Appeals Court Finds AIG Must Defend Coverage Denial for LDS Abuse Settlement

Tenth Circuit Reverses Summary Judgment for Insurers in Church Abuse Case

A federal appeals court has given the Church of Jesus Christ of Latter-day Saints another chance to force AIG and Chubb units to cover the costs of settling a child sexual abuse lawsuit. The Tenth Circuit reversed a lower court's grant of summary judgment, holding that the policy language around what counts as an 'occurrence' was ambiguous and should be interpreted in favor of the policyholder.

The dispute stems from a West Virginia lawsuit over abuse committed by Michael Jensen, the son of prominent local church volunteers, who molested several children while babysitting for church families between 2007 and 2011. The church settled with the victims during trial and then sought coverage from its liability insurers, National Union Fire Insurance Company of Pittsburgh (an AIG unit) and Ace Property and Casualty Insurance (a Chubb unit). Both insurers refused to pay defense and settlement costs.

The insurers argued that each instance of abuse was a separate occurrence under the policies, meaning that no single settlement exceeded the per-occurrence retained limit. The district court agreed. But the appeals panel, led by Circuit Judge Gregory A. Phillips, found that the church's competing interpretation—that the church's ongoing failure to protect children created one continuous occurrence—was equally plausible, making the policy terms ambiguous and thus requiring a trial on the coverage dispute.

Why the 'Occurrence' Definition Became the Decisive Factor

The Policy Language That Made the Difference

The key phrase in National Union's policy defined an occurrence as 'an accident, including … repeated exposure to substantially the same general harmful conditions.' The church argued that the 'general harmful conditions' were the dangerous environment it allegedly allowed to persist by failing to take precautions against Jensen's abuse. Judge Phillips wrote that this reading was 'plausible,' which under Utah law triggers the rule that ambiguities are resolved against the insurer.

A Split in Courts and an Inconsistent Stance from Ace

Judge Phillips noted that courts across the country are split on how to treat repeated sexual abuse under similar policy language—some counting each act as a separate occurrence, others treating the entire pattern as one. The panel also highlighted that in a different sexual abuse case, defendant Ace itself took the opposite position, arguing that dozens of incidents stemming from an institutional coverup should count as a single occurrence. That inconsistency, the court suggested, only reinforced the ambiguity of the policy wording.

Implications for the Insurance Industry

The ruling does not guarantee coverage for the church; it simply sends the case back for further proceedings. But it puts a spotlight on a recurring problem for insurers and policyholders: occurrence-based liability policies written before the surge of institutional abuse claims rarely contemplated a clear method for aggregating multiple acts of sexual abuse. The Tenth Circuit's decision will likely be cited by policyholders in other jurisdictions, especially where state law requires ambiguities to be construed in the insured's favor. For AIG and Chubb, the immediate cost is continued litigation and the reputational sting of having their denial overturned in a case involving child abuse.

What This Means for Policyholders and Insurers Facing Similar Disputes

• Organizations with legacy occurrence-based liability policies that may face abuse claims should review whether their policy definitions of 'occurrence' include language about 'repeated exposure' or 'general harmful conditions.' The Tenth Circuit's reasoning suggests that a continuous failure to protect could be a single occurrence, potentially avoiding multiple large deductibles or self-insured retentions.
• Risk managers at religious institutions, schools, and nonprofits that carry such coverage should consider this ruling when evaluating the availability of insurance for historical abuse settlements—it may change the negotiating leverage with carriers that have denied coverage on multiple-occurrence grounds.
• Insurers writing occurrence-based policies for institutions should examine whether their current language creates ambiguity in aggregation scenarios and, if necessary, add clear definitions to avoid rulings that favor policyholders. The Ace example of arguing both sides in different cases underscores the need for consistent underwriting and claims positions.
• Litigation funders and law firms representing abuse victims can expect this precedent to affect settlement dynamics: as policyholders gain stronger arguments for coverage, more rapid resolution of claims becomes possible, since insurance money may become available without protracted coverage fights.