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A captive insurer for the Seventh-day Adventist Church has launched a high-stakes legal battle in Vermont federal court, alleging that two reinsurers failed to reimburse more than $55 million tied to abuse claims at a now-shuttered boarding school.

The lawsuit — the AIG insurance $55M Abuse Settlement suit — accuses AIG unit Lexington Insurance Co. and Swiss Re subsidiary Westport Insurance Corp. of refusing to honor facultative reinsurance agreements covering massive defense costs and settlements.

A Dispute Over $55.4 Million

In a complaint filed Tuesday, Gencon Insurance Co. of Vermont said the reinsurers declined to indemnify approximately $55.4 million in combined defense expenses and settlement payments.

Gencon contends Lexington is responsible for about $36.4 million, while Westport allegedly owes $19 million. The captive insurer argues the contracts required the reinsurers to “follow the settlements” it entered into.

“The reinsurance contracts obligate the reinsurers to follow the settlements entered into by Gencon,” the company said in its complaint, adding that it reasonably allocated the amounts it paid and that industry custom allows such allocation discretion.

Lexington and Westport have argued the underlying claims are not covered or have disputed how Gencon allocated the losses, according to the filing.

Insurance Layers and Reinsurance Agreements

Since 1987, Gencon has insured church-affiliated organizations under primary and excess general liability policies. Beginning in 1995, it transferred second-layer excess risks to reinsurers.

Westport provided coverage from 1999 to 2005, while Lexington did so from 2005 to 2011, the complaint states.

The financial clash now unfolding centers on whether those reinsurers must reimburse Gencon for settlements tied to allegations of abuse at Miracle Meadows School in West Virginia.

The Miracle Meadows Allegations

Miracle Meadows, founded in 1988 by Gayle Clark, was owned by a church member but was not owned or sanctioned by the church itself, the complaint says.

In 2014, West Virginia state police raided and shut down the school following investigations by the state Department of Health and Human Resources and a student’s attempted suicide. Clark and other staff members were arrested.

Three years later, 27 former students filed individual lawsuits alleging that from 1999 to 2014 they endured deplorable living conditions, physical and mental abuse, false imprisonment, and educational, medical and nutritional neglect. Many also alleged sexual misconduct.

Gencon said its claims administrator, Adventist Risk Management Inc. (ARM), determined the physical abuse allegations triggered a duty to defend under the general liability policies and that no exclusions barred coverage.

In 2020, ARM settled those initial 27 cases for $19 million.

Additional claims followed. According to Gencon, settlements for later cases ranged from $450,000 to $650,000. To date, ARM has resolved claims brought by 177 former students, paying nearly $86.7 million in settlements and incurring more than $2 million in defense costs.