Circuit Court Holds Insurer Owes No Duty to Defend or Indemnify Medical Office for Sexual Misconduct Claims

On December 20, 2018, the Fourth Circuit Court of Appeals affirmed a district court’s decision granting summary judgment in favor of an insurer, holding that under West Virginia law the insurer owed no duty to defend or indemnify a pain management medical office (doing business as “Responsible Pain”), or a doctor (the sole owner and also a named insured), for sexual misconduct claims asserted by five patients. State Automobile Mutual Insurance Company v. Allegheny Medical Services, No. 18-1558, 2018 WL 6720635 (4th Cir. Dec. 20, 2018).

The five former patients alleged that J. Jorge A. Gordinho engaged in inappropriate sexual misconduct causing them to suffer damages, including emotional distress, psychological and mental harm, anguish, and pain and suffering. Significantly, the plaintiffs did not allege any physical injury, as opposed to psychological harm.

According to the district court, the policy issued by State Auto provided coverage for “bodily injury” caused by an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Bodily injury” was defined as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” The policy also contained an “intentional acts” exclusion, specifically, excluding bodily injury “expected or intended from the standpoint of the insured.”

State Auto initiated a declaratory judgment action in West Virginia federal court and moved for summary judgment seeking a declaration that it owed no duty to defend or indemnify Responsible Pain or Gordinho. In an April 17, 2018 opinion, the district court granted State Auto’s motion finding that the underlying complaints did not allege any “bodily injury” that could bring the underlying complaints within coverage. The court went further, however, noting that the underlying allegations “do not constitute an ‘occurrence’” and that “the exclusion for intentional acts would be applicable if coverage were otherwise available, as any ‘bodily injury’ was ‘expected or intended from the standpoint of the insured.’”

First, the district court noted that the West Virginia Supreme Court has held that an insurer has a duty to defend an insured “if the claim stated in the underlying complaint could, without amendment, impose liability for risks the policy covers.” Here, the underlying complaints alleged physical contact related to the sexual misconduct, but not physical injury. As the court explained, “[t]he complaints here allege a variety of emotional and psychological damages, but do not contain any allegations of physical manifestations of those damages, nor do they contain specific factual allegations of physical injuries resulting from the sexual assaults.” Accordingly, the court held that there was no “bodily injury” (as it interpreted that term), no coverage under the policy, and, thus, no duty to defend.

Second, although that ruling was sufficient to grant State Auto’s motion, the court went further, finding that the allegations in the underlying complaint did not give rise to an “occurrence” and, that, “likewise,” the policy’s intentional acts exclusion applied. As a threshold matter, the court noted that the underlying allegations of sexual abuse “involve intentional, rather than accidental, conduct,” and that, “the exclusion for intentional acts would be applicable if coverage were otherwise available, as any ‘bodily injury’ was ‘expected or intended from the standpoint of the insured.’”

That, alone, however, did not answer “[t]he more difficult question . . . whether [the plaintiffs’] claims of negligence against Responsible Pain assert an ‘occurrence,’” because, under applicable law, that question had to be determined “when viewing the facts from the standpoint of the insured.” To answer that question, the court considered two earlier West Virginia district court decisions. In one (USF Ins. Co. v. Orion Dev., 756 F.Supp.2d 749 (N.D. W. Va. 2010), “[f]ollowing a fact-specific examination of the underlying allegations, the court concluded that, from the perspective of the insured, ‘the sexual molestation…was not deliberate, intentional, expected, desired or foreseen’ and was therefore ‘an accident’.” In the other (State Farm Auto. Prop. & Cas. Ins. Co. v. Edgewater Estates, Inc., 2010 WL 1780253 (S.D. W. Va Apr. 29, 2010), the court held that a “negligent hiring claim seeking to hold an insured entity liable for the sexual misconduct of an agent did not constitute an ‘occurrence’ because the underlying conduct was intentional.” Here, the court found that the underlying complaints did not allege an “accident” or an “occurrence,” and reinforced that position with the fact-specific examination of the case and the observation that the “structure of Responsible Pain,” specifically, the fact that Gordinho, the alleged perpetrator of the sexual abuse, was “the sole owner, officer, and founder” of Responsible Pain, “belies any suggestion that Responsible Pain, as an entity, acted negligently with respect to its handling of Mr. Gordinho’s intentional conduct.” On that point, the court also noted that both Responsible Pain and Gordinho were named insureds under the policy issued by State Auto. 

On appeal, the Fourth Circuit affirmed in an unpublished per curiam ruling, rejecting Responsible Pain’s arguments that the claims were “reasonably susceptible” to coverage because an insurer’s duty to defend is broader than its duty to indemnify, and that, “although physical injuries were not pled . . . , upon further investigation, it would be possible that there would be a physical manifestation related to a psychological injury.”