Chicago Insurance Company v. Archdiocese of St. Louis: Interpreting Liability Under Indemnification Clauses in Light of First Amendment Religious Protections

Jody A. Hanson
58 St. Louis U. L. J. Online 57 | PDF

Introduction

            Chicago Insurance Company (“CIC”) refused to indemnify the settlement amount for a wrongful death claim that the Roman Catholic Archdiocese of St. Louis (the “Archdiocese”) paid to a litigant.[1] CIC sought a declaration that its policy did not cover the underlying litigation and then moved for summary judgment.[2] The district court found that the Archdiocese could not be held “legally liable” under Missouri Supreme Court precedent because the wrongful death claim in the underlying complaint alleged a form of negligence against a religious organization.[3] Since the Archdiocese was not “legally liable,” it failed to establish the defined “loss” outlined in the CIC insurance policy.[4] Therefore, the district court concluded that CIC’s policy did not provide coverage and granted summary judgment for CIC.[5] The Eight Circuit affirmed.[6]

I. History

A.         Gibson v. Brewer, Controlling Missouri Case Law

An integral case to the Chicago Insurance Co. v. Archdiocese of St. Louis opinion was the Missouri Supreme Court case Gibson v. Brewer.[7] In Gibson, a family brought a lawsuit with several claims against both an individual priest and The Catholic Diocese of Kansas City—St. Joseph (the “Diocese”).[8] Of relevance to this case summary are the negligence claims against the Diocese addressed by the Missouri Supreme Court. The negligence claims against the Diocese on appeal were: (1) negligent hiring/ordination/retention of clergy,[9] (2) negligent failure to supervise clergy,[10] (3) negligent infliction of emotional distress,[11] and (4) several independent negligence claims against the Diocese.[12] The Gibson court relied on principles of the First Amendment in deciding each of the negligence claims.[13]

For the negligent hiring claim, the court held that if neutral principles of law can be applied without determining questions of “religious doctrine, polity, and practice,” then a court may impose liability.[14] However, questions of “hiring, ordaining, and retaining clergy . . . necessarily involve interpretation of religious doctrine, policy, and administration.”[15] And, “such excessive entanglement between church and state has the effect of inhibiting religion, in violation of the First Amendment.”[16] The court similarly addressed the second and third claims finding that both offended the First Amendment.[17]

The final negligence claims addressed in Gibson were the several independent negligence claims against the Diocese which included: (1) failing to have a policy to prevent sexual abuse of minors; (2) concealing unlawful sexual acts and abuse by failing to educate and accurately inform the public; (3) ignoring and failing to investigate complaints; (4) trying to silence claims and prevent members and the public from discovering priests accused of sexual misconduct; and (5) failing to evaluate the propensity of priests to engage in improper sexual conduct.[18]

The court outlined the basic elements of a negligence claim: the plaintiff must show that (1) the defendant had a duty to the plaintiff; (2) the defendant failed to perform that duty; and (3) the breach was the proximate cause of the injury.[19] It then acknowledged: “whether negligence exists in a particular situation depends on whether or not a reasonably prudent person would have anticipated danger and provided against it.”[20] The court held in this case, in order to determine how a “reasonably prudent Diocese” would act, a court would have to “excessively entangle itself in religious doctrine, policy, and administration” in violation of the First Amendment.[21]

In conclusion, the Gibson court affirmed dismissal on all counts against the Diocese.[22]

B.         Background Facts of Chicago Insurance Co. v. Archdiocese of St. Louis

On June 10, 2003, Allen Klump, father of Christopher Klump, commenced several claims against the Archdiocese.[23] The claims were premised on the theory that a priest employed by the Archdiocese sexually molested Christopher, eventually leading to his suicide.[24]

The Archdiocese moved to dismiss for failure to state a claim and succeeded on all but three claims.[25] Of the three claims that remained viable against the Archdiocese, Count I (the “Wrongful Death Claim”) alleged “the Archdiocese inappropriately, recklessly, and or intentionally placed Christopher in a knowingly dangerous environment which . . . caused Christopher emotional and psychological harm and directly caused or contributed to Christopher’s death.”[26] The other two claims were intentional conduct claims, and not relevant to this analysis.[27]

The parties entered into a settlement that released the Archdiocese from any future liability associated with the alleged misconduct.[28] The Archdiocese paid Allen Klump a settlement amount and then turned to its insurers for indemnification.[29]

The Archdiocese held excess liability insurance policies with Certain Underwriters at Lloyd’s London and the London Companies (“Lloyd’s”) as a primary excess carrier.[30] CIC was the secondary excess carrier.[31] The CIC policy explicitly incorporated the terms of the Lloyd’s policy but added additional language.[32] Specifically, the CIC policy promised to indemnify the Archdiocese for any enumerated amount of loss.[33] The policy defined the term “loss” as “the sums paid as damages in settlement of a claim or in satisfaction of a judgment for which the insured is legally liable.”[34]

