In Powers v. Certain Underwriters at Lloyd’s London, Case No.: 2:23-cv-01472-GMN-EJY (D. Nev. 8/26/2024), plaintiff Powers sued her apartment complex and its security company APG after she was sexually assaulted and raped by a third party while walking to her apartment. APG tendered the suit to its professional liability insurer Hiscox which denied a defense based upon a sexual misconduct exclusion. APG initially defended itself but ran out of money and a $20M default judgment was entered against it. Plaintiff was assigned APG’s rights against Hiscox and she filed suit against Hiscox for breach of contract and bad faith. The federal trial court granted plaintiff’s motion for summary judgment on the breach of duty to defend claim. Applying Nevada law with guidance from California law, the court found the sexual misconduct exclusion to be ambiguous in two ways. The exclusion applied to claims:
based upon or arising out of any actual, alleged, or threatened abuse, molestation, harassment, mistreatment, or maltreatment of a sexual nature, including the negligent employment, investigation, supervision, training, or retention of a person who commits such conduct, or the failure to report such conduct to the proper authorities.
The court first addressed the “including” clause, noting that it is limited to acts of an employee of the insured and does not apply to acts of third parties. The court applies a narrow construction of “including” to mean an example of what precedes it. Here, because the example is limited to acts of an employee of the insured, the exclusion is limited to acts of employee of the insured. In other words, had Hiscox not included the “including” phrase, the exclusion probably would have applied here. The court then addressed the exclusion’s phrase “abuse, molestation, harassment, mistreatment, or maltreatment of a sexual nature.” The court notes that the exclusion “does not mention sexual assault and rape” and that many of the terms the exclusion does use pertain only to children under Nevada law, concluding that a reasonable narrow construction is that the exclusion does not apply to the sexual assault and rape of an adult. The court emphasizes that Nevada law requires an insurer to use exclusionary language that is clear and explicit, which Hiscox did not do here. With Hiscox’s liability determined, the case will proceed on damages only.