The Appeals Court has decided a case involving the duty to defend a lawsuit alleging sexual abuse under a Commercial General Liability (CGL) policy issued by National Casualty Ins. Co. (National) and a homeowner policy issued by Safety Ins. Co. (Safety).
Perhaps, the most remarkable point about the Appeals Court’s decision is not the result it reached but how it reached that result.
The coverage suits against National and Safety arose from a sexual assault lawsuit brought by a ballerina, who had studied at the International Ballet Academy of Norwell (ballet academy) with Cosmir Marculetiu (Mr. Maculetiu), the owner of the ballet academy and a ballet teacher of some renown.
The alleged sexual abuse occurred in Romania in 2014, while both attended a ballet competition. Mr. Marculetiu encouraged the ballerina to attend the competition in which he participated as a judge, to “further her career.” During the four days of the competition, the ballerina claimed that he repeatedly sexually assaulted her.
In 2015, the ballerina sued the ballet academy, and Mr. Marculetiu alleging sexual abuse during her trip to Romania. After receiving the ballerina’s complaint, Mr. Marculetiu sought defense coverage claiming the ballet academy’s CGL carrier, National, and his homeowner carrier, Safety, had a legal duty to defend him in the ballerina’s suit.
After both insurers denied his request for a legal defense, Mr. Marculetiu filed a declaratory judgment in Superior Court asking the Court to rule that one or more of the ten counts in the ballerina’s lawsuit stated a possible coverage claim that required one or both insurers to defend him on all counts.
When the Superior Court accepted the insurers’ arguments and dismissed his declaratory judgment, Mr. Marculetiu appealed to the Appeals Court.
Appeals Court issues order adding coverage defenses insurers did not raise
Instead of scheduling the appeal for oral arguments after receiving the briefs from Mr. Marculetiu, National, and Safety, the Appeals Court issued an unusual order. It directed the parties to provide supplemental briefing on two issues that neither insurer had raised or argued.
The order stated:
The panel sua sponte [on its own] invites supplemental briefing with respect to two issues:
1) Whether the plaintiff [Mr. Marculetiu] is an “insured party” under the comprehensive general liability policy issued by National Casualty Ins. Co. (National) to the International Ballet Academy of Norwell with respect to the claims brought in the underlying tort action.
2) Whether the claims in the underlying tort action fall within the business pursuits exclusion included in the homeowner’s policy issued by Safety Ins. Co. to Cosmin Marculetiu.
After receiving the supplemental briefs from the parties and hearing oral arguments, the judges issued their decision.
The decision rejected all the arguments that National and Safety presented in their briefs filed before the Court requested additional briefing on the two coverage issues that it raised on its own. However, on the supplementary issues that the judges had raised “sua sponte,” they ruled against Mr. Marculetiu.
On the first supplementary question, the Court found Mr. Marculetiu had no coverage under National’s CGL because his alleged actions did not involve matters:
- “within the scope of [his] employment furthering the interests of the employer [the ballet academy]” nor;
- “while performing duties related to the conduct of [the ballet academy’s] business.”
On Safety’s policy, they found that Mr. Marculetiu’s alleged acts occurred out of the country on a work-related trip and any resulting injuries arose out of or in connection with his business pursuits. Thus, under the standard business pursuits homeowner exclusion, he had no coverage for the ballerina’s lawsuit.
Facts alleged in the ballerina’s civil complaint against Mr. Marculetiu
As stated by the Appeals Court, the ballerina first met Mr. Marculetiu in August of 2013 when she attended a dance class at the ballet academy’s Burlington studio. The ballerina alleged that Mr. Marculetiu was impressed with her dancing skills and wanted her to dance under his tutelage and perform in various productions with which he was associated. She began attending classes at the ballet academy, during which—she alleges—Mr. Marculetiu sometimes touched her in a manner that made her uncomfortable. Together with her new partner, the ballerina danced in the Nutcracker Suite performances that the ballet academy produced. The ballerina alleges that Mr. Marculetiu used his authority position to gain her “trust and confidence.”
