Editor’s note: This article has been updated.
A split 7th Circuit Court of Appeals panel has affirmed Liberty Insurance Underwriters Inc. must defend USA Gymnastics against the lawsuits filed by the athletes and affiliated gyms arising from Larry Nassar sexually assaulting hundreds of girls and young women over decades.
The 69-page per curiam decision in USA Gymnastics v. Liberty Insurance Underwriters, Inc., 20-1245, is the result of an interlocutory appeal from the U.S. District Court for the Southern District of Indiana. Chief Judge Diane Sykes and Judges David Hamilton and Michael Brennan comprised the 7th Circuit panel.
Splitting over the application of the insurance policy’s “wrongful conduct exclusion,” Brennan dissented from the majority’s finding that the exclusion only absolves the insurance company from covering USAG for the 10 claims for which Nassar was found guilty.
USAG purchased coverage from Liberty for a one-year period of May 16, 2016, through May 16, 2017. In 2018, USAG sued seven insurers, including Liberty, seeking coverage on various claims including what are termed the “Nassar-related claims.” These claims include the lawsuits brought by the hundreds of gymnasts wanting USAG held responsible for allowing the abuse to take place, and the lawsuits brought by the coaches and owners of gyms affiliated with USAG.
Before a bankruptcy court, Liberty countered that none of the Nassar-related claims were covered under its policy. Also, the insurance company maintained the conduct exclusion provision barred coverage for all claims because Nassar engaged in wrongful conduct finally adjudicated in his criminal cases, or the claims were at least related to that conduct.
The bankruptcy court rejected Liberty’s interpretation of its own policy as too broad. In particular, the bankruptcy court found the wrongful conduct exclusion barred coverage for only those suits seeking damages for the 10 counts of sexual abuse for which Nassar was convicted.
Reviewing the bankruptcy court’s proposed findings and conclusions, the Southern Indiana District Court overruled Liberty’s objections and adopted the findings and conclusions in a Jan. 13, 2020, written order.
On appeal, Liberty argued Nassar committed a willful violation of the law and the bankruptcy court injected ambiguity where no reasonable person would find it. Moreover, Nassar pleaded guilty, so his wrongful conduct has been finally adjudicated. Also, the company asserted all the Nassar-related claims are “in any way related to” the 10 cases of abuse for which he was criminally convicted.
USAG reiterated the bankruptcy court’s reasoning that “any insured” is ambiguous, only 10 acts of sexual abuse were finally adjudicated as criminal convictions in Michigan state court and the anti-imputation clause precludes applying the wrongful conduct exclusion to the Nassar-related claims.
The majority appellate panel closely examined the language of the policy and found the phrase “in any way related to” was quite broad. Citing Gregory v. Home Ins. Co., 876 F.2d 602, 606 (7th Cir. 1989), the majority offered that when a phrase is so broad that it should not be taken literally, a restrictive reading would come into play.
Noting the similarities among the claims that all the victims accuse Nassar of sexually assaulting them, the majority also acknowledged there are several important differences between the claims. The assaults are each separate and independent crimes with many of the young women recounting abuse that occurred dozens of times over several years.
“This case is in the grey territory where the policy’s broad language becomes ambiguous as applied to these unique facts,” the per curiam decision stated. “While the insurer has a reasonable argument for excluding coverage of the other victims’ claims, the insured also has a reasonable argument for not excluding them. Accordingly, under the general principles of Indiana insurance law — including that ambiguous policy language is construed against the insurer, especially when it comes to policy exclusions — the insured, USAG, prevails on this point.”
Brennan dissented, arguing the wrongful conduct exclusion applied to all the Nassar-related claims.
The judge explained his “limited disagreement” centered on how close the local connection must be for claims to be “in any way related to” one another. He bolstered his argument by citing to Gregory as well as RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 391 (7th Cir. 2008), and Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 855 P.2d 1263 (Cal. 1993).
“All the Nassar-related conduct included precisely the same method and modus operandi — abuse of young, vulnerable, female gymnasts under the guise of medical treatment — for the ten crimes acts (sic) of which he was convicted as well as for all his other sexual abuse,” Brennan wrote.
“’Related to’ under Indiana law, therefore, includes not just the ten counts in the two Michigan state criminal cases, but all the claims logically connected to them, which comprise Nassar’s sexually abusive conduct,” Brennan continued. “Given the tight similarities involved in all this sexual abuse, there is no reasonable interpretation of the insurance contract under which the Nassar-related claims would not be ‘in any way related to’ the ten criminal counts for which Nassar was finally adjudicated guilty.”
Addressing Brennan’s dissent and his citing to multiple cases, the majority found those precedents were “more straightforward” than those that represent multiple claims which arose from one financial transaction.
“Multiple sexual assaults are a different category entirely, especially on this scale over so many years,” the per curiam decision stated. “A relative handful of cases applying such a vague standard to quite different financial wrongs does not persuade us that the insured’s view here is unreasonable. ‘In any way related’ is too ambiguous — as applied to these very different facts — to exclude coverage of the non-guilty-plea claims.”