I handle the insurance for a church. The policy includes coverage for liability arising from sexual misconduct or sexual molestation. The first exclusion on the sexual misconduct endorsement voids coverage for any person who personally participated in or condoned any act of sexual misconduct or sexual molestation.

I understand there isn’t any coverage for the individual perpetrator if he’s guilty. I also understand that the church would be covered if vicariously brought into the claim against the perpetrator.

But what about defense costs for the accused individual? Does the insurance company owe a person who is accused of sexual misconduct a defense? Anyone can make allegations, and a person might be innocent. If a carrier denies defense and the accused later is found innocent, would the carrier then have an obligation to reimburse the accused for the defense costs incurred?

Pennsylvania Subscriber

We do not believe that the insurance company has a duty to defend an individual, who otherwise is insured on the policy, against an accusation that he personally participated in an act of sexual misconduct.

The endorsement you submitted states, in its exclusion section, that “This insurance does not apply: ~a. To any person who personally participated in or condoned any act of sexual misconduct or sexual molestation.”

Since the insurance does not apply to this type of allegation, there is no duty to defend.

However, we do believe that a court might rule differently.

The second exclusion on the endorsement states that the insurance “does not apply to the cost of defense [emphasis added] of, or the cost of paying any fines for, any person resulting from actual or alleged violation of any penal or criminal statute.”

Since this second exclusion actually states that defense will not be paid, a case might be made that the first exclusion is ambiguous in regards to a duty to defend.

Additionally, the ISO CGL coverage form was specifically changed several years ago to state that an insurer does not have a duty to defend suits to which the insurance does not apply. This wording was added to the CGL form as the result of a court case involving an exclusion for professional services. The court held that the insurer was obligated to defend its insured because it was unclear whether the exclusion applied to the duty to defend as well as the duty to pay. The same type of ruling might be made in your case.

Even though we do not believe a duty to defend exists in the case you present, we do believe that a court might rule the wording ambiguous and come down on the side of defense being required.

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