NHC school board reaches ‘impasse’ with insurance company in sex abuse lawsuit

NEW HANOVER COUNTY, N.C. (WECT) - The insurance company representing the New Hanover County Board of Education is trying to limit its potential liability in an ongoing ongoing civil lawsuit filed against the school system by former students who say they were sexually abused by former teacher Mike Kelly. And depending on the outcome of that lawsuit, Liberty Mutual may be asked to pay damages to those victims.

This summer, the school board had to hire an independent attorney, Rick Sharpless, out of Greensboro. They did this after concerns arose about a potential conflict of interest with its existing legal counsel, Raleigh law firm Tharrington and Smith, and Liberty Mutual. That’s because Tharrington and Smith also represents Liberty Mutual in the civil case, which is now at odds with the school board.

Since 2009, the board has purchased liability insurance through Liberty Mutual, including coverage for sexual misconduct and molestation. The school system paid a significant premium for that coverage, which attorneys say provides retroactive coverage for abuse claims that predate 2009. Sharpless said during a school board meeting this week that the board believed at the time it was purchasing protection for itself and for those who might be injured in incidents connected to the school district. When the civil case was filed by victims of Mike Kelly, Sharpless said Liberty took “a very hard position that there would be only $4 million of insurance coverage made available.”

“I was initially asked to evaluate the merits of Liberty’s position on that. I disagreed with that position – I believe there’s significantly more coverage available than that,” Sharpless told the board of his assessment that Liberty’s potential liability to Kelly’s victims could far exceed $4 million. He added that Liberty believes its liability is limited to one year’s worth of insurance coverage. But because the abuse happened over a period of years, and the victims have come forward over a period of years, others contend that this should trigger multiple insurance claims.

Liberty Mutual declined to comment for this story, citing the ongoing litigation.

There are currently 13 plaintiffs in the lawsuit who say they were abused, molested, and in one case, raped by Kelly over the course of the decades he spent working for the school system. In some cases, the abuse by the former Teacher of the Year took place on school grounds.

“[Liberty’s position] has made it very very difficult for the board to address the lawsuit brought by the John Does,” Sharpless said in summary of the legal situation. “There’s been a mediation in that lawsuit and the John Does, through their attorney, have made it very clear that they also disagree with Liberty Mutual’s position and that they are disinclined at this time to resolve their case for $4 million or some lesser amount.”

Attorneys representing the sexual abuse victims were pleased to hear the update from the school board’s new counsel.

“We have been forced to hire three different insurance counsel that have expertise in this area to verify what our position is. And they all agree that there is more coverage than what is being provided by Liberty Mutual. And the board agrees. The board’s counsel agrees,” Plaintiff’s Attorney Joel Rhine told WECT. “We are very appreciative that the board hired Rick Sharpless, and we have been able to communicate with him. Our communications are much better now. We actually have a feeling that the board understands that there are significant issues here. That our kids are in trouble. They need help. And I think that if we could resolve this insurance issue, I think we could get there. I think we can resolve this.”

New Hanover County Schools has paid Sharpless at least $15,000 so far for his services. His hourly rate is $435, and the expenses only include his first 34 hours of work completed in July. According to the June 8, 2021 school board minutes, the school system spent an additional $244,601 on Tharrington and Smith’s legal services for the calendar year ending March 31, 2021, although those costs were not exclusively related to the John Doe lawsuit. When asked by a school board member about the considerable legal bill, attorney Deborah Stagner of Tharrington and Smith replied that the costs were not unusually high for a school district. Her firm’s hourly rates are $235 for partners and $200 for associates.

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