Prior Knowledge Provision Precludes Coverage for Known Sexual Assault Under Either an Objective or Subjective Standard
The Superior Court of New Jersey, Appellate Division, applying New Jersey law, has held that a professional liability policy afforded no coverage for a lawsuit alleging sexual misconduct because the insured had knowledge of the sexual act in question before the policy took effect. CMGK, LLC v. Certain Underwriters at Lloyd’s, London, 2024 WL 2966570 (N.J. Super. Ct. App. Div. June 13, 2024).
The insured massage facility purchased a Specified Medical Professions Professional Liability Insurance Policy for the claims-made-and-reported policy period of March 9, 2018, to March 9, 2019. The policy included a Sexual Acts Liability Endorsement, which required that, “prior to the effective date of this policy, the Insured had no knowledge of such Sexual Act or any fact, circumstance, situation or incident involving such Sexual Act which may result in a Claim under this policy” (the “Prior Knowledge Clause”).
On September 23, 2017, a victim was sexually assaulted by a masseuse during her massage at the facility. Two days after, the victim reported the incident to the facility’s general manager, and an incident report was filed. On September 26, 2017, the victim reported the incident to the police, but the officer receiving the report concluded that “there was no determination [the masseuse] inappropriately touched [the victim],” and “the Department refused to press charges against [the masseuse].” Eleven months later, the victim filed a lawsuit against the insured, serving the complaint on September 4, 2018.
The insured sought coverage under the Sexual Liability Endorsement of the policy. The insurer denied coverage based on the Prior Knowledge Clause because, prior to the policy’s inception, the insured knew about the alleged sexual assault. Coverage litigation ensued. The trial court granted summary judgment in favor of the insurer, after which the insured appealed.
The appellate court affirmed the trial court’s grant of summary judgment in favor of the insurer, concluding that the insured was not entitled to coverage because it knew about the alleged sexual assault in September 2017, before the March 9, 2018 effective date of the policy. The appellate court rejected the insured’s argument that the policy should afford coverage because the insured honestly believed that the victim would not file a lawsuit. The court explained that the policy’s Prior Knowledge Clause appeared to present an objective standard but that, even applying a subjective standard, the result was the same because the insured’s “assumption or hope” that the victim would not pursue a lawsuit was not “enough to defeat summary judgment.” The court further explained that adopting the insured’s interpretation would render the Prior Knowledge Clause meaningless because, “[t]o avoid the application of the clause, an insured could simply assert that it did not believe – in the face of all evidence to the contrary – a claim might be filed.”
