On appeal from Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-343-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Yannotti, Espinosa and Skillman.
This is an insurance coverage action that requires an interpretation of the application of a "retroactive period" in a "claims made" professional liability (PL) policy and a professional services exclusion in a commercial general liability policy (CGL) issued to plaintiff Cumberland County Guidance Center (CCGC). Defendant Scottsdale Insurance Company (Scottsdale) denied coverage to its insureds for the claims asserted in the underlying tort action. As part of the settlement of that action, the insureds assigned their rights to any and all claims against Scottsdale. The trial court determined that there was coverage under the PL policy, no coverage under the CGL policy and that Scottsdale owed its insureds a duty to defend. For the reasons that follow, we affirm the decision that there is no coverage under the CGL policy, reverse on the determination of coverage on the PL policy, and conclude that Scottsdale was not obligated to provide a defense in the underlying tort action.
J.A.P. and E.T.P. are the parents of three children, D.P., T.E.P., and G.S.P. Their oldest son, D.P., participated in an outpatient program at CCGC from June 1984 to April 1985, when he was eight years old. D.P. has admitted that he began to sexually abuse his younger sister, G.S.P., and his younger brother, T.E.P., when he was ten years old. The abuse continued until approximately 1993.
In November 1998, J.A.P. and E.T.P. filed a complaint on their own behalf and with J.A.P. as guardian ad litem for T.E.P. and G.S.P.*fn2 against employees of CCGC: H. Dieter Hovermann, the Executive Director of CCGC; Carmelie Durkin, a counselor; and Walter Goff, Durkin's aide.*fn3 Neither D.P. nor CCGC were named as parties in the tort action. Referring to D.P. as "John Doe Offender," the complaint alleged that he was "sexually molested and abused by his peers" at CCGC, and that, as a direct and proximate result, he began a course of conduct which included aggravated sexual assault of T.E.P. and G.S.P. The complaint alleged further that CCGC employees failed to report the incident to them. They later argued that the CCGC employees breached a duty to report the alleged abuse to the Division of Youth and Family Services ("DYFS").
The two policies issued by Scottsdale at issue here include a "claims made" professional liability policy for the policy period July 1, 1996 to July 1, 1997 (the PL Policy), and an "occurrence" commercial general liability policy for the policy period July 1, 1995 to July 1, 1996 (the CGL Policy).
In March 2004, after Scottsdale denied coverage under both policies, a
declaratory judgment complaint was filed by CCGC, the CCGC employees,
and the J.A.P. parties against Scottsdale, seeking a declaration that
Scottsdale owed the CCGC employees $2,000,000/$3,000,000 in coverage,
a defense and reimbursement of defense costs in the underlying tort
action. The parties filed motions and cross-motions for summary
judgment. In September 2005, the trial court denied summary judgment
to the J.A.P. parties and to Scottsdale regarding the PL Policy. The
court granted summary judgment to Scottsdale, dismissing all claims
under the CGL Policy, finding that the wrongful acts alleged against
the CCGC employees fell within the professional services exclusion in
the Policy because their actions required
their professional judgment in the treatment of D.P.*fn4
All parties moved for reconsideration, which was denied.
The trial as to coverage under the PL Policy was conducted on the papers, with parties filing joint and individual submissions of proposed facts and conclusions of law. On September 18, 2006, the trial court issued a letter opinion finding coverage and a duty to defend under the PL Policy.
Prior to the court's decision on the summary judgment motions, the J.A.P. parties, CCGC, and the CCGC employees agreed to a Griggs*fn5 settlement. The agreement provided for payment of $750,000 to each of the minors, $250,000 to their mother, J.A.P., and $100,000 to their father, E.T.P. CCGC and the CCGC employees agreed to pay an aggregate amount of $104,000*fn6 and to "an assignment of rights to any and all claims against Scottsdale Insurance[.]" The settlement was explicitly "contingent upon the Court finding that the settlement was a reasonable settlement, was negotiated at arm[']s length and was not the result of collusion." Without court approval, the settlement would be deemed void.
Thereafter, the court conducted a Griggs hearing and determined that the parties' settlement was reasonable and entered in good faith as to the minors, but unreasonable and unenforceable as to the parents. The court entered judgments awarding each minor $762,932.03, defense costs to be assigned to the J.A.P. plaintiffs of $45,394.25, and counsel fees of $349,882.50.
Scottsdale appeals from the order declaring that it owed coverage to the insureds under the PL Policy, certain orders pertaining to in limine rulings at the Griggs hearing, the order finding that the minors' settlements were reasonable, and the award of counsel fees. The parents appeal from the order granting summary judgment to Scottsdale on the CGL Policy, the order denying reconsideration of their motions, and the order declaring that their settlement was unreasonable and unenforceable. The minors appeal from the orders granting partial summary judgment to Scottsdale declaring that it did not owe coverage under its CGL Policy, and cross-appeal from the denial of their motions for summary judgment.
II We begin with a review of the facts relevant to the underlying tort action.
