At the heart of the dispute is a tension baked into the policy itself. On one hand, the policy explicitly covers losses from claims alleging sexual harassment, unwelcome sexual advances, requests for sexual favors, or other misconduct of a sexual nature. On the other, a Sexual Abuse Exclusion strips away coverage for any claim alleging, arising out of, based upon, attributable to, or in any way relating to actual or alleged sexual molestation or sexual abuse. A third provision, Endorsement 12, states that Allied has a duty to defend any claim covered in whole or in part under the policy – even if the claim is groundless, false, or fraudulent.
