 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued October 23, 2007              Decided January 4, 2008

                       No. 06-7163

               ESSEX INSURANCE COMPANY,
                        APPELLEE

                             v.

 JOHN DOE, A MINOR, THROUGH HIS NEXT FRIEND, BOB DOE,
                      APPELLANT


        Appeal from the United States District Court
                for the District of Columbia
                      (No. 04cv01460)



    Mark A. Packman argued the cause for appellant. With
him on the briefs was Alyson A. Foster.

    Sean M. Hanifin argued the cause and filed the brief for
appellee. Carmen R. Kelley entered an appearance for
appellee.
                               2
    Before: ROGERS, TATEL and KAVANAUGH, Circuit
Judges.

    Opinion    for   the   Court   filed   by   Circuit   Judge
KAVANAUGH.

     KAVANAUGH, Circuit Judge: This insurance coverage
case arises out of very disturbing events at a children’s
residential facility in Washington, D.C., operated by
Associates for Renewal in Education, Inc., known as A.R.E.
At age 7, while residing in the A.R.E. facility, John Doe was
sexually assaulted on four occasions by four different older
boys who lived at the home. Through his father, Doe filed
suit against A.R.E. and alleged that A.R.E. had not properly
supervised the facility. Doe and A.R.E. ultimately settled. As
part of the settlement, A.R.E. assigned Doe its rights under a
liability policy issued to A.R.E. by Essex Insurance Company.
Invoking the federal district court’s diversity jurisdiction,
Essex filed a declaratory judgment action to determine its
responsibility under the insurance contract.

     The contract issued by Essex to A.R.E. provides that
A.R.E.’s annual liability coverage is subject to a “general
aggregate limit” of $2 million per year and an “each
occurrence limit” of $1 million. Joint Appendix (“J.A.”) 48.
A sublimit endorsement to the contract gives A.R.E. liability
coverage for sexual abuse claims alleging negligent
supervision; that coverage is subject to an “aggregate limit” of
$300,000 per year and an “each claim limit” of $100,000.
J.A. 65. The sublimit endorsement states: “The sublimit of
liability shown in this endorsement is the most [Essex] will
pay for all damages including investigation and defense
because of injury arising out of any one claim for sexual
abuse and/or misconduct. The aggregate limit stated in this
endorsement is the most [Essex] will pay for all claims,
                              3
including investigation and defense, arising out of sexual
abuse and/or misconduct in any ‘policy year.’” J.A. 65.

     The contract defines the term “occurrence” to mean “an
accident,” and it is not disputed that there were four
occurrences in this case – one occurrence for each time Doe
was assaulted. See J.A. 76; Tr. of Oral Arg. at 17. But the
contract does not define the relevant term “claim” for
purposes of the $100,000 “each claim” limit in the sublimit
endorsement. The absence of a definition for the term
“claim” raises the central question in this case: Is there one
claim, or are there four claims, when a sexual abuse victim
makes a single demand for compensation from A.R.E. for
four occurrences?

     Essex argues that Doe has only one “claim” for the four
occurrences because Doe submitted one demand for
compensation. Essex contends that it therefore must pay only
$100,000. Doe, who has been assigned A.R.E.’s rights under
the liability insurance contract, argues that he has four
“claims” because he was sexually assaulted on four different
occasions; he says the four occurrences trigger four claims.
Doe contends that he is therefore entitled to $300,000, which
is the policy’s aggregate annual limit for sexual abuse claims
against A.R.E.

    Essex separately argues that the coverage limit – whether
$100,000 or $300,000 – must be reduced by the amount Essex
spent on investigation and defense of Doe’s case against
A.R.E. Doe disagrees.

     The District Court agreed with Essex on both issues. We
exercise de novo review of these questions of contract
interpretation under D.C. law.
                               4
                                I

