Case 29.1

FACTS Alberto and Karelli Mila were insured under a homeowners' liability policy. The policy, in "exclusion k," stated that coverage did not apply to "bodily injury arising out of sexual molestation, corporal punishment or physical or mental abuse." Verushka Valero, on behalf of her child, filed a suit in a Florida state court against the Milas, charging them with negligent supervision of a perpetrator who had sexually molested Valero's child. The Milas filed a claim with their insurer to provide a defense against the charges. The insurer had become insolvent, so the claim was submitted to the Florida Insurance Guaranty Association, Inc. (FIGA). FIGA is a nonprofit corporation created by the Florida legislature to evaluate and resolve claims when insurance companies become insolvent (a similar insurance guaranty association exists in nearly every state). FIGA refused to pay the Milas' claim and asked the court to rule that it had no obligation under the policy to provide such a defense. The court issued a summary judgment in FIGA's favor. Valero and the Milas appealed, arguing that exclusion k was ambiguous.

ISSUE Was the term of the Milas' insurance policy that excluded coverage for "bodily injury arising out of sexual molestation" ambiguous as to whether it covered acts by someone under their supervision?

DECISION No. A state intermediate appellate court affirmed the lower court's judgment. The exclusion applied to preclude coverage in this case.

REASON The Milas pointed out that a different exclusion, exclusion l, used the phrase "by any person" and exclusion k did not. According to the Milas, this meant that it was not clear whether exclusion k applied only to acts caused by an insured. The court read the entire list of twelve exclusions together and concluded that the phrase in exclusion l was "superfluous." Even if the phrase "by any person" had been used in exclusion k, coverage might still have been denied, as in this case. Valero and the Milas also cited decisions from other jurisdictions to support their argument. The court found these decisions to be "not helpful" because they considered exclusions in isolation, not in the context of other exclusions.

WHAT IF THE FACTS WERE DIFFERENT? Suppose that exclusion k, instead of exclusion l, had used the phrase "by any person." Would the result have been different? Explain.