligent acts. However, separate, independent injuries from the same negligent act can lead to multiple occurrences. For example, a negligent act might injure multiple individuals or occur multiple times, resulting in separate injuries.
In the context of poor supervision, if a diocese ignores multiple warnings about a priest's misconduct, each ignored warning could represent a separate occurrence. Conversely, if the diocese fails to investigate or acts inadequately without prior warning signals, it may be treated as a single occurrence under the policy’s definition.
The victim's lawsuit against the Diocese was settled, but the specifics of the "negligent supervision" alleged remain unclear, including whether the Diocese received any warnings and the details of its supervisory practices over priests. Canon law outlines supervision methods, but compliance with these protocols is questioned. Neither party provided relevant information nor requested a remand for further evidence, choosing instead to submit the case based on the legal theory regarding the number of occurrences. The court disagrees with this approach, noting that the plaintiffs did not indicate that the Diocese's conduct details were significant or request to present evidence. The Diocese and its insurers settled on the assumption of two occurrences, resolving differences during the case. Lloyd’s opted for a legal decision without alternatives, and since Rhode Island law does not classify negligent supervision as a single occurrence, Lloyd’s failed to demonstrate entitlement to relief. Consequently, the allocation of shares in the settlement should remain unchanged, leading to a reversal of the prior decision.
