LAUSD Sues Insurers for $40 Million in Molestation Cases

LOS ANGELES (CN) — Los Angeles Unified School District has sued seven insurance companies for at least $40 million for refusing to provide coverage of claims that a third-grade teacher molested students for years.

Paul Chapel is serving a 25-year sentence for molesting 13 students at Telfair Elementary School, where he taught from 1998 until he was fired in April 2011.

The school district has been hit with claims or lawsuits from parents of 21 students and already has paid $40 million in 19 settlements and judgments. None of its insurers have reimbursed any of the claims, paid for litigation defense or even investigated the matter, the district says in its 132-page bad-faith lawsuit.

“The insurers wrongfully abandoned the school district, forcing it to defend itself and utilize its own much-needed resources to fund its own defense of covered or at least potentially covered claims against it and clearly covered settlements of those claims,” according to the complaint in Superior Court.

The lawsuit lists 80 causes of action against defendants AIU Insurance, Allied World National Assurance, Endurance American Specialty Insurance, Everest National Insurance, Insurance Company of the State of Pennsylvania, Lexington Insurance and North American Specialty Insurance.

Endurance is named a second time as successor in interest to Traders and Pacific Insurance, and Allied is successor to Newmarket Underwriters Insurance. Two more companies are mentioned but as defendants because they are insolvent.

The companies insured the district during different years, with some providing primary coverage and others providing excess coverage.

Spokespersons for Allied and AIG, the parent company of AIU and others, did not respond to inquiries about the lawsuit. A representative for Everest could not be reached.

According to the district’s lawsuit, however, Everest has argued that it has no duty to cover the claims involving Chapel because they all fall below the district’s “retained limit,” which is comparable to the deductible in a home or auto policy.

Under most of the polices described in the lawsuit, whenever there is an “occurrence” covered by the insurance, such as a personal injury claim, the school district is responsible for the first $3 million of defense costs and payments to claimants. The insurer must pay damages and defense costs above that amount, up to policy limits, which usually total another $22 million.

According to policy language quoted in the district’s April 6 lawsuit, the policies all offered broad coverage for personal and bodily injury liability. At least one policy specifically said it covered “all claims arising from continuous, related or repeated occurrences of either sexual abuse or sexual molestation.”

The dispute appears to center on what counts as an “occurrence.” Everest at one point told the district that the various students’ allegations against it and Chapel “are so disparate that they cannot be aggregated into a single occurrence.”

But the district argues that parents and students are suing it for one thing: “All liability against and imposed upon the school district results from the alleged negligent hiring, retention, and supervision of Chapel that is the subject of the underlying Telfair litigation — a single occurrence for purposes of determining applicability of the policies.”

In its complaint, the district appears willing to fall on its sword — so long as there’s only one sword.

All the lawsuits against the district say it negligently hired Chapel “after a criminal trial against Chapel for sexually abusing a neighbor child ended in a hung jury.” Although previously suspended, he “was reactivated as a teacher and assigned to teach third grade at Telfair Elementary School, where multiple complaints regarding Chapel then went unheeded,” the new complaint states.

Everest should have known there was only one occurrence, the district claims. The company had reports dating from February 2012 of “allegations that ‘Mr. Chapel kissed everyone in the class a lot’ and that the student claimants all viewed other students being subjected to exactly the same abuse by Chapel.”

The Chapel matter is not the first time L.A. Unified has been in trouble over molestation by teachers. The school district paid more than $200 million in claims from 2012 through 2016 for abuse by another third-grade teacher, Mark Berndt, at Miramonte Elementary School.

It also brought a $200 million bad-faith lawsuit in September 2015 against more than 20 of its insurers for not providing coverage for that litigation. The district’s lawsuit was stayed while Berndt’s criminal case was under way; it is still in early stages.

Sean Andrade with Andrade Gonzalez and David Steuber with Jones Day represent the district in both cases. Andrade referred a call about the litigation to the school district.

The district said in a statement that the seven insurers “have deprived the district of its ability to use money in the classroom by their failure to live up to their obligation to provide insurance for these incidences. We think this is unacceptable.”

It seeks declaratory judgment and punitive damages for breach of contract and tortious breach of the implied covenant of good faith and fair dealing.

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