Thompson Coe Succeeds in 8th Circuit Reversing $6M Day Care Abuse Coverage Suit

Dallas Partners, Rick Harmon and Jody Stasney, recently secured a reversal from the Eighth Circuit Court of Appeals in RSUI Indemnity Company v. New Horizon Kids Quest, Inc., ___F.3d___, 2019 WL 3773463 (8th Cir. Aug. 12, 2019) on behalf of their client, an excess liability insurer.

RSUI issued an excess liability insurance policy to New Horizon Kids Quest, Inc., a child care facility operator. In 2011, the guardian of a then three-year old sued New Horizon, alleging that negligent employee training and supervision resulted in the child’s suffering a physical and sexual assault by another child, then nine, while the two children were under New Horizon’s care. At the time of the incident, New Horizon carried commercial general liability and excess liability policies issued by Travelers, providing New Horizon $3,000,000 in coverage. A Commercial Excess Liability Policy issued by RSUI provided additional excess liability coverage up to $8,000,000. The RSUI policy included a Sexual Abuse or Molestation Exclusion.

Following a trial, in which New Horizon conceded liability, but contested the claims of injuries and damages, the jury awarded total damages of $6,032,585. The jury, however, did not make a finding that the minor had suffered sexual or physical abuse, and did not allocate its award between those two claims. Travelers paid its policy limits, plus interest. New Horizon paid the remaining portion of the judgment and demanded indemnity from RSUI. RSUI brought an action seeking declaratory judgment that the policy’s “Sexual Abuse or Molestation” exclusion barred coverage for that part of the jury’s award above Travelers’ policy limits.

The district court ruled in favor of New Horizon, concluding that RSUI could not prove that any part of the jury’s unallocated award included damages for a sexual assault. The Eighth Circuit reversed and remanded, holding that RSUI, which had not controlled New Horizon’s defense, “must be afforded an opportunity to prove in a subsequent coverage action that the jury award included damages for uncovered as well as covered claims. If the insurer sustains that burden, the district court must then allocate the award between covered and uncovered claims.”

The opinion provides guidance in an area of unsettled law concerning an excess insurer’s rights and obligations when jury verdicts are not allocated between covered and uncovered damages.