Varsity Brands’ insurance company has asked a federal judge to correct what it says was a “mistakenly truncated” policy that could end up costing it millions in light of the spate of sex-abuse litigation filed against the cheerleading giant.
Last month, Arch Insurance filed a “reformation action” in U.S. District Court, seeking a judgment that would modify Varsity’s 2018-19 commercial general liability coverage to include the same “abuse & molestation” limitations that were part of its previous and subsequent coverage.
Arch, according to its lawsuit, has provided general liability insurance to Varsity Brands since 2017, with a per-occurrence limit of $1 million and a general aggregate limit of $5 million. Varsity’s 2017-18 policy included a three-page endorsement for instances of abuse and molestation, with limits of $1 million for each “sexual abuse occurrence” and $2 million for sexual abuse aggregate.
Crucially, the policy’s insurance certificate states that “all acts of ‘sexual abuse occurrence’ by an actual or alleged perpetrator…shall be deemed and construed as one ‘occurrence.’”
Arch, in its recent court filings, said that similar language was intended to be included in Varsity’s 2018-19 policy but that it recently discovered only the first page of the abuse and molestation endorsement had been attached, leaving off the language describing who is an insured person.
In its complaint, Arch refers to a signed insurance proposal for that same year that it says “clearly indicates that the parties intended to, but mistakenly did not, use the same three-page manuscript endorsement form that correctly appears” on its previous policy.
Arch chalks it up to a “good-faith, mutual mistake,” but claims that Varsity is now refusing to remedy the matter by retroactively accepting a “corrected” version of the policy.
Spokespeople for Arch and Varsity declined to comment.
Policy documents attached to Arch’s complaint state that Varsity Brands’ general liability coverage specifically carves out the operations of its Tennessee-based cheerleading gym network, Premier Athletics, which has been at the center of some of the sex-abuse litigation.
In 2009, the coach and general manager of Varsity’s Premier Athletics gym in Murfreesboro, Tenn., was subject to misconduct complaints by multiple parents of his cheerleaders, eventually leading Varsity to relocate him to another Premier gym in the state. The coach later committed suicide for what his mother told Sportico were reasons unrelated to the abuse allegations.
Last September, two teenage boys sued Varsity over alleged sexual abuse by another Premier coach, who the boys claim started grooming them when they were 14.
In addition to the Tennessee action, Varsity is currently playing defense in a string of state and federal sex abuse lawsuits from California to Florida.
This summer, a federal judge ruled that a dozen former youth cheerleaders who filed lawsuits alleging sexual abuse by their coaches at a Varsity-backed South Carolina gym could pursue unjust-enrichment and negligence claims against Varsity Brands and Varsity Spirit. Last month, the judge, Henry M. Herlong, ordered the parties to engage in “meaningful mediation” prior to Oct. 13.
The emerging insurance dispute between Varsity and Arch calls to mind the fight between USA Gymnastics and its insurer following the Larry Nassar scandal.
In 2020, USA Gymnastics filed suit against Liberty Insurance Underwriters over whether the wrongful conduct and bodily injury exclusions to USAG’s policy nullified claims related to Nassar’s abuse. A federal appeals court eventually affirmed a district court’s ruling that the insurer had to reimburse the now-bankrupt gymnastics organization over all but 10 of the Nassar-related claims, thus putting Liberty primarily on the hook for hundreds of millions of dollars sought by the former Team USA doctor’s victims.