Sexual Misconduct Sublimit Applies to Negligence Claims Against Employer Where Claims Would Not Exist “But For” Employee’s Sexual Misconduct

The Eastern District of Pennsylvania, applying Pennsylvania law, has held that a healthcare professional liability policy’s sexual abuse/misconduct sublimit applied to claims of negligent hiring and supervision against the insured that would not exist “but for” the sexual misconduct of its employee. Certain Underwriters at Lloyd’s London v. Peerstar, LLC, 2023 WL 144285 (E.D. Pa. Jan. 9, 2023).

A counselor employed by the insured peer support service was criminally charged with numerous counts of rape, sexual assault and related offenses after one of the young adults he was in charge of counseling reported the counselor’s sexual misconduct. After the counselor entered a guilty plea in the criminal case, the victim sued the insured peer support service, asserting claims for negligent hiring and supervision, negligent performance of an undertaking to render services, and employer responsibility for employee actions in connection with the former counselor’s sexual misconduct. 

The insurer agreed to defend the insured peer support service under a reservation of rights and filed a coverage action seeking a declaration that the sexual abuse/misconduct sublimit, applicable to claims “alleging sexual misconduct, sexual abuse, physical abuse, or child abuse” arising from the insured’s “counseling services,” applied. While the policy had a $1 million aggregate limit for professional liability claims, the sublimit for sexual abuse/misconduct claims was $100,000. The insured filed a counterclaim, seeking a declaration that the sublimit did not apply. 

The court granted the insurer’s motion for judgment on the pleadings in the coverage litigation. The insured argued that the sublimit did not apply because the underlying claims sounded in negligence. However, the court did not find any provision in the policy that supported finding that the sexual abuse/ misconduct sublimit did not apply to negligence claims. The court reasoned that, “but for” the counselor’s sexual misconduct, the victim would not have sued the insured peer support service. 

The insured also argued that the sexual abuse/misconduct sublimit provided “extra coverage, on top of” the coverage that applied to negligence claims because the endorsement was labeled as a “Coverage Enhancement.” The court disagreed, holding that the insured’s proffered interpretation ignored the plain language of the policy providing that the sublimit is part of, and not in addition to, the total coverage limit.