Archdiocese of Milwaukee loses battle for insurance coverage in abuse cases 

By Joe Forward, Legal Writer, State Bar of Wisconsin

Nov. 23, 2010 – In a consolidated appeal involving 10 appeals and 13 lawsuits, the District I Wisconsin appeals court has affirmed circuit court rulings that denied insurance coverage to the Archdiocese of Milwaukee stemming from allegations of child sexual abuse by former priests.

All plaintiffs alleged the archdiocese negligently misrepresented that “children were safe in the presence of priests despite high-ranking personnel having knowledge of the priests’ histories of sexual abuse.” After the archdiocese sought insurance coverage under a commercial general liability (CGL) policy for the claims, its insurance carrier sought a declaration of no coverage.

In the consolidated appeal, one of which is John Doe 1 v. Commercial Union Insurance Company, 2009AP002266 (Nov. 23, 2010), the appeals court ruled that negligent misrepresentation claims are not covered under CGL insurance policies.

The CGL insurance policy covered damages caused by an “occurrence,” where “occurrence” was defined as “an accident including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”

The insurer, OneBeacon Insurance Company (formerly known as Commercial Union Insurance Company), argued that there was nothing “accidental” about the misrepresentations. That is, OneBeacon argued that the archdiocese engaged in “volitional acts.”

The archdiocese argued that it did not intend to harm the plaintiffs, so the occurrences were accidents as defined by the policy. It also argued that the allegations involved “failures to act,” not negligent misrepresentations.

However, the appeals court applied Everson v. Lorenz, 2005 WI 51, 280 Wis. 2d 1, 695 N.W.2d 298, and Stuart v. Weisflog’s Showroom Gallery, Inc., 2008 WI 86, 311 Wis. 2d 492, 753 N.W.2d 448, to conclude that “the trial courts were correct in finding that the archdiocese’s representations constituted volitional acts that are not subject to coverage.”

The court rejected the archdiocese’s argument that Everson, which dealt with negligent misrepresentation in the context of property damage, should not apply to all negligent misrepresentation cases.

Under Everson, the court explained, “whether allegations of negligent misrepresentation constitute occurrences under CGL policies does not focus on the injury itself, but rather on the underlying cause of the injury. … The underlying act that led to the plaintiffs’ injury, therefore, is the misrepresentation that the plaintiffs would be safe in the presence of the priests.”

The court also rejected the archdiocese’s argument under Stuart that the policy covers the harm that resulted because the archdiocese “did not intend or anticipate that the plaintiffs would be harmed,” nor did the archdiocese “intend to induce” the harm that resulted.

“Though the archdiocese may not have anticipated harm to befall the plaintiffs, [Stuart] is clear that the focus in determining whether events are accidental for insurance purposes is not on whether a specific result was accidental, but rather ‘what matters is whether the cause of the damage was accidental.’”

The underlying cause of the plaintiffs’ injuries was the misrepresentations of safety, the appeals court explained, and those constitute acts of volition.

Finally, the court rejected the archdiocese’s “failure to act” argument as irrelevant in determining whether the allegations allowed for coverage.