According to the ballerina, Mr. Marculetiu convinced the ballerina to compete in the “World Ballet Competition” scheduled for three days in March 2014, in Sibiu Romania, a medieval Transylvanian city. Mr. Marculetiu, originally from Romania, but who had been in the United States since 2002, co-founded the event and served as one of its judges. He allegedly told the ballerina that he would introduce her to many important people at the event. Her attending the event would boost her career by “land[ing] her dancing contracts all over the country and world.”
According to her, once they were in Romania, Marculetiu entered her hotel room with a key he had taken when checking her into the hotel, professed his love for her, “then forcibly removed her clothes and pushed her onto the bed, where he sexually assaulted her.” Over the next several days, she alleges, he “repeatedly raped and sexually assaulted her” in her room.
According to the ballerina, after four days of such assaults, she told Mr. Marculetiu that she did not want to have sex with him and had pretended to be in love with him only because she was scared of what he might do to her, including potentially not letting her return to the United States.
After the competition ended, she was able to leave Romania alone and return to the United States.
The ballerina’s damage suit against Mr. Marculetiu
In 2015, the ballerina filed a ten-count civil complaint against Mr. Marculetiu and the ballet academy.
The ten counts against Mr. Marculetiu and the ballet academy alleged:
- Assault and battery.
- Indecent assault and battery.
- Assault with intent to rape.
- Drugging for sexual intercourse.
- Intentional infliction of emotional distress.
- False imprisonment.
- Breach of fiduciary duty; and,
- Loss of consortium.
The complaint also had two counts against the ballet academy alone. The first count alleged the ballet academy’s legal liability for Mr. Marculetiu’s actions based on respondeat superior, and the second alleged the ballet academy’s negligent supervision and retention of Mr. Marculetiu as an employee.
Agency Checklists has not identified the ballerina as a matter of choice. However, the details of the ballerina’s charges and her story are readily available on the internet. Since filing her complaint in 2015 against Mr. Marculetiu, she has become a public advocate against sexual assault. She has given interviews and told her story to numerous media outlets. She also started a nonprofit ballet company for aiding the recovery of victims of sexual violence and trauma.
The ballet academy’s CGL policy with National
The ballet academy purchased a CGL policy from National. While the ballet academy was the named insured, employees of the ballet academy were also insureds, “but only for acts within the scope of their employment by [the ballet academy] or while performing duties related to the conduct of [the ballet academy’s] business.”
The CGL policy had “Coverage A” applying to bodily injury claims caused by an occurrence, with “occurrence” defined as “an accident.” The policy excluded injuries “expected or intended from the standpoint of the insured.”
The “coverage territory” under the policy included not only the United States, but “[a]ll other parts of the world if the injury or damage arises out of. .. activities of a person whose home is in [the United States], but is away for a short time on [the insured’s] business. .. .”
The policy also provided “personal and advertising injury” coverage (‘personal injury’), which included false imprisonment claims. However, the personal injury coverage excluded any intentional or criminal acts committed by an insured with knowledge that the act would inflict ‘personal injury.’
National’s separate exclusions for sexual abuse
National’s CGL policy also included a separate sexual abuse endorsement providing that the policy’s coverage did not apply to:
any claim, ‘suit’ or cause of action, including defense of same, for any person who actively participates in any act of sexual misconduct, sexual molestation, or physical or mental abuse of any person.”
This endorsement stated the sexual abuse exclusion applied “regardless of the legal form any claim may take by way of negligence, breach of contract, or assault.” However, the endorsement became an issue of contention over the exclusion applying to a Massachusetts claim because the endorsement’s title identified the endorsement, in capital letters, as:
SEXUAL ABUSE EXCLUSION–ILLINOIS
Safety Insurance’s homeowner’s policy with coverage for false imprisonment
Personally, Mr. Marculetiu had a homeowner’s policy issued by Safety.
