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Atlantic Employers Ins. Co. v. Chartwell Manor School

March 30, 1995

ATLANTIC EMPLOYERS INSURANCE COMPANY AND INSURANCE COMPANY OF NORTH AMERICA, PLAINTIFFS-APPELLANTS,
v.
CHARTWELL MANOR SCHOOL, TERENCE LYNCH, S.R., AND M.R., DEFENDANTS-RESPONDENTS, AND R.M., K.Y., T.F., P.F., B.F., C.K., S.K., R.K., R.S., AND M.M., DEFENDANTS. S.R. AND M.R., PLAINTIFFS-RESPONDENTS, V. TERENCE LYNCH AND CHARTWELL MANOR SCHOOL, DEFENDANTS-THIRD PARTY PLAINTIFFS-RESPONDENTS, V. CIGNA INSURANCE COMPANY, THIRD PARTY DEFENDANT-APPELLANT, AND FARMERS MUTUAL INSURANCE COMPANY, THIRD PARTY DEFENDANT-FOURTH PARTY PLAINTIFF, V. THE HARTFORD INSURANCE COMPANY, FOURTH PARTY DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Morris County.

Approved for Publication March 30, 1995.

Before Judges Dreier, Villanueva and Wefing. The opinion of the court was delivered by Dreier, P.j.a.d.

The opinion of the court was delivered by: Dreier

DREIER, P.J.A.D.

Plaintiffs, insurance companies, appeal by leave granted from an interlocutory order denying summary judgment and directing plaintiffs to defend the insureds under a reservation of rights and later litigate the issue of whether there was liability coverage. The insureds were a private boarding school and its founder who was also headmaster and a teacher. The insurance policy included an exclusion for intentional acts but provided coverage for corporal punishment under an endorsement.

Multiple suits were commenced against the insureds after the headmaster pled guilty to criminal charges that included various acts of endangerment and sexual assault on a number of male students. In this consolidated tort action, S.R. and his parent and guardian, M.R., seek damages against defendants Terence Lynch and Chartwell Manor School for physical and psychological injuries caused by an alleged pattern of repeated sexual abuse, unauthorized practice of medicine and corporal punishment by Lynch, individually, and exercising his authority as a teacher and headmaster of Chartwell. At least eight personal injury cases were filed by other Chartwell students against Lynch and Chartwell. Plaintiffs filed motions for partial summary judgment in cases involving the other personal injury cases against Lynch and Chartwell. *fn1 The insurers here sought a declaration that it owed no duty to Lynch to "indemnify or afford coverage for any damages" for claims asserted by S.R. and M.R. They moved for summary judgment declaring that they have no duty to defend because there was no coverage for intentional sexual assaults. *fn2

Chartwell was an incorporated for-profit boarding school located in Mendham, New Jersey. The school enrolled students with special educational needs. From February 1980 to May 1983, S.R., then at the ages of eleven to fourteen, attended the school.

Plaintiffs issued an "institutional package" insurance policy to Chartwell. The policy liability coverage section stated that a claim would be paid for an "occurrence" that is covered under the policy. An "occurrence" is defined as an accident that was "neither expected nor intended by the insured. " *fn3

The policy also contained an endorsement extending coverage to include the administration of corporal punishment. Corporal punishment is defined in the policy as "striking a student with a paddle, stick or hand or using any physical force against a student." The endorsement was subject to the coverage limit for "each occurrence." The policy also stated that "if any claim or lawsuit is brought for harm covered under YOUR LIABILITY COVERAGE, we will defend it."

In his deposition, S.R. set forth a number of incidents of Lynch's sexual and disciplinary actions towards him and others. The discipline was often conducted in the presence of the other students, with the female students excused from the room. S.R. recounted one incident which occurred in Lynch's office when he was told to take his pants off:

I would take the underwear off. Then he would grab me, put his hands on my private area, bend me over his knee, then he would spank me in that fashion.

...

He was serious, you know. He was -- as soon as you walked in to the office, he was -- you knew he meant business. You were there to be disciplined."

S.R. also stated in his deposition that on another occasion Lynch had tried to stick his finger in his anus during a shower, and at another time he was told to go into Lynch's office and achieve an erection, Lynch indicating that he would be in the office in a few minutes. S.R. did not follow Lynch's instructions.

In May 1986, Terence Lynch was indicted on 109 counts, including multiple charges of sexual assault, endangering the welfare of children, aggravated sexual assault, aggravated criminal sexual contact, and one count of criminal sexual contact. On September 19, 1989, he pled guilty to seventeen of the counts. In reference to S.R., Lynch pled guilty only to count 15, violation of N.J.S.A. 2C:24-4(a), endangering the welfare of a child, and admitted holding S.R.'s genitals while paddling him. However, he claimed that it was his practice to hold the bare genitals to protect the children from injury from the paddle. Lynch claimed that he did many of the acts against the students to "humiliate or degrade" them (see N.J.S.A. 2C:14-1d), not for sexual gratification.

The complaint of S.R. and his mother, M.R., includes the following causes of action: unlawful sexual abuse, unlawful practice of medicine, corporal punishment, assault, battery, child abuse, infliction of emotional distress, breach of contract, outrageous tortious conduct, breach of fiduciary duty/negligence, and negligent supervision. Count I included allegations of "'spankings' both with various instruments and with bare hands" while the boy was naked, which caused physical and psychological harm.

Plaintiffs claimed in their motion that the case was purely one of sexual assault and barred by the policy and State law. Defendants, however, asserted that there were many claims "specifically drafted in terms of corporal punishment" and that Lynch's actions could, at least in part, be considered discipline. Plaintiffs' motion was denied because the issues raised had been previously ...


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