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Local

NHCS sues its insurance companies over $31 million in additional coverage in sexual abuse civil case

NHCS v Liberty et al.jpg
Benjamin Schachtman
/
WHQR
The New Hanover County Board of Education is taking its insurance carriers to court over a fairly sizeable disagreement in how much coverage they are entitled to.

Insurance companies and the district are far apart on how much coverage they believe applies in the civil case filed by the victims of former teacher and convicted child abuser Michael Earl Kelly. That disagreement has now led to legal action and, when decided by a judge, will have a direct impact on the civil case against the district.

The New Hanover County Board of Education (NHCBOE) is filing suit in Superior Court against four insurance carriers — the Netherlands Insurance, Peerless Insurance, Liberty Insurance, and Liberty Mutual Fire. John Does 1-13 -- the survivors of former NHCS teacher Michael Earl Kelly’s alleged sexual abuse, are also named as ‘defendants’ — they aren’t being sued in the traditional sense, but they’re included because they have a vested interest.

At issue is the difference between $4 million in coverage the insurance companies say is available and as much as $35 million in coverage the district believes should be provided if necessary.

Importantly, the board isn’t admitting guilt in this complaint, filed on October 27th, 2021 — but they are attempting to compel their insurance companies to define how much their policies would pay out to John Does 1-13 if there’s a possible settlement or if the district was found liable in a trial case.

In a statement, Board Chair Stefanie Adams said, in part, "the Board of Education filed an action seeking to ensure it receives the full coverage to which it is entitled under its existing insurance policy to support its efforts in resolving ongoing litigation."

In that act, the board said it needs to determine “the extent of insurance coverage available to [them, which] also determines the maximum recovery by John Does 1-13 (and others)[...]” Furthermore, “because the extent of [the insurance companies] liability to NHCBOE under the insurance contracts [...] is presently in dispute.”

The school board alleges in the complaint that until April 2018, they were unaware of the allegations that Michael Earl Kelly was engaged in sexual misconduct with one or more students in the district. The insurance companies are claiming that only the policies in effect as of April 9, 2018, afford the board insurance coverage. They claim that Ms. Moore, an employee of the NHCBOE first emailed representatives of Peerless and Netherlands “regarding Mr. Kelly’s arrest."

$4 million vs. $35 million in coverage

The complaint outlines the insurance policies that the board believes could cover the potential payments to John Does 1-13.

For the Netherlands insurance coverage, NHCBOE believes they have three policies that cover them: commercial general liability, school leaders' errors and omissions liability, and sexual misconduct and molestation liability. The NHCBOE is claiming that they can access coverage from these yearly policy renewals from July 2017 until July 2020 — and if permitted by a judge, the policy year beginning in July 2021.

The board is arguing that these policy years cannot be excluded and the board does in fact have coverage for these years: “Netherlands is obligated to pay loss or damages that may be assessed in the civil action brought by John Does 1-13.” So, that would mean Netherlands would need to pay $3 million for each of those years and each of those policies for a total of $18 million. If the policy year 2021 is permitted, then the total would be $24 million.

According to the filing, the Netherlands Insurance Company said only the ‘sexual molestation and misconduct’ policy affords coverage, not the ‘comprehensive general liability policy. According to the NHCBOE complaint, Netherlands is willing to only pay $3 million.

According to the filing, Peerless is effectively the same — or closely related — company as Netherlands, sharing an address and contact. Nevertheless, the two companies issued separete policies to NHCS and are treated separately in the filing. For Peerless, the board wants to access their ‘an excess and umbrella policy’ from July 2017 until July 2021. The board wants Peerless to pay $3 million ($4 million if the 2021 policy is allowed). According to the complaint, Peerless Insurance Company has only committed to paying $1 million.

If the Fourth Amended Complaint, filed by Martin Ramey of the Rhine Law Firm on behalf of John Does 1-13, which alleges the school board violated the survivors “fundamental right to a basic education” is determined to be admissible by a judge, the school board said their Liberty Mutual Fire Insurance Company ‘commercial general liability coverage and a sexual misconduct and molestation liability coverage’ from July 1st, 2021 to June 30th, 2022 should pay out $3 million for a total of $6 million.

