Varsity, Insurer Continue Battling Over Cheer Sex Abuse Coverage
Varsity Brands’ insurance company is now accusing it of breach of contract in the wake of over a dozen sex abuse lawsuits filed in the last two years against the cheerleading juggernaut for allegedly failing to protect athletes from predator coaches.
In a lawsuit filed this week in federal court, Arch Insurance, which has provided general and excess liability policies to Varsity since 2017, says its client has violated the terms of its coverage by declining to provide information related to the sex abuse claims and by not seeking Arch’s consent before incurring costs.
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Beyond the breach-of-contract claim, the insurance company is asking for a judicial declaration over the scope of its duty to defend and indemnify Varsity Brands and the U.S. All-Star Federation (USASF), the Varsity-backed competitive cheer body, for damages arising out of sexual abuse or molestation lawsuits.
Arch provided both Varsity and the USASF with general and excess liability from 2017 to 2023. According to its complaint, both the underlying and excess policies had $1 million limits for each occurrence and aggregate limits of $5 million. However, many of the polices had amendments that further limited the coverage for claims arising out of an occurrence of sexual misconduct. For example, the lawsuit states, each of Varsity’s general liability policies contained an endorsement that capped the aggregate coverage for sexual abuse occurrences at $2 million per coverage year, as opposed to $5 million.
The “Sexual Abuse endorsements” could also dictate how much Arch would have to pay for Varsity’s legal fees. For most commercial general liability policies, defense costs are provided in addition to the coverage limits. However, citing the endorsements, Arch is now asking the court to apply at least certain defense costs towards the limits.
Depending on what the court rules, the potential financial ramifications could be in the tens—if not hundreds—of millions of dollars, given the number of lawsuits and the expense to defend them.
According to its complaint, Arch initially provided Varsity and the USASF with its coverage positions last November and had updated it as it “received additional information relevant to the coverage analysis.” The lawsuit claims Varsity did not object to Arch’s position until Oct. 19, when it “first asserted in general terms” that it should not be limited to coverage under the sexual abuse endorsements.
Representatives from both Varsity and Arch declined to comment.
Arch’s latest action follows a separate lawsuit it filed in August, in which it had asked the court to modify Varsity’s 2018-19 commercial general liability coverage to include sexual abuse language it says had been “mistakenly truncated.” That case was voluntarily dismissed earlier this month after being automatically sent to alternate dispute resolution.
In addition to seeking judicial determinations over the applicability of its policies for Varsity, Arch is asking for the court to rule that it is not responsible for indemnifying any settlement that was reached without its prior written consent. Arch claims that because of Varsity’s alleged breach of contract, it has suffered financial harm and is owed damages by Varsity.
