IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 98-50311

EVANGELICAL LUTHERAN CHURCH IN AMERICA, (ELCA);

TEXAS-LOUISIANA GULF COAST SYNOD OF THE

EVANGELICAL LUTHERAN CHURCH IN AMERICA

Plaintiffs - Appellees

versus

ATLANTIC MUTUAL INSURANCE COMPANY

Defendant - Appellant

Appeal from the United States District Court

for the Western District of Texas

March 11, 1999

Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

This is a choice-of-law puzzle with a substantive law question

about whether the insurance company defendant has the duty to

defend the plaintiffs in litigation against them. Because we find

that Illinois law applies and imposes a duty to defend, we AFFIRM.

I

This is a suit for declaratory judgment resting on diversity

jurisdiction by Evangelical Lutheran Church in A merica and the

Texas-Louisiana Gulf Coast Synod of the Evangelical Lutheran Church

in America against thei r insurer, Atlantic Mutual Insurance Co.2

The insureds claim, and the district court agreed, that the

insurance company has a duty to defend them with respect to

allegations of negligence in a Texas civil action styled Clark v.

Baker

. The company denied coverage both for the defense of the

underlying action and for any damages that might be received.

The Clark lawsuit alleged that Richard Carl Baker, a minister

whom the ELCA had ordained, sexually assaulted Cindy Cl ark, a

learning disabled adult. The assaults allegedly occurred from 1993

to 1994 at the Brenham State School, an institution for the

mentally handicapped operated by the state in Brenham, Texas. In

March 1997, Clark amended her petition to name the ELCA and the

Synod as defendants. The insureds allegedly were negligent in

training, supervising, placing, and monitoring Chaplain Baker, who

has been indicted for alleged sex ual contact with three mentally

handicapped individuals. Baker was never an agent or employee of

the ELCA or the Synod, but graduated from the Lutheran Theological

Seminary, located in Gettysburg, Pennsylvania, in 1959. He is

listed on the ELCA clergy roster as a retired Lutheran pastor.

Two insurance policies, each including a Comprehensive General

Liability and a Commercial Umbrella Liability component,

potentially apply. The first provided nationwide coverage for the

Evangelical Church, and the second covered both the Synod and

approximately 40 other regional synods. Both policies included a

provi sion agreeing to pay “damages because of ‘bodily injury’ or

‘property damage’ to which this insurance applies,” but the1 Both policies also provided for coverage attributable to “any

negligent act, error and omission of the insured arising out of the

performance of professional services for others i n the insured’s

capacity as a pastoral counselor.” This coverage, however, did not

apply to “[l]icentious, immoral or sexual behavior intended to lead

to or culminating in any sexual act.” Although Atlantic Mutual

emphasizes this provision, it does not apply. Even if Chaplain

Baker was acting “as a pastoral counselor,” the insureds were not,

since Baker was not working for them at the time.

3 policies explicitly require that “[t]he ‘bodily injury’ or

‘property damage’ must be caused by an ‘occurrence.’” An

“occurrence” is “an accident, including conti nuous or repeated

e xposure to substantially the same general conditions.” B oth

policies excluded “‘bodily injury’ or ‘property damage’ expected or

intended from the standpoint of the insured.” 1

The policies were negotiated at E LCA’s headquarters in

Chicago, and delivered through a New York insurance broker, Arthur

J. Gallagher & Co. Upon receipt, Gallagher delivered the policies

to the ELCA in Chi cago. Gallagher billed the policies from New

York, but ELCA pays the premiums from Chicago, and the Synod

apparently pays its premiums from its Houston office.

The plaintiffs’ suit here was originally filed in the Northern

District Court of Illinois and tr ansferred by Atlantic Mutual to

the Western District of Texas, pursuant to 28 U.S.C. § 1404(a).

Atlantic Mutual had filed its own declaratory judgment action, but

that suit was dis missed. After the transfer, Atlantic Mutual

sought summary judgment. In December, 1997, the district court4

rejected this motion and subsequently granted judgment in favor of

the insureds. This appeal followed.

II

Our first task is to determine which state’s substantive law

applied. Because this action was filed in the Northern District of

Illinois and tran sferred under § 1404(a), Illinois choice-of-law

rules apply. S ee Ferens v. John Deere Co.