Coverage E of the homeowner policy covered Mr. Marculetiu for personal liability claims brought by third parties “for damages because of ‘bodily injury’. .. caused by an ‘occurrence.” The policy also provided coverage for ‘personal injury’ claims. This coverage provided defense and indemnity of claims alleging false imprisonment, malicious prosecution, wrongful eviction, slander, libel, and privacy invasion.
However, the policy excluded bodily injury for intentional acts causing injures that were “expected or intended by the ‘insured.” The policy also had the standard “business pursuits exclusion” excluding any bodily injury claims “[a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’“ Finally, the policy had an exclusion for claims “[a]rising out of sexual molestation, corporal punishment or physical or mental abuse.”
Mr. Marculetiu’s declaratory judgment suit against National and Safety
In 2016, after being denied any defense coverage by National and Safety, Mr. Marculetiu filed a declaratory judgment action against both insurers.
He alleged that both insurers had a duty to defend the ballerina’s action against him.
Mr. Marculetiu did not dispute some counts of the ballerina’s complaint against alleging rape or intentional sexual assaults had no coverage. However, he argued that the counts alleging breach of fiduciary duty, false imprisonment, and negligence stated a covered claim.
In demanding full defense coverage based on the possibly covered counts, Mr. Marculetiu relied on the Massachusetts rule that if an insurer has potential coverage for at least one count in a multicount complaint, the insurer must defend all the counts, without regard to coverage.
In response to Mr. Marculetiu’s suit, National and Safety filed motions to dismiss.
Judge finds intentional acts exclusion bars coverage under National’s CGL
The Superior Court judge hearing National’s motion to dismiss ruled initially on National’s main argument that the policy’s sexual abuse exclusion applied against the insurer. The judge agreed with Mr. Marculetiu that the use of endorsement titled “Sexual Abuse Exclusion–Illinois” was ambiguous regarding whether the exclusion applied to all claims or only Illinois claims.
Still, this judge ruled in National’s favor on other grounds. The judge concluded that most of the counts:
“alleged intentional conduct (for example, false imprisonment) or criminal conduct (for example rape, drugging someone for the purpose of having sex, assault, and battery)” that were excluded by “clear policy language.”
The judge noted that the remaining counts alleging negligence and breach of fiduciary duty named both the ballet academy and Mr. Marculetiu as defendants, but she ruled that they:
“[were] directed to the ballet academy. .. and not to [Mr. Marculetiu] himself.”
This Superior Court decision did not address the question the Appeals Court later raised on its own whether the allegations of the ballerina’s complaint about Mr. Marculetiu fell within the CGL policy’s terms defining the covered acts of an executive officer, director, or employee of the ballet company.
A second Superior Court judge find Safety’s policy provides Mr. Marculetiu no coverage
In August of 2017, a different Superior Court judge (second judge) allowed Safety’s motion to dismiss
This judge ruled that the ballerina’s complaint alleged intentional sexual misconduct and no coverage would lie because the alleged injuries were not caused by an “accident” that constituted an “occurrence” under the policy or because the policy excluded coverage for any injuries that Mr. Marculetiu “expected or intended” by his alleged actions.
Also, on Mr. Marculetiu’s claim that the counts in the complaint alleging negligence, breach of fiduciary duty, and false imprisonment, either individually jointly or individually triggered Safety’s duty to defend, the judge ruled:
- The negligence count was “more properly construed as an [excluded] intentional tort.”
- The breach of a fiduciary duty count provided no coverage because “it was Mr. Marculetiu’s alleged intentional conduct that breached that duty,” if this duty existed.
- The false imprisonment count was a claim “inseparable from the sexual assault allegations” because this count “relate[d] directly to the allegation that Mr. Marculetiu held [the ballerina] down while assaulting her.”
