Larry Nassar is accused of sexually assaulting hundreds of girls and young women while working with USA Gymnastics, leading to his criminal conviction and hundreds of lawsuits that forced the organization into bankruptcy.
Liberty Mutual Underwriters must defend USAG against the allegations of all but 10 of its accusers, but the insurer’s liability may be limited to $250,000, according to a decision released Friday by a panel of the Court of Appeals for the 7th Circuit.
In a 2-1 decision, the appeal panel decided that a wrongful conduct exclusion in the directors and officers policy issued to USAG allows Liberty to deny coverage only for the assaults against the 10 victims for which Nassar was criminally convicted. . But the committee also found that the trial court failed to consider whether a sublimit that caps coverage at $250,000 for third-party employment practices liability coverage applies to one. or all of the remaining claims.
“The bankruptcy court should have considered extrinsic evidence about the significance of this approval, so we are deferring for further proceedings on this issue,” the appeals panel said in the notice.
USAG spokeswoman Jill Geer said the organization was happy with the decision, but declined to comment further. Liberty attorneys did not respond to requests for comment.
Nassar, once an orthopedic surgeon, began working with USAG as a volunteer athletic trainer in 1987. He served as the organization’s national medical coordinator from 1996 to 2004. During this time, Nassar also worked as an assistant professor at Michigan State University and co-authored several scientific papers on gym injuries.
The first allegations of sexual abuse came to light in 2016, when the Indianapolis Star reported on Rachael Joy Denhollander’s accusations. Three other gymnasts came forward in a 60 Minutes interview in 2017.
Michigan State University fired Nassar. Investigators discovered hard drives containing thousands of images of child pornography in his trash.
Prosecutors in Ingham County and Eaton County, Michigan, filed criminal charges. In a plea agreement, Nassar admitted he was guilty of a total of 10 criminal sexual conduct charges. Prosecutors have agreed not to pursue charges for 115 assaults reported to Michigan State Police. Eventually, 265 victims were identified. Nassar was sentenced to up to 175 years in prison.
USA Gymnastics, which selects and trains athletes for the US Olympic team, continues to face lawsuits from hundreds of gymnasts who hold it responsible for allowing the abuse to take place. Additionally, coaches and gym owners have filed lawsuits alleging losses caused by USAG’s handling of the scandal.
The weight of litigation forced USAG into bankruptcy. The organization sued Liberty and six other insurers who issued policies arguing they had a duty to defend it and pay the costs of the investigation. Liberty Mutual’s policy had a limit of $5 million, but also a sub-limit of $250,000 for “Third Party EPL”.
The bankruptcy court ruled that Liberty Mutual had a duty to defend USAG against “athlete lawsuits” and that the sublimit was ambiguous and unenforceable. The US District Court in Indianapolis (where USAG is headquartered) adopted the bankruptcy court’s findings in full.
Liberty appealed, arguing that some of the claims pre-date its “claims made” policy and that it should not cover any sexual assaults due to policy wording that excludes wrongful conduct.
The three judges on the 7th Circuit panel agreed that all claims were filed during the policy period, but they disagreed on the application of the wrongful conduct exclusion.
The majority said the wrongful conduct exclusion in USAG’s D&O policy only applies if it is “ultimately determined that such conduct did in fact occur.” Nassar’s conduct was only tried in 10 cases, while the other charges were dismissed, the majority said.
The majority acknowledged that the policy states that wrongdoing is excluded if it is “in any way connected” to wrongdoing that has been judged, but the operation is so vague that it is ambiguous and needs to be interpreted in favor of the policyholder.
Circuit Judge Michael B Brennan dissented. He said the policy clearly excludes coverage for indictable offences, and there was nothing ambiguous about that exclusion.
Liberty Mutual may be able to limit its coverage even if the 2-1 decision stands. The Appeals Committee remanded the matter to the District Court to consider whether an endorsement in the policy that limits “Third Party EPL” coverage applies.
The policy does not define the term, but EPL refers to liability for employment practices in insurance jargon, according to the opinion. The panel said that while ambiguous terms are always considered in favor of the insured, knowledgeable insureds are expected to understand the insurance contracts they sign. Liberty presented evidence of the meaning of the policy language, but the bankruptcy court and the district court did not consider it. The appeal board said that was a mistake.
“Because more factual inquiries are needed to resolve this matter, this part of the case is remanded to the district court for this to be accomplished,” the opinion reads.
About the photo: Olympic champion Simone Biles of the United States competes on the balance beam in the women’s all-around at the 2016 Olympic Games in Rio de Janeiro. Biles was one of hundreds of female athletes who accused Nassar of sexual assault.
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