Arch, Philadelphia Indemnity Insurance, other carriers in Varsity Brands cheerleader case

In a complex legal battle over insurance coverage, Varsity Brands Holding Co., LLC, along with its subsidiaries Varsity Brands, LLC and Varsity Spirit, LLC, have taken legal action against multiple insurance carriers, seeking indemnification for lawsuits involving allegations of sexual abuse of minors in competitive cheerleading. Varsity is an industry behemoth, having itself had to settle an antitrust suit for over $82 million in May last year.

The case, filed in the Superior Court of Delaware, has seen a mixed outcome, with the court granting some insurers' motions to dismiss while allowing claims against others to proceed.

Varsity Brands sued several insurance companies – including Arch Insurance Company, United States Fidelity and Guaranty Company, and others – after they denied coverage for lawsuits filed by former cheer athletes. The lawsuits, which were filed in a number of states, alleged that Varsity failed to prevent sexual abuse by coaches and other affiliated individuals. Varsity contended that its insurance providers were obligated to defend and indemnify them under their policies but instead refused to cover the claims or provide financial support for settlements.

The insurers largely defended themselves by arguing that their policies excluded coverage for claims related to sexual abuse. Some also contended that Varsity failed to initiate the arbitration process or fulfil conditions precedent to coverage.

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Arch Insurance provided both Varsity and the U.S. All-Star Federation (USASF) with general and excess liability coverage spanning from 2017 to 2023. According to the lawsuit, these policies included $1 million limits per incident and aggregate limits of $5 million. However, several policies contained amendments that imposed additional restrictions on coverage for claims related to sexual misconduct. Specifically, the complaint notes that each of Varsity’s general liability policies featured an endorsement that reduced the total available coverage for sexual abuse-related claims to $2 million per policy year, rather than the standard $5 million aggregate limit.

Court’s ruling on motions to dismiss

After reviewing arguments from both sides, the Delaware Superior Court ruled on several motions:

• Dismissed claims: The court granted motions to dismiss for Arch Insurance Company and Philadelphia Indemnity Insurance Company (PIIC), ruling that Delaware lacked personal jurisdiction over them. Both insurers, which were not incorporated or headquartered in Delaware, successfully argued that their contracts were issued outside the state and that the case should not proceed against them.
• Surviving claims: The court denied motions to dismiss from National Union Fire Insurance Company of Pittsburgh, PA, Lexington Insurance Company, RSUI Indemnity Company, Greenwich Insurance Company, and Axis Insurance Company. These insurers failed to demonstrate that Varsity’s claims were not legally viable at this early stage.
• Ripeness of claims against excess insurers: The court rejected an argument by excess insurance providers that the claims were not yet ripe because Varsity had not exhausted all primary insurance coverage. The judge ruled that Varsity had shown a likelihood that their excess insurance would be triggered.
• Bad faith and breach of contract claims move forward: The court ruled that Varsity adequately pleaded claims of bad faith refusal to settle and breach of contract, allowing these claims to proceed against some of the insurers.

What’s next?

With parts of the case still intact, Varsity will continue its legal battle to force the remaining insurers to cover settlements and litigation costs. If Varsity succeeds, it could set a precedent for how insurance companies handle similar claims in the future.

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Legal experts anticipate that the case may take months, if not years, to resolve, particularly if insurers continue to fight against coverage obligations. Meanwhile, Varsity faces the challenge of settling outstanding lawsuits and repairing its reputation amid the allegations.