- The judge separately ruled that “even assuming [the false imprisonment count is] separate from the intentional torts and [is] potentially covered under the personal liability section of the policy, [it] would be specifically excluded as ‘injuri[ies] caused by a violation of a penal law or ordinance committed by or with the knowledge or consent of an “insured.”
This second judge did not address any question of whether the policy’s business pursuits exclusion applied.
The Appeals Court first looks to the ‘mere possibility’ of coverage that will require the insurers to defend Mr. Marculetiu
Mr. Marculetiu appealed the dismissals of his coverage claims against National and Safety to the Appeals Court.
The Court summed up its duty by stating, “the question we face is whether each motion judge correctly determined that the respective insurer had no duty to defend Mr. Marculetiu as a matter of law.”
In answering that question, the judges started with the principles that each insurers’ duty to defend was broader than its duty to indemnify and that to obtain defense coverage under one or both policies, Mr. Marculetiu only had to show the mere “possibility” of coverage under one of the counts in the ballerina’s complaint.
The Court’s analysis of whether there was a possibility of coverage relied on two legal principles:
- “The duty to defend is determined based on the facts alleged in the [underlying] complaint, and on facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint.”
- “An insured’s denial of the underlying allegations has no bearing on whether a duty to defend exists because coverage turns on the nature of those allegations, not on whether they are true.”
The appellate judges first find error in the Superior Court rulings in favor of National
In the Superior Court, National prevailed because the judge hearing National’s motion to dismiss ruled that neither the breach of fiduciary duty nor the false imprisonment count triggered National’s duty to defend.
In the Appeals Court, the appellate court judges hearing the appeal disagreed with the Superior Court on both of these counts
The judges first concluded that the breach of fiduciary duty count “roughly sketched” a claim against Mr. Marculetiu that absent any contravening condition would almost certainly trigger National’s duty to defend.
In this breach of fiduciary duty count, the ballerina had alleged that Mr. Marculetiu (and the ballet academy) owed her, as “a ballet student,” a fiduciary duty because they “were in a far superior position of knowledge, authority, control, and power over [her], and given the circumstances she was placed in, [she] was unable to protect herself alone against harm and abuses of trust.”
The judges found that these allegations, when properly interpreted, stated a claim for sexual harassment against both Mr. Marculetiu and the ballet academy. Because the Superior Court judge ruled that this breach of fiduciary duty effectively applied only to the ballet academy, and not Mr. Marculetiu, the Appeals Court held this decision was erroneous.
The Superior Court had also ruled that the false imprisonment count did not trigger coverage. The judge found this count stated excluded injuries caused by Mr. Marculetiu’s “intentional” act and thus “expected and intended” from Mr. Marculetiu’s viewpoint.
Again, the Appeals Court found this ruling to be in error. The judges noted:
- The ballet academy had purchased personal liability coverage that expressly included coverage for “false imprisonment,” which provides, under the accepted legal definition of false imprisonment, coverage for an intentional tort; and,
- Under the terms of the false imprisonment coverage, the exclusion for “expected or intended” conduct did not apply.
The other arguments that National made in support of the Superior Court decision, aside from its response to the Appeals Court’s supplementary question, fared no better.
In addition to its arguments supporting the Superior Court decision, which the Appeals Court rejected, National also argued Mr. Marculetiu had no possibility of coverage because any injuries that the ballerina allegedly suffered from Mr. Marculetiu’s actions could not be considered “accidental” as a matter of law.
This argument gained no traction with the Appeals Court. The judges noted that under Massachusetts insurance law, the issue was not whether Mr. Marculetiu intended the alleged actions that caused such injuries, but instead whether he specifically intended to cause the injuries themselves. Thus, the commission of an intentional tort did not necessarily preclude the resulting injuries from being considered “accidental” for purposes of assessing insurance coverage.
