Prior Knowledge Exclusion Bars Coverage for Lawsuit Premised on School Officials’ Knowledge of Abuse

An Arkansas federal court, applying Arkansas law, has held that a prior knowledge exclusion in an employment practices liability policy issued to a school barred coverage for a lawsuit alleging that the assistant principal engaged in longstanding sexual abuse that had been reported numerous times. Berkley Assur. Co. v. Springdale Pub. Schs., 2024 WL 666500 (W.D. Ark. Feb. 17, 2024).

In the underlying lawsuit, a former student alleged that the school’s assistant principal groomed, stalked, and repeatedly sexually assaulted her over a period lasting more than three years. During that time, according to the underlying complaint, at least eight school employees and the former student’s grandfather reported their suspicions or observations of abuse to the school’s principal. Moreover, the assistant principal had pled guilty to a criminal sexual assault charge involving three minor female victims. The former student alleged that, despite receiving repeated notice, neither the principal nor the school district did anything to stop the abuse.

The school’s employment practices liability insurer denied coverage based on the policy’s prior knowledge exclusion and filed a declaratory judgment action to confirm that it owed no coverage to the assistant principal, principal, or school district. The prior knowledge exclusion barred coverage for any claim “[a]rising from any circumstance(s) or incident(s) which might reasonably be expected to give rise to a Claim hereunder, which is either known or reasonably should have been known to the Insured prior to the Inception of this policy and not disclosed to the Company prior to inception.”

The court granted summary judgment in favor of the insurer, holding that the prior knowledge exclusion barred coverage entirely because each cause of action asserted was predicated on prior knowledge. The court found that, because abuse involves intentional acts, an abuser necessarily has prior knowledge of his own misconduct. As to the principal and school district, each cause of action lodged against them involved facts that necessarily implicated their prior knowledge. The court noted that its conclusion did not require presupposing the underlying allegations to be true but instead rested on whether coverage was even possibly owed based on the facts alleged.