Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-06-07163/USCOURTS-caDC-06-07163-0/pdf.json

Parties Involved:
Associates for Renewal in Education, Inc.
Appellee
John Doe
Appellant
Essex Insurance Company
Appellee

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 23, 2007 Decided January 4, 2008 

No. 06-7163 

ESSEX INSURANCE COMPANY, 

APPELLEE

v. 

JOHN DOE, A MINOR, THROUGH HIS NEXT FRIEND, BOB DOE, 

APPELLANT

Appeal from the United States District Court 

for the District of Columbia 

(No. 04cv01460) 

Mark A. Packman argued the cause for appellant. With 

him on the briefs was Alyson A. Foster. 

Sean M. Hanifin argued the cause and filed the brief for 

appellee. Carmen R. Kelley entered an appearance for 

appellee. 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 1 of 9
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Before: ROGERS, TATEL and KAVANAUGH, Circuit 

Judges. 

Opinion for the Court filed by Circuit Judge

KAVANAUGH. 

KAVANAUGH, Circuit Judge: This insurance coverage 

case arises out of very disturbing events at a children’s 

residential facility in Washington, D.C., operated by 

Associates for Renewal in Education, Inc., known as A.R.E. 

At age 7, while residing in the A.R.E. facility, John Doe was 

sexually assaulted on four occasions by four different older 

boys who lived at the home. Through his father, Doe filed 

suit against A.R.E. and alleged that A.R.E. had not properly 

supervised the facility. Doe and A.R.E. ultimately settled. As 

part of the settlement, A.R.E. assigned Doe its rights under a 

liability policy issued to A.R.E. by Essex Insurance Company. 

Invoking the federal district court’s diversity jurisdiction, 

Essex filed a declaratory judgment action to determine its 

responsibility under the insurance contract. 

The contract issued by Essex to A.R.E. provides that 

A.R.E.’s annual liability coverage is subject to a “general 

aggregate limit” of $2 million per year and an “each 

occurrence limit” of $1 million. Joint Appendix (“J.A.”) 48. 

A sublimit endorsement to the contract gives A.R.E. liability 

coverage for sexual abuse claims alleging negligent 

supervision; that coverage is subject to an “aggregate limit” of 

$300,000 per year and an “each claim limit” of $100,000. 

J.A. 65. The sublimit endorsement states: “The sublimit of 

liability shown in this endorsement is the most [Essex] will 

pay for all damages including investigation and defense 

because of injury arising out of any one claim for sexual 

abuse and/or misconduct. The aggregate limit stated in this 

endorsement is the most [Essex] will pay for all claims, 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 2 of 9
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including investigation and defense, arising out of sexual 

abuse and/or misconduct in any ‘policy year.’” J.A. 65. 

The contract defines the term “occurrence” to mean “an 

accident,” and it is not disputed that there were four 

occurrences in this case – one occurrence for each time Doe 

was assaulted. See J.A. 76; Tr. of Oral Arg. at 17. But the 

contract does not define the relevant term “claim” for 

purposes of the $100,000 “each claim” limit in the sublimit 

endorsement. The absence of a definition for the term 

“claim” raises the central question in this case: Is there one 

claim, or are there four claims, when a sexual abuse victim 

makes a single demand for compensation from A.R.E. for 

four occurrences? 

Essex argues that Doe has only one “claim” for the four 

occurrences because Doe submitted one demand for 

compensation. Essex contends that it therefore must pay only 

$100,000. Doe, who has been assigned A.R.E.’s rights under 

the liability insurance contract, argues that he has four 

“claims” because he was sexually assaulted on four different 

occasions; he says the four occurrences trigger four claims. 

Doe contends that he is therefore entitled to $300,000, which 

is the policy’s aggregate annual limit for sexual abuse claims 

against A.R.E. 

Essex separately argues that the coverage limit – whether 

$100,000 or $300,000 – must be reduced by the amount Essex 

spent on investigation and defense of Doe’s case against 

A.R.E. Doe disagrees. 

The District Court agreed with Essex on both issues. We 

exercise de novo review of these questions of contract 

interpretation under D.C. law. 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 3 of 9
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I 

Doe’s argument that he has four claims for the four 

occurrences finds support in the admittedly sparse body of 

relevant precedent. For example, the D.C. Court of Appeals 

has interpreted the term “claim” in an insurance contract, 

when not otherwise defined, to mean a “cause of action.” 

Zhou v. Jennifer Mall Rest., Inc., 699 A.2d 348, 353 (D.C. 

