Roman Catholic Diocese v. Lee

FIRST DIVISION
September 8, 1997

No. 1-95-2348

THE ROMAN CATHOLIC DIOCESE OF JOLIET,
INC., a Trust,

Plaintiff-Appellee,

and

ALAN GODFREY LEE, for Himself and as
Representative of Certain Underwriters at
Lloyd's, London, Signatory to Policy No.
IL 1052 and CENTENNIAL INSURANCE COMPANY,

Defendants-Appellees,

v.

INTERSTATE FIRE INSURANCE COMPANY,

Defendant-Appellant.)
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)Appeal from the
Circuit Court of
Cook County.

No. 88 CH 10547

Honorable
Everette A. Braden
and
Thomas P. Durkin,
Judges Presiding.
JUSTICE O'BRIEN delivered the opinion of the court:

The defendant, Interstate Fire Insurance Company (Interstate),
appeals from orders entered on cross-motions for summary judgment
in a declaratory action determining (1) that the repeated sexual
molestation of a minor by a negligently supervised priest
affiliated with the plaintiff, the Roman Catholic Diocese of
Joliet, Illinois, a trust (Diocese), constituted a single
"occurrence" under policies issued by the defendants, and that (2)
Interstate must indemnify the Diocese for all sums of money over
and above a $75,000 self-insured retention (SIR) and $100,000 in
primary insurance provided jointly by Underwriters at Lloyd's of
London (80%) and Centennial Insurance Company (20%) (collectively
referred to as Lloyd's). We reverse.
The underlying lawsuit arose out of a sexual relationship
between a priest affiliated with the Diocese and a female minor
resulting in criminal action against the priest and a civil action
against the Diocese for negligent supervision of the abusive
priest. The Diocese reached a settlement in the civil action and
made payments of $300,000 to the minor and $150,000 to the minor's
parents for parental loss of consortium.
Thereafter, the Diocese filed this declaratory action seeking
reimbursement from its insurers. The complaint alleged, inter
alia:
"9. That in July of 1985, an 'accident, or
happening, or event' took place which resulted in
personal injury to an individual, who alleged that the
proximate cause of the injury was the alleged negligence
of the Diocese, which negligence also allegedly resulted
in aggravating the injury in August of 1986."

A review of the policies attached to the complaint reveals that the
Diocese maintained the following insurance coverage:
Period Diocese Lloyd's Interstate
SIR Primary Excess

I 9/1/84-9/1/85 $ 75,000 $100,000 $4.8 million
II 9/1/85-9/1/86 $100,000 $100,000 $4.8 million.

The Lloyd's policies are typical "occurrence" type policies which
contain the following insuring agreement:
"Lloyd's] hereby agree[s] * * * to indemnify the
[Diocese] for all sums which the [Diocese] shall be
obligated to pay by reason of the liability imposed upon
the [Diocese] by law * * * for damages * * * as more
fully defined by the term 'ultimate net loss' on account
of personal injuries * * * arising out of any occurrence
happening during the period of Insurance."

The Lloyd's policies define "occurrence" as:
"an accident or happening or event or a continuous or
repeated exposure to conditions which unexpectedly and
unintentionally results [sic] in personal injury, or a
damage to property during the policy period. All such
exposure to substantially the same general conditions
existing at or emanating from one location shall be
deemed one occurrence."
Although the Interstate policies generally follow the form of the
corresponding Lloyd's policies, Interstate modified its liability
as of September 1, 1985, by the addition of an endorsement
excluding coverage for claims arising from the Diocese's failure to
control or prevent acts of sexual or physical abuse or molestation
by any employee of the Diocese.
Based upon the foregoing, the Diocese sought $100,000 from
Lloyd's, and $250,000 of from Interstate, in reimbursement for the
$450,000 in settlements paid to the minor and her parents.
Interstate answered the complaint, stating:
"9. In answer to the allegations contained in
Paragraph 9, Defendant admits that an incident allegedly
occurred in July of 1985 resulting in personal injury to
an individual and that the individual also alleged that
the proximate cause of the injury was the alleged
negligence of THE DIOCESE, which negligence also
allegedly resulted in an aggravation of the injury in
August of 1986 and thereafter."

