Court Opinion

ID: 4709797
Source: CourtListenerOpinion
Date Created: 2021-08-06 21:03:27.919612+00
Date Added: 2024-06-11T08:06:59.514249
License: Public Domain

In the

    United States Court of Appeals
                  For the Seventh Circuit
                      ____________________

No. 20-3510
THE NETHERLANDS INSURANCE COMPANY and CONSOLIDATED
INSURANCE COMPANY,
                                  Plaintiffs-Appellants,

                                  v.

MACOMB COMMUNITY UNIT SCHOOL DISTRICT NO. 185, ED
FULKERSON, and JOHN RUMLEY,
                               Defendants-Appellees.
                      ____________________

              Appeal from the United States District Court
                  for the Central District of Illinois.
                No. 18-cv-4191 — Colin S. Bruce, Judge.
                      ____________________

      ARGUED MAY 18, 2021 — DECIDED AUGUST 6, 2021
                ____________________

   Before EASTERBROOK, BRENNAN, and SCUDDER, Circuit
Judges.
    EASTERBROOK, Circuit Judge. Two female students brought
claims under state law plus Title IX of the Education Amend-
ments Act of 1972, 20 U.S.C. §§ 1681–88, against the Macomb
School District, Assistant Principal Ed Fulkerson, and Princi-
pal John Rumley (collectively the School District). The
2                                                  No. 20-3510

students alleged that the School District had failed to prevent
and inappropriately responded to sexual misconduct by a
male student. The students’ complaint, ﬁled on February 16,
2018, alleged that the sexual misconduct and the School Dis-
trict’s responses took place during the spring of 2014 and the
fall of 2016. The School District’s insurers received notice of
the lawsuit on February 22, 2018.
    From December 8, 2017, through December 8, 2018, the
School District had two insurance policies: a basic policy from
the Netherlands Insurance Company and an umbrella policy
from Consolidated Insurance Company. The umbrella policy
provides coverage only if the basic policy applies. The basic
policy has two relevant provisions. It covers (a) liability for
sexual misconduct and molestation, and (b) liability for
school leaders’ errors and omissions. After the School District
se_led the students’ suit for $1.5 million, the insurers brought
this suit seeking a declaration of their rights and obligations.
    The School District’s basic policy has a combination of oc-
currence-based and claims-made coverages. Its coverage for
sexual misconduct and related claims is occurrence-based
and applies to misconduct that happened from December 8,
2017, through December 8, 2018. The coverage for school lead-
ers’ errors and omissions is claims-made and applies to claims
made from December 8, 2017, through December 8, 2018. The
misconduct and failed responses occurred before December
8, 2017, and so fall outside the period of the sexual-miscon-
duct coverage. All parties agree that this coverage therefore
does not apply. The School District does not contend that any
insurer is liable for the temporal mismatch of durations,
which cost the School District the beneﬁt of the sexual-mis-
conduct coverage for these events. This leads the School
No. 20-3510                                                              3

District to rely on the errors-and-omissions coverage. Alt-
hough all of the conduct occurred before December 8, 2017,
the School District made its claim to the insurers on February
22, 2018, during the duration of this coverage.
    On the School District’s motion under Fed. R. Civ. P. 12(c)
for judgment on the pleadings, the district court held that the
coverage for errors and omissions applies to the underlying
lawsuit and se_lement. This provision contains a sexual-mis-
conduct exclusion:
   Any actual or alleged sexual misconduct or sexual molestation of
   any person; and any allegations relating thereto that an insured
   negligently employed, investigated, supervised or retained a per-
   son, or based on an alleged practice, custom or policy, including
   but not limited to any allegation that a person’s civil rights have
   been violated.

The judge stated that this exclusion is ambiguous, relying on
the rule in Illinois that courts construe ambiguous language
“liberally in favor of coverage”. Founders Insurance Co. v.
Munoz, 237 Ill. 2d 424, 433 (2010). The court gave two reasons.
First, it held that the provision could be read to exclude only
sexual misconduct by a school employee. Second, it thought
that the exception might not bar coverage for “reactions to” a
student’s sexual misconduct.
    Under Illinois law, if the text of an insurance policy is “rea-
sonably susceptible to more than one meaning, [it is] consid-
ered ambiguous and will be construed strictly against the in-
surer who drafted the policy.” Rich v. Principal Life Insurance
Co., 226 Ill. 2d 359, 371 (2007). But “‘creative possibilities’ sug-
gested by the parties” fall short of genuine ambiguity. Hess v.
Estate of Klamm, 2020 IL 124649 ¶16 (2020) (citation omi_ed).
When deciding what events a policy covers, Illinois reads
4                                                    No. 20-3510

provisions in the context of the entire policy. Founders Insur-
ance, 237 Ill. 2d at 433; Rich, 226 Ill. 2d at 371.
    The insurers contend that the sexual-misconduct exclu-
sion is not ambiguous. We agree. The exclusion precludes
coverage for “[a]ny” sexual misconduct or molestation of
“any person” and related allegations. “Any” means any. Neth-
erlands designed this exclusion so that the basic policy’s er-
rors-and-omissions coverage would mesh with the sexual-
misconduct coverage. The exclusion ensures that the policy as
a whole covers claims related to sexual misconduct under the
sexual-misconduct provision only. Another provision in the
basic policy, for general commercial liability, contains a simi-
lar sexual-misconduct exclusion. These sexual-misconduct
exclusions allow all provisions of the basic policy to ﬁt to-
gether. The problem for the School District arises not from the
language of the exclusion but from the fact that the occur-
rence-based sexual-misconduct coverage does not apply to
the events of the students’ suit.
    The district court’s ﬁrst rationale—that the exclusion is
limited to sexual misconduct commi_ed by employees—does
not reﬂect a reasonable reading of the text. The exclusion does
not limit the potential class of responders. It applies to “[a]ny”
sexual misconduct or molestation of “any person”. The lan-
guage barring related allegations lists some employment-re-
lated allegations that the School District “negligently em-
ployed, investigated, supervised or retained a person”. But
the text is broader. It also includes claims “based on an al-
leged practice, custom or policy, including but not limited to
any allegation that a person’s civil rights have been violated.”
That would exclude even coverage for a claim based directly
on the male student’s misconduct.
No. 20-3510                                                    5

