SAN FRANCISCO — The Ninth Circuit federal appellate court yesterday ruled against Armory Studios LLC and owner Peter Acworth in their lawsuit against their former insurance company, Atain Specialty, affirming a lower court’s opinion that the insurer does not have a duty to provide coverage for litigation costs and settlements over 2015 lawsuits concerning allegations of HIV transmissions at the iconic San Francisco Armory building.
At the time of the alleged transmissions, Armory Studios LLC and Acworth owned the iconic San Francisco location associated with the Kink.com brand.
In an unpublished opinion yesterday, a Ninth Circuit panel upheld a 2019 summary ruling against Armory Studios and Acworth by District Judge James Donato, ruling that “the insurer's exclusion provision precludes coverage of injury resulting from sexual acts,” legal news site Law360 reported.
The Physical-Sexual Abuse Exclusion
Armory Studios and Acworth were targeted in a series of lawsuits in 2015 by performers who claimed to have contracted HIV while shooting scenes for a company called Cybernet Entertainment. Armory Studios and Acworth alleged Cybernet was a tenant who had rented the Armory as a location. The performers alleged “unsafe work conditions” that ”didn't mandate the use of condoms and required actors to engage in sexual acts with visitors touring the premises.”
Judge Donato’s 2019 ruling, upheld yesterday by the appeals court, stated that Atain was not obligated to cover the defense costs incurred by Armory Studios and Acworth during the Cybernet cases, due to their policy’s “physical-sexual abuse” exclusion.
"Here, the exclusion applies because the state court complaints asserted that Armory and Acworth were liable for the plaintiffs' contraction of HIV while plaintiffs were engaging in sexual acts at the direction of Armory and Acworth, among others," the panel wrote.
The panel also cited the “omissions clause,” precluding lawsuits “arising out of any sexual act that resulted from the omission of the insured, which covers the complaint allegations that Armory and Acworth failed to discover dangerous conditions caused by their tenants and failed to ensure their tenants were following required procedures.”
Unclear Role of Kink.com
The underlying lawsuits by the performers had accused Armory “of various forms of negligence and premises liability, alleging the studio failed to inspect performers for open cuts and sores or implement universal measures to prevent contact with blood or other infectious materials,” Law360 reported.
During a video conference hearing in July, the news site continued, “Armory and Acworth argued the insurance policy's exclusion provision doesn't apply to tenants who rented out the commercial space to film porn.”
U.S. Circuit Judge Richard C. Tallman showed some skepticism about the argument that Acworth and Armory Studios were merely landlords and not, in their Kink.com capacity, involved in the content production by Cybernet Entertainment.
"If he in fact were directing these sexual acts and causing injury and ordering actors to not use [condoms],” the judge asked, “why doesn't that directly fall into the exclusions under the policy of sexual acts caused by insurer?"
Yesterday’s decision also affirmed Donato's ruling that the insurance company cannot recover $500,000 it spent settling one case, “because it never made an express offer to Armory that it could assume its own defense.”
The case is Atain Specialty Insurance Co. v. Armory Studios LLC et al., case number 19-15745 and 19-15820, in the U.S. Court of Appeals for the Ninth Circuit.