The parties filed cross-motions for summary judgment. The
trial court conducted a hearing on the motions at which counsel for
the Diocese noted:
"Interstate attaches a chart and it shows what went
on during the period of 13 months *** [and it is]
significant that in that chart spanning the 13 months
[there is] no mention of any sexual abuse in July or
August of '85. Maybe it's just an omission, but without
that, if that becomes a disputed fact issue, as I've
stated in my brief, then I think if that is the case,
then I think all the motions for summary judgment will
sink and [be] drowned.


[Interstate] also point[s] out that there hasn't been any
evidence that the damage to the victim, to the child, occurred
in July and August of 1985."

Furthermore, counsel for Interstate, pointed out:

"Number one, [counsel for the Diocese] in his complaint
stated that it was alleged that sexual abuse took place
in July and August of 1985. We admitted that those
allegations existed. It is true from what I understand
from Miss Dorf that an untranscribed deposition was taken
at one time and this young lady indicated that such was
true; however, if the court please, no one has asked the
priest involved whether that is true, and if he denies
that, then it's a question of credibility as to who will
be believed. If the priest should deny it and if the
priest is found credible, then we have no coverage,
because all sexual abuse took place in 1986." (Emphasis
added.)

Given the confusion as to whether sexual abuse first took place in
July of 1985 or July of 1986, Interstate offered the following
suggestion:
"Let us assume for the purposes of summary judgment, that
this is all true. If it is true, it is our position we
owe not one thin dime in this matter." (Emphasis
added.)

This suggestion gave rise to the following colloquy:
"THE COURT: * * * According to your position here,
[Interstate Counsel], it is your contention that no
injury occurred during the first policy period, is that
right?
[INTERSTATE COUNSEL]: No, Judge. For purposes of this
summary judgment, we will -- they alleged an injury occurred
during the first policy period. We admitted that allegation
whether in fact that's true or not we don't know.
THE COURT: According to the coverage of your policy, you
know, *** according to the chart, they have an incident with
the priest and the girl. That's not an injury.
[INTERSTATE COUNSEL]: No, Sir.
THE COURT: And then the priest pays tuition.
[INTERSTATE COUNSEL]: That's right.

THE COURT: All of that was during the first policy
period.
[INTERSTATE COUNSEL]: That was and according to what the
young lady said in all candor with the court * * * in a
deposition that was never transcribed she said that more than
that occurred. We don't know the truth of it. But for the
purposes of the legal question before this court, it is enough
for the court to assume that that's correct.

What is the outcome? *** If [the] outcome is that both
policy periods were triggered, because *** injury happened in
both policy periods ***, then there is sufficient underlying
coverage to cover the $450,000 involved here. Because there
is at least $400,000 for *** those policy periods of SIR and
underlying limits furnished by [the Diocese and Lloyd's]."
(Emphasis added.)

Following this, counsel for the Diocese stated:
"The reason counsel has clearly stated for the purpose of
this motion we will admit sexual abuse took place July
and August. I think they want it both ways. All right.
There's [a] fact issue for the purpose of this motion
[whether] sexual abuse occurred in July and August of
'85, however -- however, after the motion for summary
judgment, we may want to litigate the underlying issue.
We may want to debate that. I don't think you can have
it both ways."