1997). A cause of action is a “group of operative facts giving 

rise to one or more bases for suing” – a definition favoring 

Doe because there were four separate tortious incidents in this 

case. BLACK’S LAW DICTIONARY 214 (7th ed. 1999). 

Moreover, some courts have held that separate tortious acts 

give rise to multiple “claims” under an insurance policy. See, 

e.g., Colbert County Hosp. Bd. v. Bellefonte Ins. Co., 725 

F.2d 651, 653-54 (11th Cir. 1984); Shelter Am. Corp. v. Ohio 

Cas. & Ins. Co., 745 P.2d 843, 846 (Utah Ct. App. 1987). By 

contrast, when pressed at oral argument, Essex could not 

identify a single insurance case in which a court interpreted 

the word “claim” to cover multiple torts by several 

individuals over a period of time. See Tr. of Oral Arg. at 16. 

Doe’s argument that he has four claims also finds support 

in the text of the contract. The contract tethers the term 

“claim” to the term “occurrence” and appears to establish a 

one-to-one relationship between (i) an occurrence causing 

injury to a third party and (ii) that third party’s ensuing claim 

against A.R.E. For example, the policy sets a deductible of 

$500 “per claim” and then states that “[t]he deductible 

amount” applies to “all damages sustained by one person, or 

organization, as the result of any one occurrence.” J.A. 59. 

The contract further provides that Essex “may at [its] 

discretion investigate any ‘occurrence’ and settle any claim or 

‘suit’ that may result.” J.A. 67. Additionally, the contract’s 

sublimit endorsement appears to use the phrase “each claim 

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limit” interchangeably with the phrase “each occurrence 

limit,” at least in the context of a single victim.1

 The contract 

language thus appears to establish a direct relationship 

between an occurrence and a claim when there is a single 

injured victim: A sexual abuse claimant has multiple claims 

when he or she suffered injuries caused by multiple 

occurrences, and has one claim when he or she suffered injury 

caused by one occurrence.2 

Essex counters that the term “claim” means the actual 

demand for money by the third-party claimant against A.R.E., 

regardless of how many occurrences the claimant alleges in 

the demand. But even apart from the contract’s linkage of 

claims and occurrences described above, Essex’s 

interpretation is illogical. First of all, it seems highly unlikely 

that a rational insurer or rational insured party would allow 

insurance liability coverage – in a situation where a single 

third party suffers injuries caused by multiple occurrences – 

to vary dramatically based solely on whether the injured third 

party happens to make (i) one summary demand against the 

insured A.R.E. or (ii) multiple demands against the insured 

A.R.E. Moreover, contrary to the logical implication of 

Essex’s argument, in a case with one sexual assault 

occurrence and one victim, A.R.E. obviously could not seek 

coverage from Essex for multiple claims simply because the 

victim sent multiple demand letters to A.R.E. For those 

reasons, we are not persuaded by Essex’s argument that the 

number of claims depends on the number of demand letters 

sent by the victim rather than on the number of occurrences. 

 

1

 The sublimit endorsement for sexual abuse cross-references what 

it refers to as the $1 million “each claim limit” of the general 

policy. J.A. 65. In fact, the general policy has an “each occurrence 

limit,” not an “each claim limit.” J.A. 48. 

2

 If there is more than one victim, then the number of claims may of 

course exceed the number of occurrences. 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 5 of 9
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In resolving this contract interpretation question, we also 

bear in mind that insurers such as Essex are well aware how 

to limit their coverage for sexual abuse claims made against 

an insured. A contract may define negligence with respect to 

multiple instances of sexual abuse as a single occurrence. Or 

a contract for this kind of claim may establish an eachinjured-party limit or an each-perpetrator limit, or both. See 

generally TIG Ins. Co. v. Merryland Childcare & Dev. Ctr., 

Inc., 2007 WL 316571, at *2-3 (W.D. Tenn. 2007); Preferred 

Risk Mut. Ins. Co. v. Watson, 937 S.W.2d 148, 149 (Tex. 

App. 1997). In this case, for example, Essex’s argument 

would be persuasive if its contract with A.R.E. established a 

$100,000 “each-injured-party limit” for coverage of sexual 

abuse claims. But the contract here contains no such limiting 

language.3

 

This contract, read as a whole, unambiguously supports 

Doe’s position that the number of claims for an individual 

sexual abuse victim depends on the number of occurrences. 

Even if the contract here were ambiguous, moreover, Doe still 

would prevail because D.C. law requires that we construe 

such ambiguity against the insurer Essex. See, e.g., Revere 

Copper & Brass Inc. v. Overseas Private Inv. Corp., 628 F.2d 

81, 82-83 (D.C. Cir. 1980); Chase v. State Farm Fire & Cas. 

