Judicial View on 'Arising Out of' Exclusion in Bill Cosby Policy

Cosby has liability insurance coverage under a homeowners policy and a personal excess liability policy, which were both issued by AIG Property Casualty Co. AIG filed suit and sought a court ruling that it did not owe any coverage to Cosby in connection with the defamation complaint filings. The AIG policies do not cover defense costs or liability for personal injury “arising out of any actual, alleged, or threatened” sexual molestation, misconduct or related acts.

AIG argued that Cosby's public statements that formed the basis of the claims in the defamation lawsuits “arose out of” his alleged sexual misconduct and, therefore, there was no coverage. Disputing this interpretation, Cosby advanced a narrower reading of the language that required direct causation between the sexual misconduct and the injuries resulting from the alleged defamation.

The Massachusetts federal district court rejected AIG's interpretation as overly broad and accepted Cosby's reading as reasonable, triggering AIG's duty to defend. District Judge Mark G. Mastroianni ruled that the exclusion applied only where sexual misconduct is sufficiently related to, or is the source of, the alleged injuries. According to the court, the fact that Cosby's acts of alleged sexual misconduct preceded and set the context for the subsequent defamation claims did not mean those claims “arose out of” sexual misconduct. Rather, the alleged defamation and sexual misconduct constituted “separate and distinct events.”

Judge Mastroianni focused on the source of the defamation plaintiffs' injuries. According to him, the defamatory comments were the sources of those injuries, not the sexual misconduct itself. The district judge deferred ruling on whether AIG would be obligated to pay for any judgments or settlements on Cosby's behalf until the conclusion of the underlying suits.

[Editor's Note: In the most recent ruling in one of these defamation actions against Cosby, Judge Mastroianni granted Cosby's motion to dismiss. McKee v. Cosby, 15-30221 (D.Mass. 2017). Actress Kathy McKee sued Cosby over statements in a letter Cosby's counsel Marty Singer sent to the New York Daily News challenging McKee's credibility over the newspaper's reporting of her allegation that Cosby sexually assaulted her in the 1970s. Judge Mastroianni found "the opinions as to Plaintiff's credibility are not capable of being objectively verified or disproven. The court also concludes the Singer Letter adequately disclosed the non-defamatory facts underlying the opinions so as to "immunize his [opinions] from defamation liability.'”]

The Green decision supports an interpretation of common exclusionary language that limits its reach. Specifically, the phrase “arising out of” can be found in exclusions relating to a wide range of conduct. For example, a common exclusion in insurance policies used by entertainment industry entities and that provide directors and officers liability coverage excludes coverage for claims “arising out of” breach of contract. Another exclusion has popped up in general liability policies with increasing frequency as the threat of cyberattacks has grown and insurers aim to shift such risks to cyber-specific coverages. This provision excludes coverage for injury or damage “arising out of” access to or disclosure of confidential or personal information. The range of risks to which exclusions with this language apply depends on whether a court accepts or rejects a broad interpretation of the phrase “arising out of.”

(In an additional part of his ruling, Judge Mastroianni noted: “The court's conclusion as to AIG's duty to defend does not end matters. In this action, AIG seeks a declaration that it has no duty to defend or indemnify Cosby regarding the defamation cases. Despite this posture, the parties have not explicitly addressed the duty to indemnify in the pending motions, perhaps assuming that the court's ruling on the duty to defend would apply equally to the duty to indemnify. This court, however, does not view such an assumption to be well-founded.”)

The Cosby insurance dispute decision is a positive development for such policyholders because it rejects a broad reading of the “arising out of” language. According to Judge Mastroianni in Green, for the harm to “arise out of” excluded conduct, the conduct must directly cause the harm that is the basis for the claim against the policyholder. It is not enough that a claim merely involves the subject matter of the excluded conduct for the exclusion to apply.

But other courts, including the U.S. Court of Appeals for the Ninth Circuit, have adopted a broader interpretation of this same language. For instance, a federal appeals court applying Washington state law held that “it is not necessary to analyze causation issues when assessing an arising out of policy term.” Trident Seafoods v. ACE American Insurance, 13-36035 (9th Cir. 2016). The Ninth Circuit found that an “arising out of” exclusion applied where the excluded conduct merely “set into motion” the resulting injury. Other courts have similarly considered the language to require mere “but for” causation, which the Green court rejected as too broad. See, e.g., Bethel v. Darwin Select Insurance, 735 F.3d 1035 (8th Cir. 2013). Arguably, the district court in Green would have found that Bill Cosby's sexual misconduct exclusion barred coverage for the defamation claims if it had interpreted the policy language as broadly as these other courts.

The Green decision is therefore important because it provides a thoroughly reasoned rejection of an overly broad reading of this commonly used language. Policyholders should aggressively push back on attempts by insurers to stretch “arising out of” exclusions beyond direct causation in order to maximize the coverage they purchase.

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Syed S. Ahmad is a Partner in the Washington, DC office of Hunton & Williams. Matthew T. McLellan is an associate in the firm.

The claims over the last few years by numerous individuals who allege sexual misconduct by comedian Bill Cosby have also led to disputes about the obligation of Cosby's insurers to pay for his defense attorneys and any eventual settlements or judgments. A decision by a federal district court in Massachusetts, where Cosby lives, addresses these disputes.

