MONTVILLE TOWNSHIP BOARD OF EDUCATION v. ZURICH AMERICAN INSURANCE COMPANY
Filing
46
OPINION. Signed by Judge Kevin McNulty on 8/21/18. (cm, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
MONTVILLE TOWNSHIP BOARD OF
EDUCATION,
Plaintiff,
No. 2: 16-cv-4466-KM-MAH
VS.
OPINION
ZURICH AMERICAN INSURANCE
CO.,
Defendant.
KEVIN MCNULTY, U.S.D.J.:
Now before the court are cross-motions for summary judgment by
Montville Township Board of Education (“Montville”) and its insurer,
Zurich American Insurance Co. (“Zurich”). Montville has been sued in
state court by Child M. Child M alleges that Montville employed Jason
Fennes for twelve years, knew about sexual misconduct by Fennes, failed
to notify authorities, and agreed not to tell potential future employers
about that conduct to induce Fennes to resign. After he resigned from
Montville in 2010, Fennes began working for Cedar Hill Prep, where he
allegedly sexually molested several students, including Child M. Child M
claims that Montvifle’s silence enabled and facilitated Fennes’s abuse of
her at Cedar Hill Prep.
Montville initially argued that Zurich was obligated to defend it
against Child M’s allegations under its General Commercial Liability
(“GCL”) policy. Zurich declined because the GCL policy excludes coverage
of claims “arising from” or “relating in any way” to “abusive acts.” In a
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prior opinion, I found that Zurich did not have a duty to defend Montville
under the GCL policy. (ECF No. 22). Montvifle moved for reconsideration,
which I denied. (ECF No. 37).
Montville’s motion for reconsideration also asserted, for the first
time, the argument that Zurich had a duty to defend under the Abusive
Acts (“AA”) provision of their policy. MontviUe insists that this provision
has been in issue throughout the litigation, despite its previous
statements to the contrary. I was reluctant to permit a school district to
sacrifice rightful coverage based on a possible strategic misstep, but
equally reluctant to decide an issue as to which Zurich had not been
given a fair opportunity to respond. I therefore authorized Montville to file
a new motion asserting that Zurich has a duty to defend it under the AA
policy. (ECF No. 37). Zurich’s duty to defend under the AA policy is thus
addressed in these cross-motions for the first time.
I.
LEGAL STANDARDS
Federal Rule of Civil Procedure 56(a) provides that summary’
judgment should be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Kreschollek v. S.
Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000). In deciding a motion
for summary judgment, a court must construe all facts and inferences in
the light most favorable to the nonmoving party. See Boyle u. County of
Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). The moving
party bears the burden of establishing that no genuine issue of material
fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
“[W]ith respect to an issue on which the nonmoving party bears the
burden of proof
...
the burden on the moving party may be discharged by
‘showing’—that is, pointing out to the district court—that there is an
absence of evidence to support the nonmoving party’s case.” Id. at 325.
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Once the moving party has met that threshold burden, the
non-moving party “must do more than simply show that there is some
metaphysical doubt as to material facts.” Matsushita Elec. Indus. Co., Ltd.
z,’. Zenith Radio Corp., 475 U.S. 574 (1986). The opposing party must
present actual evidence that creates a genuine issue as to a material fact
for trial. Anderson, 477 U.S. at 248; see also Fed. R. Civ. P. 56(c) (setting
forth
types
of evidence on which nonmoving party must rely to support
its assertion that genuine issues of material fact exist). “[Ujnsupported
allegations
...
and pleadings are insufficient to repel summary judgment.”
Schoch v. First FIZ. Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990). If
the nonmoving party has failed “to make a showing sufficient to establish
the existence of an element essential to that party’s case, and on which
that party will bear the burden of proof at trial,
...
there can be ‘no
genuine issue of material fact,’ since a complete failure of proof
concerning an essential element of the nonmoving party’s case
necessarily renders all other facts immaterial.” Katz v. Aetna Cas. & Stir.
Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex, 477 U.S. at 322-23).