, 494 U.S. 516 (1 990).

Illinois choice-of-law doctrine in this area is “obscure,” Lee v.

Interstate Fire & Cas. Co. , 86 F.3d 101, 102 (7th Cir. 1996), but

in this case, precedent produces a clear result, the application of

Illinois substantive law.

In Lapham-Hickey Steel Corp. v. Pro tection Mutual Insurance

Co.

, 655 N.E.2d 842 (Ill. 1995), the Illinois Supreme Court

considered an insurance policy delivered in Illinois covering the

subject matter property in Minnesota, as well as property located

in five other states. “[T]o obtain a consistent interpretation of

the policy and to reasonably apply Illinois choice of law

principles,” the court ruled, “Illinois law must govern the

interpretation of this policy.” Id. at 527. The insurance policies

in the instant case covered na tionwide risks, and obtaining a

consistent interpretation of the policy requires a pplication of

Illinois law.

The strongest counterargument relies on Society of Mount

Carmel v. National Ben Franklin Insurance Co.

, 643 N.E.2d 1280

(Ill. App. Ct. 1994). After reciting the various factors relevant2 "[I]nsuranc e contract provisions may be governed by the

location of the subject matter, the place of delivery of the

contract, the domicile of the insured or of the insurer, the place

of the last act to give rise to a valid contract, the place of

performance, or other place bearing a relationship to the general

contr act.” I d. at 1287 (citation omitted). The Illinois Supreme

Court reiterated these factors in Lapham-Hickey

. S ee 655 N.E.2d at

526-27.

5 to choice-of-law analysis in Illinois, 2 the court stat ed that the

“location of the insured risk is given special emphasis.” Id. at

1287. After quoting the R estatement comment that the “location of

the insured risk will be given greater weight than any other single

contact in determining the state of the applicable law provided

that the risk can be located, at least principally in a single

state,” Restatement (Second) of Conflict of Laws § 193 cmt. b, at

611 (1971), the court added: “This is so even where the policy in

question covers multiple risks located in several states, as is the

case here.” 643 N.E.2d at 1287.

Reliance on Mount Carmel is misplaced for two reasons. First,

the risk here arguably cannot “be located . . . principally in a

single state.” The risk here involves the possibility that a

pastor trained in Pennsylvania will cause injury in some other

state. This case is thus distinguishable from M ount Carmel

. While

that case involved risks in multiple states, each of those risks

was discrete and could be identified with a specific state.

Second, M ount Carmel preceded Lapham-Hickey and was decided by a

lower court. Thus, to the extent that they are inconsistent,

Lapham-Hickey controls.6

The appellants also seek refuge in two Seventh Circuit cases

applying Illinois law, Lee and Massachusetts Bay Insurance Co. v.

Vic Koenig Leasing, Inc. , 136 F.3d 1116 (7th Cir. 1998). The Lee

court chose the place of the insured risk rather than the place of

the policy’s delivery because two insurance policies were involved,

one issued in the United Kingdom, the other in Illinois. Thus, to

achieve the Lapham-Hickey goal of consistent interpretation , the

Lee court properly ignored the means the Lapham-Hickey court chose

to arrive at this goal. In this case, by contrast, the L aphamHickey goal is aligned with its means of choosing the law of the

state where the insurance policy was delivered. The M assachusetts

Bay decision did cite S ociety of Mount Carmel and did choose the

law corresponding to the location of the insured risk. In that

case, though, the insured risk was an automob ile leased in

Tennessee, and there was no concern about multi-state coverage.

In sum, under Illinois choice-of-law rules, the place of the

insured risk does not receive special consideration where risks are

natio nwide. This leaves Illinois and New York as possible

candidates for application of substantive law. The Lapham-Hickey

court placed some emphasis on the domicile of the insured, but no

emphasis on the insurer’s domicile, which was not even identified.

See id. at 845 (noting, before concluding, that “Lapham-Hickey is

an Illinois corporation and Protection is licensed to do business

in Illinois”). The law of Illinois, where ELCA was headquartered7

and the i nsurance contract was delivered, is a better candidate

than the law of New York, as counsel conceded at oral argument.