The trial court granted the Diocese's motion, denied
Interstate's motion, and ordered Interstate and Lloyd's to
indemnify the Diocese for all sums of money over and above the
$75,000 SIR limit applicable in July of 1985. Interstate appealed.
We reverse.
Summary judgment is proper only where there are no genuine
issues of material fact and the moving party is entitled to
judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1994). We
review the matter de novo. Outboard Marine Corp. v. Liberty Mutual
Insurance Co., 154 Ill. 2d 90, 102 (1992). In so doing, we must
construe the admissions, exhibits, and pleadings on file strictly
against the movant and liberally in favor of the nonmoving party.
Outboard, 154 Ill. 2d at 131-32. For the sake of clarity, we will
address each motion independently.
The Diocese's Motion
In support of its motion for summary judgment, the Diocese
argued that Interstate had admitted the existence of abuse in July
of 1985 in its answer. Relying upon Interstate's purported
"admission" and the first encounter rule, which holds that a single
occurrence begins at the time of the first libidinous encounter and
is the cause of all subsequent injury, the Diocese reasoned that
the minor's entire $300,000 settlement should be allocated to
period I. The Diocese further reasoned that because the parent's
loss of consortium claim was derived from the same "occurrence"
that caused their daughter's injury, it too should be allocated to
period I and paid by Interstate. Accordingly, the Diocese urged
the trial court to apportion the combined $450,000 loss
attributable to both settlements thusly:
Period Diocese Lloyd's Interstate
SIR Primary Excess

I 9/1/84-9/1/85 $ 75,000 $100,000 $275,000.

As previously noted, the trial court entered judgment for the
Diocese. It concluded its 27-page decision finding that, as a
matter of law, the negligence of the Diocese was a single
occurrence and that all insurance coverage existing at the time of
the first sexual encounter was triggered. In so doing, the trial
court implicitly adopted the first encounter rule advocated by the
Diocese. It then ordered Interstate and Lloyd's to indemnify the
Diocese for all sums of money over and above the $75,000 SIR limit
applicable in July of 1985. In so doing, the trial court
implicitly adopted the Diocese's argument that Interstate had
admitted the first instance of abuse had occurred in July of 1985,
during period I, when the Diocese maintained a $75,000 SIR and the
excess insurance policy issued by Interstate did not contain the
exclusionary clause.
In reviewing the trial court's decision to grant the Diocese's
motion for summary judgment, we consider first Interstate's answer
to paragraph 9 of the complaint for declaratory judgment.
Interstate's answer "admits" only "that an incident allegedly
occurred in July of 1985" (emphasis added). Construing this
against the Diocese and liberally in favor of Interstate, we
conclude that Interstate's admission was limited to the fact that
a complaint had been filed against the Diocese alleging sexual
abuse by a priest in July of 1985, not that the abuse had, in fact,
occurred on that date.
Next, we consider the relevant excerpts from the transcript of
the hearing on the motion. In so doing, we note that the parties
were arguing their cross-motions simultaneously and without benefit
of settled opinion as to the appropriate method for allocating
loss. Interstate was thus placed in the unusual position of having
to deny that any sexual misconduct occurred in 1985 in order to
avoid the entry of summary judgment against it on the Diocese's
motion (Outboard Marine Corp., 154 Ill. 2d 90 (summary judgment
improper where there are issues of material fact)), while
simultaneously assuming that it did occur in 1985 for purposes of
its own motion (154 Ill. 2d at 131-32 (pleadings must be construed
strictly in favor of the nonmovant)).
In light of the foregoing, and construing the relevant hearing
excerpts strictly against the Diocese and liberally in favor of
Interstate, we conclude that Interstate's purported "admission" was
nothing of the sort. Rather, deconstruction of the parties'
arguments at the hearing clearly reveals that Interstate
steadfastly denied liability under the first encounter rule on
grounds there was no evidence the minor had been molested in July
of 1985, during period I, as had been alleged in the underlying
complaint for negligent supervision. Interstate allowed the court
to assume that the first libidinous conduct occured in July of 1985
for the limited purpose of considering its own motion and only
because it was required to do so. Even were this not the case,
however, saying "we assume for the purposes of summary judgment" is
much the same as saying "even assuming without deciding." Neither
admits unequivocally the truth of the matter asserted.
Because we find that Interstate's answer to the complaint and
its arguments before the trial court in relation to the Diocese's
motion for summary judgment admitted only the existence of the
allegation of abuse in July of 1985, and not that the abuse, in
fact, occurred at that time, the date of the priest's first abuse
was an issue of material fact precluding summary judgment in favor
of the Diocese.
Interstate's Motion
In support of its motion for summary judgment, Interstate
argued that even assuming for the purposes of summary judgment that
the minor had been molested in July of 1985 as alleged, it "owe[d]
not one thin dime" in the matter. Interstate reasoned that,
assuming the minor suffered abuse in both periods I and II, the
policies for each had been triggered such that the loss should be
apportioned between them. Interstate further reasoned that it was
not responsible for any portion of the settlement for the parents'
loss of consortium claim because the parents suffered no injury
until they learned about the priest's abuse of their daughter in
September of 1986, long after the exclusionary clause had taken
effect. Accordingly, Interstate believed the trial court would be
required to apportion the $300,000 loss attributable to the minor's
settlement thusly:
Period Diocese Lloyd's
SIR Primary

