Allstate Insurance Company v. Vitality Physicians Group Practice, P.C.

Background

Allstate issued Vitality Physicians Group Practice, P.C. two policies: a Businessowners Policy and a Commercial Umbrella Liability Policy. The policies generally covered bodily injuries caused by an occurrence and required Allstate to defend covered lawsuits. They also contained exclusions for expected or intended injuries, professional services, and abuse or molestation. Employees were insured only for acts within the scope of their employment or while performing duties related to the policyholder’s business.

Several women sued Sean Cavanaugh and Vitality-related defendants in New York state court. The underlying complaints alleged that Cavanaugh, a physician’s assistant employed by Vitality, engaged in unwanted sexual touching, sexual advances, or sexually explicit communications while the women were Vitality patients. Some complaints also asserted professional negligence, medical malpractice, negligent hiring, negligent supervision, negligent investigation, negligent retention, and responsibility for Cavanaugh’s conduct. Allstate sought a declaration that it had no duty to defend or indemnify Cavanaugh, Vitality, or Dr. Mitchell Cabisudo under either policy. Cavanaugh and the Vitality defendants sought coverage through counterclaims. Patricia Murphy was voluntarily dismissed from this federal action without prejudice, and default judgments were entered against Sarah Perlik and Jessalyn Suo.

Motion and standard

Allstate moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court explained that this procedure is appropriate when the material facts are undisputed and the remaining issues can be resolved from the pleadings and incorporated documents. Because Allstate was seeking judgment, the court considered the allegations that were not denied and treated the allegations in the underlying complaints as true for deciding insurance coverage. That approach did not decide whether the alleged misconduct actually occurred.

The parties did not dispute that New York law governed the policies. Under that law, the insured first must show that the policy provides coverage. The insurer then must establish that an exclusion applies. An insurer generally must defend when an underlying complaint creates a reasonable possibility of coverage, but it need not defend when there is no possible factual or legal basis for indemnification or when the allegations fall entirely within an exclusion.

Cavanaugh

The court held that Cavanaugh was not an insured for the alleged sexual acts because those acts were outside the scope of his employment. Although the alleged conduct occurred in connection with patients and, in some instances, on Vitality premises, the court concluded that sexual touching and related misconduct were not commonly performed by a psychiatric practitioner, were departures from ordinary job duties, served no legitimate medical purpose, and did not further Vitality’s business.

The court further held that, even if Cavanaugh were treated as an insured, the alleged sexual acts were not an occurrence under the policies. The policies defined an occurrence as an accident, and the court found that intentional sexual misconduct was not unexpected or unforeseen from Cavanaugh’s perspective. The court also applied the expected-or-intended-injury exclusion, concluding as a matter of law that the alleged nonconsensual sexual misconduct necessarily involved intended harm.

The court separately ruled that any remaining claims against Cavanaugh based on negligence, malpractice, or failure to meet the standard of care for a physician’s assistant were barred by the professional-services exclusion. The policies expressly excluded injuries caused by medical treatment, advice, instruction, or other professional services. The court therefore concluded that Allstate had no duty to defend or indemnify Cavanaugh under either policy.

Vitality and Dr. Cabisudo

Allstate did not dispute that Vitality and Dr. Cabisudo were insureds. Nor did it dispute that Cavanaugh’s alleged acts could constitute occurrences from their perspective, because the complaints did not allege that Vitality or Dr. Cabisudo intended the harm. The court instead examined the exclusions.

The court held that the professional-services exclusion barred claims alleging that Vitality or Dr. Cabisudo failed to meet medical or professional standards. Those claims arose from medical practice or services requiring medical knowledge and training, and the policies did not provide medical-malpractice coverage.

The court reached a different conclusion about the professional-services exclusion and negligent hiring, investigation, supervision, and retention. It held that ordinary employer activities such as hiring, vetting, supervising, and firing did not require the specialized professional expertise contemplated by that exclusion. But it held that the abuse-or-molestation exclusion barred coverage for those claims. The court found that the terms abuse and molestation had an unambiguous ordinary meaning broad enough to include the alleged nonconsensual sexual conduct and sexual harassment. Because the underlying complaints alleged hands-on sexual misconduct involving patients in Vitality’s care, custody, or control, the exclusion eliminated any possible basis for indemnification and therefore eliminated the duty to defend.

The court also rejected coverage based on respondeat superior, a theory that makes an employer potentially responsible for an employee’s conduct. It held that Cavanaugh was not acting within the scope of his employment; alternatively, any covered theory would involve professional services subject to the exclusion. Thus, vicarious liability did not create a separate basis for coverage.

Disposition

Judge Seibel granted Allstate’s motion for judgment on the pleadings. The court entered judgment for Allstate, directed the Clerk of Court to terminate the pending motion, and closed the case. The ruling determined that Allstate had no duty under the policies to defend or indemnify Cavanaugh, Vitality, or Dr. Cabisudo for the underlying claims described in the opinion.