Betts Patterson Mines

Xia v. ProBuilders Revisited – Are Sexual Abuse Exclusions Next to Fall?

This past May, my partner Dan Syhre posted a commentary on the then-recent Washington Supreme Court decision Xia v. ProBuilders Specialty Ins. Co., 188 Wn.2d 171, 393 P.3d 748 (2017).  In that post, Dan pointed out that the decision essentially permits negation of long-endorsed liability insurance exclusions through application of the efficient proximate cause rule.  That is, if the plaintiff claims that the defendant/insured was negligent, and the negligence started a chain of events culminating in an injury, then an exclusion for injury resulting from that last event in the chain is unenforceable.  In Xia, the policy’s absolute pollution exclusion was obliterated because the first event was the insured’s (alleged) negligence in installing a hot water heater.  Dan pointed out that virtually everything that results in pollution-caused injury can be traced back to some error.  And then Dan concluded that this decision has troubling implications for many long-used exclusions in commercial general liability policies.

After Xia was decided, ProBuilders and insurance industry groups asked the court to reconsider its decision, mainly because the square peg of the efficient proximate cause rule doesn’t fit into the round hole of a liability insurance policy.  Last month, the court denied the motion for reconsideration, leaving Xia unmodified. 

In his post, Dan had mentioned many standard CGL exclusions that are now of questionable effectiveness, including the auto, watercraft, aircraft and professional services exclusions. When I saw the order indicating that reconsideration of Xia was denied, I happened to be analyzing a coverage issue on a type of liability claim that, sadly, remains very common in litigation in Washington State – sexual abuse of children.

Typically, the allegations in such cases run like this: Plaintiff attended Institution as a child; Mr. Doe was employed by Institution; Mr. Doe molested Plaintiff; Institution was negligent in hiring, supervising, training, and retaining of Mr. Doe; Institution’s negligence proximately caused Plaintiff to be molested by Mr. Doe; Institution is liable to Plaintiff for his bodily injuries as a result of Mr. Doe’s molestation. 

For over two decades, now, CGL insurers have regularly included sexual abuse and molestation exclusions in their policies. See, e.g., ISO form CG 21 46 (various editions).  These exclusions have been modified to apply to professional services coverage, too, as well as other liability coverages.  See, e.g., ISO form 21 97.  The ISO’s CGL Abuse or Molestation Exclusion says that the insurance doesn’t apply to injury arising out of “actual or threatened abuse or molestation of any person while in the care, custody or control of any insured” or arising out of negligent hiring and supervision of a molester for whom any insured is legally responsible. 

For as long as there have been abuse and molestation exclusions from CGL coverage, there has been specialized abuse and molestation coverage available for insureds to purchase, to fill the gap left by the CGL exclusions. The coverage exists for vicarious negligence liability for a molester’s deliberate misconduct.  The exclusions exist because sexual abuse, like pollution, creates such an enormous risk that insurers don’t want to pay for it unless that specific risk is identified, accepted, and appropriately charged for in the premium. This is known as “underwriting.”  That is why specialized sexual abuse policies exist; they are designed, underwritten and priced for the appropriate transfer of that risk. 

When Xia obliterated the exclusion for pollution-caused bodily injury, it probably obliterated other causation-based exclusions as well.  As mentioned above, Dan recognized this problem last May, and identified some specific exclusions that likely would not survive Xia. The other day, I realized that dozens of CGL insurers of schools, day cares, camps, foster homes, and similar insureds whose underwriting was based upon the risk of injuries from kids falling off swing sets, tripping over a frayed rug, or being bopped by a wayward baseball bat, charged far too little in premium. Xia has apparently made sexual abuse exclusions unenforceable, and the more expensive sexual abuse coverage superfluous. 

To insurers contemplating writing liability insurance business in Washington, think twice about doing so, and the premium you will charge. You never know when the Washington Supreme Court will do post-hoc underwriting for you – Joe Hampton