I 9/1/84-9/1/85 $ 75,000 up to $100,000
II 9/1/85-9/1/86 $100,000 up to $100,000.

In reviewing the trial court's decision to deny Interstate's
motion for summary judgment, we consider first paragraph 9 of the
Diocese's complaint for declaratory judgment. The Diocese's
complaint alleges "[t]hat in July of 1985, an 'accident, or
happening, or event' took place which resulted in personal injury
to an individual, who alleged that the proximate cause of the
injury was the alleged negligence of the Diocese, which negligence
also allegedly resulted in aggravating the injury in August of
1986" (emphasis added). Construing this against Interstate and
liberally in favor of the Diocese, we are bound to assume, as
Interstate suggested below, that abuse had, in fact, occurred in
July of 1985. We reiterate for the sake of clarity that this
assumption is applicable and relevant only to Interstate's motion
and is not, nor should it have been held to be, an admission of
fact to be considered as part of the Diocese's cross-motion.
Assuming, therefore, that the abuse began in July of 1985
during period I, and continued through August of 1986, the end of
period II, there are numerous methods for allocating loss between
the two insurance periods, some of which would result in liability
for Interstate (e.g., the first encounter rule) and some of which
would not (e.g., a pro rata apportionment). Accordingly, the
outcome of Interstate's motion turns on the selection and
application of the proper method of loss allocation. Therefore, we
next consider the proper method for allocating loss under the facts
presented.
As previously noted, the Diocese argues for application of the
first encounter rule, which holds that a single occurrence begins
at the time of the first libidinous encounter and is the cause of
all subsequent injury. For reasons that follow, we reject the
first encounter rule and adopt instead a pro rata apportionment
method for allocating loss.
First, we acknowledge that negligent "supervision is (or can
be) [a] discrete" rather than "a unitary act." See Lee v.
Interstate Fire & Casualty Co., 86 F.3d 101 (7th Cir. 1996)
(applying Rhode Island law). Although an employer may initially
leave an employee to his or her own devices, the decision not to
supervise may be revisited. Thus, if a diocese receives warnings
about a priest's misconduct and fails to take remedial action, then
a second occurrence takes place and policy coverage is triggered
again by any subsequent injury resulting from the omission. Lee,
86 F.3d at 104-05. In the instant case, it appears undisputed that
the Diocese learned of the abusing priest's inappropriate behavior
in early 1986, during period II, but failed to take remedial
action. Accordingly, the Diocese's negligent supervision of the
abusing priest constituted a second occurrence during period II and
coverage under that policy was triggered when the priest
subsequently molested the minor.
Even assuming, however, that the Diocese did not learn of the
priest's abusive behavior in early 1996, such that all of the
molestations suffered by the minor stemmed from a "unitary" act of
the Diocese, there were two "occurences." As previously noted, the
Lloyd's policies define "occurrence" as "a continuous or repeated
exposure to conditions which *** result in personal injury ***
during the policy period." The definition further states that
"[a]ll such exposure to substantially the same general conditions
existing at or emanating from one location shall be deemed one
occurrence." (Emphasis added.) A plain reading of this definition
reveals that negligent supervision alone would not trigger any
obligation on the part of the insurers. Rather, it is the repeated
"exposure" of the minor to the negligently supervised priest that
could constitute an occurrence and provide the basis for
indemnification. See Interstate Fire & Casualty Co. v. Archdiocese
of Portland, 35 F.3d 1325, 1329 (9th Cir. 1994) (applying Oregon
law); Mason v. Home Insurance Co., 177 Ill. App. 3d 454, 532 N.E.2d 526 (1988) (holding each incident in which restaurant served
tainted food to patron was a separate occurrence). Accordingly,
the minor's exposure to the negligently supervised priest in each