When the parties file cross-motions for summary judgment, the
governing standard “does not change.” Clevenger v. First Option Health
Plan of N.J., 208 F. Supp. 2d 463, 468-69 (D.N.J. 2002) (citing Weissman
v. U.S.P.S., 19 F. Supp. 2d 254, 259 (D.N.J. 1998)). The court must
consider the motions independently, in accordance with the principles
outlined above. Goidwell of N.J, Inc. v. KPSS, Inc., 622 F. Supp. 2d 168,
184 (D.N.J. 2009). That one of the cross-motions is denied does not
imply that the other must be granted. For each motion, “the court
construes facts and draws inferences in favor of the party against whom
the motion under consideration is made” but does not “weigh the
evidence or make credibility determinations” because “these tasks are left
to the fact-finder.” Pithier u. UNITE, 542 F.3d 380, 386 (3d Cir. 2008)
(internal quotations and citations omitted). Nonetheless, when material
3
underlying facts are not in dispute, summary judgment is appropriate to
dispose of insurance-coverage questions. McMillan v. State Mitt. Life
Assur. Co., 922 F.2d 1073, 1074 (3d Cir. 1990).
II.
DISCUSSION
Zurich does not have a duty to defend Montville from Child M’s
claims under the AA policy. The Prior Known Acts exclusion to the AA
policy denies coverage for claims arising from “abusive acts” when the
insured knew about the “abusive acts” prior to the policy’s effective date.’
Child M’s complaint sufficiently alleges that Montville knew that Fennes
had engaged in “abusive acts” during his tenure at Montville. Montville’s
liability is alleged to arise from, or to be attributable to, in whole or in
part, its knowledge of those earlier abusive acts. Allegations, of course,
are not proof, but in general the duty to defend is triggered by the nature
of the allegations. Because prior known acts are alleged, the Prior Known
Acts exclusion negates Zurich’s duty to defend under the AA policy.
Where ambiguities exist in a complaint, policy, or exclusionary
clause, those ambiguities are resolved in favor of insurance coverage.
However, if a straightforward reading of the complaint and policy,
including exclusions, denies coverage, the court will apply the clear
meaning of the text. The court will not engage in a strained construction
or indulge a far-fetched interpretation of a policy to find coverage.
For Zurich to have a duty to defend, the court must find that
(1) Child M’s allegations activate the AA policy coverage for suits arising
from “abusive acts” and that (2) the Prior Known Acts exclusion does not
Some confusion has resulted from the use of shorthand terms. When I
say “arising from” abusive acts, I mean to incorporate the broad definition of the
policy exclusion: “Any claim or ‘suit’ based upon, arising out of or attributable, in
whole or in part, to any ‘abusive act’ of which any insured, other than the
insured actually committing the ‘abusive act’, has knowledge prior to the
effective date of this Coverage Part.” (ECF No. 14-5, ex. C, p. 66-67 (emphasis
added)).
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negate that coverage under the circumstances of this case. Subsection
II.A outlines the well-established principles that guide the duty-to-defend
analysis. Subsection II.B discusses the applicability of the AA policy to
Child M’s allegations. Subsection II.C addresses the Prior Known Acts
exclusion to the AA policy.
A. Duty-to-Defend Principles
The duty-to-defend analysis is guided by well-established
principles:
“[T]he duty to defend comes into being when the complaint
states a claim constituting a risk insured against.” Whether
an insurer has a duty to defend is determined by comparing
the allegations in the complaint with the language of the
policy. When the two correspond, the duty to defend arises,
irrespective of the claim’s actual merit. If the complaint is
ambiguous, doubts should be resolved in favor of the
insured and thus in favor of coverage. When multiple
alternative causes of action are stated, the duty to defend
will continue until even’ covered claim is eliminated.
Voorhees v. Preferred Mut Ins., Co., 607 A.2d 1255, 1259 (N.J. 1992)
(internal citations omitted).
Policy exclusions, which limit the scope of coverage provisions, are
governed by the following interpretive principles:
Exclusionary clauses are presumptively valid and are
enforced if they are “specific, plain, clear, prominent, and not
contrary to public policy.” If the words used in an
exclusionary’ clause are clear and unambiguous, “a court
should not engage in a strained construction to support the
imposition of liability.”
