I've posted here and here about the declaratory judgment action by AIG, Bill Cosby's homeowner's and umbrella insurer, seeking a declaration that it has no duty to defend or indemnify him in three defamation lawsuits against him. Those lawsuits allege that Cosby lied when he denied the plaintiffs' accusations that he raped them. They allege defamation rather than assault because the statute of limitations has run on assault claims The defamation allegations are not barred because the statements were made at a later period in time. (A criminal trial against Cosby for sexual assault ended in a mistrial as a result of a deadlocked jury.)
AIG contended that the defamation allegations come within an exclusion in the homeowner's policy for sexual misconduct excluding "liability . . . for . . . personal injury arising out of any actual, alleged, or threatened by any person: (a) sexual molestation, misconduct or harassment; . . . or (c) sexual, physical or mental abuse." The umbrella policy has a similar but not identical exclusion.
AIG had filed a declaratory judgment action in California with respect to a separate civil lawsuit by a plaintiff making the same allegations against Cosby. The California court granted Cosby's motion to dismiss. Applying California law, the California court held that AIG has a duty to defend Cosby because the sexual misconduct exclusions do not unambiguously bar coverage. It held that under that state's law the phrase "arising out of" can be interpreted broadly or narrowly. Under a narrow interpretation, the plaintiff's injuries arose out of Cosby's statements, not sexual misconduct.
In a recent decision in the Massachusetts case, AIG Property Casualty Co. v. Green, 217 F.Supp.3d 415 (D. Mass. 2016), the first issue before the United States District Court for the District of Massachusetts was whether AIG was judicially estopped from arguing that Massachusetts law differs from California law in the interpretation of "arising out of." In California AIG had argued that there was no difference between Massachusetts and California law because both states interpret the phrase broadly. In Massachusetts it was now arguing that there was a difference and that Massachusetts law should apply.
Let me say that as a litigator the discussion of judicial estoppel made my stomach hurt. The AIG attorneys in California had to argue that under both California and Massachusetts law the phrase "arising out of" is broadly construed. The only other alternative would be to concede that in one of the states the phrase is construed narrowly, and the court should apply the law of the state construing it broadly. Unless it was incontestably true that California construes "arising out of" narrowly, the latter argument would border on malpractice. When the California court held that "arising out of" should be construed narrowly in the context of the case before it, should AIG no longer be allowed to argue that Massachusetts construes the phrase broadly? In my view that would simply be unfair.
The US District Court agreed with me and declined, in its discretion, to apply the doctrine of judicial estoppel. It held that there was no evidence that AIG was attempting to defraud or mislead either court. It merely argued in California that coverage was barred under the law of either state. AIG would gain no unfair advantage by arguing in Massachusetts that the laws of California and Massachusetts conflict. (The court did not say this, but the conflict of law arose, or at least became more obvious, as a result of the California decision.)
That ruling became moot, however, because the court then held that the exclusions did not apply under Massachusetts law either. The court quoted a number of cases that vaguely define "arising out of" as requiring an intermediate level of causation, between proximate (or direct) cause but more than causation in fact (but for X happening, Y could not have happened). The court found that the sexual misconduct exclusions are "at least ambiguous." It held, "while no doubt related to and setting the stage for the defamation claims, the alleged sexual misconduct is multiple steps removed from the defamatory injury-causing statements."
AIG has appealed the decision. Stay posted.