II. Analysis

A.         Court’s Analysis

The first legal matter the court addressed in Chicago Insurance Co. v. Archdiocese of St. Louis was that Missouri law applied in the diversity case.[35] Therefore, as Missouri Supreme Court precedent, the Gibson opinion applied.[36] Outlining the holdings in Gibson, the court stated “[o]ur task on this appeal is to determine how Gibson impacts the present coverage dispute in light of the specific policy language” of the CIC indemnification clause.[37]

Moving to the language of the policy, the court addressed the definition of “legally liable.”[38] The court stated, “although the policy does not define the term ‘legally liable,’ it is generally understood that the term ‘legally liable,’ as used in a policy of insurance, means a liability such as a court of competent jurisdiction will recognize and enforce between parties litigant.”[39] The court reasoned that in a practical sense the term serves to limit the insuring clause; a common requirement is that the insured be legally liable for the third party’s claim before there is such a “loss” that the insurer is obligated to pay.[40] Turning to Missouri case law, the court recognized general principles to recover under a pure indemnity policy: the burden is on the insured to show that he was legally liable to the injured claimant, and the amount of settlement and demands are reasonable.[41]

Turning to the Archdiocese’s arguments, the court recognized that all of its arguments stemmed from one common claim: the district court erred by requiring the Archdiocese to establish actual liability to trigger indemnity coverage when Missouri law only required potential liability.[42] However, this differentiation proved to be of little importance. The court quickly handled the differentiation by stating “even if” potential liability standard should be used, the Archdiocese was still unable to show that it even faced potential liability in the underlying action—the Wrongful Death Claim.[43]

Without deciding which standard actually applied,[44] the court turned to defining the potential liability standard. However, Missouri Courts having not dealt with coverage issues similar to the circumstances of this case,[45] [ZM5] the court turned to other jurisdictions for guidance.[46] The court looked to a Second Circuit case that stated a party need only show that potential liability, not actual liability, existed on the facts known to the insured, and that this culminated in “a settlement in an amount reasonable in view of the size of possible recovery and degree of probability of claimant’s success against the insured.”[47] Pairing this was another decision in which the court stated “under this standard, if an insured settles an underlying claim prior to verdict, it must show that it settled an otherwise covered loss in reasonable anticipation of liability.”[48]

Having established the potential liability standard, the court then returned to the Gibson standard to decide if the courts could determine whether or not the Archdiocese met the potential liability requirement.[49] The court focused on the negligence counts of the Gibson opinion, and particularly the last count, which included several individual negligence claims.[50] Of importance to the court was that the Missouri Supreme Court stated, “whether negligence exists in a particular situation depends on whether or not a reasonably prudent person would have anticipated danger and provided against it. In order to determine how a ‘reasonably prudent Diocese’ would act, a court would have to excessively entangle itself in religious doctrine, policy, and administration.”[51] The court then drew inferences that because allegations of recklessness in a wrongful death claim were strikingly similar and interlinked to negligence claims[52] that the Gibson rule “logically extends to the allegations” in this claim.[53]

Due to Gibson’s application of the First Amendment, the Archdiocese was unable to show that settlement “was in reasonable anticipation of liability.”[54] This is because a court could not decide the Wrongful Death Claim without excessively entangling itself in religious doctrine, policy, and administration.[55] Thus, the court held the Archdiocese did not “affirmatively establish that it was ‘legally liable’—potentially or otherwise—for the conduct alleged in the wrongful death claim.”[56] The court concluded the Archdiocese was not entitled to indemnity coverage under CIC’s policy, affirming the judgment of the district court.[57]

B.    Author’s Analysis

This author is inclined to agree with the manner in which the Eight Circuit handled this decision. As recognized by the court, there was no precedent addressing this specific fact pattern.[58] Therefore, the court had to not only rely on other circuits for direction, but also find a way to apply the broader Missouri standards laid down by Gibson on religious indemnification insurance. The court was careful when approaching the issue of “actual” or “potential” liability. It made clear that the question of which standard applied was “a question we need not decide.”[59] Furthermore, the court only applied the “potential liability standard” simply to prove that “even if we applied the standard the Archdiocese advocates,” which was the potential liability standard, the Archdiocese’s claims still failed.[60] Here, the court used the dicta of potential liability to hammer in the main purpose of this opinion—to rule that the Gibson standard of negligence applied more broadly to other religious indemnity claims as well.[61]

This author believes that applying the Gibson standard to other claims is generally a good idea. The courts must strive to remain as disentangled from religious doctrine and policy as possible, and applying the Gibson standard to this case did just that. Moreover, insurance companies cannot be a “safety net” for religious organizations to hide behind in cases dealing with sexual misconduct. By extending standards such as Gibson to more claims besides negligence, religious organizations will be limited in the recovery sought from insurance policies. This may promote further transparency within their organizations and foster better oversight and internal regulation. Furthermore, lawsuits arising out of sexual misconduct may take years to surface, and it is burdensome to require insurance providers to underwrite incidents that may have occurred several years before their policies were in place. This is likely why inclusion of such indemnity clauses found in the insurance policy arose in the first place.

