The AIG Private Client Group that writes high-valued homeowners and excess policies for the well-to-do, including well-known celebrities, wrote a homeowners policy and excess policy for William H & Camille Cosby of Shelburne Falls, Massachusetts for policy year 2014. Based in Massachusetts for many years, Mr. Cosby is a famous entertainer and the former star of the ever-so-wholesome “Cosby Show” that ran from 1984 to 1992. Forbes Magazine estimates Mr. Cosby with a personal net worth of approximately $350 million.
Most likely, the primary policy garnered a good premium for insuring Mr. Cosby’s various properties in and around the country, including his 21- acre estate in Shelburne Falls. Notably, the Group also probably foresaw little problem in also issuing Mr. Cosby an excess policy with a $35 million liability limit for a $29,429.00 premium.
That initial assessment by the insurer may have changed, however, after a November 8, 2016 decision by the United States District Court for Massachusetts regarding a coverage suit brought by the insurer issuing the two policies, AIG Property Casualty Company, against William H. Cosby, Jr. and the nine named women suing Mr. Cosby for defamation.
Policies issued with specific exclusions for sexual misconduct
Previous allegations of Mr. Cosby’s inappropriate, if not illegal, sexual conduct with women have had some public airing as early as the year 2004. In that year, Mr. Cosby was sued by a woman for drugging and fondling her. That case, however, ended with a confidential settlement in 2006.
Leaving aside the issue of Mr. Cosby’s sexual proclivities and resulting actions, AIG underwriters dealing with Mr. Cosby’s homeowner and excess policy most likely believed that the policies’ liability limits had no risk from suits involving allegations of sexual misconduct.
In fact, the homeowner’s policy includes a specific exclusion that stated that it does not provide coverage for:
liability, defense costs or any other cost or expense for . . . personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment; . . . or (c) sexual, physical or mental abuse.
Similarly, the excess policy, with its $35 million liability limit, contained an exclusion stating that it does not provide coverage for:
liability, defense costs or any other cost or expense . . . arising out of any actual, alleged or threatened: a. Sexual misconduct, molestation or harassment . . . or © Sexual, physical or mental abuse.
Ordinarily, an exclusion that bars coverage for any “alleged” wrongful act provides strong protection to the insurer against defending or indemnifying an insured for the conduct specified exclusion.
Mr. Cosby’s denials of sexual misconduct lead to multiple defamation suits
In October 2014, Hannibal Burress, a stand-up comic and former writer for Saturday Night Live, gave a performance that included a bit lampooning Bill Cosby’s moralizing about the life styles of young black men. Mr. Burress made a point in the monologue retorting to an imaginary Bill Cosby, by saying, “Yeah, but you raped women, Bill Cosby, so that kind of brings you down a couple notches.”
When an incredulous audience responded to his comments, Mr. Burress encouraged them to “Google ‘Bill Cosby rape.'” That performance, video recorded by an audience member, was soon posted to a local magazine’s website, going “viral” shortly thereafter.
As a result of the Burress video and the media firestorm that followed, a number of women came forward claiming that Mr. Cosby had drugged and sexually assaulted them. The allegations spanned the full period of Mr. Cosby’s career from 1965 until 2008. By December 31, 2015, 57 women had gone public with their charges. After these declarations by the alleged victims, Mr. Cosby, was arraigned in a suburb of Philadelphia, at age 77, on a charge of indecent assault, a second degree felony, against the women who had brought the 2006 civil suit. He was later released after posting a $1 million bond.
During 2014, as the accusations against Mr. Cosby accumulated, Mr. Cosby continued to deny the truth of the allegations. His denials, however, led to a number of the women involved to file suit. As a result, three separate defamation suits were lodged against Mr. Cosby in the United States District Court for Massachusetts.
