Exclusion Applies Separately to Each Insured.


Mr. and Mrs. Wilson owned and operated Magic Years, a child day care center. Mrs. Alexander, a former employee of Magic Years, sued Magic Years and the Wilsonís, claiming that Mr. Wilson sexually harassed her.


Western Heritage insured Magic Years and the Wilsonís under a general liability policy [the policy edition cannot be determined].  It sought a declaratory judgment that is had no duty to defend or pay any judgment rendered in the Alexander lawsuit.  The district court held Western Heritage had to defend and indemnify all three insuredís.


The Fifth Circuit affirmed the judgment in favor of the Wilsonsí, but reversed the judgment in favor of Magic Years.  The Western Heritage policy contained a Physical and/or Mental Abuse Limitation Endorsement under which Western Heritage agreed that bodily injury included any act which may be considered sexual in nature and could be classified as an abuse, harassment, or molestation.


The court held this endorsement ďtrumpedĒ both the occurrence requirement and the assault and battery exclusion, since the endorsement would be meaningless if those provisions were applicable.  The court did, however, enforce the employer liability exclusion.  The court read the exclusion as applying separately to each insured.  It did not apply to the Wilsonís, who were not Alexanderís employer, but did apply to Magic Years, which was her employer.


Thus, Western Heritage had to defend the Wilsons, but not the center.



Western Heritage Insurance Co. v Magic Years Learning Centers & Child Care, Inc. 45 F3d 85 (5th Cir 1995).