The Ninth Circuit, applying Arizona law, recently held that an insurer may avoid the duty to defend innocent insureds based on somewhat unique terms in a liability policy. In IFC v. Roman Catholic Church, (9th. Cir July 30, 2014), the Court began with a simple question: “Does ‘any’ mean ‘any,’ or does ‘any’ mean ‘any one?’” Given this question, the answer appears to be easy, but this question may not have been the right one, at least according to a dissenting opinion.
The dispute centered on whether the insurer was obligated to provide a defense for priests that did not engage in sexual abuse of young males in the Diocese. The parties disagreed over the application of two terms — “any Assured” and “such Assured.” The policy excluded “liability of any Assured for assault and battery committed by or at the direction of such Assured[.]” (emphasis added). The insurer argued that “any Assured” and “such Assured” meant the same thing, while the policyholder argued they did not. If “such Assured” had the same meaning as “any Assured,” the majority held there would be no duty to defend the priests that did not engage in wrongdoing. On the other hand, if the two terms had different meanings, there would be a duty to defend those priests who were innocent. As many courts have recognized, the duty to defend can be just as important, practically speaking, as the duty to indemnify an insured for a loss.
Even though different terms were used, presumably to provide different meanings, the majority held that “such Assured” had the same meaning as “any Assured.” Therefore, the insurer was free to disclaim any duty to defend the innocent priests. The majority did not address whether the terms were ambiguous and, if so, whether they should have been interpreted in favor of the insured. Although the majority could have found that the different terms had different meanings (like the dissent did), or could have found, at a minimum, that the terms when read together were ambiguous (thus resulting in a favorable interpretation to the insured), the majority concluded that the two different terms unambiguously had the same meaning. This is a disappointing and questionable result from the perspective of insureds.
The dissent began by examining whether the different terms were ambiguous when read together. The dissent found three possible qualities that “such” could refer to:
- The “liability of any Assured” (meaning only those assureds facing liability);
- “Any Assured” (meaning the entire class of those covered by the policy); or
- The specific Assureds who committed or directed assault and battery.
The dissent found that out of these three options, the word “such” most likely operated so as to exclude coverage only for those specific insureds who committed or directed the assault or battery (that is, only those priests that engaged in wrongful conduct). Notwithstanding this conclusion, the dissent correctly acknowledged a fundamental rule of insurance-policy interpretation that any ambiguity in the policy should be interpreted in favor of the insureds. Because the word “such” could have been “plausibly” interpreted in at least three different ways, the policy language should have been declared ambiguous as a matter of law and interpreted in favor of the insureds. Unfortunately for innocent insureds, the majority disagreed — at least based on the unique language of the policy before the court. This case could have gone the other way with different language, and insureds would be wise to try and limit this decision to only those policies incorporating the language discussed above.