Murky Waters: Insurer Denies Shared Risk Means Shared Consequences in Federal Case

Author: Samuel Frasher

Starr Indemnity & Liability Co. has claimed entitlement to reimbursement of its $1.9 million share of a $3.5 million settlement resolving a sexual abuse lawsuit against a California high school, asserting in federal court that the liability for the payment rests with a school risk-sharing pool insurer.[1]

Facts

The coverage dispute stems from an underlying suit filed against Sonora Union High School by a former student in May 2021.[2] The former student, identified as Jane Doe, alleged she was sexually harassed, abused, and raped by her basketball coach beginning in the fall of 2012.[3] Doe further claimed Sonora Union teachers and administrators were aware of the coach’s improper contact with her during her sophomore year.

Sonora Union sought coverage from ASCIP under a memorandum of coverage that was in effect from July 2012 to July 2013.[4] Additionally, the district pursued coverage from another joint powers authority, Self-Insured Schools of California II (SISC), under two memoranda of coverage effective from July 2013 and July 2015.[5] Both ASCIP and SISC agreed to defend the district under a reservation of rights.[6]

According to Starr, it provided coverage to SISC under a special excess liability policy for public entities, which extended insured status to Sonora Union.[7] As such, the insurer argued that ASCIP is solely responsible for the payment that Starr made on behalf of the Sonora Union High School District to resolve the underlying suit.[8]

According to the complaint, the parties in the underlying suit reached a $3.5 million settlement during a civil trial in July 2023.[9] Starr stated it contributed over $1.9 million, while SISC paid more than $1.5 million.[10] However, ASCIP allegedly refused to pay its portion of the settlement, citing a disagreement over the value of the underlying action, despite initially agreeing to contribute.[11] Starr contended ASCIP had a separate and independent legal and contractual responsibility to indemnify Sonora Union but failed to do so; Starr asserted claims for equitable indemnity, equitable contribution, equitable subrogation, contractual subrogation and declaratory relief.[12]

Conclusion

This case underscores the potential downside of spreading risk and reducing costs in risk pool insurance situations. If one or more members of the pool has issues with risk management, there can be consequences for other parties in the pool. In this case, it obscured liability and contribution amounts for each party involved.

Sources

[1] Starr Indemnity & Liability Co. v. Alliance of Schools for Cooperative Insurance Programs et al., No. 2:24-cv-08438 (C.D. Cal. Oct. 1, 2024.)

[2] Starr Indemnity & Liability Co., No. 2:24-cv-08438 (Compl. ¶8.)

[3] Id.

[4] Compl. ¶ 10.

[5] Id.

[6] Compl. ¶ 9.

[7] Compl. ¶ 7.

[8] Id.

[9] Compl. ¶ 11.

[10] Compl. ¶ 12.

[11] Id.

[12] Compl. ¶¶ 13, 14.

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