     Doe’s argument that he has four claims for the four
occurrences finds support in the admittedly sparse body of
relevant precedent. For example, the D.C. Court of Appeals
has interpreted the term “claim” in an insurance contract,
when not otherwise defined, to mean a “cause of action.”
Zhou v. Jennifer Mall Rest., Inc., 699 A.2d 348, 353 (D.C.
1997). A cause of action is a “group of operative facts giving
rise to one or more bases for suing” – a definition favoring
Doe because there were four separate tortious incidents in this
case. BLACK’S LAW DICTIONARY 214 (7th ed. 1999).
Moreover, some courts have held that separate tortious acts
give rise to multiple “claims” under an insurance policy. See,
e.g., Colbert County Hosp. Bd. v. Bellefonte Ins. Co., 725
F.2d 651, 653-54 (11th Cir. 1984); Shelter Am. Corp. v. Ohio
Cas. & Ins. Co., 745 P.2d 843, 846 (Utah Ct. App. 1987). By
contrast, when pressed at oral argument, Essex could not
identify a single insurance case in which a court interpreted
the word “claim” to cover multiple torts by several
individuals over a period of time. See Tr. of Oral Arg. at 16.

     Doe’s argument that he has four claims also finds support
in the text of the contract. The contract tethers the term
“claim” to the term “occurrence” and appears to establish a
one-to-one relationship between (i) an occurrence causing
injury to a third party and (ii) that third party’s ensuing claim
against A.R.E. For example, the policy sets a deductible of
$500 “per claim” and then states that “[t]he deductible
amount” applies to “all damages sustained by one person, or
organization, as the result of any one occurrence.” J.A. 59.
The contract further provides that Essex “may at [its]
discretion investigate any ‘occurrence’ and settle any claim or
‘suit’ that may result.” J.A. 67. Additionally, the contract’s
sublimit endorsement appears to use the phrase “each claim
                                 5
limit” interchangeably with the phrase “each occurrence
limit,” at least in the context of a single victim.1 The contract
language thus appears to establish a direct relationship
between an occurrence and a claim when there is a single
injured victim: A sexual abuse claimant has multiple claims
when he or she suffered injuries caused by multiple
occurrences, and has one claim when he or she suffered injury
caused by one occurrence.2

     Essex counters that the term “claim” means the actual
demand for money by the third-party claimant against A.R.E.,
regardless of how many occurrences the claimant alleges in
the demand. But even apart from the contract’s linkage of
claims and occurrences described above, Essex’s
interpretation is illogical. First of all, it seems highly unlikely
that a rational insurer or rational insured party would allow
insurance liability coverage – in a situation where a single
third party suffers injuries caused by multiple occurrences –
to vary dramatically based solely on whether the injured third
party happens to make (i) one summary demand against the
insured A.R.E. or (ii) multiple demands against the insured
A.R.E. Moreover, contrary to the logical implication of
Essex’s argument, in a case with one sexual assault
occurrence and one victim, A.R.E. obviously could not seek
coverage from Essex for multiple claims simply because the
victim sent multiple demand letters to A.R.E. For those
reasons, we are not persuaded by Essex’s argument that the
number of claims depends on the number of demand letters
sent by the victim rather than on the number of occurrences.
1
  The sublimit endorsement for sexual abuse cross-references what
it refers to as the $1 million “each claim limit” of the general
policy. J.A. 65. In fact, the general policy has an “each occurrence
limit,” not an “each claim limit.” J.A. 48.
2
  If there is more than one victim, then the number of claims may of
course exceed the number of occurrences.
                                  6
     In resolving this contract interpretation question, we also
bear in mind that insurers such as Essex are well aware how
to limit their coverage for sexual abuse claims made against
an insured. A contract may define negligence with respect to
multiple instances of sexual abuse as a single occurrence. Or
a contract for this kind of claim may establish an each-
injured-party limit or an each-perpetrator limit, or both. See
generally TIG Ins. Co. v. Merryland Childcare & Dev. Ctr.,
Inc., 2007 WL 316571, at *2-3 (W.D. Tenn. 2007); Preferred
Risk Mut. Ins. Co. v. Watson, 937 S.W.2d 148, 149 (Tex.
App. 1997). In this case, for example, Essex’s argument
would be persuasive if its contract with A.R.E. established a
$100,000 “each-injured-party limit” for coverage of sexual
abuse claims. But the contract here contains no such limiting
language.3