    What’s more, even if the district court were correct that the
sexual-misconduct exclusion bars only coverage for employ-
ees’ actions, the exclusion still applies. How could the School
District be liable at all, except through the acts of its employ-
ees? No one argues that the School District is directly liable
for misconduct by students. The exclusion’s employment-re-
lated language—denying coverage for allegations that the
School District “negligently employed, investigated, super-
vised or retained a person”—reﬂects the Supreme Court’s de-
liberate-indiﬀerence standard under Title IX. A school district
can be liable for discrimination in cases of student-on-student
sexual misconduct under Title IX only if the district has notice
and is deliberately indiﬀerent to the misconduct. Davis v.
Monroe County Board of Education, 526 U.S. 629, 633 (1999);
Gebser v. Lago Vista Independent School District, 524 U.S. 274,
290–91 (1998). School districts become liable only when their
staﬀ does not do enough to catch, stop, or cure known mis-
conduct. Davis, 526 U.S. at 642–43; Gebser, 524 U.S. at 290–91.
(School districts could be liable for employees’ misconduct of
which supervisors knew, but the students’ suit did not allege
that sort of misconduct—and the exclusion would apply to
such an allegation even on the district court’s reading.)
    Liability for violations of Title IX depends on the actions
of the School District’s employees because “a recipient of fed-
eral funds may be liable in damages under Title IX only for its
own misconduct.” Davis, 526 U.S. at 640. If the School District
and students had not se_led the underlying lawsuit, the stu-
dents would have needed to show that employees who had
the authority to address and a_empt to prevent or rectify the
misconduct were deliberately indiﬀerent or that oﬃcial poli-
cies caused the misconduct. Gebser, 524 U.S. at 290–91. See also
Davis, 526 U.S. at 633; Jauquet v. Green Bay Area Catholic
6                                                     No. 20-3510

Education, Inc., 996 F.3d 802, 807–08 (7th Cir. 2021). Because
only the acts of employees could make the School District lia-
ble under Title IX, the exclusion would apply even if the dis-
trict judge were right to read it as limited to employees’ acts
or omissions.
    The district court’s second rationale also misunderstands
how a school system could be liable. “Reactions to” students’
sexual misconduct reﬂect how employees have dealt with (or
failed to deal with) students’ misconduct. Employees’ “reac-
tions to” sexual misconduct are the very acts that could estab-
lish liability for violations of Title IX. By excluding coverage
for “allegations relating” to sexual misconduct, the exclusion
necessarily bars coverage for “reactions to” sexual miscon-
duct.
     It does not ma_er how the School District or the students’
complaint characterizes “reactions to” the student’s miscon-
duct. Illinois courts consider the complaint’s factual allega-
tions rather than “the legal label” that parties use. Lexmark In-
ternational, Inc. v. Transportation Insurance Co., 327 Ill. App. 3d
128, 135 (2001); Steadfast Insurance Co. v. Caremark Rx, Inc., 359
Ill. App. 3d 749, 755–56 (2005); Zurich American Insurance Co.
v. Ocwen Financial Corp., 990 F.3d 1073, 1080 (7th Cir. 2021).
When an exclusion blocks coverage for a class of events, that
exclusion applies no ma_er how the parties recharacterize the
events. Lexmark International, 327 Ill. App. 3d at 135. (And to
repeat: the students’ complaint did not allege that the School
District is directly liable for any student’s sexual misconduct.)
    Consider one consequence of the district court’s contrary
view. If we interpret the exclusion as inapplicable to “reac-
tions to” sexual misconduct, a school district’s failure to pay
damages for a student’s sexual misconduct would concern its
No. 20-3510                                                   7

“reactions to” that misconduct—rather than the misconduct
itself—and fall outside of the exclusion. That cannot be so, be-
cause it would leave the exclusion with no eﬀect at all. Courts
don’t read contractual language to be pointless.
   When the School District purchased insurance, it bought a
basic policy covering sexual misconduct occurring from De-
cember 8, 2017, through December 8, 2018. The School District
concedes that its occurrence-based coverage for sexual mis-
conduct cannot apply because the student-on-student sexual
misconduct, and the School District’s response to it, occurred
outside of the policy period. The provision that the School
District contends applies, the coverage for school leaders’ er-
rors and omissions, contains a sexual-misconduct exclusion.
That exclusion ensures that the basic policy’s coverage for er-
rors and omissions and coverage for sexual misconduct ﬁt to-
gether as parts of a cohesive insurance package. The School
District cannot avoid that provision’s sexual-misconduct ex-
clusion or the structure of the basic policy. To put this diﬀer-
ently, the judiciary will not read the exclusion to the errors-
and-omissions coverage to turn the sexual-misconduct clause
from occurrence coverage to claims-made coverage.
                                                     REVERSED