The specific provision at issue in AIG Property Casualty v. Green, No. 15-30111 (D. Mass. 2016), barred insurance coverage for liability “arising out of” sexual misconduct. In fact, the “arising out of” policy language appears in provisions relating to all manner of subjects, from cyberattacks to alleged breaches of contract.

Shocking accounts of Cosby's purported sexual misconduct toward numerous accusers have been hard to miss in the news. Cosby has publicly denied the accusations. Enflamed by these denials, several of the accusers brought lawsuits claiming that Cosby defamed them by publicly disputing their stories.

Cosby has liability insurance coverage under a homeowners policy and a personal excess liability policy, which were both issued by AIG Property Casualty Co. AIG filed suit and sought a court ruling that it did not owe any coverage to Cosby in connection with the defamation complaint filings. The AIG policies do not cover defense costs or liability for personal injury “arising out of any actual, alleged, or threatened” sexual molestation, misconduct or related acts.

AIG argued that Cosby's public statements that formed the basis of the claims in the defamation lawsuits “arose out of” his alleged sexual misconduct and, therefore, there was no coverage. Disputing this interpretation, Cosby advanced a narrower reading of the language that required direct causation between the sexual misconduct and the injuries resulting from the alleged defamation.

The Massachusetts federal district court rejected AIG's interpretation as overly broad and accepted Cosby's reading as reasonable, triggering AIG's duty to defend. District Judge Mark G. Mastroianni ruled that the exclusion applied only where sexual misconduct is sufficiently related to, or is the source of, the alleged injuries. According to the court, the fact that Cosby's acts of alleged sexual misconduct preceded and set the context for the subsequent defamation claims did not mean those claims “arose out of” sexual misconduct. Rather, the alleged defamation and sexual misconduct constituted “separate and distinct events.”

Judge Mastroianni focused on the source of the defamation plaintiffs' injuries. According to him, the defamatory comments were the sources of those injuries, not the sexual misconduct itself. The district judge deferred ruling on whether AIG would be obligated to pay for any judgments or settlements on Cosby's behalf until the conclusion of the underlying suits.

[Editor's Note: In the most recent ruling in one of these defamation actions against Cosby, Judge Mastroianni granted Cosby's motion to dismiss. McKee v. Cosby, 15-30221 (D.Mass. 2017). Actress Kathy McKee sued Cosby over statements in a letter Cosby's counsel Marty Singer sent to the New York Daily News challenging McKee's credibility over the newspaper's reporting of her allegation that Cosby sexually assaulted her in the 1970s. Judge Mastroianni found "the opinions as to Plaintiff's credibility are not capable of being objectively verified or disproven. The court also concludes the Singer Letter adequately disclosed the non-defamatory facts underlying the opinions so as to "immunize his [opinions] from defamation liability.'”]

The Green decision supports an interpretation of common exclusionary language that limits its reach. Specifically, the phrase “arising out of” can be found in exclusions relating to a wide range of conduct. For example, a common exclusion in insurance policies used by entertainment industry entities and that provide directors and officers liability coverage excludes coverage for claims “arising out of” breach of contract. Another exclusion has popped up in general liability policies with increasing frequency as the threat of cyberattacks has grown and insurers aim to shift such risks to cyber-specific coverages. This provision excludes coverage for injury or damage “arising out of” access to or disclosure of confidential or personal information. The range of risks to which exclusions with this language apply depends on whether a court accepts or rejects a broad interpretation of the phrase “arising out of.”

(In an additional part of his ruling, Judge Mastroianni noted: “The court's conclusion as to AIG's duty to defend does not end matters. In this action, AIG seeks a declaration that it has no duty to defend or indemnify Cosby regarding the defamation cases. Despite this posture, the parties have not explicitly addressed the duty to indemnify in the pending motions, perhaps assuming that the court's ruling on the duty to defend would apply equally to the duty to indemnify. This court, however, does not view such an assumption to be well-founded.”)

The Cosby insurance dispute decision is a positive development for such policyholders because it rejects a broad reading of the “arising out of” language. According to Judge Mastroianni in Green, for the harm to “arise out of” excluded conduct, the conduct must directly cause the harm that is the basis for the claim against the policyholder. It is not enough that a claim merely involves the subject matter of the excluded conduct for the exclusion to apply.

But other courts, including the U.S. Court of Appeals for the Ninth Circuit, have adopted a broader interpretation of this same language. For instance, a federal appeals court applying Washington state law held that “it is not necessary to analyze causation issues when assessing an arising out of policy term.” Trident Seafoods v. ACE American Insurance, 13-36035 (9th Cir. 2016). The Ninth Circuit found that an “arising out of” exclusion applied where the excluded conduct merely “set into motion” the resulting injury. Other courts have similarly considered the language to require mere “but for” causation, which the Green court rejected as too broad. See , e.g. , Bethel v. Darwin Select Insurance , 735 F.3d 1035 (8th Cir. 2013). Arguably, the district court in Green would have found that Bill Cosby's sexual misconduct exclusion barred coverage for the defamation claims if it had interpreted the policy language as broadly as these other courts.

The Green decision is therefore important because it provides a thoroughly reasoned rejection of an overly broad reading of this commonly used language. Policyholders should aggressively push back on attempts by insurers to stretch “arising out of” exclusions beyond direct causation in order to maximize the coverage they purchase.

*****
Syed S. Ahmad is a Partner in the Washington, DC office of Hunton & Williams. Matthew T. McLellan is an associate in the firm.