Co., 780 A.2d 1123, 1127 (D.C. 2001); Travelers Indem. Co. 

of Ill. v. United Food & Commercial Workers Int’l Union, 

770 A.2d 978, 986 (D.C. 2001); HOLMES’S APPLEMAN ON 

INSURANCE, 2D § 6.1, at 134 (1996); see also RESTATEMENT 

(SECOND) OF CONTRACTS § 206 (1981). In sum, we hold that 

 

3

 Essex’s brief has not attempted to construct an argument based on 

the nature of the underlying alleged tort – negligent supervision – in 

order to suggest that there was only one occurrence. Cf. Lee v. 

Interstate Fire & Cas. Co., 86 F.3d 101 (7th Cir. 1996). Rather, 

Essex has argued that the number of occurrences (four) under this 

contract does not necessarily equal the number of claims. 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 6 of 9
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Doe is entitled to receive payment from Essex of up to 

$300,000 – the aggregate annual limit of the policy for sexual 

abuse claims.4

II 

We also must consider a second issue: whether Essex 

may reduce the $300,000 it owes to Doe by the amount it 

spent on investigating and defending Doe’s suit against 

A.R.E. 

The policy states: “The sublimit of liability shown in this 

endorsement is the most we will pay for all damages

including investigation and defense because of injury arising 

out of any one claim for sexual abuse and/or misconduct.” 

J.A. 65 (emphasis added). The policy further provides that 

the “aggregate limit stated in this endorsement is the most we 

will pay for all claims, including investigation and defense, 

arising out of sexual abuse and/or misconduct.” J.A. 65 

(emphasis added). 

Essex contends that the contract allows it to subtract the 

costs of investigating and defending a claim from its coverage 

limits – a so-called defense-within-limits policy. Challenging 

Essex’s interpretation, Doe points to the phrase “pay for all 

damages including investigation and defense” in the contract 

and argues – based entirely on the words “damages including” 

– that the investigation and defense costs referenced here are 

the third-party claimant’s investigation and defense costs 

(which Doe says could be included in the claimant’s 

 

4

 We emphasize that our analysis here is limited to the precise 

language of this contract when read as a whole. We also stress that 

it is undisputed that there were multiple “occurrences” as 

“occurrence” is defined by this contract. Finally, we underscore 

that this case involves only one injured victim. 

USCA Case #06-7163 Document #1090240 Filed: 01/04/2008 Page 7 of 9
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“damages”), not Essex’s investigation and defense costs. But 

Doe’s argument makes little sense in the context of this 

contract: How could the damages paid by A.R.E. to a third 

party who has sued A.R.E. because of sexual abuse ever 

include something known as “defense” costs? In other words, 

what defense costs does the sexual abuse victim incur? Doe 

has no good – or even plausible – answer to this question. 

The defense-within-limits language certainly could have 

been clearer. For example, the contract could have 

substituted the word “and” for “including.” Or the parties 

could have inserted the phrase “including investigation and 

defense” after the phrase “most we will pay.” Either of those 

alternatives would have been more precise. But the fact that 

the language could have been clearer or grammatically 

improved does not mean we can read the phrase “including 

investigation and defense costs” entirely out of the contract – 

as Doe’s position would require, in contravention of blackletter contract principles. See Caglioti v. District Hosp. 

Partners, 933 A.2d 800, 811 (D.C. 2007); 1010 Potomac 

Assocs. v. Grocery Mfrs. of Am., 485 A.2d 199, 205 (D.C. 

1984); RESTATEMENT (SECOND) OF CONTRACTS § 203(a) 

(1981). We thus agree with the District Court that the 

defense-within-limits provision means that Essex may reduce 

its coverage by the amount Essex spent on investigation and 

defense.5 

 

5

 In this case, Essex directly incurred investigation and defense 

costs, as opposed to reimbursing A.R.E. for A.R.E.’s investigation 

and defense costs. Doe has not attempted to argue that 

investigation and defense costs are subtracted only if they were 

reimbursed by Essex to A.R.E. as opposed to incurred by Essex 

directly. 

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* * * 

We affirm in part and reverse in part the judgment of the 

District Court. Doe is entitled to recover from Essex 

$300,000 minus the investigation and defense costs that Essex 

incurred with respect to Doe’s case against A.R.E.6 

So ordered. 

 

6

 Although we do not decide the question, the contract by its terms 

appears to entitle Essex to subtract only the costs it incurred in 

investigating and defending Doe’s case against ARE before that 

case was settled in June 2005. 

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