of the policy periods constituted a separate occurrence.
Second, while the insurance policies cover only occurrences
that happen "during the period of insurance," the assuring clause
does not require that all damages occur within the policy period.
Rather, it provides without qualification that indemnification
extends to all "damages *** on account of personal injuries ***
arising out of any occurrence." Thus, the policies cover
consequential damages resulting from a molestation, but they
exclude from coverage injuries occurring outside the policy period.
When one considers that a molestation occurring after the policy
period is not a consequence of the first molestation (which is
covered), but is a new injury with its own resulting damages (which
is excluded from coverage), it becomes clear that application of
the first encounter rule conflicts with the expressed intent of the
insurance companies to limit their coverage to damages emanating
from molestations taking place during their policy period. See
Diocese of Lafayette & Lake Charles, Inc. v. Interstate Fire &
Casualty Co., 26 F.3d 1359, 1366 (5th Cir. 1994) (applying Louisana
law).
Finally, although the first encounter rule may apply where the
parties agree that all the damage occurred at the time of the first
sexual encounter, such is not the case here. Nor can we make such
a ruling as a matter of law. As a practical matter, "[d]amage in
a sex abuse case can *** be caused by the continuous nature of the
abuse," and "[i]n such instances it becomes difficult to determine
when the damage to the sex abuse victim occurs." Diocese of Winona
v. Interstate Fire & Casualty Co., 841 F. Supp. 894, 898 (D. Minn.
1992) (applying Minnesota law). Accordingly, we conclude that in
the event of ongoing sexual abuse spanning multiple policy periods,
application of the first encounter rule is both inappropriate and
inequitable. At its worst, such a rule could deny coverage for a
child who was molested a day before the Diocese procured coverage
even though separate molestations continued through the policy year
and beyond. 841 F. Supp. at 898-99; Diocese of LaFayette , 26 F.3d
at 1366.
For all of the foregoing reasons we conclude that, where, as
here, the negligent supervision of a priest manifests itself as
abuse in multiple policy periods, the negligent supervision
constitutes an occurrence in each policy period and each policy's
coverage is triggered by the first instance of abuse occurring
during its period of coverage. See generally Lee, 86 F.3d 101;
Interstate, 35 F.3d 1325; Mason, 177 Ill. App. 3d 454, 532 N.E.2d 526 (1988); Diocese of Lafayette, 26 F.3d 1359; Diocese of Winona,
841 F. Supp. 894. Of course, if the number of molestations were
known and the damages from each molestation could be proved, we
could allocate the loss(es) according to the actual injury suffered
during each policy period. Unfortunately, there is no measure of
the amount of damage caused by the molestations during any given
policy period. This leaves us with only one avenue under the
policies' language, which is to allocate the loss based upon the
policy periods. We therefore conclude that the loss(es)
attributable to the abuse must be apportioned, pro rata, according
to the percentage of the time or period of each child's molestation
occurring during each policy period. See Diocese of LaFayette, 26 F.3d at 1366-67.
Because we find that the loss must be apportioned, pro rata,
between all relevant policy periods, Interstate cannot be and
should not have been held liable for any portion of the minor's
settlement. As Interstate suggests, even were we to assume for
purposes of Interstate's motion that the minor had been molested in
July of 1985, during period I, and that the molestation continued
into period II as alleged, then the $300,000 settlement amount was
amply covered by the Diocese's SIR and the primary insurance
provided by Lloyd's during those two policy periods. If, however,
the minor was not molested until July of 1986, then Interstate has
no liability pursuant to the exclusionary clause added to its
policy the previous September.
Furthermore, Interstate cannot and should not have been held
liable for any portion of the parent's settlement. At the hearing,