The three suits alleged that many years ago, Mr. Cosby sexually assaulted them upon which they subsequently disclosed those assaults to the public. The plaintiffs all further alleged that in 2014, Mr. Cosby, directly or through spokespeople, falsely and publicly denied the accusations, thereby defaming them or placing them in a false light and intentionally inflicting emotional distress.
AIG incurs considerable defense costs and seeks a ruling that the sexual misconduct exclusions in Mr. Cosby’s policy apply
All of the defamation suits against Mr. Cosby were duly reported to AIG. In response, AIG agreed to defend Mr. Cosby, under a full reservation of rights with AIG also claiming to recover its defense costs from Mr. Cosby if it were ultimately determined that AIG had no coverage.
While defending Mr. Cosby in the defamation suits and finding that “the cost of this defense is considerable,” AIG filed its own lawsuit against Mr. Cosby. In its lawsuit, AIG sought a declaration that it had no duty to defend or indemnify him under either the homeowners or excess policy in relation to the three defamation lawsuits brought by his accusers.
AIG’s contention before the court was that the insurance policies provide no coverage as to the defamation cases because of exclusions for sexual misconduct contained in each policy.
Court rules that AIG must defend Mr. Cosby as the sexual misconduct exclusion is ambiguous
Mr. Cosby filed a motion to dismiss AIG’s action arguing that the sexual misconduct exclusions did not apply to the claims in the defamation cases or, at least, are ambiguous, in which case the policy language must be construed against the drafter (AIG) and in favor of coverage.
AIG opposed Mr. Cosby’s motion to dismiss, and filed its own summary judgment motion arguing that the sexual misconduct exclusions clearly bar coverage.
On November 8, 2016, however, the District Court ruled that, as written the sexual misconduct exclusions in the AIG policy did not bar coverage for defamation. In explaining its reasoning, the court argued that the injuries the plaintiffs suffered, as outlined in the underlying defamation actions, originated from Mr. Cosby’s statements, “which have only an attenuated factual connection with sexual misconduct.”
The court noted, “Sexual misconduct may be the subject matter of [Mr. Cosby’s] statements, but [Mr. Cosby’s] statements, and not his alleged sexual misconduct, directly caused the injury for which [the plaintiffs in the underlying actions] now seek relief.”
The court also noted that the AIG excess policy had a “Limited Charitable Board of Directors and Trustees Liability” (LCBD) endorsement that had its own separate exclusion that barred coverage for:
damage “arising out of, or in any way involving, directly or indirectly, any alleged sexual misconduct.” ((Emphasis in original).
The District Court pointed out that if AIG had wished to exclude a claim ‘in any way involving’ sexual misconduct,” it could have included the language used in the LCBD endorsement.
The District Court concluded that, as applied to these facts, the sexual misconduct exclusions are at least ambiguous.
The court found critical that the sources of the underlying plaintiffs’ injuries were the allegedly defamatory statements issued by Mr. Cosby or his agents, not the sexual misconduct itself.
The court pointed out that the underlying plaintiffs alleged:
- Mr. Cosby sexually assaulted them during incidents spanning from the 1960s to the 1990s;
- they publicly disclosed the allegations as early as 2005 (but mostly in 2014); and, finally,
- Mr. Cosby publicly denied the allegations in 2014, thereby branding them as liars and causing them injury.
Accordingly, the court found that, arguably, the defamation claims are sufficiently independent of the sexual misconduct described in the exclusions so that the exclusions do not apply.
AIG must defend, but the question of whether AIG indemnifies must wait
Although the District Court resolved AIG’s obligation to defend, the question of whether AIG would have the duty to indemnify Mr. Cosby for any settlements or judgments remained open in the court’s opinion.
Under Massachusetts law, an insurer’s duty to defend is both independent of and broader than its duty to indemnify. As a result, the court ordered AIG and Mr. Cosby to “confer and file a joint status report within thirty days of this order stating their positions, in light of this ruling, regarding the appropriate procedure for resolving the duty to indemnify, including whether and how they wish to proceed with this action.”