We have observed that “[i]n general, insurance policy
exclusions must be narrowly construed; the burden is on the
insurer to bring the case within the exclusion.” As a result,
exclusions are ordinarily strictly construed against the
insurer, and if there is more than one possible interpretation
5
of the language, courts apply the meaning that supports
coverage rather than the one that limits it[.]
Nonetheless, courts must be careful not to disregard
the “clear import and intent” of a policy’s exclusion, and we
do not suggest that “any far-fetched interpretation of a policy
exclusion will be sufficient to create an ambiguity requiring
coverage[.}” Rather, courts must evaluate whether, utilizing a
“fair interpretation” of the language, it is ambiguous.
Flomerfelt v. Cardiello, 997 A.2d 991, 996-97 (N.J. 2010) (internal
citations omitted).
B. Abusive Acts Coverage
The AA policy states that that Zurich “will pay ‘loss’ because of
‘injury’ resulting from an ‘abusive act’ to which this insurance applies.”
(ECF No. 14-5, ex. C, p. 67). The parties agree that Child M’s allegations
involve an injury resulting from an “abusive act.” Montville posits that
“Child M’s allegations fall within the scope of the Abusive Act Coverage
Part, which explicitly provides insurance for loss because of an injury
resulting from an abusive act. It is undisputed that Child M alleges that
she suffered injury at the hands of Fenncs.” (ECE No. 44-1, p. 9). Zurich,
in response, does not really dispute the scope of the Abusive Act
Coverage (but cites the Prior Known Acts exclusion, discussed below).
(ECF No. 42-1, p. 12).
I agree that Child M’s allegations fall within the ambit of the AA
coverage. The policy defines an “abusive act” as follows:
“Abusive act” means any act or series of acts of actual or
threatened abuse or molestation done to any person,
including any act or series of acts of actual or threatened
sexual abuse or molestation done to any person, resulting in
“injury” to that person, by anyone who causes or attempts to
cause the person to engage in a sexual act:
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a. Without the consent of or by threatening the person,
placing the person in fear or asserting undue influence
over the person;
b. If that person is incapable of appraising the nature of the
conduct or is physically incapable of declining
participation in or communicating unwillingness to
engage in the sexual act; or
c. By engaging in or attempting to engage in lewd exposure
of the body done with intent to arouse or to satisfy the
sexual desire of any person.
(ECF No. 14-5, cx. C, p. 71).
Child M clearly alleges that she was subject to “abusive acts” by
Fennes at Cedar Hill Prep and suffered an injury. The complaint alleges
that Fennes “sexually assaulted, inappropriately touched, and otherwise
abused” Child M at Cedar Hill Prep. (ECF No. 14-4, p. 20-2 1). Child M’s
suit therefore arises from allegations of “abusive acts” that were allegedly
enabled by Montville’s failure to report Fennes’s sexual misconduct at
Montville, resulting in his being hired by Cedar Hill.
C. Prior Known Acts Exclusion
The Prior Known Acts exclusion, however, negates Zurich’s duty to
defend Montville under the AA policy. The Prior Known Acts exclusion
provides that there is no coverage under the AA policy for “[ajny claim or
‘suit’ based upon, arising out of or attributable, in whole or in part, to
any ‘abusive act’ of which any insured, other than the insured actually
committing the ‘abusive act’, has knowledge prior to the effective date of
this Coverage Part.” (ECF No. 14-5, ex. C, p. 66-67). The “effective date”
of the abusive acts coverage part, all agree, is July 1, 2011.
The complaint clearly alleges that Fennes engaged in sexual
misconduct before July 1, 2011, while he worked at Montville. Montville
argues, however, that these were not prior known acts for purposes of
the exclusion. Child M’s complaint, says Montville, “does not allege with
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specificity that the Board had knowledge of any information which would
clearly meet the definition of an ‘abusive act’ as used in the Abusive Act
Coverage Part” prior to July 1, 2011. (ECF No. 44-1, p. 10).