Interstate argued that it was not responsible for any portion of
the settlement for the parents' loss of consortium claim because
the parents suffered no injury until they learned about the
priest's abuse of their daughter in September of 1986, long after
the exclusionary clause had taken effect. The Diocese, on the
other hand, argued that because the parents' loss of consortium
claim was derived from the same "occurrence" that caused their
daughter's injury, it too should be allocated to period II and paid
by Interstate. On appeal Interstate further argues that, in light
of the decision in Dralle v. Ruder, 124 Ill. 2d 61, 529 N.E.2d 209
(1988), rev'g 148 Ill. App. 3d 961, 500 N.E.2d 514 (1986), it is
not responsible for any portion of the parents' loss of consortium
claim because such claims are not recognized in Illinois unless the
child dies as a result of his or her injuries. The Diocese now
counters that Interstate's reliance upon the Illinois Supreme
Court's decision in Dralle is misplaced. The Diocese reasons that
a settlement is covered under the policy if it "'was responding to
a reasonable anticipation of personal liability rather than acting
as a mere volunteer'" (United States Gypsum Co. v. Admiral
Insurance Co., 268 Ill. App. 3d 598, 635, 643 N.E.2d 1246, 1249
(1994), quoting St. Paul Fire & Marine Insurance Co. v. Michelin
Tire Corp., 12 Ill. App. 3d 165, 169, 298 N.E.2d 289, 292 (1973)),
and that at the time of the settlement at issue here the Illinois
Appellate Court recognized a parent's right to recovery for loss of
consortium for the nonfatal injuries of his or her minor children
(see Dralle v. Ruder, 148 Ill. App. 3d 961, 500 N.E.2d 514 (1986),
rev'd, 124 Ill. 2d 61, 529 N.E.2d 209 (1988).
We agree with the Diocese that the parents' $150,000
settlement arose from a derivative claim. "If the [minor] had not
been molested, the parents would have gone unharmed. Thus, the
parents' injury do[es] not amount to separate occurrence under
the policies." Diocese of Lafayette, 26 F.3d at 1364-65. We also
agree with the Diocese that the parents' settlement was covered
under the period I policy because the Diocese "was responding to a
reasonable anticipation of personal liability," under the then-
applicable appellate court decision in Dralle, 148 Ill. App. 3d
961, 500 N.E.2d 514. The foregoing notwithstanding, we find the
requirement that the damages be apportioned pro rata means
Interstate still owes nothing.
Assuming, as we must, that the abuse began in July of 1985,
during period I, and that the abuse continued through period II,
then pro rata apportionment requires that two-fourteenths of the
entire $450,000 loss be allocated to period I for July and August
of 1985 and twelve-fourteenths of all damages be allocated to
period II for September 1985 through the end of August 1986.
Mathematically this works out to $64,285.72 during period I and
$387,714.28 during period II. The $64,285.72 is more than
adequately covered by the Diocese's self-insured retention and
primary insurance provided by Lloyd's, and Interstate's
exclusionary clause relieves it of liability for any portion of the
$387,714.28 owed for period II.
Conclusion
For the reasons expressed above, we reverse both the trial
court's grant of the Diocese's motion for summary judgment and its
denial of Interstate's motion for summary judgment. Accordingly,
summary judgment is hereby entered in favor of Interstate. 155
Ill. 2d R. 366(a)(5) (reviewing court has power to enter any
judgment that ought to have been given or made). In reaching this
decision, we are mindful of the Diocese's argument that Interstate
has improperly and unfairly been allowed to "assume" a point in
expectation that the trial court would rule in its favor, yet argue
the same point on appeal when the trial court ruled against it. In
common parlance, the Diocese objects to Interstate having "two
bites at the apple." The Diocese's argument is not well taken.
Interstate was entitled to have its defense to the Diocese's motion
for summary judgment considered on its own merits and apart from
its arguments in support of its own motion for summary judgment.
Reversed; summary judgment entered in favor of appellant.
CAHILL, J., and THEIS, J., concurring.