To prove that the sexual assault injuries Mr. Marculetiu allegedly inflicted on the ballerina were intentional acts and, thus, not accidental, National argued precedent from two Supreme Judicial Court decisions. These decisions stated that some sexual molestations established a specific intent to injure as a matter law that barred insurance coverage. However, the Appeals Court refused to extend these decisions to apply to Mr. Marculetiu’s claim for coverage because they only related to sexual molestation of minor children. Instead, the judges ruled:
We do not interpret those cases, as National would have it, as establishing a sweeping rule that an insured who engaged in some form of volitional “sexual misconduct” with another adult necessarily must have intended to injure that person.
In sum, we are unpersuaded by National’s argument that the nature of the ballerina’s breach of fiduciary duty claim precluded coverage as a matter of law. For the same reason, National cannot show that the harm from such a claim necessarily was excluded as “expected or intended” by Mr. Marculetiu.
Court rule that the CGL’s sexual abuse exclusion is unenforceable
Before the Appeals Court ruled on its own question, National’s final argument was that the CGL exclusion entitled “Sexual Abuse Exclusion–Illinois” applied outside of Illinois. National asserted that the reference to Illinois “merely reflects that the Illinois version of the endorsement was included in the policy.”
National pointed out that the ballet academy obtained its liability coverage through its membership in an Illinois-based sports association. That association purchased a master policy in Illinois through which its members could obtain individual coverage. Per National, the reference in the endorsement’s title to Illinois merely reflected the master policy’s origination.
National also argued that the endorsement’s title, reflecting the master policy’s locus in Illinois, did not affect its operative language. The text of the exclusion did not state any limitation to Illinois-based claims. Instead, National posited that the exclusion barred “any” claim based on sexual misconduct from coverage under its CGL policy issued to the ballet academy.
The Court agreed that interpreting the word “any” in the endorsement, as applying to claims arising both within and without Illinois, as National argued, did not offend any rule of legal logic. However, the judges noted that the exclusion, as written by National, had an equally logical interpretation by reading it as only precluding coverage for “any” sexual misconduct claim arising in Illinois.
Based on the exclusion having two reasonably possible meanings, the judges applied the legal rule that construes any ambiguities in favor of the insured, stating:
We agree…that the provision is ambiguous about whether the exclusion applies outside of Illinois, and that–in accordance with black letter insurance law–the ambiguity must be read in favor of the insured.
Safety’s arguments to affirm the reasoning of its Superior Court decision also fail
The reasons the Superior Court gave in ruling in favor of Safety and against Mr. Marculetiu also did not satisfy the Appeals Court.
The appellate judges disagreed with the second Superior Court judge’s reasoning on why Safety had no duty to defend Mr. Marculetiu under his homeowner’s policy.
The judges found that as they had previously stated in ruling against National’s arguments, the ballerina’s claim for breach of fiduciary duty was “not excluded from coverage simply because it is based on volitional conduct.”
Likewise, the Appeals Court judges found that the Superior Court judge’s ruling that Safety had no duty to defend the ballerina’s false imprisonment claim was incorrect. The second judge had found the false imprisonment claim had no coverage because the count was based solely on Mr. Marculetiu’s allegedly holding down the ballerina during the sexual assaults. That narrow reading of the ballerina’s complaint, the Appeals Court found, improperly limited the reach of the ballerina’s complaint, which, the judges found, “sketche[d] a more broadly based claim.”
The Appeals Court’s answers its supplementary question about National’s policy denying Mr. Marculetiu coverage
After having found that all the arguments of National and Safety to uphold the Superior Court decisions in their favor were inadequate, the Appeals Court judges addressed the two questions that they had posed to the parties on their own.
A paraphrased version of the Court’s first question asked;
Whether Mr. Marculetiu was an “insured party” under the ballet company’s CGL with National with respect to the claims brought in the ballerina’s action?
In answering this question, the judges noted that, “Despite the threshold nature of this issue, National focused on other issues, and the first judge did not address it” and that “National initially did not press the issue whether Marculetiu was an insured party.”
