The City of New York v. Philadelphia Indemnity Insurance Company

Background

The City, acting through the Administration of Children’s Services, had an agreement with Seaman’s Society for the Children and Families to provide preventive child-welfare services. That agreement required Seaman’s Society to obtain insurance. Seaman’s Society purchased policies from Philadelphia Indemnity Insurance Company.

The relevant policy was in effect from December 1, 2013, through December 1, 2014. It provided commercial general liability coverage for bodily-injury claims and listed the City and its officials and employees as additional insureds. The policy also contained an abuse-or-molestation exclusion that applied to injuries arising from abuse or molestation while the person was in an insured’s care, custody, or control, as well as certain negligent employment, investigation, supervision, reporting, or retention.

In July 2014, the City’s child-welfare agency began investigating alleged abuse of Thaiya Princetta Spruill-Smith. The agency referred the child to Seaman’s Society for preventive services, and a joint visit by the agency and a Seaman’s Society case planner occurred on October 22. The child died on November 14, 2014.

The underlying lawsuit named the City, the City’s child-welfare agency, the New York City Police Department, and Detective James Tillman. It alleged claims including negligent supervision, negligent investigation, negligent hiring, training, supervision and retention, wrongful death, and claims concerning the arrest and prosecution of the child’s father. Seaman’s Society was not named as a defendant.

The City asked Philadelphia to defend the underlying lawsuit in September 2018. Philadelphia denied coverage, citing the abuse-or-molestation exclusion in a 2017–2018 policy. The City was an additional insured under the 2013–2014 policy, not the 2017–2018 policy. Philadelphia did not issue a further disclaimer before the City filed this action. In its answer nearly seven months later, Philadelphia first relied on the abuse-or-molestation exclusion in the 2013–2014 policy and on a professional-liability exclusion.

Parties’ Arguments

The City sought summary judgment, which is a decision without a trial when no important facts are genuinely disputed. It argued that the 2013–2014 policy required Philadelphia to defend, that Philadelphia waived the exclusions by giving late and insufficiently specific notice, and that the record did not establish that the child was in the care, custody, or control of an insured.

Philadelphia also sought summary judgment. It argued that the commercial general liability coverage did not cover the wrongful-arrest and detention claims, that the remaining allegations were not caused by acts or omissions of Seaman’s Society, and that the policy’s abuse-or-molestation and professional-liability exclusions barred coverage.

Court’s Analysis

The court applied New York law. Under that law, an insurer’s duty to defend is broader than its duty to pay a judgment. The insurer must defend when the allegations or facts known to it create a reasonable possibility of coverage. If any claim against the insured arguably arises from covered events, the insurer must defend the entire action.

The court concluded that the underlying lawsuit alleged bodily injury resulting in the child’s death. It rejected Philadelphia’s argument that coverage was unavailable because the complaint did not specifically identify Seaman’s Society or its acts and omissions. The court reasoned that Seaman’s Society had been engaged to provide preventive services and that the allegations of failures to protect the child created a reasonable possibility that Seaman’s Society could be found partly responsible. The court therefore found a duty to defend unless a valid exclusion applied.

The court then considered Philadelphia’s notice of disclaimer. New York law requires an insurer to give notice of the specific grounds for denying coverage as soon as reasonably possible. Philadelphia’s September 2018 disclaimer cited the abuse-or-molestation exclusion in the 2017–2018 policy, rather than the narrower exclusion in the 2013–2014 policy. The court found that the two exclusions were not the same because the 2013–2014 exclusion included the care, custody, or control limitation.

Philadelphia later relied on the 2013–2014 abuse-or-molestation exclusion and the professional-liability exclusion in its answer, nearly seven months after the City requested coverage. Philadelphia offered no explanation for that delay. The court held that the delay was unreasonable as a matter of law and waived Philadelphia’s ability to rely on those exclusions.

Because at least the wrongful-death claim arguably involved covered events, the court held that Philadelphia had to defend the entire underlying action, including the claims involving the New York City Police Department.

Disposition

The court granted the City’s motion for summary judgment and denied Philadelphia’s motion for summary judgment. It concluded that Philadelphia had a duty to defend the City in the underlying action. The court directed the parties to file a joint status report by October 1, 2020, addressing how they wished to proceed with the remainder of the case.