Caught by the Exclusion

Claim for wrongful termination excluded by sexual misconduct and child abuse exclusion because the termination was due to a finding of sexual harassment.

Insurance law – Liability insurance – Exclusions – Sexual harassment – Wrongful acts – Interpretation of policy – Insurers – Duties.

Crandall University v. AIG Insurance Co. of Canada, [2024] N.B.J. No. 203, New Brunswick Court of King’s Bench, July 29, 2024, M. Hamou J.

A university terminated a professor for sexually harassing a student. That professor then filed a lawsuit against the university for wrongful termination, defamation, false light in public eye, intrusion upon seclusion, public disclosure, and breach of confidence. The university’s insurer declined to provide indemnification and a defence to the university in respect of the lawsuit on the basis that coverage was excluded by the Sexual Misconduct and Child Abuse Exclusion in the insurance policy. The university’s position was that the lawsuit was for wrongful termination. The question was whether the lawsuit constituted a claim arising out of, based upon or attributable to, or in any way involving directly or indirectly “Sexual Misconduct” and whether “Sexual Misconduct” includes “sexual harassment”.

The Court held that the lawsuit arose indirectly from sexual harassment of a student, and as such fell within the ambit of the exclusion, which applied to claims “arising out of, based upon or attributable to, or in any way involving directly or indirectly any Sexual Misconduct”. The plain and ordinary meaning of sexual harassment is a form of sexual violence, a form of sexual behaviour. The definition of Sexual Misconduct in the Sexual Misconduct Exclusion included “immoral and sexual behaviour” and therefore included sexual harassment. As such, the Sexual Misconduct and Child Abuse Exclusion applied to exclude coverage.

This case was digested by Dionne H. Liu and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].