Legal Memorandum: Implications of the Policy Sublimit

Issue: Whether the sexual misconduct sublimit provision of a professional liability policy limiting recovery is void as against the public policy of Virginia. ![TEXT:

Courts may refuse to enforce an insurance policy as written where enforcement would violate some explicit, well-defined and dominant public policy.  St. Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133, 135 (4th Cir. 1988).  Whether an insurance policy violates an explicit, well defined and dominant public policy “is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests.”  Id. at 135.

In McConaghy v. RLI Ins. Co., 882 F. Supp. 540 (E.D. Va. 1995), the United States District Court for the Eastern District of Virginia was called upon to determine the applicability of a sublimit in a case involving a marriage counselor’s negligent care and treatment of a husband and wife, as well as a sexual affair with the wife.  In each of the five counts of the motion for judgment therein, the plaintiffs alleged that the counselor committed numerous nonsexual acts of malpractice, amounting to negligence, breach of fiduciary duty and intentional infliction of emotional distress, in addition to the malpractice associated with the sexual relationship.  Id. at 541.  The plaintiffs argued that the $50,000 sublimit therein, operating to limit all claims, whether sexual or nonsexual as long as sexual misconduct is alleged, was void as against the public policy of Virginia.  The defendant insurer sought a declaration that there was no coverage beyond the $50,000 sublimit.  Id.

The court first acknowledged two negative implications of the policy sublimit.  First, the court acknowledged […]