After manifesting behavioral problems in school beginning in kindergarten, D.P. began outpatient therapy at CCGC in June 1984, when he was eight years old and in second grade. He had been suspended from school for kicking and biting. It was reported that he did not obey at school or at home, resented authority, and was rough with his two-year-old brother and one-year-old sister.
Throughout his treatment, D.P.'s difficulty with peers is a recurring theme in the CCGC progress notes. Defendant Durkin, a counselor at CCGC, prepared progress notes pertaining to D.P. for April 9, 1985, which state:
[D.P.] was very polite with staff today.
Gave in to a more aggressive peer who threatened to hurt [D.P.] if [D.P.] didn't do what he wanted. Submitted to sexual behavior after being threatened by his peer. Avoided peers after they were overly aggressive with him; seeks protection from adults. Carmelie Durkin, M.S.W.
Defendant Walter Goff, Durkin's aide, prepared activity notes pertaining to D.P. for the same day, which state:
[D.P.] allowed a peer to order him around with the threat that he would hurt [D.P.] if he didn't do what peer wanted. Cried easily when peers tryed [sic] to hurt him. Ran to staff for protection.
Goff also wrote activity notes regarding T.M., the peer involved, which state:
[T.M] intimidated a smaller peer by threatening him, to remove clothes. [T.M.] had already removed his own clothes. Was very involved in sexual behavior, both in gestures and verbally. When questioned about how he knew all about sexual things, he said he learned at his "good friend John's."
Neither Durkin nor Goff reported the incident to D.P.'s parents or DYFS. CCGC did contact DYFS regarding T.M. However, the contact was not made because of the observations of him with D.P. Rather, DYFS was contacted because T.M. reported that he had learned all about sexual things from an adult, his "good friend John."
When she was deposed in the declaratory judgment matter in 2005, Durkin explained why the observations contained in her April 9 Progress Notes had not been reported to DYFS. She stated that, in writing "sexual behavior," the term did not "signify he was being molested in any way. Behavior could have been verbal." She did not interpret her note to mean that D.P. was being touched. She interpreted her note as reflecting that she "didn't see anything sexually happening that would raise a red flag with [her] that [she] would need to contact the authorities." Durkin defined "sexual abuse" as "[a]nother person being taken advantage of, being touched inappropriately by another person[,]" and testified that if she had "noted any sexual abuse going on," she would have reported it. She testified that she did not witness any sexual contact, did not recall anyone talking to her about any sexual contact, and was unaware "of a sexual contact incident that would need to be reported." In her professional judgment, it was not appropriate to contact DYFS regarding the incident.*fn7
Similarly, Goff testified at deposition in the tort action that if a patient had disclosed to him that he or she had submitted to sexual contact, he would have reported that disclosure to a supervisor. Goff testified that D.P. never disclosed to him that he submitted to sexual contact by anyone.
On April 18, 1985, D.P. was discharged from CCGC for reasons unrelated to the April 9, 1985 incident.
Some time thereafter, D.P. began to sexually abuse his younger sister, G.S.P., and his younger brother, T.E.P. After learning of the sexual abuse in September 1993, D.P.'s parents contacted DYFS which, in turn, reported the abuse to the State Police. A trooper went to the family home, where he interviewed the parents and G.S.P. With E.T.P.'s consent, the trooper also interviewed D.P., then sixteen years old.
After being advised of his Miranda*fn8 rights, D.P. agreed to be questioned and admitted that he started abusing his sister when he was ten, having sexual intercourse and "[sticking] his penis in his sister's mouth" when she was seven years old, and having anal intercourse with her when she was eight years old. A juvenile delinquency complaint was filed, alleging that D.P. committed aggravated sexual assault upon G.S.P. in violation of N.J.S.A. 2C:14-2(a). D.P. was adjudicated as a sex offender and sentenced to a term at a juvenile facility. He was released in February 1995.
D.P. returned to CCGC for counseling, beginning treatment with Nan Karl, the sexual assault therapist, in October 1996. He recalled being at CCGC as a child and "indicated that something sexual had happened to him." Karl's notes reflected that D.P. told her he had been molested by an older boy in the presence of two adult employees of the CCGC. However, she testified that D.P. never told her "the specifics" of what occurred and that she did not know what the "sexual assault" involved. Her best recollection was that D.P. indicated that one boy was involved; he never shared that there was more than one occurrence; he never disclosed the incident to anyone but stated that both Durkin and Goff were in the room when it occurred and that Goff had seen the incident take place.
Karl obtained and reviewed D.P.'s file regarding his prior treatment at CCGC. Upon seeing Goff's and Durkin's notes, she went to Hovermann, who had the matter investigated by the director of the Child/Adolescent Program. Karl later told D.P.'s mother that "there was evidence in [D.P.]'s chart that another child had sexually assaulted him[.]"
D.P. was deposed in the tort action. He was not a party to the action and was indeed the "John Doe Offender" referenced in the complaint. Nonetheless, D.P. stated that his family had agreed he would share equally in the judgment or settlement received in the litigation. Although D.P. testified that he told Karl "everything," his deposition testimony described considerably more egregious behavior and multiple incidents as opposed to the single incident in the CCGC record. The evidence also revealed that D.P.'s sexual ...