III

The policy pr ovisions we have quoted, and in particular the

definition of “occurrence,” did not arise by accident, and indeed

it was confusion about what is an “accident” that spurred the

definitional changes leading to the current form of the exclusions.

Before 1966, Comprehensive General Liability policies generally

r eferred simply to an “accident,” but continued litigation an d

uncertainty over this term led to the substitution of the word

“occurrence.” See 7A J. A PPLEMAN , I N SURANCE L AW AND P RACTICE § 4492

(1979); see also Queen City Farms, Inc. v. Central Nat’l Ins. Co.

,

827 P.2d 1024, 1038- 39 (Wash. Ct. App. 1994). In 1972, after

complaints that this definition was too restrictive, the definition

of “occurrence” was changed to “an accident, including continuous

or repeated exposure to conditions, which result in bodily injury

or property damage neither expected nor intended from the

standpoint of the insured.” See A PPLEMAN

, supra

. The policies here

essentiall y track this definition, though the “expected nor

intended” phrase is now a separate exclusion rather than part of

the definition itself.

The language of the exclusions, of course, is still vague

enough to allow for generous amounts of litigation. S ee generally

James L. Rigelhaupt, Jr., Annotation, Construction and Application

of Provision of Liabi lity Insurance Policy Expressly Excluding8

Injuries Intended or Expected by Insured

, 31 A.L.R.4th 957 (1981 &

Supp. 1998). The factual situations confronted have been various.

See, e.g.

, Southern Md. Agric. Ass’n v. Bituminous Cas. Corp.

, 539

F. Supp. 1295 (D. Md. 1982) (holding, based on Maryland law, that

the alleged malicious interference with contract did not constitute

an “occurrence”); A dams v. Kent Ins. Co.

, 431 So. 2d 335 (Fla.

App. 1983) (counting damage from a sudden rainstorm as an

“occurrence,” based on a factual finding that t he rain was

unexpected); Pique v. Saia

, 450 So. 2d 654 (La. 1984) (requiring

coverage where the insured precipitated a brawl by swinging at a

police officer); Nielsen v. St. Paul. Cos.

, 583 P.2d 545 (Ore.

1978) (finding no intent to injure and thus no insurer liability in

case involving repossession of property); Gene’s Restaurant, Inc.

v. Nationwide Ins. Co.

, 548 A.2d 246 (Pa. 1988) (refusing coverage

in suit involving the beating of a restaurant patron, on the ground

that the beating was not an accident).

We need not dev elop a general theory for interpreting such

provisions, because the Illinois law is clear. The case applying

Illin ois law that is most on point is U nited States Fidelity &

Guarant y Co. v. Open Sesame Child Care Center , 819 F. Supp. 756

(N.D. I ll. 1993). That case involved almost identical insurance

provisions, and the court concluded that allegations of negligent

hiring fel l within the definition of “occurrence.” This case is

only persuasive authority, but its deductions from Illinois law are

persuasive.9

Under Illino is law, if a complaint potentially supports a

ground for recovery, the insurer must defend the entire complaint.

See, e.g.

, Maryland Cas. Co. v. Peppers

, 355 N.E.2d 24 (Ill. 1976).

More importa ntly, in U SF&G v. Wilkin Insulation Co.

, 578 N.E.2d

926, 932 (Ill. 1991), the Illinois Supreme Court found that

allegedly negligent installation of asbestos-laced products was an

“occurrence” and was not excluded as an “intentional” act. Even

though the installation was intentional, the negligent hiring was

not. S ee also Mutual Serv. Cas. Ins. Co. v. Country Life Ins. Co.

,

859 F.2d 548, 552 (7th Cir. 1988) (“Similar policy language in

other insurance cases has been construed so that intentional torts

are deemed outside the scope of such an ‘occurrence.’”); State Sec.

Ins. Co. v. Globe Auto Recycling Corp.

, 490 N.E.2d 12 ( Ill. App.

Ct. 1986) (requiring insurance compan y to reimburse costs of

defending negligent hiring claim, even though negligence claim was

coupled with uncovered intentional tort claim).

H ere, negligent training was not an intentional tort, a n d

Chaplain Baker’s acts are not the insureds’ intentional acts.

Thus, the insurance policy did not exclude the acts, and Atlantic

Mutual has a duty to defend.

AFFIRMED.