Western World wins dispute over Scientology-based rehab operation

Business Insurance/January 12, 2018

By Judy Greenwald

A federal district court has largely ruled in favor of Western World Insurance Company in a dispute with an insurer that provides coverage for nonprofits, in a dispute as to whether it is obligated to provide defense costs for a Church of Scientology-affiliated drug rehabilitation operation.

The issue in the litigation in Western World Insurance Company v. Nonprofits Insurance Alliance of California is which insurer must provide the defense in two lawsuits filed against Los Angeles-based Narconon International, which oversees a Scientology-based treatment program implemented by local state affiliates, according to Tuesday’s ruling by the U.S. District Court in San Jose.

The first lawsuit was filed on behalf of Patrick Desmond, who was a patient at Narconon affiliate Narconon of Georgia. In June 2008, after consuming alcohol provided by Narconon staff at a staff member’s apartment, Mr. Desmond left with two former patients to purchase heroin and died early the next morning from a heroin overdose, according to the ruling. Mr. Desmond’s family sued Narconon of Georgia and Narconon International for claims including negligence.

The second lawsuit was brought on behalf of Heather Landmeier, who was a patient at Narconon of Oklahoma. Litigation in the case alleges that employees provided drugs and alcohol to Ms. Landmeier and allowed her to enter into sexual relationships with staff members.

In March 2008, Narconon of Oklahoma forced Ms. Landmeier to leave the facility, and a day later she overdosed on heroin and OxyContin, leaving her in a vegetative state paralyzed from the neck down. A lawsuit filed by her family also claimed negligence, among other charges.

Parsippany-Troy Hills, New Jersey-based Western World and Santa Cruz, California-based Nonprofits Insurance provided overlapping insurance coverage to Narconon International.

NIAC’s policy had commercial general liability, liquor liability and improper sexual conduct coverage forms. The CGL coverage form also included an exclusion for bodily injury due to the “failure to render any professional service.”

The NIAC refused to provide a defense to Narconon, and Western World filed suit in the District Court seeking summary judgment on NIAC’s duty to defend.

In the Desmond case, the parties disagreed as to whether Mr. Desmond’s death was caused by an “occurrence,” said the ruling. The ruling held that it was. 

“The neglectful provision of alcohol to and deficient supervision of a patient in rehab leading to the patient’s unexpected death constitute an ‘occurrence’ or ‘accident,’ ” said the ruling.

“NIAC improperly refused to defend on the ground that there was no ‘occurrence’ triggering policy coverage,” the ruling said.

The ruling also held NIAC was obligated to provide a defense in both cases under the professional service exclusion and, in Ms. Landmeier’s case, the improper sexual conduct form. 

The court ruled in favor of NIAC with respect to the liquor liability coverage form because, it said, the situations in the lawsuits did not involve providing alcohol in a business or formal setting.

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