NHCBOE is also claiming that their Liberty Insurance Corporation’s ‘excess and umbrella policy’ from July 1, 2021, to June 30, 2022, should also pay out $1 million if the Fourth Amended Complaint is allowed.

Thus far, Liberty Mutual Fire and Liberty Insurance are denying that they would pay any damages with in regards to the Fourth Amended Complaint.

Sovereign immunity and ongoing negotiations

The complaint notes that “between the NHCBOE, John Does 1-13, Netherlands, Peerless, Liberty Fire, and Liberty Insurance there exists a real, subsisting, and immediate controversy with respect to the terms, conditions, and extent of available insurance coverage, and waiver of sovereign immunity.”

The issue of sovereign immunity is a complicated one, but it is essentially a legal doctrine that the government and its top representatives cannot be sued — unless someone's state or federal constitutional rights have been violated. In the case of the John Does, the plaintiffs argue just that, claiming the constitutional right to a basic education has been denied.

Another wrinkle in the sovereign immunity doctrine is that governments can only be sued for things for which they have insurance coverage. Thus, the question of whether or not the district is covered is important to the John Does case.

The complaint makes clear a continued stumbling block in the negotiations between the district the insurance companies, and the survivors of Michael Earl Kelly — negotiations that have dragged out for months. NHCBOE has hired Frederick K. Sharpless of Sharpless McClearn Lester Duffy to represent them and, while the complaint does not explicitly say so, it is likely that legal action was necessary given that the board and the insurance companies disagree on the amount of available coverage by nearly a factor of ten.

A decision in this case will have a clear impact on the John Does case, but there's still no sign whether the board will settle or if the pending civil suit will end up in a jury trial.

WHQR has reached out to the four insurance carriers named in the suit for comment and will update this and future reporting with any response.

Statement from New Hanover County Schools

Editor's note: This article has been updated. The district's statement initially noted that "6 out 7" board members had been trained on Title IX — but later corrected that to "all" board members.

In response to an email from WHQR, the New Hanover County School district issued a statement from Board Chair Stefanie Adams:

The Board of Education filed an action seeking to ensure it receives the full coverage to which it is entitled under its existing insurance policy to support its efforts in resolving ongoing litigation.

The trail of devastation left by Michael Kelly in New Hanover County is abhorrent. Sexual assault is a trauma no one should endure and has no place in our schools and community.

The Board of Education respects the privacy of the plaintiffs and will not publicly discuss details of the ongoing litigation. I have faith in the legal system to ultimately reach a just resolution. The mediation process is ongoing.

We are now several Boards of Education removed from when these devastating acts took place. Still, the current Board of Education is committed to preventing abuse and providing a safe learning environment for all students. The Board made significant progress in recent years to address awareness and prevention of sexual harassment and abuse and remains fully committed to student safety.

Here are some of the important steps we have taken:

Extensive training for students, employees, administrators, and Board members:

Robust Title IX Department:

Improved reporting tools and multiple ways to report that are accessible to students, staff, parents, and the community:

  • Ethix 360 - Secure, anonymous 24/7 reporting system accessible online; access via the “Report a Concern” link on header of every page of NHCS website
  • Say Something - Secure, anonymous 24/7 reporting system accessible through an app, online, and through a hotline.
  • Call 910-254-4200
  • Email:  TitleIX@nhcs.net
  • Title IX survey created by the Title IX Committee and approved by the entire Board.  It will be administered to all middle school and high school students during the 2021-22 school year by an independent 3rd party who will also analyze the data and issue a report to the Board.
  • Active Title IX Board Committee
  • Title IX Look Back

New, updated Board policies specifically addressing Title IX compliance:

  • Policy Code: 1720/4030/7235 Title IX Nondiscrimination on the Basis of Sex
  • Policy Code: 1725/4035/7236 Title IX Sexual Harassment – Prohibited Conduct and Reporting Process
  • Policy Code: 1726/4036/7237 Title IX Sexual Harassment Grievance Process

New policies and tools to address appropriate use of technology:

  • Policy Code: 3226/4205 Internet Safety
  • Policy Code: 7335 Employee Use of Social Media
  • Policy Code: 3225/4312/7320 Technology Responsible Use
  • Gaggle Student Safety Management Tool

    We are dedicated to keeping ALL of our students and staff safe and do not take this obligation lightly.