Mr. Marculetiu argued to the Appeals Court that it should follow an established rule of appellate practice and deem Mr. Marculetiu’s status as an insured waived because National had failed to dispute the issue.
However, the judges denied this argument asserting that the law allowed the Appeals Court to “affirm a judgment on any grounds fairly raised by the record [in the case before it].”
The judges then pointed out that it was the ballet academy, not Mr. Marculetiu, that purchased the CGL policy, and under the policy’s terms, his coverage, as an employee only extended to actions:
- “within the scope of [his] employment by [the ballet academy]” or
- “[taken] while performing duties related to the conduct of [the ballet academy’s] business.”
The judges found that the ballerina’s allegations about the actions Mr. Marculetiu took in Romania “cannot fairly be characterized as serving any of the ballet academy’s interests.” Instead, the judges found that the alleged actions “self-evidently” served Mr. Marculetiu’s interests.
Thus, the judges concluded Mr. Marculetiu’s alleged actions involving the ballerina did not fall within the scope of his employment by the ballet academy.
Mr. Marculetiu did argue that as a ballet academy employee, he would have coverage beyond those actions “taken within the scope of his employment,” but also for actions taken “while performing duties related to the conduct of [the ballet academy’s] business.”
In the same vein, Mr. Marculetiu also argued that he had coverage, while in Romania, as a “volunteer worker” covered as an insured under the ballet company’s CGL to the extent he was “performing duties related to the conduct of [the ballet academy’s] business.”
Mr. Marculetiu asserted that his trip to Romania had a relation to the conduct of the ballet academy’s business but that also while he was in Romania, he effectively served as “the ballet academy’s volunteer ‘goodwill’ ambassador.”
The judges, however, rejected both distinctions that Mr. Marculetiu tried to make about his Romanian trip involving him as performing duties related to the conduct of [the ballet academy’s] business.” They ruled:
Simply put, Mr. Marculetiu’s engaging in any of the alleged misconduct at issue here cannot reasonably be said to have been done while “performing duties related to” the ballet academy’s business. Therefore, we conclude that National had no duty to defend Mr. Marculetiu in his capacity as the ballet academy’s employee (or “volunteer worker”).
The judges answer their second question about Safety’s business pursuits exclusion
A paraphrased version of the Appeals Court’s unsolicited question, involving Safety’s homeowner policy asked:
Whether the claims in the ballerina’s complaint fall within the business pursuits exclusion in Mr. Marculetiu’s homeowner’s policy with Safety Insurance?
The judges’ decision recited that Safety’s business pursuits exclusion bars all liability for “[i]njury arising out of or in connection with a ‘business’ engaged in by the ‘insured.” Citing to a prior decision construing the scope of the business practices exclusion, the Court had previously ruled that “[t]he terms ‘arising out of’ and ‘in connection with’ are not to be construed narrowly but are read expansively in insurance contracts.”
Here, the Court stated there was no dispute that any injuries suffered by the ballerina from Mr. Marculetiu’s alleged acts occurred out of the country on a work-related trip. Based on that circumstance, the judges found that regardless of whether Mr. Marculetiu’s alleged actions were motivated by personal or business reasons, any resulting injuries arose out of or in connection with Mr. Marculetiu’s business pursuits, and thus the exclusion applied.
The Appeals Court’s final decision
The final order of the opinion stated:
Conclusion. Because we conclude that neither insurer had a duty to defend Mr. Marculetiu with respect to the underlying action, we affirm the judgment.
Mr. Marculetiu seeks further appellate review by the Supreme Judicial Court
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Mr. Marculetiu has pending an application for further appellate review before the Supreme Judicial Court. The parties have briefed the application and are awaiting a decision by that Court on the application.
Agency Checklists will keep its readers posted.
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of his legal career, Owen has argued a number of cases in the Massachusetts Supreme Judicial Court and has helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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