The Roman Catholic Diocese of Rockville Centre v. Arrowood Indemnity Company

Background

The Roman Catholic Diocese of Rockville Centre, New York sued Arrowood Indemnity Company for breach of insurance contracts and a declaration about Arrowood’s duties to defend and indemnify the Diocese in underlying actions alleging child sexual abuse by clergymen in the Diocese. Arrowood’s predecessors insured the Diocese from October 1957 through October 1976. The Diocese tendered approximately 286 Child Victims Act lawsuits to Arrowood and also sought coverage for more than 400 bankruptcy proofs of claim alleging abuse during the policy periods.

The court had previously held that Arrowood had a duty to defend four underlying lawsuits. It also allowed Arrowood to assert counterclaims concerning its alleged lack of duties to defend and indemnify based on coverage exclusions. The court stayed the indemnification issue until the underlying actions were resolved. This opinion addressed only Arrowood’s motion to compel discovery related to the duty to defend and related counterclaims.

Legal Standard

Federal Rule of Civil Procedure 26(b)(1) permits discovery of nonprivileged information relevant to a claim or defense and proportional to the needs of the case. The court emphasized that New York law gives an insurer a broad duty to defend when an underlying complaint suggests a reasonable possibility of coverage. Under the “four corners” rule, the court generally compares the allegations in the underlying complaint with the insurance policy rather than deciding what actually happened in the underlying case. A narrow exception may allow limited outside evidence when it is unrelated to the merits of the underlying action or concerns an undisputed fact.

Expected or Intended Injuries and Known Losses

Arrowood sought broad discovery about when the Diocese learned of allegations of child sexual abuse, complaints and investigations, personnel files, staff training, and reporting procedures. Arrowood argued that this information could show that the Diocese expected or intended the injuries or knew of the losses before the policies took effect.

The court denied Arrowood’s motion to compel these requests. It concluded that the requested information substantially overlapped with disputed issues in the underlying negligence actions, including what the Diocese knew or should have known about alleged abuse and whether it acted negligently. The court also found that requests extending well beyond the 1957–1976 policy period were not relevant to the expected-or-intended or known-loss exclusions. The court did not rule that discovery about these exclusions could never be allowed; it held that the broad discovery sought was not permissible at this stage.

Late Notice

Arrowood sought discovery concerning whether the Diocese timely notified it of abuse occurrences and claims. The court recognized that important legal and factual questions remained unresolved, including whether the Diocese had to notify Arrowood before the Child Victims Act was enacted in 2019 and whether the Diocese could rely on a good-faith belief that older claims were not actionable. The court did not decide those questions on the motion to compel.

The court granted Arrowood’s motion as to Interrogatory No. 19 and Document Request No. 16. The Diocese must identify all claims or complaints involving abuse during the policy period that it reported or tendered to Arrowood before and after the Child Victims Act, or state that it found no such tenders after making good-faith efforts. It must also produce documents concerning notices or tenders to Arrowood from the formation of the Diocese through 2019.

The court also granted the motion as to Interrogatory Nos. 25 and 26, requiring the Diocese to identify people responsible for receiving or evaluating abuse allegations and people responsible for deciding whether and when to report claims to Arrowood. It granted the motion as to Document Request No. 15, requiring production of documents about procedures and decision-making concerning whether claims should be reported to Arrowood.

For Document Request No. 11, the court granted the motion only in part. The Diocese must produce documents created after the policy period concerning previously undisclosed claims or allegations about abuse during the policy period that were later brought to the Diocese or its agents. The court denied Arrowood’s motion as to the other late-notice requests it identified because they were overbroad, disproportionate, or too closely connected to the merits of the underlying actions.

Failure to Cooperate

Arrowood also sought discovery concerning the Diocese’s alleged failure to cooperate with its investigation and defense. The court explained that an insurer asserting this defense must show that it diligently sought cooperation, used reasonably calculated efforts to obtain it, and encountered willful and deliberate obstruction by the insured.

The court concluded that much of Arrowood’s requested discovery improperly sought information about what the Diocese knew during the policy period, an issue central to the underlying cases. It also noted Arrowood’s representation that the cooperation issue was triggered by actual notice to Arrowood, which appeared to have occurred in 2019 unless earlier tenders were shown.

The court granted the motion as to Interrogatory Nos. 28 and 29, but limited them to the period after 2019. These requests concern the Diocese’s processes for retaining, storing, transferring, removing, discarding, or destroying files and whether relevant files were moved or destroyed. The court also granted the motion as to Document Request No. 34, limited to post-2019 documents concerning those document-retention processes. The court expressly did not decide whether the Diocese ultimately had a duty to cooperate with Arrowood while Arrowood was litigating against it.

Independent Reconciliation and Compensation Program Discovery

Arrowood sought discovery about claims settled through the Independent Reconciliation and Compensation Program. The Diocese stated that it was no longer pursuing reimbursement for those payments. The court denied Arrowood’s motion to compel this discovery because the Diocese was no longer seeking coverage for those matters and the discovery was not proportional to the needs of the case.

Disposition

The court held that Arrowood’s motion to compel was GRANTED in part, with the stated limitations, and DENIED with respect to all other discovery requests. Subject to those limitations, the Diocese was ordered to respond to Interrogatory Nos. 19, 25, 26, 28, and 29 and Document Request Nos. 11, 15, 16, and 34. The order did not decide whether Arrowood ultimately must defend or indemnify the underlying claims.