Conclusion

Chicago Insurance Co. v. Archdiocese of St. Louis is a warning to religious organizations, insurance policy holders, and litigants alike, that in Missouri one must remember the underlying liability rules at stake. Here, that is the Gibson ruling, which stands for First Amendment separation of church and state. Specifically, a court will not make certain determinations of liability if such determination requires it to “excessively entangle itself in religious doctrine, policy, and administration.” Any inquiry into “reasonableness” of a religious entity appears to be the exact type of “excessive entanglement” that Missouri courts will continue to avoid.

Jody A. Hanson*


[1] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1198 (8th Cir. 2014).

[2] Id.

[3] Id. at 1199.

[4] Id.

[5] Id.

[6] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1198 (8th Cir. 2014).

[7] Gibson v. Brewer, 952 S.W.2d 239, 239 (Mo. 1997).

[8] Id. at 243.

[9] Id. at 246–47.

[10] Id. at 247–48.

[11] Id. at 248–49.

[12] Gibson v. Brewer, 952 S.W.2d 239, 249–50 (Mo. 1997).

[13] Id. at 246.

[14] Id.

[15] Id. at 246–47.

[16] Id. at 247.

[17] Gibson v. Brewer, 952 S.W.2d 239, 249 (Mo. 1997).

[18] Id. at 249.

[19] Id. at 250.

[20] Id.

[21] Id.

[22] Gibson v. Brewer, 952 S.W.2d 239, 250 (Mo. 1997).

[23] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1198 (8th Cir. 2014).

[24] Id.

[25] Id.

[26] Id. (original quotations omitted).

[27] Id.

[28] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1198 (8th Cir. 2014).

[29] Id.

[30] Id.

[31] Id.

[32] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1198 (8th Cir. 2014). The Lloyd’s Policy agreed to “indemnify the Assured for all sums which the Assured shall be obligated to pay by reason of the liability imposed upon the Assured by law or assumed by the Named Assured under contract or agreement . . . on account of personal injuries . . . arising out of any occurrence.” Id.

[33] Chi. Ins. Co., 740 F.3d at 1198.

[34] Id.

[35] Id. at 1199.

[36] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1199 (8th Cir. 2014).

[37] Id.

[38] Id.

[39] Id. (quoting Steven Plitt et al., 7A Couch on Insurance § 103:14 (3d ed. 2013) (internal quotations omitted)).

[40] Id.

[41] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1199 (8th Cir. 2014) (quoting Brinkman v. W. Auto. Indem. Ass’n, 218 S.W. 944, 946 (Mo. Ct. App. 1920) (internal quotations omitted)).

[42] Id.

[43] Id.

[44] Id. at 1199.

[45] Id. at 1199-1200 (see discussion of Hyatt Corp. v. Occidental Fire & Cas. Co., 801 S.W.2d 382, 388–89 (Mo. App. Ct. 1990)).

[46] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1200 (8th Cir. 2014).

[47] Id. (quoting Luria Bros. & Co. v. Alliance Assurity Co., 780 F.2d 1082, 1091 (2d Cir. 1986) (internal quotations omitted) (emphasis added)).

[48] Id. (quoting Fed. Ins. Co. v. Binney & Smith, 913 N.E.2d 43, 48 (2009) (internal quotations omitted)).

[49] See id. at 1200.

[50] Id. at 1200.

[51]  Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1200 (8th Cir. 2014) (quoting Gibson v. Brewer, 952 S.W.2d 239, 249–50 (Mo. 1997)).

[52] See id. at 1200–01 (citing cases which define reckless conduct similar or related to negligence).

[53] Id. at 1200.

[54] Id. at 1201.

[55] See Gibson v. Brewer, 952 S.W.2d 239, 249–50 (Mo. 1997).

[56] Id.

[57] Chi. Ins. Co. v. Archdiocese of St. Louis, 740 F.3d 1197, 1201–02 (8th Cir. 2014).

[58] Id. at 1200.

[59] Id. at 1199.

[60] Id. at 1200.

[61] Id.

* J.D. Candidate, 2015, Saint Louis University School of Law. I give my sincerest thanks to the editors and staff of the Saint Louis University Law Journal for assisting in the publication of this summary. I also thank my husband for his endless love and support.