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July 6, 1993

ALAN GODFREY LEE, on his own behalf and on behalf of those other Underwriters at Lloyd's, London, etc., et al., Plaintiffs,
INTERSTATE FIRE & CASUALTY COMPANY, an Illinois corporation, Defendant.


The opinion of the court was delivered by: JAMES B. MORAN

This action between plaintiffs Alan Godfrey Lee, Excess Insurance Co., Ltd., Yasuda Fire & Marine Insurance Co. (U.K.), Ltd., Terra-Nova Insurance Co., Ltd. and Centennial Insurance Co. (hereinafter "Underwriters") and defendant Interstate Fire & Casualty Co. ("Interstate") arises out of a settlement of a lawsuit by a minor, John Doe, against the Diocese of Providence, Rhode Island ("Diocese"), alleging sexual abuse of Doe by one Father William O'Connell. Following the settlement Interstate demanded that the Underwriters contribute their share of the Diocese's self-insurance limit. Claiming that the abuse of John Doe spanned two policy periods, Interstate demanded $ 200,000 from the Diocese and Underwriters. After paying this amount Underwriters and the Diocese filed this declaratory judgment action seeking reimbursement of $ 100,000. *fn1" Plaintiffs moved for summary judgment and defendant followed with a cross-motion for summary judgment. For the reasons stated, we deny plaintiffs' motion for summary judgment and deny defendant's cross-motion for summary judgment.


 With the exception of Centennial Insurance, the Underwriters are citizens of the United Kingdom, with their principal place of business in the United Kingdom. Centennial is a citizen of New York, with its principal place of business in New York. Interstate is an Illinois corporation with its principal place of business in Illinois. Thus the court has jurisdiction under 28 U.S.C. § 1332(A)(2), diversity-of-citizenship. For the purposes of this action, the relevant facts are undisputed.

 The Insurance Contract

 The insurance plan for the Diocese for the periods of July 1, 1983 to July 1, 1985, consisted of three tiers, totaling $ 5,000,000. The Diocese was self-insuring for the first $ 100,000 ultimate net loss per occurrence. Underwriters provided coverage for the second level, an additional $ 100,000 ultimate net loss per occurrence. Interstate provided the third tier of insurance, an additional $ 4,800,000.

 This case revolves around the liability of Underwriters and Interstate to pay for injuries incurred by a minor due to the actions of Father O'Connell. The relevant clauses in the policy between Underwriters and the Diocese *fn2" concern the liability of Underwriters and Interstate as follows:

Underwriters hereby agree . . . to indemnify the [Diocese] for all sums which the [Diocese] shall be obligated to pay by reason of the liability imposed upon the [Diocese] by law . . . for damages . . . on account of personal injuries . . . arising out of any occurrence happening during the period of the Insurance.

 The term "occurrence" was defined in the policies as follows:

The term 'occurrence' whenever used herein shall mean an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, or damage to property during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one location shall be deemed one occurrence.

 The Underlying Lawsuit and Settlement

 The parties agree that Father O'Connell's sexual abuse of John Doe began in July 1983 and continued through December 1984 or February 1985. These incidents of abuse occurred in Bristol, Providence County and South Kingston, Washington County, Rhode Island. On January 6, 1986, John Doe, through his mother, filed suit in Rhode Island Superior Court against Father O'Connell and the Bishop and Auxiliary Bishop of the Diocese. *fn3" The parties to this sexual abuse action settled that case for a lump sum payment and an annuity from Interstate. *fn4" Interstate then demanded that the Diocese and the Underwriters each contribute two self-insurance payments because the abuse spanned two policy periods. The Diocese and Underwriters paid Interstate $ 200,000 for two policy periods, reserving their right to recover $ 100,000 each, claiming that the abuse of John Doe constituted only one occurrence, as defined by their insurance policy with the Diocese.


 We will grant summary judgment where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th Cir. 1990). As we stated above, the parties agree on the facts relevant to this motion and the issue which we must decide is solely a matter of law -- whether the sexual abuse constituted one or two occurrences under the insurance contract between the Underwriters and the Diocese. Before answering this question, however, we first must determine which law applies to this case.

 I. Choice of Law

 Plaintiffs argue that Rhode Island law applies to the interpretation of the insurance contract in this case, while defendant contends that the court must apply Illinois substantive contract law. Because there is diversity of citizenship this court must apply Illinois law, including in the first instance Illinois choice of law rules. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); ...

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