American International Group (AIG ) -- the massive insurance firm now notorious for its aggressive accounting -- is also known as a street fighter when it comes to paying claims. Insurance analyst J. Paul Newsome of A.G. Edwards & Sons Inc. (AGE ), who follows AIG, says the company has a reputation in the industry for playing hardball. "That's part of the reason companies buy insurance from AIG," he says. "They want to put up a vigorous defense if they think they're right."
How vigorous? Lawyers and advocates for abused children say that AIG and client Wyndham International Inc. (WBR ) have conducted an unusual and highly aggressive defense in a civil case involving the molestation of a 9-year-old girl by an employee of the Wyndham Sugar Bay Resort & Spa in the Virgin Islands. As the case moves to trial in federal court in St. Thomas in early June, the underlying strategy of Wyndham and AIG remains unclear. But, says Jay W. Waks, a specialist in employment law at the New York firm of Kaye Scholer, the defendants may figure that "unless they defend this as best they can, others will make claims against them."
The total potential liability that Wyndham faces is hard to quantify, but it could go beyond damages in the case now headed for trial. Two more families have sued the hotel chain, charging that their daughters were molested at the resort. And other alleged victims could come forward with lawsuits: Wyndham has identified 150 families whose children were cared for by the pedophile formerly in its employ.
In three molestation cases involving clerics, juries have awarded $6 million to $15 million per plaintiff in compensatory and punitive damages. And the Virgin Islands is known as plaintiff-friendly. Mark A. Kelegian, a partner at Kelegian White & Reed in Los Angeles and an expert on sexual assault claims, says that if he was taking the Wyndham case before a jury, he'd ask for $5 million to $10 million in damages. AIG says its policy limit is $5 million, no matter how many suits are filed.
The suit is heading for trial at a pivotal time for both Wyndham and AIG. The insurer is under investigation by the SEC, New York Attorney General Eliot Spitzer, and the New York State Insurance Dept. over allegations of improper accounting. Wyndham, meanwhile, posted a first-quarter loss of $23.48 million just before The Wall Street Journal reported on May 10 that the company is up for sale. The company will not comment on the report.
The incident behind the lawsuit is every parent's nightmare. In April, 2000, a British couple living in Falls Church, Va., Paul Gayter and his wife, Flora Nicholas, went on a family vacation to the U.S. Virgin Islands with their 9-year-old daughter and 7-year-old son. Soon after they got home, the girl picked up a copy of the children's book Chicken Soup for the Kid's Soul and read that kids should alert an adult if they've been touched inappropriately. The girl went to her parents with a disturbing tale: The then-22-year-old director of the resort's children's program had kissed her, cuddled her on his lap, and fondled her genitals. Gayter and Nicholas immediately called the local police.
Bryan Hornby, director of the Kids Klub at the Wyndham resort, was promptly arrested and convicted in 2001 of unlawful sexual contact with the hand and sentenced to five years in a Virgin Islands prison. Denied parole in December, 2003, he is scheduled for release in 2006.
Despite Hornby's conviction, Wyndham and AIG have battled the girl's parents over damages for almost five years. They have sparred over psychological and medical exams, access to lists of other children entrusted to Hornby's care, and the use of private investigators to probe the parents' marketing business and the girl's friendships and behavior at school. "They have done everything they can to ruin these people. This has been scorched earth," says Ernie Allen, president of the National Center for Missing & Exploited Children, who has followed the case closely.
For its part, AIG maintains that it's simply fulfilling its duty. AIG is not a defendant in the suit but is paying seven law firms -- from California to Washington to the Virgin Islands -- to represent Wyndham and Hornby under a policy issued by its AIG WorldSource unit. "We have an obligation under the terms of the policy to defend Wyndham, and this is part of the defense," says AIG spokesman Chris Winans. Wyndham spokeswoman Darcie M. Brossart says: "We want the judicial course to play out, and with the trial so close to being under way, we're not going to comment publicly." The Gayter family has a high-powered legal team from the Washington firm of Williams & Connolly.
The central issues in the case are whether Wyndham failed to take necessary precautions when it hired Hornby in November, 1999, and whether it adequately supervised him. According to testimony in the case, during Kids Klub "movie nights," Hornby put the girl on his lap in the back row of the resort's theater and molested her. The family charges that he was the only adult in the theater with 10 or more children. Hotel employees said in depositions that Hornby encouraged children to wear their pajamas to movie nights and often wore his own.
A native of Zimbabwe, Hornby spent two seasons at the Wyndham Palmas del Mar resort in Puerto Rico as a beach attendant and Kids Klub helper. A Web site from the resort dated June, 1999, and still available on the Net, refers to Hornby as a "sometimes eccentric babysitter."
Given Hornby's conviction, "This is a loser in front of a jury," says Waks. "Unless [the defense] feels that the judge will intervene on a point of law, you're looking at a possible runaway jury verdict, and punitive damages could be huge."
Gayter says Wyndham offered the family "an absolutely insulting pittance" to settle. A source familiar with the case says the offer was "somewhere north of $800,000." To Gayter, his family has paid a much higher price. "From the number of people they've deposed, they've effectively taken away [my daughter's] anonymity," says Gayter. His daughter feels that she can't open up to her counselors, Gayter adds, for fear that private confessions will end up in court records. "They're looking for dirt," he says. "We had our garbage stolen about a month before a deposition, and then when I was being deposed, there was this whole thing about why didn't we feed our kids properly and why did we eat so much take-away pizza?"
Gayter won't say what the family is demanding. "We're prepared to see this thing through so that the spotlight is on these companies," he says. Later, he adds: "Of course, to a point, we'd be willing to settle."
Gayter spoke to BusinessWeek on the record but requested that the name of his daughter, now 14, not be published. However, a January, 2004, article in People not only used the girl's name with her parents' permission but also quoted her. While the publicity obviously could help in his lawsuit, Gayter says discussing the case helps his daughter. "It's powerful for her."
After protracted haggling, Wyndham gave attorneys for Gayter and Nicholas a list of 150 families whose children participated in Kids Klub activities under Hornby's supervision at either Sugar Bay or the Puerto Rico resort. But the judge who ordered the list turned over also barred Gayter and Nicholas from telling the families that their daughter had been molested. So far, the family says it hasn't contacted anyone on the list.
By Eamon Javers in Washington, with Diane Brady in New York