This argument is unavailing. Child M’s complaint alleges that
Montville “was on notice or Fennes’s “inappropriate abusive and/or
sexual conduct with his infant students” and “failed to report
...
to the
appropriate administrative agencies, local, county and state authorities
as well as potential employers including Cedar Hill Prep.” (ECF No. 14-4,
ex. B, Count 9,
1r
2-4). The complaint further alleges that Fennes, while
an employee of Montville, “engaged in various acts of sexual molestation
and/or child abuse against other infant students.” (Id. Count 10,
¶ 3). It
asserts that Montville “controlled the hiring, retention, supervision and
cover-up on the heinous acts of molestation perpetrated by [Fennes],”
and “caused [plaintiffsj exposure to IFennes], a known pedophile and
child molester
....“
(Id. Count 11,
¶J 4, 6).
Montville argues that these allegations do not clearly set forth an
“abusive act,” as defined in the policy. Montville claims that the court
has “no way of knowing what the Complaint was referencing when it
stated that the Board was on notice of ‘abusive and/or sexual conduct’
and ‘sexual molestation and/or child abuse.”’ (ECF No. 44-1, p. 12). “For
example, Child M might be alleging that the Board had knowledge of
students sitting on Fennes’ lap.” (Id.). Montville claims that this “is
plainly not what was contemplated by the Prior Known Acts Exclusion.”
(Id.).
I reject Montville’s arguments.
First, Child M alleges that Montville was aware that Fennes had
engaged in “sexual molestation” and “child abuse.” Child M alleges that
Montville knew Fennes was “a known pedophile and child molester.”
These allegations would not reasonably be construed to state that
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Fennes had children sit on his lap in a platonic, non-sexual way. A
straightforward reading of the complaint is that Montville was allegedly
aware of “abusive acts” prior to the effective date of the policy. And the
theory of liability is that Montville covered up such acts, permitting the
abuse of Child M to occur at Cedar Hills.
Second, a comparison of the allegations about Fennes’s time at
Cedar Hills Prep and his time at Montville makes it fairly clear what is
meant. Child M makes substantively the same allegations about Fennes
regarding his time at Cedar Hill Prep and Montville. While at Cedar Hill
Prep, Child M alleges, she was “sexually assaulted, inappropriately
touched, and otherwise abused” by Fennes. (ECF No. 14-4, p. 20-2 1).
Child M claims that Fennes was “a sexual predator, pedophile, and
deviant.” (Id. at 21). At Montville, Child M alleges that students were
victims of Fennes’s “sexual molestation” and “child abuse.” These
statements are sufficient to notify Montville of allegations that Fennes
engaged in sexual misconduct toward children during his Montville
employment.
It is true that exclusionary clauses are to be narrowly construed
and that ambiguities in a complaint are resolved in favor of insurance
coverage. See Flomerfelt v. Cardiello, 997 A.2d 991, 996-97 (N.J. 2010).
Still, there must be a predicate ambiguity. Id. As the New Jersey
Supreme Court stated in Voorhees v. Preferred Mutual Insurance Co.,
“[i]f
the complaint is ambiguous, doubts should be resolved in favor of the
insured and thus in favor of coverage.” 607 A.2d 1255, 1259 (N.J. 1992)
(emphasis added); cf Longobardi u. Chubb Ins. Co. of N.J., 582 A.2d
1257, 1260 (N.J. 1990) (“[T]he words of an insurance policy should be
given their ordinary meaning, and in the absence of an ambiguity, a
court should not engage in a strained construction to support the
imposition of liability.”).
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Where there is no ambiguity, the court need not torture
straightforward language to find coverage. The AA policy, the Prior
Known Acts exclusion, and the complaint are clear and unambiguous.
The complaint rests on the theory that Montville knew Fennes committed
abusive acts while he was a teacher at Montville. Of course, Montville
contests this, but if the insured’s denial of liability controlled the issue,
then there might rarely if ever be a duty to defend. It is generally the
nature of the allegation that controls the insurer’s duty to defend, and
here the allegation is that Montville knew about the prior acts of
molestation upon which its liability is premised.
III.
CONCLUSION
Zurich does not have a duty to defend Montville against allegations
that it knew of Fennes’s abusive conduct at Montville before July 1,
2011, but nevertheless took steps that had the effect of facilitating Child
M’s molestation at Cedar Hill. Zurich’s motion for summary judgment is
granted and Montville’s motion for summary judgment is denied.
An appropriate order accompanies this opinion. The clerk shall
close the file.
Dated: August 21, 2018
KEVIN MCNULTY
United States District Judge
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