     This contract, read as a whole, unambiguously supports
Doe’s position that the number of claims for an individual
sexual abuse victim depends on the number of occurrences.
Even if the contract here were ambiguous, moreover, Doe still
would prevail because D.C. law requires that we construe
such ambiguity against the insurer Essex. See, e.g., Revere
Copper & Brass Inc. v. Overseas Private Inv. Corp., 628 F.2d
81, 82-83 (D.C. Cir. 1980); Chase v. State Farm Fire & Cas.
Co., 780 A.2d 1123, 1127 (D.C. 2001); Travelers Indem. Co.
of Ill. v. United Food & Commercial Workers Int’l Union,
770 A.2d 978, 986 (D.C. 2001); HOLMES’S APPLEMAN ON
INSURANCE, 2D § 6.1, at 134 (1996); see also RESTATEMENT
(SECOND) OF CONTRACTS § 206 (1981). In sum, we hold that
3
  Essex’s brief has not attempted to construct an argument based on
the nature of the underlying alleged tort – negligent supervision – in
order to suggest that there was only one occurrence. Cf. Lee v.
Interstate Fire & Cas. Co., 86 F.3d 101 (7th Cir. 1996). Rather,
Essex has argued that the number of occurrences (four) under this
contract does not necessarily equal the number of claims.
                                7
Doe is entitled to receive payment from Essex of up to
$300,000 – the aggregate annual limit of the policy for sexual
abuse claims.4

                                II

    We also must consider a second issue: whether Essex
may reduce the $300,000 it owes to Doe by the amount it
spent on investigating and defending Doe’s suit against
A.R.E.

     The policy states: “The sublimit of liability shown in this
endorsement is the most we will pay for all damages
including investigation and defense because of injury arising
out of any one claim for sexual abuse and/or misconduct.”
J.A. 65 (emphasis added). The policy further provides that
the “aggregate limit stated in this endorsement is the most we
will pay for all claims, including investigation and defense,
arising out of sexual abuse and/or misconduct.” J.A. 65
(emphasis added).

     Essex contends that the contract allows it to subtract the
costs of investigating and defending a claim from its coverage
limits – a so-called defense-within-limits policy. Challenging
Essex’s interpretation, Doe points to the phrase “pay for all
damages including investigation and defense” in the contract
and argues – based entirely on the words “damages including”
– that the investigation and defense costs referenced here are
the third-party claimant’s investigation and defense costs
(which Doe says could be included in the claimant’s

4
  We emphasize that our analysis here is limited to the precise
language of this contract when read as a whole. We also stress that
it is undisputed that there were multiple “occurrences” as
“occurrence” is defined by this contract. Finally, we underscore
that this case involves only one injured victim.
                                8
“damages”), not Essex’s investigation and defense costs. But
Doe’s argument makes little sense in the context of this
contract: How could the damages paid by A.R.E. to a third
party who has sued A.R.E. because of sexual abuse ever
include something known as “defense” costs? In other words,
what defense costs does the sexual abuse victim incur? Doe
has no good – or even plausible – answer to this question.

     The defense-within-limits language certainly could have
been clearer.      For example, the contract could have
substituted the word “and” for “including.” Or the parties
could have inserted the phrase “including investigation and
defense” after the phrase “most we will pay.” Either of those
alternatives would have been more precise. But the fact that
the language could have been clearer or grammatically
improved does not mean we can read the phrase “including
investigation and defense costs” entirely out of the contract –
as Doe’s position would require, in contravention of black-
letter contract principles. See Caglioti v. District Hosp.
Partners, 933 A.2d 800, 811 (D.C. 2007); 1010 Potomac
Assocs. v. Grocery Mfrs. of Am., 485 A.2d 199, 205 (D.C.
1984); RESTATEMENT (SECOND) OF CONTRACTS § 203(a)
(1981). We thus agree with the District Court that the
defense-within-limits provision means that Essex may reduce
its coverage by the amount Essex spent on investigation and
defense.5




5
  In this case, Essex directly incurred investigation and defense
costs, as opposed to reimbursing A.R.E. for A.R.E.’s investigation
and defense costs.      Doe has not attempted to argue that
investigation and defense costs are subtracted only if they were
reimbursed by Essex to A.R.E. as opposed to incurred by Essex
directly.
                                9
                              ***

    We affirm in part and reverse in part the judgment of the
District Court. Doe is entitled to recover from Essex
$300,000 minus the investigation and defense costs that Essex
incurred with respect to Doe’s case against A.R.E.6

                                                      So ordered.




6
  Although we do not decide the question, the contract by its terms
appears to entitle Essex to subtract only the costs it incurred in
investigating and defending Doe’s case against ARE before that
case was settled in June 2005.
