Hudson Estate Fails to Recoup AIDS Claim : Courts: Insurer is not liable for multimillion-dollar award to lover. Judges note that the actor lied about his condition.

In a precedent-setting case, a federal appeals court in San Francisco ruled Wednesday that an insurance company is not required to reimburse the estate of the late Rock Hudson for a multimillion-dollar settlement with the actor’s former lover.

The U.S. 9th Circuit Court of Appeals held that Hudson intentionally misrepresented that he did not have AIDS so he could induce Marc Christian to engage in “high-risk sex” with him for eight months. This conduct was “inherently harmful,” the court said, thereby voiding Aetna Casualty and Surety Co.’s obligation to pay claims under Hudson’s homeowner’s policy.

The unanimous decision of a three-judge panel upheld a 1990 decision by U.S. District Judge A. Wallace Tashima.

“Hudson’s knowing exposure of Christian to a deadly disease was inherently harmful,” wrote Circuit Judge Cynthia Holcomb Hall.

Wednesday’s ruling marks another landmark in a growing body of law that is evolving out of the AIDS epidemic, according to legal experts.

David Bacon, a Los Angeles lawyer who specializes in insurance cases, praised the ruling.

“It is going to be a decision of increasing importance,” Bacon said. “As the AIDS disease spreads . . . you will see more and more litigation in this area.”

But J Craig Fong, an attorney with the Lambda Legal Defense and Education Fund, a gay rights organization, said he feared that the decision would “contribute to AIDS hysteria.”

Hudson and Christian met at a political fund-raiser in 1982 and had a lengthy sexual relationship.

After Hudson died in October, 1985, Christian sued, seeking damages for the emotional distress he said he suffered from the fear he had contracted AIDS from Hudson.

He said that the two had engaged in anal sex hundreds of times, including during an eight-month period after Hudson learned that he had AIDS but had not informed Christian.

Christian said he had the devastating experience of discovering that Hudson had AIDS while watching television coverage of the actor’s announcement in July, 1985, that he had the disease.

Christian said he immediately blacked out from fear. He also testified that he lost sleep, had nightmares, sweated excessively, lost weight, became anxious and short-tempered and occasionally vomited. Christian acknowledged that he had tested negative for the AIDS virus numerous times, but said experts had told him that did not mean he was out of danger.

In February, 1989, a Los Angeles Superior Court jury found that Hudson had been responsible for “outrageous conduct” and returned a $21.75-mllion verdict in favor of Christian, a musicologist. The trial judge slashed the damages to $5.5 million.

A state appeals court rejected an appeal by Hudson’s estate, saying the $5.5-million award was appropriate to compensate for the “ultimate in personal horror, the fear of slow, agonizing death.” Soon thereafter, the case was settled.

Sources said Christian accepted several million dollars as a settlement, but the exact figure has not been disclosed.

When Hudson’s estate asked Aetna to repay the settlement, the Connecticut-based insurer balked and filed suit against the estate in federal court here.

Aetna maintained that there were two reasons it did not have to pay: a clause in Hudson’s policy stating it did not apply to an injury “which is expected or intended by the insured,” and a California insurance code provision that says “an insurer is not liable for a loss caused by the willful act of the insured.”

Attorneys for Hudson’s estate contended that Hudson’s misrepresentations about his condition to Christian were not inherently harmful. But the appeals court rejected that argument, relying on California Supreme Court decisions on the state insurance code.

Hall said the critical issue was “not whether Hudson had a preconceived design to inflict harm upon Christian,” but whether the California Supreme Court would deem Hudson’s misrepresentation that he did not have AIDS so he could induce Christian to have sex “inherently harmful.”

Hall said the court would find it harmful. “It is undisputed that Hudson knew that he was infected with AIDS virus, and that he intentionally misrepresented and concealed his condition. . . . While Christian consented to have sex, he did not consent to be intentionally exposed to AIDS,” Hall wrote. Circuit Judge Thomas Tang and District Court Judge Vaughn R. Walker, sitting by designation, joined in the opinion.

Roy G. Weatherup, Aetna’s lawyer, said he was pleased the company’s position had been upheld. He said the ruling would be important for other insurance companies who encounter similar claims.

Peter M. Fonda, the attorney for Hudson’s estate, was out of town and unavailable for comment.